Court Opinion

ID: 4482441
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:29.385857+00
Date Added: 2024-06-11T13:32:21.841893
License: Public Domain

Qtjealy, /., dissenting: With respect to the holding under the caption “Issues 3 and 4. Business Expense Deduction on Loss of Assets in Bankruptcy and 1968 Net Operating Loss,” the result of the opinion of the majority is to tax the petitioner on his gross receipts, since no distinction is made between liabilities incurred on account of expenditures which would otherwise be credited to the cost of sales and liabilities accrued on account of expenditures deductible by the grace of the legislature.1  If the taxpayer had kept his books and records and filed his returns on the accrual basis of accounting, the liabilities in question would have constituted deductions either from gross receipts as a part of the cost of sales or from gross income as ordinary and necessary expenses regardless whether ever paid. On the other hand, even if the trustee in bankruptcy of petitioner’s estate had paid all liabilities out of the assets of the petitioner, under the decision of the majority, no deduction would ever be allowed to the petitioner notwithstanding the payment of his liabilities out of the assets of his estate in the hands of the trustee. I do not believe that this disparity in result as between a cash basis taxpayer and an accrual basis taxpayer under the internal revenue laws can be allowed to stand. Where an interpretation of the law, whether literal or otherwise, produces an absurd result, I would seek a different answer. For example, see Bongiovanni v. Commissioner, 470 F. 2d 921 (C.A. 2, 1972), reversing a Memorandum Opinion of this Court. With respect to the holding under the caption “Issue 5. Recapture of Investment Credit,” I must also disagree. The term “involuntary conversion” is a word of art under the internal revenue laws. The statement in the report of the Committee on Finance2 that “property will be considered disposed of whenever it is * * * involuntarily converted,” I would take to mean a conversion which results from a condemnation, fire or other casualty, and the like. An involuntary conversion does not occur upon the filing by the taxpayer of a petition in bankruptcy. In fact, the decision in B & L Farms Co. v. United States, 238 F. Supp. 407 (S.D. Fla. 1964), affirmed per curiam 368 F. 2d 571 (C.A. 5, 1966), certiorari denied 389 U.S. 835 (1967), relied upon by the majority as a basis for its opinion under issues 3 and 4, is predicated, in part, on the assumption that the trustee in bankruptcy represents both the bankrupt and the creditors. If this is the correct view, there is even less reason to treat the taking of title in a fiduciary capacity by the trustee in bankruptcy as a disposition of the property which triggers recapture of the investment credit. Dawson, Featiierston, Sterrett, and Gofee, JJ., agree with this dissent.   While I realize that what would he the cost of goods sold for a manufacturer has been termed as an expense for the farmer, such terminology does not change the result.    S. Kept. No. 1881, 87th Cong., 2d Sess., 1962-3 C.B. 852-853.