Court Opinion

ID: 4473039
Source: CourtListenerOpinion
Date Created: 2020-01-14 19:35:03.337177+00
Date Added: 2024-06-11T15:04:15.736415
License: Public Domain

Halpern, J., dissenting: The majority concludes: “An amount is deductible under section 83(h) in the year that the corresponding income is ‘included’ in the recipient employee’s income, which means to us that the amount is taken into account in determining the tax liability of the employee for that year.” The majority explains: (1) “When read in view of the legislative intent for section 83, the text of section 83(h) is unambiguous” and (2) “Given the clarity of this text, our inquiry starts and ends with the statutory text, and we apply the plain and common meaning of that text.” The majority is correct that the word “include” has the plain, common, and unambiguous meaning ascribed to it by the majority: i.e., “To consider with or place into a group, class, or total”. The American Heritage Dictionary of the English Language 913 (3d ed. 1992). The question, however, is not whether Congress is skilled in rhetoric, or used the word “included” unambiguously in section 83(h), but what the word “included” means in the context of section 83(h). The Supreme Court has said: “Ambiguity is a creature not of definitional possibilities but of statutory context”. Brown v. Gardner, 513 U.S. 115, 117 (1994) (citing King v. St. Vincent’s Hosp., 502 U.S. 215, 221 (1991) (“[T]he meaning of statutory language, plain or not, depends on context.”)). All of the majority, Judge Ruwe, and Judge Colvin have failed to give sufficient weight to the contextual relationship between the word “included” and the phrase “in the gross income”. Gross income is a legal concept and not a reporting position. The term “gross income” has the general definition set forth in section 61(a), and, unless the word “included” is used in an unusual sense, it is a question of law whether or not any particular receipt is included in or excluded from gross income. If context is to govern meaning, then, relying on the “plain and common meaning of that text [sec. 83(h)]”, I conclude that the meaning of the phrase “included in the gross income of the [service provider]” means included as a matter of law. Nothing in the majority’s description of congressional purpose for section 83 (“primarily to set forth rules on the tax treatment of deferred compensation arrangements known as restricted stock plans” leads me to believe that Congress intended the word “included” in section 83(h) to have an unusual meaning. The majority cites S. Rept. 91— 552, 1969-3 C.B. 423 (S. Rept. 91-552 (1969)), wherein it is stated: The allowable deduction is the amount which the employee is required to recognize as income. The deduction is to be allowed in the employer’s accounting period which includes the close of the taxable year in which the employee recognizes the income. * * * [1969-3 C.B. at 502; emphasis added.] On its face, the language of S. Rept. 91-552 is ambiguous. In the income tax law, the word “recognize” is a term of art, connoting a noncognitive act — gain or loss being recognized “to” a person, not “by” a person. See, e.g., secs. 361(a), 731(a) and (b), 1245(b)(3). Nevertheless, the majority has persuaded me that we should proceed as if section 83(h) were ambiguous.1  We are not without guidance, however, because we have interpretive regulations, section 1.83-6(a), Income Tax Regs, (section 1.83-6(a)).2 Those regulations contain both a general rule, in subparagraph (1) (the general rule), and a special rule, in subparagraph (2) (the special rule). The general rule is as follows: “[The section 83(h) deduction] shall be allowed only for the taxable year of such person [the service consumer] in which or with which ends the taxable year of the service provider in which such amount is includible as compensation.” (Emphasis added.) The general rule applies to all service consumers, whether an employment relationship exists with the service provider or not. The special rule applies only to service consumers that are employers, and it differs from the general rule only in that it conditions the deduction on withholding. In Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-843 (1984), the Supreme Court stated that, when a court reviews an agency’s construction of a statute that it administers, it is confronted with two questions: First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to - the unambiguously expressed intent of Congress.9  Second, if section 83(h) is ambiguous, then we must address: “[Wjhether the agency’s answer is based on a permissible [reasonable] construction of the statute.” Id. at 837-838. If section 83(h) is not ambiguous, and carries the must-be-reported meaning ascribed to it by the majority, then the general rule is necessarily invalid because it conditions a deduction only on includability (as a matter of law), and not on reporting. The majority has not considered that consequence in reaching its conclusion about the (lack of) ambiguity in section 83(h). Indeed, the majority has failed to consider whether the general rule even suggests any ambiguity in section 83(h). Perhaps that is because, for the majority, there is no middle ground. If the majority were to conclude that section 83(h) is ambiguous, Chevron U.S.A., Inc. would require the Court to determine whether the regulations contain a permissible (reasonable) construction of the statute. Because the general rule is such a construction, the majority would be obligated to construe “included” in section 83(h) to mean “includable”, as the general rule does, and as I would do. That is precisely why the majority is compelled to conclude that the statute is unambiguous despite the fact that it is apparent that reasonable people can find, and, indeed, have found, different meaning within it. If section 83(h) is ambiguous, as I am prepared to concede, then the general rule is valid as a permissible (reasonable) interpretation of section 83(h) because it implements the expression “included in the gross income [of the service provider]” consistently with a contextual analysis of section 83(h) (taking into account either the language of section 83(h) alone or both that language and the language of S. Rept. 91-552). If section 83(h) is not ambiguous, and is to be construed to mean “included as a matter of law”, as I con-elude from context, then the general rule is still valid because it is not in conflict with the statute. Whether “included in the gross income” in section 83(h) means “included as a matter of law” either because it is (1) unambiguous or (2) ambiguous and permissibly interpreted by the general rule, the special rule would be invalid because it conditions an employer’s deduction on withholding. Whalen, J., agrees with this dissent.   “Ambiguity exists if reasonable persons can find different meanings in a statute”. Black’s Law Dictionary 79 (6th ed. 1990).    References to sec. 1.83~6(a), Income Tax Regs., are to that section prior to amendment by T.D. 8599, 1995-2 C.B. 12 (effective July 19, 1995).    The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent. If a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect. [Id. at 842-843 (citations omitted; emphasis added).]