Court Opinion

ID: 6880324
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:14:22.685673+00
Date Added: 2024-06-11T16:05:34.539173
License: Public Domain

CHASE, Circuit Judge
(dissenting).
As Sec. 202(a) of the Revenue Act of 1935, 26 U.S.C.A.Int.Rev.Code, § 811 (j), but gave to executors an option, it is plain enough that Congress might impose such conditions upon its exercise as it saw fit;
But if Congress did intend to do what Art. 11 of T.R. 80 provides, and the majority has held the statute means, it chose a strange way to do it. Had that been the intention of Congress, it would have been easy to have said in plain words that that was one of the conditions attached to the option given. Because it did not do so but on the contrary simply provided that an *81executor might have the property in the estate at death valued as of a year later instead of taking the valuation as of the date of death, I think the ordinary distinction which is recognized throughout the income and estate taxing statutes between what is usually regarded as income as distinguished from principal was intended to be maintained. It follows that I cannot accept the abstract reasoning of the regulation which the majority opinion approves as a permissible interpretation of a statute relating to taxation where the ordinary meaning of the language used is to be given effect.
Though intangibles are only one form of property involved, they will serve well enough for the purposes of illustration. They are, within common knowledge, bought and sold at prices which vary with the amount of accrued interest at the date of sale but not with interest to accrue in the future and it would probably seem strange to most such sellers or purchasers to have the principal and the so-called right to wholly unearned future interest valued separately as property. Unearned income from intangibles is generally treated as nothing but an expectancy which is merely an incident of the ownership of the intangibles themselves. Where there is an express promise to pay stated amounts - of interest at stated times in the future there is always the express or implied understanding that the payment is compensation for withholding the principal from the owner for the time stated. When a bond, for instance, is valued as of any date, the rate of interest it bears is an important consideration. But if the concept of valuation now approved is right, then every bond alike in every respect except the interest rate would be worth the same amount at any given time regardless of the interest rate and any variation in the price attributable to a differing earning power by way of interest would be reflected in a separate valuation of the right to receive interest to accrue in the future aipart from the bond itself. The difficulty in respect to ordinary stock and the dividends which may or may not be declared seems even greater.
I do not suggest that such concepts of property are impossible but only that they are so unusual that they are too much to load upon the language of this statute. To make them even approach the realm of practical economic reality in which taxation is to be kept and prevent unwarranted extension of a statute like this by implication, see United States v. Merriam, 263 U.S. 179, 187, 44 S.Ct. 69, 68 L.Ed. 240, 29 A.L.R. 1547, one would have to believe that it was both feasible and customary in a business sense to purchase and sell the so-called property consisting of the right to receive in the future unearned interest' or income from intangibles as something separate and distinct from the ownership of the intangibles themselves. And, what is of even greater significance, it would also be necessary to believe that Congress meant to legislate on such a basis, rather than to say in simple words that, if the option offered was exercised, the estate income received by the executor during the year must be treated as though he had sold or otherwise disposed of property of a value equal to the amount of income received. And finally one must believe that Congress, without actually saying so, did intend to exact a price for the option made up in part by increasing the gross estate to the extent of gross income received during the year and to tax as property at the date of death not only the net income received but in effect the expense of getting it as well. I think Art. 11 of T. R. 80 goes beyond a fair and reasonable interpretation of the statute and that it is consequently invalid. Manhattan General Equipment Co. v. Commissioner, 297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528.