Court Opinion

ID: 9608968
Source: CourtListenerOpinion
Date Created: 2023-08-22 03:20:19.400526+00
Date Added: 2024-06-11T13:30:30.388219
License: Public Domain

Frankum, Judge,
concurring specially. The crux of the question is whether the last sentence of Code § 92-3002 (o) repeals by implication Code § 92-3120 (d), which latter provision treats the liquidation of a corporation as a sale—hence, entitled to capital gains treatment if the transaction is otherwise qualified. Upon summary reading of the two sections, they seem diametrically opposite as to the formulas for the treatment of a taxpayer in a corporate liquidation situation. The Commissioner insists upon a literal interpretation of Code § 92-3002 (o). However, it is to be noted that for all practical purposes the State has adopted all of the applicable Federal regulations with the exception of the Federal regulation relative to “sham” or “mala fide” liquidations (I am not unmindful of the phrases used in the regulations concerning Code § 92-3119 (d) that “the State Revenue Commissioner adopts, for all practical purposes the Federal regulations relating to the subject [capital gains], except in those cases where the two laws conflict.” (Emphasis added)). Although the Commissioner agrees that the taxpayer is entitled to capital gains treatment under the Federal statute, as this is a bona fide liquidation, counsel for the Commissioner argues that there is no provision for distinguishing between a bona fide liquidation and a mala fide liquidation as in a case under applicable Federal statutes. Consequently, the Commissioner contends that the State statute requires that bona fide liquidations be treated in the same manner as “sham” or “mala fide” liquidations, viz., all assets which represent accumulated earnings shall be treated as a dividend, ipso facto, and be included as ordinary income. Construing the two Georgia statutes I do not reach this conclusion.
*771An unquestionable rule of statutory construction is that a repeal of a statute by implication of another statute is not favored and will not be given effect if both statutes can reasonably operate together. Lewis v. City of Smyrna, 214 Ga. 323 (104 S. E. 2d 571); Brinkley v. Dixie Construction Co., 205 Ga. 415 (54 S. E. 2d 267). In so doing the courts will look to all statutes relating to the same subject matter and construe each in relation to the others, and harmonize them whenever possible to ascertain the legislative intent. Ryan v. Commissioners of Chatham County, 203 Ga. 730 (48 S. E. 2d 86).
All parties agree that under the ’31 act (Code § 92-3120 (d); Ga. L. 1931, p. 41) with nothing added, the taxpayer would be entitled to a capital gains treatment. It can reasonably be assumed that the legislature took the law as it stood when enacting the amendment (Code § 92-3002 (o); Ga. L. 1937, pp. 109, 112) in 1937. The same is true when the legislature enacted the capital gains treatment in 1952 (Ga. L. 1952, p. 405). Thus, we reach the conclusion that the legislature intended for the statutes to stand together. If a corporation can liquidate under the provision of Code § 92-3120 (d) and be subject to capital gains treatment, what purpose would be served by the last sentence of Code § 92-3002 (o) ? It is true that a corporation in a sales situation is allowed a capital gains treatment even though ordinary yearly earnings are accumulated over a period of time to the date of sale. Under the Commissioner’s interpretation, it is these earnings, in a liquidation situation, that should be taxed as ordinary income under the provision of the 1937 amendment (Code § 92-3002 (o)). Such interpretation, if adopted, would be in conflict with Code § 92-3120 (d) providing for the method of a liquidation of a corporation as a sale. Hence, the result would be the repeal of Code § 92-3120 (d) by implication.
Looking further, it is clear that circumstances can arise for which Code § 92-3002 (o) is applicable, namely, “mala fide” or “sham” transactions, which were anticipated by the Federal regulations though not adopted by the State regulation. A corporation could exercise a “paper liquidation” for the sole purpose of obtaining the accumulated yearly earnings which had *772thus far avoided taxation as ordinary income, because the distribution to the stockholders as yearly dividends had not occurred. By liquidating and destroying the legal fiction, viz., the corporation, the individual taxpayer who owned portions of the legal fiction could obtain a tax advantage of capital gains treatment as to all the gains of a corporation, including accumulated yearly earnings. The same taxpayers could maintain control of the physical assets and later form another corporation. Thus, another cycle begins ad infinitum. Certainly, this would be a dissolusion which would “in effect be a distribution of earnings” within the meaning of Code § 92-3002 (o). Bearing in mind that at the time of the adoption of Code § 92-3002 (o), a liquidation was not considered a distribution of earnings but was treated as a sale, a liquidation under Code § 92-3120 (d) was not a distribution of earnings, but a distribution of assets, while Code § 92-3002 (o) contemplates not a distribution of assets but the circumstances of a subterfuge to bleed off the profits within a preferred treatment classification, viz., a capital gain. My interpretation of the statute and the intention of the legislature is to accomplish the purpose of preventing sham liquidations. While the construction had no tax significance until 1952, nevertheless, it is a valid intendment of the statute. Hence, it was unnecessary for the Commissioner to adopt the Federal regulations relative to mala fide liquidations after the legislature enacted the capital gains method for computing income taxes. Though Code § 92-3002 (o) does not use the same words as the Federal statute and regulations, it accomplishes the same purpose. With this statutory interpretation of Code § 92-3002 (o), and treating it in pari materia with the other statutes on the same subject matter, no repeal by implication is accomplished. This interpretation seems to be in spirit with the evil sought to be prevented, and with this court’s interpretation of the Commissioner’s position as reflected by his adoption of the applicable Federal regulations almost in toto. With this interpretation no conflict is encountered between the other statutes or other regulations.