Court Opinion

ID: 4484879
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:02.000387+00
Date Added: 2024-06-11T14:54:05.244897
License: Public Domain

Black </., dissenting: In my judgment the majority opinion decides the only issue presented in this proceeding incorrectly. The issue is a narrow one. It seems perfectly clear from the findings of fact that petitioner suffered a long term capital loss in the taxable year of $24,140.35 and is entitled to have that loss allowed as a deduction unless it is prevented from doing so by the exceptions contained in section 112 (b) (6) of the code. It is unnecessary to set out in this dissent the entire provisions of section 112 (b)(6). It seems to be plain that the decision of the only issue involved in this proceeding depends upon whether the liquidation of the Glanton Veneer Co., the subsidiary corporation, was in accordance with a plan as described in section 112 (b) (6) (D), printed in the margin.1 The plan under which the dissolution and liquidation of the subsidiary, Glanton, proceeded was evidenced by a corporate resolution adopted by the directors of Glanton September 23,1937, which reads as follows: At a special meeting of the Board of Directors of the Glanton Veneer Company, Inc., called for that purpose, two-thirds majority directors being present, said meeting being held in the office of the company at Whiteville, N. C., it is unanimously agreed that the said corporation be immediately dissolved as provided by law under section #1182, N. C. Code of 1935, and the officers of said corporation are directed to forthwith secure the unanimous consent of the stockholders and to take all necessary and proper steps to legally effect the said dissolution forthwith. The stockholders filed their consent to this dissolution. On December 28, 1937, the Secretary of State of North Carolina issued a final certificate of dissolution of Glanton. Thereupon the liquidation of Glanton proceeded until it was completed January 11,1941. On that date the last distribution to stockholders was made. It consisted of $6,597.05, of which petitioner received $5,334.65. The question is, did this conceded liquidation take place under “a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within three years from the close of the taxable year during which is made the first of the series of distributions under the plan,” within the meaning of section 112 (b) (6) (D) of the statute? In my opinion the facts as found by the majority show clearly that there was no such “plan” as to bring the liquidation within the statute. Plainly, Glanton was making no attempt to liquidate under that section of the statute. The Commissioner in his brief says: “Section 112 (b) (6) does not define a ‘plan of liquidation’ or state how it shall be adopted, and no decided case ruling on those points under said section has been found.” It is true that section 112 (b) (6) does not define “plan.of liquidation,” but the Commissioner seems to forget that his own Treasury Begulations have a gOod deal to say on that subject, as one would naturally and properly expect. These regulations are quite comprehensive and are found in Treasury Begulations 103, sections 19.112 (b) (6)-l, -2, -3, -4, and -5. It would serve no useful purpose in this dissent to quote these regulations at length, because the most of them are not immediately involved. However, section 19.112 (b) (6)-3, dealing with “Liquidations covering more than one taxable year,” is precisely in point in dealing with the only issue which we have here to decide. That regulation reads in part as follows: (a) In order for the distribution in liquidation to be brought within the exception provided in section 112 (b) (6) to the general rule for computing gain or loss with respect to amounts received in liquidation of a corporation, the entire property of the corporation shall be transferred in accordance with a plan of liquidation, which plan shall include a statement showing the period within which the transfer of the property of the liquidating corporation to the recipient corporation is to he completed. The transfer' of all the property under the liquidation must be completed within three years from the close of the taxable year during which is made the first of the series of distributions under the plan. [Emphasis supplied.] So far as I can see, the above quoted regulation is a perfectly valid one and was framed for the purpose of properly effecting the enforcement of a statute which Congress enacted for a very definite and special purpose. It will be noted that the regulation requires that, before the nonrecognition of gain or loss applies, there must be a plan and this plan must “include a statement showing the period within which the transfer of the property of the liquidating corporation to the recipient corporation is to be completed.” There is nothing ambiguous about that. Plainly, the plan to which these regulations refer must be a written plan, or else what would be the sense in saying it must “include a statement showing the period within which the transfer of the property of the liquidating corporation to the recipient corporation is to be completed” ? As I have already pointed out, the plan under which Glanton was liquidated was the resolution adopted by its board of directors September 23,1937, and ratified by its stockholders. This plan contains no statement whatever showing the period within which the transfer from Glanton to its stockholders, including petitioner, was to take place, as definitely required by the regulation to which reference is above made. But the Commissioner seems to argue that, when a taxpaper invokes a regulation which seems to be very much in point, the Commissioner can “waive” him out by “waiving” his own regulations. And, to my amazement, the majority opinion seems to approve such a view, as will be seen from the latter part of the majority opinion. Treasury regulations are promulgated for the guidance of taxpayers, as well as for the guidance of the Commissioner, and they can not be “turned on and off” as suits the Commissioner. It is perfectly true, of course, that there are instances where the failure of a taxpayer to comply with certain regulations can not be invoked to his own advantage in a tax case, but we have no such situation here, and it seems to me a very erroneous conception to speak of the Commissioner’s right to “waive” his own regulations, as the majority opinion does. As I have already said, it seems to me perfectly plain that the facts show that Glanton was making no effort to liquidate in accordance with section 112 (b) (6) and had no such purpose in view. If petitioner had received, let us say, $75,000 as a result of the liquidation, it would have undoubtedly, under the Treasury regulations, been taxable on the gain which would have resulted by subtracting from that amount its conceded cost basis of $65,500. By the same token, having received only $41,359.65, it seems to me it is entitled to take its loss as the statute provides. The cases which the majority opinion cites in support of its interpretation of “plan of liquidation” as used in section 112 (b) (6) are cases which deal with “bona fide plan of liquidation” under section 115 (c) and are not, in my judgment, at all in point. In George G. Mason, 3 T. C. 1087, we pointed out the difference between liquidation under the general provisions of the statute contained in section 115 (c) and the special provisions contained in section 112 (b) (6), and in doing so, among other things, we said: * * * This material difference between the two sections of the same act, in both 1936 and 1938, one dealing in general with the liquidation of corporations and the other dealing with the liquidation of subsidiary corporations, indicates that Congress deliberately avoided in drafting section 115 (c) the inflexible time requirement appearing in the proviso which it added to section 112 (b) (6) (D), and that in section 115 (c) the legislative emphasis was placed upon the good faith of the plan to complete the liquidating transfers within three years, rather than on the actual completion of the transfers within the specific time limit. * * * Therefore, in my opinion, it is a mistake to confuse liquidation under section 115 (c) with liquidation under section 112 (b) (6), and in my judgment the majority opinion makes that mistake. I respectfully dissent. Disney, J., agrees with this dissent.   roch distribution Is one of t series of distributions by such other corporation in complete cancellation or redemption of ail its stock in accordance with a plan of liquidation under which the transfer of aU the property under the liquidation is to be completed within three years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that If such transfer is not completed within such period, or If the taxpayer does not continue qualified under subparagraph (A) until tlie completion of such transfer, no distribution under the plan shall be considered a distribution In complete liquidation.