Court Opinion

ID: 9423870
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:09:24.835084+00
Date Added: 2024-06-11T17:22:43.999915
License: Public Domain

Mr. Justice Harlan,
whom Mr. Justice Douglas and Mr. Justice Stewart join, concurring in part and dissenting in part.
I agree with the Court that the Court of Appeals erred in framing its remand order in this case. However, I would modify the order in a different way, which I find more in harmony with the statutory scheme than the one the Court has chosen.
Section 532 of the Internal Revenue Code of 1954 states in relevant part:
“The accumulated earnings tax imposed by section 531 shall apply to every corporation . . . formed or availed of for the purpose of avoiding the income tax with respect to its shareholders ... , by permitting earnings and profits to accumulate instead of being divided or distributed.”
Section 533 (a) provides:
“For purposes of section 532, the fact that the earnings and profits of a corporation are permitted to *310accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with respect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary.”
Our task is to decide what jury instruction with respect to the definition of “purpose” comports best with Congress’ intent as revealed by this statutory language and the underlying legislative history.
I am in accord with much of the Court’s opinion. I too find that the successive changes in the wording of the statute, even when read together with the legislative history, do not help in our inquiry. I too find that the legislative history reveals a progressive congressional intention to rely more and more heavily upon a comparatively objective criterion: whether the accumulated earnings were in excess of the corporation’s reasonable business needs. Nevertheless, it is apparent from the language of § 533 (a), and from the legislative materials, that Congress chose still to give the taxpayer a “last clear chance” to prove that, despite the unreasonableness of the accumulation by business standards, the accumulation was not due to the proscribed purpose. My difficulty with the instruction approved by the Court is that in most instances it will effectively deny to the taxpayer the “last clear chance” which Congress clearly meant to afford and substitute a very fuzzy chance indeed.
I reach this conclusion on what I regard as commonsense grounds. In practice, the accumulated-earnings provisions are applied only to closely held corporations, controlled by relatively few shareholders.1 As the Court admits, the shareholders almost always will have been advised that accumulation of corporate earnings will *311result in individual tax savings. That fact will be before the jury. In accord with the Court’s decision, the jury will be instructed that “it is sufficient if [avoidance of shareholders’ tax] is one of the purposes of the company’s accumulation policy.” (Emphasis supplied.)
Under these circumstances, the jury is very likely to believe that it must find the forbidden purpose and impose the tax whenever the Government shows that the taxpayer has accumulated earnings with knowledge of the resultant tax saving, irrespective of any contrary evidence put forward by the taxpayer. The approved instruction simply tells the jury that the taxpayer must have had a “purpose” to avoid individual taxes. In everyday speech, we commonly say that a person has a “purpose” to do something when he acts with knowledge that the thing will inevitably result. Even were the jury legally knowledgeable, it might reach the same conclusion, for, assuming that the word “purpose” as used in § 532 is synonymous with “intention,” 2 there is ample authority for the proposition that an actor will be deemed to have an “intention” to cause consequences of an act if “the actor . . . believes that the consequences are substantially certain to result from [the act].”3 To confront the taxpayer with this likelihood that its evidence of another purpose will be entirely disregarded is incon*312sistent with the provision of § 533 (a) which explicitly affords the taxpayer an opportunity to avoid the tax by showing “by the preponderance of the evidence” that it had a “contrary” purpose.
The Court, while conceding that the shareholders will know of the expected tax saving “in nearly every case,” see ante, at 309, reasons that the taxpayer will have its opportunity because “[i]t is still open to the taxpayer to show that even though knowledge of the tax consequences was present, that knowledge did not contribute to the decision to accumulate earnings.” Ibid. If, as appears from the Court’s opinion, this exegesis is not to be a part of the jury instruction, then the Court is simply engaging in wishful thinking. If by chance the explication is to be included in the instruction, then the jury will be told to impose the tax only if it finds that a desire to avoid tax “contribute [d] to the decision to accumulate earnings.” Such an instruction would at least inform the jury that the tax consequence must actually have been in the shareholders’ minds when they decided to accumulate. However, once the shareholders are shown to have had knowledge of the tax saving, it still will be extraordinarily difficult for the taxpayer to convince the jury that the knowledge did not play some part, however slight, in the decision. Again, it seems to me that such an instruction would not give proper scope to the congressional intention that the taxpayer have a chance to prove “by the preponderance of the evidence” that it had a “contrary” purpose. I would therefore adopt an instruction less loaded against the taxpayer.
The Court of Appeals for the Sixth Circuit decided, and respondent argues, that the tax should apply only if the jury finds that tax avoidance was the “dominant, controlling, or impelling motive” for the accumulation. I agree with the Court that such an instruction would *313be improper. It apparently would require the Government to show that tax avoidance was stronger than any other motive, and perhaps that it was stronger than all other motives put together. This would largely negate the statutory presumption of improper purpose contained in § 533 (a). In my view, it would also result in non-imposition of tax in cases where Congress meant there to be liability, for I think that Congress must at least have intended that the tax should apply whenever the taxpayer would have distributed, instead of accumulating, corporate earnings had there been no possibility of a tax saving.
These considerations suggest what I believe to be the best rule: the jury should be instructed to impose the tax if it finds that the taxpayer would not have accumulated earnings but for its knowledge that a tax saving would result. This “but for cause” test would be consistent with the statutory language. It would allow the Government to succeed if it could show, with the aid of the § 533 (a) presumption, that without the spur of tax avoidance the taxpayer would not have accumulated the earnings, thus giving effect to the presumption and fulfilling Congress’ desire to penalize those with a “purpose” to avoid the tax. It would permit the taxpayer to escape the tax if it could convince the jury that for other, perhaps irrational, reasons it would have accumulated even had no tax saving been possible, thus affording the opportunity for proof of a “contrary” purpose which Congress intended to provide. In addition, I believe that this instruction would be relatively easy for a jury to understand and apply. For all of these reasons, I consider it preferable to the standard adopted by the Court.

 See S. Rep. No. 1622, 83d Cong., 2d Sess., 69 (1954); B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders 213-214 (2d ed. 1966).

 “Purpose” is listed as a synonym for “intention” in Black’s Law Dictionary, at 948 (4th ed. 1968). Many courts have used the two words interchangeably in construing §§ 532 and 533 (a). See, e. g., Henry Van Hummell, Inc. v. Commissioner, 364 F. 2d 746 (1966) ; Youngs Rubber Corp. v. Commissioner, 331 F. 2d 12 (1964); Smoot Sand & Gravel Corp. v. Commissioner, 241 F. 2d 197 (1957); Harry A. Koch Co. v. Vinal, 228 F. Supp. 782 (1964); Motor Fuel Carriers, Inc. v. United States, 202 F. Supp. 497 (1962), vacated on other grounds, 322 F. 2d 576 (1963).

 Restatement (Second), Torts §8A (1965). See also id., Comment b; R. Perkins, Criminal Law 657-658 (1957); Cook, Act, Intention, and Motive in the Criminal Law, 26 Yale L. J. 645 (1917).