Court Opinion

ID: 9491846
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:25:17.938299+00
Date Added: 2024-06-11T17:54:58.375994
License: Public Domain

BOGGS, Circuit Judge,
concurring.
I agree with the result reached by my colleagues in this case, but I arrive at it by a slightly different line of reasoning that bears setting forth. The exact language of the statute authorizing the penalty at issue here, I.R.C. § 6621(c)(1), would initially seem to favor the taxpayer. That penalty is imposed only for “tax motivated transactions.” These words would seem to make the taxpayer’s motivation an issue, and the taxpayer may well have been motivated by profit, in the conventional sense. However, unfortunately for the taxpayer, the term “tax motivated transaction” is then further defined in the code, and § 6621(c)(3)(A)(v) expressly defines it to include any “sham transaction.” Therefore, a direct reading of the statutory language supports the government’s argument and requires reversal.
I think the court’s opinion stretches a bit in attempting to rescue the Pasternak and Kennedy cases from some imprecision in their language. Although the court’s opinion today is correct that those cases should have focused on the taxpayer’s motivation only in determining initially whether the transaction was a sham, I don’t think that is actually what those courts did. For example, today’s opinion correctly quotes Pasternak, 990 F.2d at 904, as stating that “because ... petitioners’ motives .... were to reduce their tax liability rather than to reap a profit, the § 6621(c) penalty must also be sustained” (emphasis added). It is hard for me to read that sentence as meaning anything other than the court there did make a separate inquiry as to the interest penalty. Of course, since its initial holding that the transactions were a sham was correct, and it did not disallow the penalty, its reasoning there is only dicta. In the case of Kennedy, 876 F.2d at 1256, although the court noted the words of the statute, it specifically relied on the finding that the true motive for the transactions was “to reduce ... tax liability” and that it therefore followed that the transactions there were “not profit motivated,” without looking further to the definitions.
I am sympathetic to the taxpayer’s arguments that it might well be more just that taxpayers who unwittingly enter into sham transactions in hopes of making a profit should not be treated as harshly as taxpayers who do so knowing full well that they are *835engaging in a sham. Unfortunately, this is not the law, which is dictated here by the inflexible terms of § 6621(c) and the law defining “sham transactions.” But see Karen Nelson Moore, The Sham Transaction Doctrine: An Outmoded and Unnecessary Approach to Combating Tax Avoidance, 41 Fla. L.Rev. 659 (1989), criticizing the concept of “sham transaction” and proposing alternate methods to police tax avoidance.
I therefore concur in the court’s opinion.