Court Opinion

ID: 4493223
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:50.348284+00
Date Added: 2024-06-11T15:03:59.703301
License: Public Domain

Adams,
dissenting: I am unable to agree with the opinion of the majority of the Board, and therefore file this, my
The facts were stipulated and are set out in detail in the majority opinion, to which reference is made.
Petitioner, a Wisconsin corporation, during the year 1921 had certain of its properties destroyed by fire. Petitioner contended that the Janesville Electric Co. was responsible for a great part of the loss by reason of ,its acts of negligence, and in the year 1921. brought an action in the circuit court against that company for damages. A demurrer was sustained by the court to plaintiff’s petition, from which ruling plaintiff, petitioner herein, appealed to the Supreme Court of Wisconsin, where the order sustaining the demurrer was reversed in 1922.
Afterwards, the case was tried before a jury in the circuit court, the trial resulting in a verdict and judgment for petitioner in the sum of $47,703.48. Judgment was entered in 1924.
The Janesville Electric Co. appealed from this judgment and in 1925 such judgment was reversed by the Supreme Court- of Wisconsin and the action was dismissed.
On March 16, 1929, the Commissioner issued a deficiency notice addressed to the petitioner, and in a statement attached thereto, said: “It is held that a deduction of loss by fire is allowable in the year during which the property was destroyed. * * * ”
The Commissioner found a deficiency for the years 1924, 1925, and 1926 in the sum of $16,184.72. Prom this finding, petitioner filed with the Board of Tax Appeals its petition for a redetermination of the deficiency, and as a basis for its proceeding, alleged, among other things:
The Commissioner of Internal Revenue erred in holding that the uninsured fire loss amounting to $166,739.74 growing out. of a fire which occurred in the taxpayer’s manufacturing plant on July- 4, 1921, could be deducted only in the year 1921, and might not be taken as a deduction in subsequent years when the liability for such loss was determined by the courts.
In his answer, the Commissioner denied the above allegation in petitioner’s pleading, and thus, this issue was joined.
*804The single question to be determined is, In what year did the deductible loss to petitioner occur ?
The Revenue Act of 1921 provides:
Sec. 234 (a) (4).'Losses sustained during the taxable year and not compensated for by insurance or otherwise; unless, in order to clearly reflect the income, the loss should in the opinión of the Commissioner be accounted for as of a different period. * * * [Italics supplied.]
The proper determination of this case depends upon the construction of the language of the act itself, and it turns upon the proper definition of-the word “compensated” and the proper application of the words “ compensated for ” as used in the act.
The rule of statutory construction is that words in ordinary use found in a statute should be construed according to their usual and ordinary meaning, and as commonly understood.
The Century Dictionary, a standard authority, gives, among other definitions of the word “ compensate ”, the following :
To make suitable return to or for, as for services, loss, etc.; give an equivalent or recompense to or for; requite;'remunerate, as, to compensate one for his services; to compensate one’s services.
It defines the word “ compensate ” as follows:
The act of compensating, the state of being compensated, or that which compensates; whatever makes good loss or lack, or counterbalances variation; payment; amends; especially, an equivalent in value or the like. [Italics supplied.]
Can it be said that one has been compensated for loss or injury who only has a claim against the one whom he asserts is responsible for his loss and such claim is denied ?
Can it be said that one is compensated for loss by having the right to litigate with his adversary, in which litigation he seeks to recover for his loss ?
Can it be said that one who enters into a contract by which another agrees to indemnify him for a loss, is compensated for such loss by such contract, when the other party repudiates it, claims that the same is. void for any reason and that no liability is on him ?
Can it be said that a disputed claim is such compensation as Congress intended when it used that word in the statute? I do not think so.
It seems to me entirely illogical to say that such a claim as the petitioner in this case had against the Janesville Electric Co. is such compensation as was contemplated by the Congress in passing this act.
If the rule laid down in the majority opinion is to control, then it becomes optional with the taxpayer to say in what year it will take its deductible loss. It was optional with the taxpayer as to whether *805it would prosecute its claim for damages against the Janesville Electric Co. Had it not done so,- then of course the loss would have been deductible in 1921. Having elected to file its suit in the circuit court, and the demurrer having been sustained by that court, it was optional with the petitioner then to appeal or not to prosecute its claim further. If it had not appealed, then the deductible loss would have accrued on that date.
The proceeding was appealed to the state supreme court, which court in 1922 reversed the decision of the circuit court and petitioner, at that time, might have abandoned the proceeding, in which event its deductible loss would have occurred in 1922. Afterwards, in 1924, trial of the case was had in the circuit court, as a result of which petitioner obtained judgment against the Janesville Electric Co. in the sum of $41,703.48. Had the Janesville Electric Co. been satisfied with this judgment, then the deductible loss would haye occurred during the year 1924, but being dissatisfied, the company appealed and the judgment was reversed by the Supreme Court of Wisconsin in 1925, after which the case was dismissed and the litigation ended.
Under the holding in the majority opinion, a part of the loss, amounting to $118,036.26-, was deductible in the year 1924 when the trial court rendered judgment and the petitioner did not appeal therefrom, and the remaining portion of the loss, $47,703.48, is held to be deductible in the year 1925, the supreme court having reversed judgment of the circuit court during that year.
It seems to me that the test applied in this case by the majority opinion is not a practical one. Taxation is a very practical matter, and in my judgment, problems of taxation should be solved with this in mind, looking always and being guided by not only the letter, but the spirit of the law.
If I may illustrate: The taxpayer has valuable property destroyed, for which loss he believes that he should recover from another. He says to the Government: “ My property has been destroyed; I wish to deduct that loss during the taxable year.” The Government says to him: “ No, you must pay the tax; you must litigate and when your litigation has been finally determined, then and not until then, may you take a deductible loss.” This, it seems to me, is the height of impracticability. In many instances, such a rule would result in injustice to the taxpayer and, in many instances, in injustice to the Government. I cannot believe that such result was. ever anticipated or intended by the Congress when the revenue acts were passed.
The majority opinion and the petitioner’s brief cite numerous cases, most of which I believe to be clearly distinguishable from the instant case. American Code Co., supra, is a case where the taxpayer, a cor*806poration, had discharged one of its employees whose contract with the company provided for compensation on a commission basis over a long period of years. The company undertook to deduct as loss, for the year in which it discharged the employee, its speculative and prospective loss by reason of its liability growing out of the transaction. This was not permitted. It seems to me that this case has no reasonable application to the situation with which we are dealing.
The same can be said of many of the other cases cited in the majority opinion. The doctrine laid down in Allied Furriers Corp., supra, I believe to be erroneous.
In my judgment the reasoning of the cases from the United States Supreme Court cited in the majority opinion leads to the conclusion which I have reached here.
It is the object of the law to establish, as nearly as possible, rules by which rights and duties may be determined with certainty.
The purpose of the adoption of the Sixteenth Amendment to the Constitution is discussed by Mr. Justice Stone in the case of Burnet v. Sanford & Brooks Co., 282 U.S. 359, the applicable portion of the opinion being as follows:
The Sixteenth Amendment was adopted to enable the government to raise revenue by taxation. It is the essence of any system of taxation that it should produce revenue ascertainable, and payable to the government, at regular intervals. Only by such a system is it practicable to produce a regular flow of income and apply methods of accounting, assessment, and collection capable of practical operation. It is not suggested that there has ever been any general scheme for taxing income on any other basis. The computation of income annually as the net result of all transactions within the year was a familiar practice, and taxes upon income so arrived at were not unknown, before the Sixteenth Amendment. * * * It is not to be supposed that the amendment did not contemplate that Congress might make income so ascertained the basis of a scheme of taxation such as had been in actual operation within the United States before its adoption. While, conceivably, a different system might be devised by which the tax could be assessed, wholly or in part, on the basis of the finally ascertained results of particular transactions, Congress is not required by the amendment to adopt such a system in preference to the more familiar method, even if it were practicable. It would not necessarily obviate the kind of inequalities of which respondent complains. If losses from particular transactions were to be set off against gains in others, there would still be the practical necessity of computing the tax on the basis of annual or other fixed taxable periods, which might result in the taxpayer being required to pay a tax on income in one period exceeded by net losses in another. [Italics supplied.]
I construe this opinion to hold that the general scheme was that at the end of each taxable year the Government should be advised by the taxpayer as to the net result of his business for that year, thus forming a basis for the computation of income tax.
In my opinion, the proper construction of the statute and the regulations thereunder is that, where the taxpayer sustains a loss *807during the taxable year for which he does not receive payment or accept other character of settlement for his loss, he has not been compensated therefor during the taxable year; that he is entitled to such loss as deductible during that year, even though he has a claim against another which may either wholly or partially indemnify him for his loss.
In my opinion, revenue acts should not be rigidly or technically construed, but should receive a liberal construction which will do equity both to the taxpayer and the Government. However, when the language of the act is plain and is not susceptible of more than one construction, then it is the duty of those charged with the responsibility of construing such acts and applying them to construe and apply them as they are written. If such construction and application results in injustice, then it is for the Congress to determine whether the law should be changed.
I conclude that petitioner’s loss should have been deducted in 1921.
Van Fossan and Leech agree with this dissent.