Court Opinion

ID: 4485838
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:02.145508+00
Date Added: 2024-06-11T14:54:07.772481
License: Public Domain

Black and Johnson, JJ., dissenting: We dissent from the majority opinion wherein it holds that petitioner during the taxable year was a “personal holding company” within the meaning of the applicable statute. Concededly, more than 50 per cent of petitioner’s stock was owned by or for not more than five individuals and from the standpoint of stock ownership it meets the requirements of a personal holding company. However, from the standpoint of percentages of gross income, we do not think it falls within the classification of a personal holding company. Section 501(a) (1) of the Internal Revenue Code provides, among other things, as follows: SEC. 501. DEFINITION OF PERSONAL HOLDING COMPANY. (a) General Rule. — For the purposes of this subehapter and chapter 1, the-term “personal holding company” means any corporation if— (1) Gross Income Requirement. — At least 80 per centum of its gross income for the taxable year is personal holding company income as defined in section 502; * * * In the taxable year petitioner had gross income from dividends of $74,985 and this is concededly one of the classes of income defined by section 502 of the code. Petitioner also had gross receipts from its farming operations in the amount of $19,115.71. This represented cash received from sales of grapes, wheat, buckwheat, and potatoes. This sort of income is not one of the classes defined in section 502 of the code. It is conceded that if this $19,115.71 of gross receipts which petitioner received from its farming operations was gross income to it, then the $74,985 dividends which it received did not constitute 80 per cent of its gross income from all sources as provided in section 501(a) (1), sufra. For the purposes of the computation of its regular corporate income tax, the $19,115.71 of gross receipts of petitioner from its farming operations was undoubtedly part of its gross income. Section 29.22 (a)-7, of Regulations 111 provides in part as follows: Seo. 29.22 (a)-7. Gross Income of Farmers. — A farmer reporting on the basis of receipts and disbursements (in which no inventory to determine profits is used) shall include in his gross income for the taxable year (1) the amount of cash or the value of merchandise or other property received during the taxable year from the sale of live stock and produce which were raised during the taxable year or prior years, (2) the profits from the sale of any live stock or other items which were purchased, and (3) gross income from all other sources. * * * Petitioner’s books were kept and its returns were filed on a cash basis. Therefore, the foregoing regulation is directly applicable in the filing of petitioner’s income tax return on Form 1120. But the Commissioner contends that the foregoing regulation is not applicable when it comes to determining whether petitioner is a “personal holding company” under section 501 (a) (1) of the code. We see no sound basis for that contention. Congress passed section 351, of the Revenue Act of 1934 (now section 501 (a) of the code), defining a personal holding company, long after the above regulation was first promulgated as article 38 of Regulations 45 (1918 Act). Congress also provided in what is now section 507 of the code that “The terms used in this subchapter shall have the same meaning as when used in Chapter 1.” Therefore, it is reasonable to assume that, in using the term “gross income” in section 501 (a) (1), Congress had in mind the meaning of that term as then defined in the existing regulation. If the $19,115.71 was part of petitioner’s gross income for income tax purposes, as it undoubtedly was, then we see no reason why it should not be counted a part of petitioner’s gross income in determining whether it is a “personal holding company.” Respondent relies on our decision in Woodside Acres, Inc., 46 B. T. A. 1124, affd., 134 Fed. (2d) 793. Although the facts in that case are in some respects different from the facts in the instant case, it must be conceded that case does seem to support respondent’s position and likewise the conclusion reached in the majority opinion. Although the Woodside Acres case has been affirmed by the Second Circuit, still, with all due respect to that learned court, we think the decision in that case was wrong and, therefore, we respectfully record our dissent to the majority opinion in the instant case, wherein it holds petitioner was a personal holding company. We do not dissent from the majority opinion wherein it holds that petitioner is not liable for a delinquency penalty for failure to file a personal holding company return on Form 1120 H. If petitioner was not a personal holding company, as we think it was not, then it follows as a matter of course it would not be subject to a penalty for failure to file a personal holding company return.