Court Opinion

ID: 9464629
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:38:33.471391+00
Date Added: 2024-06-11T17:38:44.069682
License: Public Domain

ALBERT V. BRYAN, Senior Circuit Judge,
dissenting [from the decision of the panel]:
Upon the majority’s faithful narrative of the facts, I would affirm the Tax Court, and wholly on the circumstances so recounted of Mrs. Hirst’s conveyance, I dissent from the majority’s assessment of income taxes against her.
Edna Hirst, an 81-year old widow, was land-poor. Her only cash money was invested in savings accounts totalling approximately $25,000.00. She owned her home absolutely, and also a one-half undivided interest in a six-room office building and a one-half undivided interest in three tracts of undeveloped land, with the outstanding interests vested in her husband’s estate.
The unimproved land not only provided her no income but subjected her to annual real estate taxes. Because her available cash resources were too small to meet these burdens, she thought it best to distribute her property among those whom she naturally desired to have it eventually — i. e., her son, daughter-in-law and grandchildren. Inasmuch as this would entail gift taxes far beyond her means, she and her son agreed, before the gifts were perfected, that he would pay all assessable gift taxes. The Federal gift tax came to $68,277.00 and the State gift tax to $17,192.55, a total of $85,-469.55.
The gift taxes were fully satisfied, but nevertheless the Commissioner, now sustained by the majority, has complicated the transaction by assessing income taxes against the donor, Mrs. Hirst, on the total amount of gift taxes paid by her son. In justification it is said, contrary to the finding of the Tax Court, that the family arrangement must be viewed as consisting of two parts: (1) a gift to the extent of the value of the deeded real estate and (2) income to Mrs. Hirst to the extent of the amounts of the gift taxes assessable to her but paid on her behalf by her son.
As all masters in their respective fields of endeavor do relish a preference for problems of complexity rather than those embodying only run-of-the-mill components, the appellant Commissioner and my co-panelists turn this folksy, homespun transaction into an abstruse income tax enigma. Despite their sincerity, the plain question calling for answer here is starkly pointed up by plain facts, and it is just this: When Mrs. Hirst conveyed to her son and his family all of her real estate upon the sole understanding that her son (now used as including his wife) would pay all gift taxes assessable on the transfer, did Mrs. Hirst’s act in the circumstances constitute a gift exclusively or a transaction giving rise to income to her?
For me these facts unalterably demonstrate that the transfer was a gift and nothing more; it did not result in income. The Tax Court’s determination to this ef-*432feet, it seems to me, should be allowed to stand. The partition of the agreement into a gift and an income-producing transaction was not justified in the circumstances. That Mrs. Hirst realized income under the attendant circumstances is a conception violently refuted by the factual background of the transfer. Equally preposterous is the result: the imposition upon Mrs. Hirst of more than $16,000.00 in income taxes.
I.
The Tax Court has found and concluded that Mrs. Hirst made no sale of any kind to her family; that the transaction was entirely a gift; and finally that there was no acceptable foundation upon which to attribute income to Mrs. Hirst. Edna Bennett Hirst, 63 T.C. 307 (1974).
For this determination the Court looked to the substance of the agreement and did not theorize, as does the Commissioner, to descry in it income chargeable to Mrs. Hirst. The Court was sensitive to the inspiration and purposes of the agreement, giving weight to the ambience of its execution. The fact that this was a non-commercial, family transaction in which the donor received no funds with which to pay the gift or income tax assessed to her was of obvious significance. It is an incident compelled to be weighed within the measurement of the case.
As was said in Commissioner of Internal Revenue v. Court Holding Company, 324 U.S. 331, 334, 65 S.Ct. 707, 708, 89 L.Ed. 981 (1945):
“The incidence of taxation depends upon the substance of a transaction. The tax consequences which arise from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step, from the commencement of negotiations to the consummation of the sale, is relevant. ... To permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress.” (Accent added.)
This resolve of the Tax Court is a finding of fact entitled to finality and to acceptance by the Court of Appeals without modification, since it is supported by adequate, indisputable evidence. The reports teem with decisions to the point. Again as a foremost authority is Commissioner of Internal Revenue v. Court Holding Company, supra, 324 U.S. 331, 333, 65 S.Ct. 707, 708, 89 L.Ed. 981 avouching the proposition in these words:
“There was evidence to support the findings of the Tax Court, and its findings must therefore be accepted by the courts.” (Accent added.)
It enlists Commissioner of Internal Revenue v. Scottish American Investment Co., Ltd., 323 U.S. 119, 123-124, 65 S.Ct. 169, 171, 89 L.Ed. 113 (1944) wherein the command was laid down with even severer insistence:
“The Tax Court has the primary function of finding the facts in tax disputes, weighing the evidence, and choosing from among conflicting factual inferences and conclusions those which it considers most reasonable. The Circuit Courts of Appeal have no power to change or add to those findings of fact or to reweigh the evidence. And when the Tax Court’s factual inferences and conclusions are determinative of compliance with statutory requirements, the appellate courts are limited to a determination of whether they have any substantial basis in the evidence. The judicial eye must not in the first instance rove about searching for evidence to support other conflicting inferences and conclusions which the judges or the litigants may consider more reasonable or desirable. It must be cast directly and primarily upon the evidence in support of those made by the Tax Court. If a substantial basis is lacking the appellate court may then indulge in making its own inferences and conclusions or it may remand the case to the Tax Court for further appropriate proceedings. But if such a basis is present the process of judicial review is at an end.” (Accent added.)
*433There is no baselessness here. Nonetheless, the majority disregards or overlooks the compulsion of this language and goes beyond the limited scope of review.
But even if the Tax Court’s resolution be hailed a conclusion of law and not a finding of fact, it is still impregnable. By way of prelude to a discussion on this point, a safe guide may be quoted from Dobson v. Commissioner of Internal Revenue, 320 U.S. 489, 501-502, 64 S.Ct. 239, 247, 88 L.Ed. 248 (1943):
“Congress has invested the Tax Court with primary authority for redetermining deficiencies, which constitutes the greater part of tax litigation. This requires it to consider both law and facts. [W]hen the court cannot separate the elements of a decision so as to identify a clear-cut mistake of law, the decision of the Tax Court must stand. In view of the division of functions between the Tax Court and reviewing courts it is of course the duty of the Tax Court to distinguish with clarity between what it finds as fact and what conclusion it reaches on the law. In deciding law questions courts may properly attach weight to the decision of points of law by an administrative body having special competence to deal with the subject matter. The Tax Court is informed by experience and kept current with tax evolution and needs by the volume and variety of its work. While its decisions may not be binding precedents for courts dealing with similar problems, uniform administration would be promoted by conforming to them where possible.” (Accent added.)
II.
Decision in the present case was put upon Richard H. Turner, by the Tax Court, 49 T.C. 356 (1968), which had been affirmed per curiam, 410 F.2d 752 (1969), by the Sixth Circuit. The Tax Court here accurately summed the facts and stated the conclusions of Turner (as they relate to the individual donees therein) precisely depicting Turner and Hirst (the present) as matching each other:
“In Turner the donor made nine separate gifts of low basis securities, three to named individuals outright, Each transfer was on condition that the recipient pay the resulting gift tax liability. The three individual donees contributed their respective shares of the gift taxes either from available cash or the sale of some of the donated securities.
The Commissioner argued that each transfer was part-gift and part-sale and that the excess of the gift tax paid by each donee over the basis of the securities transferred to such do-nee constituted capital gain chargeable to the donor. . . . Thus, the principal issue dealt with by the Court was whether the gifts to the three individuals could be classified as part-sales, resulting in the realization of capital gain — an issue identical with the one before us in the present case.
“In deciding against the Government, the [Tax] Court reviewed the earlier cases and concluded that their ‘rationales * * * are totally inconsistent with a finding that the transfer was a part sale, part gift’. 49 T.C. at p. 362. To the contrary, the Court regarded the transaction as a ‘net gift’ in th,e amount of the value of the shares less the gift tax — a transaction having no income tax consequences to the donor. 49 T.C. at p. 363. The decision was affirmed by the Sixth Circuit in a per curiam opinion. 410 F.2d 752.
“We cannot see any meaningful differences between the present case and Turner, and unless later decisions require us to reach a different result here we think we must follow it.” (Accents added but footnotes omitted.) 63 T.C. 307, 312.
Later, the Tax Court followed Turner again in Victor W. Krause, 56 T.C. 1242 (August 31, 1971) and its judgment was not thereafter disturbed in the courts. Moreover, in Estate of Kenneth W. Davis, ¶ 71, 318 P-H Memo TC (December 30,1971), the Tax Court adhered to Turner and was affirmed, this time by the Fifth Circuit in Estate of Kenneth W. Davis v. Commission*434er of Internal Revenue, 469 F.2d 694 (1972). There has never been an overthrow of Turner.
However, the Commissioner and the majority opinion assail Turner as disavowed by its own Circuit in Joseph W. Johnson, Jr., 59 T.C. 791 (1973), affirmed as Johnson v. Commissioner of Internal Revenue, 495 F.2d 1079 (6 Cir. 1974). On the contrary, study of Johnson in the Court of Appeals will utterly dispel any such claim for the effect of Johnson.
Notably, it was decided by the same court as rendered Turner, and that Circuit refused to overrule or distinguish it on the law. If Turner was not the law, Johnson gave the Sixth a wide-open opportunity to say so; but neither that Circuit, nor any other court, to repeat, has renounced Turner. Certainly, we may not presume to hold that the Sixth Circuit intended to say in Johnson that Turner was overridden, for the Sixth explicitly and advisedly declined to say so.
True, Johnson said that Turner had “no precedential value beyond its peculiar fact situation” but this declaration actually reaffirms Turner on its own facts. Since, as previously noted, the facts now before us correspond with Turner’s, Johnson does not authorize us to" depart from Turner, especially in light of the just listed subsequent adoptions of Turner. The same is true of the cases that are disciples of Johnson. They are on Johnson facts which the Johnson court — the Sixth Circuit — has emphasized are peculiarly Johnson’s and not Turner’s.
Thus we have the Tax Court and the Courts of Appeals following Turner on its facts in an unbroken line of cases; thus, we see, too, even the case on which the Commissioner and the Court now rely — Johnson —refusing to depart from Turner. It seems strange, indeed, to me for us to be alone declaring it was untenable — especially when it appears that the Johnson court has been the only court to have dealt with the problem. Also it seems to me to be a complete disregard of the Supreme Court’s directive for treatment of the Tax Court decisions both on the facts and on the law, especially when “uniform administration would be promoted by conforming to them where possible”. Dobson v. Commissioner of Internal Revenue, supra, 320 U.S. at 502, 64 S.Ct. at 247.
For the reasons urged in this dissent, I would affirm in the present case.