Opinion ID: 512944
Heading Depth: 2
Heading Rank: 1

Heading: R.C. Sec. 165 (West Supp.1987) (emphasis added).

Text: 4 Straddle transactions entered into after June 23, 1981 are covered by other provisions not at issue in this case. See Title V of the Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, 95 Stat. 172, 323, and I.R.C. Secs. 1092 & 1256 (West Supp.1987). Nonetheless, the tax treatment of pre-June 24, 1981 straddle transactions is disputed in approximately 4,400 cases docketed in the Tax Court. See 130 Cong.Rec. S8390 (daily ed. June 27, 1984). While in 1984 the IRS estimated that these cases represented $500 million in potential revenue, id., more recently it has estimated that they involve approximately $8 billion in revenue. See Supplemental Brief for the Appellee-Cross-Appellant at 3 5 The Tenth Circuit has since reversed the Tax Court. Miller v. Commissioner, 836 F.2d 1274, 1276 (10th Cir.1988); see also Boswell v. Commissioner, 91 T.C. No. 15, 14 (July 26, 1988) (holding that Tax Court's Miller opinion will no longer be followed); see infra pp. 645-47 6 Although the Tenth Circuit relied primarily on the text of section 108 itself, it considered the legislative history, see Miller, 836 F.2d at 1281-84, and found it equivocal: The legislative history in this case cuts both ways. It serves to remind us that substantial reliance on legislative history is more justifiable when a statute is inescapably ambiguous.... Still, having spent this much time with the legislative history, we acknowledge that there is a reasonable inference that the Conference Committee may have intended one test, but Congress enacted another. If that is the case, we are without power to change the words of the statute.... Nor may we elevate the inconsistent language of the Conference Report to the status of law. It would require unequivocal evidence of legislative purpose in the history of Sec. 108 to override the plain meaning [of] the words used therein. In the absence of such unequivocal evidence, we must rely on the words of the statute as generally understood. To do otherwise would be to redraft the statute, something which we are not permitted to do. Id. at 1284-85 (citations omitted). 7 The Tenth Circuit in Miller did not consider the 1986 amendments to section 108 in reversing the Tax Court 8 The legislative history was muddied by a subsequent colloquy on the Senate floor between Senators Dole and Packwood who expressed the view that the Conference Report did not include the language of the House report that discussed investors and that the conference report is the entire agreement of the conferees. 132 Cong.Rec. S13956 (daily ed. Sept. 27, 1986). Representative Rostenkowski later refuted this interpretation by claiming that the legislative history included the House Report. All these statements were made after the voting had ended. See 132 Cong.Rec. E3391 (daily ed. Oct. 2, 1986). Despite these contradictory statements, on balance the legislative history of the 1986 amendments strongly indicates that Congress intended to clarify that section 108 incorporates the primarily for profit test. Accord Boswell, 91 T.C. No. 15, at 11 n. 8, and Glass v. Commissioner, 87 T.C. 1087, 1167-69 (1986) (17-0) (dictum) (1986 amendments revalidated prior cases applying the primarily for profit standard to straddle transactions) 9 We note that while Wehrly relied on the Tax Court's opinion in Miller for the proposition that the entered into for profit language of section 108 is sufficiently ambiguous to look to the legislative history, Wehrly did not explicitly adopt the Tax Court's objective test. In fact, it is not clear whether Wehrly articulated an objective or a subjective standard, or a hybrid of the two. It is clear, however, that the Wehrly court unequivocally rejected the government's position that the section 165(c)(2) subjective primarily for profit standard applies in the section 108 context, 808 F.2d at 1315 (The trial court erred in instructing the jury that for [taxpayers] to qualify for a loss deduction their primary motive must be profit.), and adopted a far less stringent standard 10 The Tenth Circuit's complete discussion of Wehrly is as follows: We recognize that our decision conflicts with that reached by the Ninth Circuit in Wehrly v. United States, 808 F.2d 1311, 1314 (9th Cir.1986). In Wehrly, the panel majority determined that the phrase transaction entered into for profit was sufficiently ambiguous to require interpretation through the use of legislative history. The panel majority considered the phrase ambiguous because it did not address whether the test was objective or subjective and, if subjective, what the effect of more than a single motive for a transaction might be. Like the tax court in this case, the panel majority viewed the tax court's decisions in Smith and Fox [v. Comm., 82 T.C. 1001 (1984) ] as interpreting the transaction entered into for profit requirement of I.R.C. Sec. 165(c)(2). As we have discussed above, we do not agree that the pertinent language is ambiguous given its virtually universal meaning for some forty-six years prior to the advent of Sec. 108. We agree with the reasoning of the dissenting panel member. Wehrly, 808 F.2d at 1315-16 (Fletcher, J. dissenting). Miller, 836 F.2d at 1285; see also Wehrly, 808 F.2d at 1315 (Fletcher, J., dissenting) (I cannot agree with the majority's conclusion that in section 108 ... Congress effected a radical change in the meaning of 'transaction entered into for profit.' ). 11 See also Wehrly, 808 F.2d at 1315-16 (Fletcher, J. dissenting)