Commissioner v. Sunnen

333 U.S. 591, 68 S. Ct. 715 (1948)



Where the second action between the same parties is upon a different cause or demand, the principle of res judicata is applied much more narrowly. In this situation, the judgment in the prior action operates as an estoppel, not as to matters, which might have been litigated and determined, but only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered. Since the cause of action involved in the second proceeding is not swallowed by the judgment in the prior suit, the parties are free to litigate points which were not at issue in the first proceeding, even though such points might have been tendered and decided at that time. But matters, which were actually litigated and determined in the first proceeding, cannot later be relitigated. Once a party has fought out a matter in litigation with the other party, he cannot later renew that duel. In this sense, res judicata is usually and more accurately referred to as estoppel by judgment, or collateral estoppel.


The taxpayer was an inventor-patentee and president of a corporation engaged in the manufacture and sale of patented machines. The taxpayer entered into several agreements whereby the corporation was licensed to manufacture and sell devices on which the taxpayer had applied for patents. In return, the corporation agreed to pay the taxpayer a royalty. At various times, the taxpayer assigned to his wife all his rights, title, and interest in the various license agreements. The tax court held that certain royalties paid to the wife were part of the taxpayer's taxable income but that other royalties paid to his wife were not. The tax court held that a prior determination by the board of tax appeals applied to bar adjudication of the matter.


Is the assignment made by the husband to his wife of his right to royalties taxable?




The United States Supreme Court granted certiorari and reversed the judgment. The Court held that collateral estoppel should not have been applied by the tax court to perpetuate the viewpoint of the assignment. The Court explained that the transactions between the taxpayer and his wife were simply a reallocation of income within the family group, a reallocation that did not shift the incident of income tax liability.

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