good morning ma'am please the court our judges my name is charles carlson from tampa florida with me at counsel table is my partner involves a question of first impression statutory interpretation of whether section twelve thirty four ebay of the internal revenue code applies to contracts respecting property involving trade or business twelve thirty one property the in this case that twelve thirty twelve thirty four a was designed to remove the sale or exchange impediment to the realization of capital gains twelve forty twelve thirty four eight it was an acted too with a specific legislative intent but before we start talking about what it was designed to do or intended to do let's talk about what it did and twelve thirty four trades on twelve twenty one and so let's talk about twelve twenty one yes sir your honor that twelve twenty one certainly defines the term capital asset and concedes that the general rule is if it's another section of the political statute that defines a term that's the term that concern controls however in this case we've got express legislative intent expressed in the statute ok so expressed where in the statute that's what i want to talk it's expressed in the legislative intent that it's the intent of congress i guess i want to talk about the language let's start with language i understand that you have an argument about legislative history which i find not insubstantial but i'd like to talk about the text of the statute first ok well the text of the statute does use the term capital asset capital asset is defined in twelve twenty one right  and in it's defined to exclude property use in a trade or business and so the bottom line is if we were to apply the definition congress chose to employ in twelve twenty one you can't win that's correct or somehow you have to say that we should be using a dictionary definition rather than a statutory definition or an ordinary understanding of a term that might otherwise differ from the meaning that karl risk chose to impose in a definitional sense right that is correct or i that's i let me ask you the question the supreme court of the united states has said and we've certainly repeated it many many times that a statutory definition employed by a legislative body no less the congress takes necessarily must take precedence over a dictionary definition where the dictionary definition is different from the statutory definition is not is that not clearly the binding law that is the general rule your honor but i have i'm not aware of any authorities that present a situation such as this where you have such a clear statement in the legislative intent that a different meaning a different meaning needs to be ascribed to the term capital asset we have a provision in the legislative intent in the house bill that the senate bill and the joint committee bill but isn't it just possible that congress just stubbed its toes somewhere between formulating its intent and putting pen to paper and if that's true aren't we obliged to pay homage to the pen the paper by applying the twelve twenty one definition to capital asset not only do you run directly a file this very clear language in the in the committee reports that very clearly says that this statute the amendment is going to affect contracts  respecting twelve thirty one property it's very specific about that and the facts in the cases that are cited in that portion of the legislative history are indistinguishable as a practical matter from the facts in this case what if we say what if we were to say to you granted granted granted but see the text of the statute that's the difficulty for me well that the only way that you can give effect not only to this expressed language that we've been talking about but also to some other overriding context with respect to the statute  properties in a trade or business is given preferential treatment under the internal revenue code twelve thirty one gives preferential treatment to property used in a trade or business the tax court's interpretation of this statute turns that whole notion on its head so your point of from context or from common sense is that it's not your client's fault this deal fell through and if the deal had gone through they would've gotten capital gains treatment so why not here that's the anomaly and the disconnect about the tax court's ruling here it's clear that twelve thirty four a that the overriding core objective is to treat economically equivalent transactions in an equivalent way from a tax perspective yet the tax court doesn't do it here they interpret twelve thirty four a they a type of taxpayer who is normally given preferential treatment under the code and they don't give effect to this express language in the legislative history that says this needs to apply to twelve thirty one property so so yes admittedly the general rule is that twelve twenty one definition would apply but when you look at all those other factors the larger context of statute and the particular language in a legislative history that says this applies to twelve thirty one the only way that you can reconcile that clear statement of intent with this result is to apply the broader definition of do you have cases to judge marcus is question do you have cases and you may in which we have  not withstanding a statutory definition said nat we're going to look beyond that look to dictionaries or whatever i have not found the case the cases are as judge marcus noted there there are many cases out there that it probably miss the not only many cases out there the law has been pronounced northern once by the supreme court on that very point that if you've got a statutory definition you're obliged to use that statutory definition instead of a dictionary or ordinary definition that you might commonly put to it unless it yields a result that is so absurd but i don't see you arguing that the result reached here is absurd that no rational congress could have done what it did here and made the definition in twelve twenty one applicable you know there's some other use it or is it your view that the result would be an absurd one for congress to apply twelve twenty one in this context i don't know that we necessarily have to meet the absurdity test i think the test is what do you think you have to show in order to get around the unambiguous definition that congress put in twelve twenty one well i think there's a couple of things in the context of twelve thirty four a that also lend credence to our argument that the twelve twenty one definition is not a political here now remember we're dealing with the internal revenue code which is a different sort of animal within in the sub part a subtitle a which the twelve twenty one definition is contained there are several other statutes that we've cited in our briefs that when they make reference to capital asset they specifically say as used as defined in twelve twenty one so in our can our statute twelve thirty four a we don't have that language additionally within twelve thirty four day we have citations to two other defined terms that are defined in the internal revenue code and both of those defined terms make specific reference as used in such and such that cheap as used in such and such statute but when the congress uses the term capital asset there is there is no as  fined in twelve twenty one day and that lack of that clarity is conspicuous i think that to answer your question about the using the cases they say that you are to use the statutory definition there are also cases that say that the primary charge of the court is to ascertain what the intent of the statute is principally from the text of the statute correct you look to the text of the statute but there is nothing the cases that have been cited in the breeze are clear that if you have a clear expression of intent from congress that that's your mission is to apply that and interpret in the statute and there's no way to apply the clear intent that this statute applied  twelve thirty one property by using the twelve twenty one definition of capital asset you just can't get there this just to me struck me in reading the briefs like a fairly classic example of of sort fairly clear text  versus i'll grant you sort of fairly clear evidence of intent on the other hand the difficulty i think for you is that for an entire generation of supreme court an eleventh circuit precedent we have now said when you have that sort of clash and you have to to do justice by the text i've not seen the cases that have the clash quite like we have in this case judge news with the certainly the cases are there that the presumption is that you use the statutory definition definitely those cases are there but the cases where you have this type of strength of legislative history are very few and far between and when you do have this clear expression particularly against the backdrop of the larger context of the statute where you're actually disfavoring twelve thirty one property in this context it makes absolutely no sense and so the only way to reconcile all of that is to apply an ordinary meaning to the term capital asset and the difficulty of course i'm sure you've thought through all of this the difficulty is that the only thing that was voted on passed presented to the president and became law was the text that you i think and ineffective conceded to judge marcus defeats your argument so i don't know how anything else could be the law that controls the case well i mean the legislative history wasn't voted on the legislative history wasn't presented to the president the legislative history never became the law right and why is the term capital asset which has  widely understood common meaning in the context of tax law different from twelve twenty one there are dual meanings to the term capital asset are you suggesting there was no rational basis for them to have used a different definition here you suggesting congress could we couldn't come up with any rational basis to explain why congress did what it did in the definition and in the end this particular statute up what i'm saying is there's no way to get to good morning may it please the court tepper snyder for the commissioner of internal revenue the tax court's decision is correct in this case because as the court has observed it gives effect to the plain meaning of the statute section one two three four and a applies with respect to property that is or an acquisition would be a capital asset the statute it treats the cancellation of a right as a sale but it doesn't change the character of the underlying property if the underlying property is not a capital asset then one two three four a does not apply in the parties of course stipulated here that the underlying property was not a capital asset  i would respectfully disagree that there are dual meanings of the term capital asset capital asset is defined for purposes of subtitle a in section twelve twenty one of the code which explicitly excluded trade or business property and that's the same property that's covered by section twelve thirty one so they're mutually exclusive there is no authority for using an arguable plain meaning definition of the term capital asset when it's defined for purposes of the code let me ask you this your opponent i think to his great credit concedes in effect that he loses on the plain language do you concede that the legislative seems to head in the other direction that's certainly not i think to say that the legislative history is clear that it intends to include twelve thirty one property and twelve thirty four a is a vast overstatement i don't think the legislative history mentions section twelve thirty one and to the contrary there's the legislative history does mention in a footnote the definition of capital asset excludes trade or business property and it also says that twelve thirty four a does not change the character of the underlying property you know that i think the legislative intent is a little bit muddled but it nowhere says that it intends to extend and twelve one two three four eight and twelve thirty one property and in fact the requirement that the underlying property be a capital asset which in section twelve thirty four and since the time it was enacted in one nine hundred eighty one i think what c r leslie's position is is that somehow that changed in one nine hundred ninety seven because there are some ambiguous stuff in the committee reports in a footnote but the problem is if congress had intended to change the capital asset requirement in one thousand nine hundred seven it would have changed the text of the statute and there are certainly other examples in the code and the tax court discussed them where if congress wanted a result similar to what they're advocating it would have used different language or even simpler could have said twelve thirty four a applies with respect to capital assets and with respect to section t one property but it didn't say that and i think it strains credulity to argue that if congress had intended to change household thirty four a applied instead of changing the language it would have kept the capital asset requirement in the statute but said well maybe somebody can extrapolate from cases cited as she also in a footnote i mean that just congress doesn't legislate that way and it just doesn't make sense and i think also there's some confusion about section twelve thirty one section twelve thirty one is a very taxpayer favorable provision it essentially gives taxpayers the best of both worlds without section twelve thirty one a sale of trade or business property would result in ordinary income but what section two hundred thirty one does is it says you know will give you the best of both worlds if you're net on the aggregate twelve thirty one games if your net is a game for twelve thirty one property you get capital gain treatment but if your net is a loss you get ordinary loss so it is a very taxpayer favorable provision but it does not come along with twelve thirty for a treatment there's a difference between the character of the gain which is what twelve thirty one speaks to and the character of the underlying property section twelve thirty one doesn't change the character of the underlying property to a capital asset and that's why sections twelve thirty four a does not apply but you're i mean you hear what they're saying they're saying so twelve thirty one is a very tax payer favorable statute gives you the benefit of capital gains ordinary losses it's not our fault that this deal cratered i mean if the deal is gone through we would have gotten twelve thirty one treatment so so why are we being penalized while they're not being penalized because when you think about it they get to keep both the forfeited deposit and the property there is nothing that would stop them from selling the proper in the future and getting capital gains treatment so i don't think it's an equitable at all and in any event is that as the court knows in order to avoid applying the plain language of the statute it would have to produce a result that would be considered legally absurd and as the court explained in the packard case involving a tax credit to have a statute be absurd it would have to basically shock the moral or common sense and there's absolutely nothing that tends in that direction in this case lease argue it would actually result in an inconsistency as well because section twelve thirty one one it applies if you have net gain it's usually capital but if you have  ordinary and so in effect what if section twelve thirty for a treated trader business gains and losses as all capital then that would be an inconsistent treatment on the loss side because the losses would no longer be ordinary they'd be converted to capital so that wouldn't make sense either does the court have further questions about the capital gains matter we have no further question ok i do also know that the taxpayer has a secondary argument about abuse of discretion on a motion to strike if the court has no questions about that we can rest on our brief we have no further questions thank you thank you very much i think it's important to point out that the that the tax court also recognized the intellectual inconsistency and in its ruling it said that in its order had the property closed that very same deposit money would have been applied to the purchase price and it would have been taxed at capital gains on the flip side because the property didn't close the very same dollars that were in that deposit received by the taxpayer  ordinary income with the tax court recognize that inconsistency and what about your opponent's response to my question that in this case it's not so unfair you got the you keep the money you keep the property it's inconsistent though it's inconsistent tax treatment which runs completely afoul of the overriding core purpose of twelve thirty four a which is to treat economically equivalent transactions in the same way from a tax perspective and that's that's the overall overriding problem  then we have the very specific problem where the legislative history again says and it's that the tax court never responded to the language in the house and the senate bill in the joint committee report i mean that language says in an example of the type of property property interest that's going to be affected by this act is the tax treatment of amounts received to release alessi from a requirement that the premises be restored on a terminations of lease that's twelve thirty one property that's cancellation of  a contract respecting twelve thirty one property factually indistinguishable from our fact pattern and so there the tax court didn't address it at all but the tax court said we were unable to find i was unable to find anything in the legislat history so a complete end run around it the i r s avoids it as well the i r s tries to minimize it it's just you're extrapolating a footnote will not really mean the footnote in it amplifies it because it cites two cases which are also factual indistinguishable from us but it's right there in the text in the section of the legislative history that says explanation of the act so neither the neither my worthy opponent nor the tax court have confronted this head on and it squarely says that in there so in the absence of any cases i'm not aware of any cases that prevent that present this precise situation a situation where following the legislative history would be consistent with the overall scheme including treating twelve thirty one prop property in a preferential way would be consistent with express language in the legislative history and where the term that you're talking about that has a statutory definition in the same context interpret in section two sixty three they say they use the plain meaning of the term capital asset they don't use twelve twenty one under the always always always it must be twelve twenty one that wouldn't work the court would have to use the twelve twenty one definition a completely you know pretend as if there is not this other meaning of capital asset in this context is not accurate it's there and when you read the legislation legislative history it's clear that congress was aware it was there thank you counsel thank you both and we will take a short recess and when we come back we will proceed to the coder vision commission versus the public resources organization and thank you folks