Court Opinion

ID: 4485718
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:33:54.823079+00
Date Added: 2024-06-11T14:54:07.400380
License: Public Domain

CHABOT, J., concurring and dissenting: I agree with, and join in, the majority’s disposition of the “flower bond” issue. However, on the other issues, the majority hold (1) for respondent, that a gift tax is includable in the estate; and (2) for petitioner, that the estate may deduct a forgiven income tax liability. In doing so, on the second issue they place a complex Court-made rule above the congressional intent (thereby creating a double benefit), and on the first issue they place the congressional intent over the statute. I would reverse the order, holding that the statute should control over the congressional intent and the congressional intent should control over court-made rules. As a result, I would decide the first issue for petitioner and the second issue for respondent. I. Inclusion of Gift Tax In the Tax Reform Act of 1976, as part of its effort to integrate the estate and gift transfer taxes (the history of which is outlined by the majority at pp. 774-777 of the opinion), the Congress revised section 2035. The controversy focuses on section 2035(c), which reads as follows: SEC. 2035. ADJUSTMENTS FOR GIFTS MADE WITHIN 3 YEARS OF DECEDENT’S DEATH. (c) Inclusion of Gift Tax on Certain Gifts Made During 3 Years Before Decedent’s Death. — The amount of the gross estate (determined without regard to this subsection) shall be increased by the amount of any tax paid under chapter 12 by the decedent or his estate on any gift made by the decedent or his spouse after December 31, 1976, and during the 3-year period ending on the date of the decedent’s death. The majority hold that “the literal language of section 2035(c)”1 would “dictate a result” for petitioner (i.e., no gross-up of tax paid by donees of decedent’s gifts), that this result is “plainly at variance with the policy of the legislation as a whole”, and that “unequivocal evidence of the purpose of section 2035(c)” appears in H. Rept. 94-1380 (1976),2 1976-3 C .B. (Vol. 3) 735. (See pp. 772-774.) Plain conflict with the Congress ’ policy The majority conclude that the statutory language is “plainly at variance” with the congressional intent and profess to find “unequivocal evidence” of that intent. Shortly after the enactment of the Tax Reform Act of 1976, it became apparent that the legislation included many typographical and technical drafting errors. On April 28, 1977, Congressman Ullman, then Chairman of the Ways and Means Committee, introduced H.R. 6715, the Technical Corrections Act of 1977. Although this bill was passed by the House of Representatives as a separate piece of legislation, it was finally enacted as title VII of the Revenue Act of 1978 — Technical Corrections of the Tax Reform Act of 1976. This title, encompassing 47 pages of the Statutes at Large (92 Stat. 2897-2944) consists of corrections of drafting errors. Fourteen of these 47 pages (92 Stat. 2925-2939) are devoted to corrections of errors in the estate and gift tax provisions of the Tax Reform Act of 1976. Remarkably, no one brought to the attention of the Congress the error that the majority conclude is plain, the error of which the majority find unequivocal evidence. The Revenue Act of 1978, in its turn, generated the Technical Corrections Act of 1979, which was enacted as separate legislation (Pub. L. 96-222, 94 Stat. 194). Section 107 of the Technical Corrections Act of 1979 consists of amendments related to title VII of the Revenue Act of 1978 — in other words, corrections of the 1978 Act’s corrections of the 1976 Act. Once again, the Congress overlooked what the majority conclude is plainly a frustration of the Congress’ purpose. The Congress continued to reexamine section 2035. In addition to the amendments made by section 702(f)(1) of the Revenue Act of 1978 and section 107(a)(2)(F)(i) of the Technical Corrections Act of 1979, the Congress made significant revisions of section 2035 in the Economic Recovery Tax Act of 1981 (secs; 403(b)(3)(B) and 424(a)) and again reviewed the details of its work in the Technical Corrections Act of 1982 (sec. 104(d)). Thus, the Congress amended section 2035 in four different statutes in the 6 years after enacting the provision we apply in the instant case. In two of these statutes, the Congress’ avowed purpose was to be sure the words of the 1976 Act did not deviate from the policy of that act. In the 1981 Act, the Congress reexamined and revised the policy of the 1976 Act. Then, in the 1982 Act, the Congress “fly-specked” the 1981 Act’s revision. Now, more than 10 years later, the majority announce “unequivocal evidence” that the 1976 Act’s language is “plainly at variance” with that act’s policy. I would conclude that the unequivocal evidence — the Congress’ careful, almost contemporaneous, reexaminations of both the “literal language” and the policy of the 1976 Act, together with its actual amendments of subsections (b) and (d) of section 2035 and its failure to amend subsection (c) of section 2035 — is that the literal language of section 2035(c) is not plainly at variance with the policy of the 1976 Act. Unequivocal evidence of the Congress’ policy Before the amendments made by the Tax Reform Act of 1976, the gross estate was not increased by the amount of gift tax paid by the decedent. As the majority note (see p. 777), the Ways and Means Committee report (and the corresponding “Blue Book”, 1976-3 C.B. (Vol. 2) 1, 539) state that this resulted in tax savings, which the Congress sought to eliminate. Accordingly, under the heading “Reasons for change”, the Ways and Means Committee report states as follows, “To eliminate this tax avoidance technique, the committee believes that the gift tax paid on transfers made within 3 years of death should in all cases be included in the decedent’s gross estate.” H. Rept. 94-1380, at 12 (1976), 1976-3 C.B. (Vol. 3) at 746; Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1976, at 527 (1976), 1976-3 C.B. (Vol. 2) at 539. However, after stating the “Reasons for change”, the Ways and Means Committee proceeded to present a detailed “Explanation of provisions”. As the majority note (see p. 778), the explanation provides a somewhat different view of the statute. The explanation does not state that “the gift tax paid should in all cases be included”. (Emphasis added.) Rather, the explanation states that “The amount of gift tax subject to this rule would include tax paid by the decedent or his estate on any gift made by the decedent or his spouse after December 31, 1976. It would not, however, include any gift tax paid by the spouse on a gift made by the decedent within 3 years of death which is treated as made one-half by the spouse, since the spouse’s payment of such tax would not reduce the decedent’s estate at the time of death.” (Emphasis added.) H. Rept. 94-1380, at 14 (1976), 1976-3 C. B. (Vol. 3) at 748; Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1976, at 529 (1976), 1976-3 C.B. (Vol. 2) at 541. From this, we may conclude that, although the general policy (“Reasons for change”) apparently would be served by the gross-up that the majority’s opinion requires, it is not clear that the legislative articulation of the detailed policy (“Explanation of provisions”) is served by the gross-up. It is not unusual for the Congress to determine a general policy, or focus on a specific problem, but then write its statute differently from its general policy or from what we would think is the intended legislative response to the specific problem. See, e.g., Estate of Beal v. Commissioner, 47 T.C. 269 (1966), and Estate of Siegel v. Commissioner, 74 T.C. 613 (1980). In each of these cases, we concluded from the legislative history that section 2039(a) was intended to deal with certain joint and survivor annuity matters, but that the statutory language varied from that intent. In each case we followed the statutory language (holding on the point in dispute for respondent in Beal and for petitioner in Siegel). In the instant case, for all we can tell from the legislative history, the Congress had a general intention but intended to deviate from that when it came time to focus on the specifics. We cannot tell from the legislative history whether the differences between the “Reasons for change” and the “Explanation of provisions” were intended or accidental. Under these circumstances, I respectfully suggest that we do not have such “unequivocal evidence” of intent as to justify departing from what the majority concede to be the meaning of the statute’s language. When the policy should control The majority state (see p. 773) that “we may go beyond the literal language of the Code if reliance on that language would defeat the plain purpose of Congress.” For this proposition, they rely primarily on an opinion of the Supreme Court — No6 Jones University v. United States, 461 U.S. 574(1983). In that case, the Supreme Court held that two educational institutions were not exempt under section 501(c)(3) (or the subtitle C equivalents of sec. 501(c)(3)) even though they met the requirements of the statutory language. In applying its canon of statutory construction, the Supreme Court focused on the purposes of the charitable exemptions and charitable contributions provisions of the Code and concluded that a literal application of these provisions would frustrate “a firm national policy to prohibit racial segregation and discrimination in public education.” 461 U.S. at 593. The Supreme Court concluded that “Over the past quarter of a century, every pronouncement of this Court and myriad Acts of Congress and Executive Orders attest” this policy. 461 U.S. at 593. The Supreme Court majority pointed out that a literal application of the statute, as the dissenters proposed, would lead to tax-exempt status for “Fagin’s school for educating English boys in the art of picking pockets” as well as for “a school for intensive training of subversives for guerrilla warfare and terrorism”. 461 U.S. at 591 n. 18. I, for one, cannot discern in the facts and law of the instant case, the “firm national policy” that would be so outrageously violated if we followed what the majority agree is the effect of the language of the controlling statute. Rather, I would follow the advice of the Court of Appeals for the Ninth Circuit in Feldman v. Commissioner, 791 F.2d 781 (9th Cir. 1986), affg. 84 T.C. 1 (1985). In a Court-reviewed opinion, we held that the literal language of section 280A(c)(3) permitted the taxpayers to deduct certain expenses related to a portion of their home that was rented to the taxpayer-husband’s employer. The Court of Appeals affirmed, concluding its opinion as follows (791 F.2d at 784): Under these circumstances, the literal interpretation urged by the taxpayer and approved by the Tax Court should be followed. See Tulalip Tribes, 732 F.2d at 1454-55. Unlike some other kinds of legislation, tax laws are not enacted for the ages, but for the special exigencies of a particular time and discrete circumstances. Change in the tax law is a way of life. Thus, we are confident that Congress can respond with prompt legislation should it believe we misunderstood its commands.[3] II. Deduction of Income Tax Petitioner paid decedent’s additional income tax that resulted from a net gift, in accordance with Diedrich v. Commissioner, 457 U.S. 191 (1982). The Congress overruled Diedrich as to transfers made before the Court of Appeals’ ruling in that case. In so doing, the Congress explained its action as follows: Reasons for Change Prior to the Diedrich decision, several courts had ruled that the transfer of property subject to the transferee paying any gift tax did not result in any gain realized by the transferor. While Congress believed that the Diedrich decision is correct, it also believed that taxpayers should not be affected adversely because they may have made such transfers in reliance upon what was thought to be established law that no income tax liabilities would accrue from such transfers. [Staff of Joint Committee on Taxation, General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, at 1126.4 Fn. ref. omitted.] The majority engage in an analysis of court-made law relating to when post-death events may be taken into account for estate tax purposes. That discourse is instructive and in other circumstances might well be determinative. However, as the majority implicitly concede, the text of the statute does not clearly compel the specific result they reach. Under these circumstances, we should consult the legislative history to determine what was intended. E.g., Blum v. Stenson, 465 U.S. 886, 896 (1984). In the 1984 Act, the Congress provided a benefit, by giving back a tax that had properly been imposed and paid. The Congress “believed that taxpayers should not be affected adversely” by their reliance on prior understanding of the law. The majority take the Congress’ “hold-harmless” legislation and convert it into a windfall. Petitioner not only gets back the tax it paid but also gets the benefit of deducting the refunded tax. Under the majority’s analysis, petitioner is better off than it would have been if Diedrich had been decided the other way. Nothing in the legislative history indicates an intention to provide such a double benefit. The statute does not compel such a double benefit. The legislative history does not show an intent to provide such a double benefit. We should not gratuitously provide the double benefit. United States v. Skelly Oil Co., 394 U.S. 678, 684 (1969); Charles Ilfeld Co. v. Hernandez, 292 U.S. 62, 68 (1934). On the inclusion issue, I would hold for petitioner that the statute provides the answer — no gross-up since the gift tax was not paid by decedent or petitioner. The statute should control over the Congress’ unclear intent. On the deduction issue, I would hold for respondent that the Congress’ intent provides the answer — the refund mandated by the Deficit Reduction Act of 1984 was not intended to put taxpayers into a better position than they would have been if Diedrich had been decided for the taxpayer. On these two issues, respectfully, I dissent. Whitaker, KORNER, and PARR, JJ., agree with this concurring and dissenting opinion.   "[T]ax paid by the decedent or his estate.”    Sec. 2035(c) was enacted as part of H.R. 10612, the Tax Reform Act of 1976. The Ways and Means Committee report in question is the report on H.R. 14844, a bill which was not passed by either House and technically was not before the Conference Committee on the Tax Reform Act of 1976. The conferees on the Tax Reform Act of 1976 agreed to deal with the matters in H.R. 14844. In order to comply with the rules governing conference committees, the conferees reported the estate and gift part of the Tax Reform Act of 1976 as being in technical disagreement, and the conferees’ language on this portion of their report was subjected to a separate vote on the floor of each House. The conferees explained (S. Rept. 94-1236, H. Rept. 94-1515 (Conf.), at 607 (1976), 1976-3 C.B. (Vol. 3) at 957) that “in those cases where the proposed amendment follows H.R. 14844, the conferees agree with and incorporate the explanation of those provisions contained in House Report 94-1380 (the Ways and Means Committee Report on H.R. 14844), except as modified in this statement.” In the material headed “Gross-up for Gift Taxes”, the conferees stated “Conference agreement. — The conference agreement follows H.R. 14844.” S. Rept. 94-1236, H. Rept. 94-1515 (Conf.), at 608-609 (1976), 1976-3 C.B. (Vol. 3) at 958-959. The text of sec. 2035(c) that the conferees reported (and that was enacted) appears to be identical to that in H.R. 14844. Accordingly, although the majority opinion and this dissenting opinion both rely on a report on a bill that was never passed and was not technically in conference, that report is properly a critical part of the legislative history of the Tax Reform Act of 1976 — the statute that we must apply in the instant case.    In sec. 143(b) of the Tax Reform Act of 1986, 100 Stat. 2120, the Congress amended sec. 280A(c) to prohibit the deduction that had been allowed in Feldman v. Commissioner, 791 F.2d 781 (9th Cir. 1986), affg. 84 T.C. 1 (1986). Thus, the Court of Appeals’ estimate of the situation was correct. The Court of Appeals and this Court heeded the Congress’ statute. The Congress then set the law aright by correcting its statute. Implicitly, the Congress acknowledged the wisdom of our course of action, by making its change prospective only. Sec. 151(a), Tax Reform Act of 1986, 100 Stat. 2121.    To the same effect, see H. Rept. 98-432 (Part 2) at 1707 (1984); and H. Rept. 98-861, at 1241-1242 (Conf. 1984), 1984-3 C.B. (Vol. 2) 1, 495-496.