Court Opinion

ID: 9447225
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:29:22.949692+00
Date Added: 2024-06-11T17:30:57.122591
License: Public Domain

MAJOR, Circuit Judge
(dissenting).
My conviction that this case should be reversed is such that I feel compelled to dissent. Judge SGHNACKENBERG has made an adequate statement of the facts and I disagree only with the rule which he applies thereto.
The government relies upon the theory of constructive receipt in holding plaintiffs accountable for the dividends as ordinary income. It appears to waver, however, as to the time of such receipt, It states in its brief, “ * * * the dividend income was clearly realized by taxpayers in 1948, and it was so realized not later than the dates when collected as part of the proceeds of the sales of the Portland stock.”
In my opinion, the rights and Iiabilities of Portland shareholders were definitely fixed on February 2, 1948, when the Plan of Reorganization was confirmed. On that date plaintiffs and other shareholders, as well as their assignees, acquired a right, an option, which was exercisable at any time within ten years. The Plan provided a formula by which Portland shareholders, upon compliance with the terms and conditions thereof, might at their option acquire PGE shares. If Portland shareholders desired to exercise the option thus afforded them, it was required that they exchange their shares for those of PGE upon which dividends had been declared. It was further required that they become record owners of PGE shares and, even then, they were entitled to dividends only “pursuant to an assignment of dividends from the independent trustees of Portland Electric Power Company to such shareholders.” How it can be thought or held under such circumstances that plaintiffs as shareholders of Portland had an unfettered and unqualified right to the receipt ■of dividends declared on PGE shares and made payable only to the record holders thereof is not discernible to me. Plaintiffs never owned any PGE shares and, in the exercise of a right provided by the Plan, were not required to become such owners.
The government emphasizes the point that plaintiffs’ shares would have become valueless upon failure to exchange within ten years, thus intimating that sooner or later they would have been under an economic compulsion to make such exchange. The theory is not tenable. Taxwise, it was no concern of the gov-eminent if plaintiffs, exercising the rights conferred by the Plan, improvidently held their shares until they became of no value. At any rate, I am aware of no law which requires a person to produce income. The farmer has a right to permit his fields to lie idle, and the merchant or professional man can close the doors to his business or office, even for the express purpose of avoiding income- Plaintiffs, under the circumstances, had the same right relative to their Portland shares,
The constructive receipt theory must be predicated upon the fictional premise that the PGE shares were constructively received by plaintiffs and, having been thus received, the dividends declared thereon were also constructively received. Thus, one constructive receipt is imposed upon another. I know of no case which supports this two-fold imposition of the theory,
The theory relied upon is perhaps best illustrated in Helvering v. Horst, 311 U. S. 112, 61 S.Ct. 144, 85 L.Ed. 75, which has been 0ften cited and followed, There, a father, owner of negotiable bonds, detached therefrom interest coupons before their due date and delivered them to his son who collected them at maturity but in the same year. It was held that the father was accountable for the interest represented by the coupons on the theory of constructive receipt, Obviously, the father as owner of the bonds had the unqualified and unfettered right to the receipt of such interest, Suppose, however, that the interest of the father in that case had been limited *430to an option, exercisable at will, to purchase the bonds with the coupons attached. Could it be seriously contended that he would be required to account for as ordinary income the interest earned on such bonds ? Coming closer to the instant situation, suppose that the father had sold and assigned his option at a price enhanced by reason of the attached interest coupons. Again, could it be seriously contended that he would have been accountable for ordinary income on account of the enhanced value thus received for his option ? Pursuing the supposition further, could it be contended that the purchaser of the option would have been accountable for the interest coupons prior to the time the option was exercised and he became the owner of the bonds?
, JT . I think the> answer to these suppositions must be m the negative for the reason that neither the father nor the purchaser of the option was the owner of the tree from which the fruit was produced. In other words, they did not have an unqualified and unfettered right to receipt of interest. That right could . , . , , . come into existence only upon exercise i-, of the option, which they could do or , , .f . ’ T not, at their own discretion. I see no difference m the facts of these supposititious cases from those of the instant ., .... . , . situation. They distinguish this case . , „ '3 , , , * not only from Horst but from other cases , . , , „ „ . TT , , ... which have followed Horst and which , ... „ , ,. have applied the doctrine of constructive . receip '
The opinion states, “The purchasers of this stock acquired from plaintiffs the right to collect these dividends. In my view, this is an erroneous statement and highlights the fallacy of the reasoning employed by Judge SCHNACKENBERG. It is true, of course, that the' purchaser became endowed with an option which when and if exercised would result in the receipt of the dividends by him. This option privilege came from the Plan and not from the conveyance, Nothing was conveyed by plaintiffs other than their Portland stock. The sale or assignment alone of such dividends would have been of no value to the purchaser, Conversely, the reservation from the sale of such dividends would have been of no value to plaintiffs. This is so for the reason that plaintiffs as shareholders of Portland did not have an unqualified and unfettered right to the receipt of dividends which had been declared on PGE, shares,
. , . T,hls, constructive receipt theory, if applicable, could produce the incongruous result of numerous taxpayers being held accountable for the same dividends. The-Portland shares might have been sold many times before they reached a purchaser who was willing to exchange such ghares for thoge Qf pGE and thereby recdve the dividencL It h in the, ingtant eage ^ ^ chager elected tQ make the exchange and receive the. dividendg> The stipulation entered in ^ cage indudea the daim for refund filed Mntiffs_ That daim discloses , ,, . , , without denial that such exchange was- , , ,, , , , , made by the purchaser who reported as- * ordinary income the amount received ag dMdendg and id the tax thereon. Thug both laintiffs as sel]ers of Port. , , , , , » , land shares and the purchaser of such . . , . shares have been taxed upon the same-Ta • • . i dividend income. It is interesting, al- ,, , , .__, . , . . „ though perhaps immaterial, to contem- , ,, , „ , plate how the government would defend' its right to collect from different parties a tax upon the same income. This, situation, however, furnishes strong support for my position, that is, that only an owner 0f Portland shares who elected, to exercise his option of making an exchange for PGE shares was accountable £or dividend income,
I would reverse and remand the case, with directions that a judgment be en~ tered in favor of plaintiffs.