Bartels v. Birmingham/Dissent Douglas

Mr. Justice DOUGLAS, with whom Mr. Justice BLACK and Mr. Justice MURPHY concur, dissenting.

As the opinion of the Court points out, the Form B contract involved in the present case was adopted, with the approval of the Commissioner of Internal Revenue, after it had been held under an earlier form of contract that members of the orchestra were employees of the band leader. On the face of the present contract the dance hall proprietor is the employer even under traditional concepts of master and servant. For he has all of the conventional earmarks of the entrepreneur ownership, profit, loss, and control-if the provisions of the contract alone are considered. Then the requirements of the Social Security Acts are satisfied. And to hold the dance hall proprietor liable for the tax is not to contract the coverage contemplated by the statutory scheme.

I think the tax collector should be entitled to take such private arrangements at their face. In other situations a taxpayer may not escape the tax consequences of the business arrangements which he makes on the grounds that they are fictional. The Government may 'sustain or disregard the effect of the fiction as best serves the purposes of the tax statute.' Higgins v. Smith, 308 U.S. 473, 477, 60 S.Ct. 355, 358, 84 L.Ed. 406. That rule is not restricted in its application to the use by taxpayers of corporate or related devices to obtain tax advantages. It was applied in Gray v. Powell, 314 U.S. 402, 62 S.Ct. 326, 86 L.Ed. 301, where a railroad sought exemption from the Bituminous Coal Act, 15 U.S.C.A. § 828 et seq., by contending that the operations of one who appeared to be an independent contractor were in fact its operations. The Court in rejecting the contention said that 'The choice of disregarding a deliberately chosen arrangement for conducting business affairs does not lie with the creator of the plan.' Id., 314 U.S. at page 414, 62 S.Ct. at page 334, 86 L.Ed. 301. I see no reason for creating an exception to that rule here. If the Government chooses to accept the contract on its face, the parties should be barred from showing that it conceals the real arrangement. Tax administration should not be so easily embarrassed.