Court Opinion

ID: 9638139
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:34:38.412388+00
Date Added: 2024-06-11T18:10:04.102154
License: Public Domain

THOMAS, Circuit Judge
(dissenting).
- I am unable to agree with the conclusion of the majority as expressed in the able and logical opinion written by Judge STONE:
First, because in my view such conclusion is based upon a wrong construction of the “unless” clause in § 43 of the Revenue Act of 1934. While the language of the clause is susceptible of the construction placed upon it in the majority opinion, it seems clear to me that it was not the intent of Congress that the exception should be construed to permit losses determined in any year to be allowed as deductions from income received in some previous year.
When a statute embodying a long-established system of law, such as the federal system of taxation, is amended by adding a limiting phrase or clause, such amendment should be construed to remedy the evil designed to be cured and not to disrupt or to disturb the settled principles of the system, which it cannot be presumed *650the legislature intended to change. The committee reports in Congress, referred to in the majority opinion, disclose what the evils were which it was sought to remedy by the “unless” clause. The deductions claimed in this case are not included among them. The construction placed upon that clause by the decision of the Board and sustained by the majority opinion would tend to annul the preceding part of § 43 and to destroy three of the well-settled principles of the federal income tax system.
These principles are, (1) that the system is operated upon a yearly basis, Heiner v. Mellon, 304 U.S. 271, 58 S.Ct. 926, 82 L.Ed. 1337; Brown v. Helvering, 291 U.S. 193, 54 S.Ct. 356, 78 L.Ed. 725; (2) income has accrued and the tax is assessable when all the events which fix the amount of the tax and determine the liability of the taxpayer have occurred, United States v. Anderson, 269 U.S. 422, 441, 46 S.Ct. 131, 70 L.Ed. 347; Helvering v. Union Pacific Ry. Co., 293 U.S. 282, 55 S.Ct. 165, 79 L.Ed. 363; and (3) a deduction cannot be taken by a taxpayer on an accrual basis until the year in which the disputed or contingent liability is finally determined, and the deduction is allowable in the latter year only; it cannot be related back to the year in which the events causing the loss occurred, Burnet v. Sanford & Brooks Co., 282 U.S. 359, 365, 51 S.Ct. 150, 75 L.Ed. 383; Lucas v. American Code Co., 280 U.S. 445, 50 S.Ct. 202, 74 L.Ed. 538, 67 A.L.R. 1010; North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 76 L.Ed. 1197.
These principles have been adhered to by the courts since the enactment of the amendment to § 43 the same as they had been before that time. Guaranty Trust Co. v. Commissioner, 303 U.S. 493, 498, 58 S.Ct. 673, 82 L.Ed. 975; Penn v. Robertson, 4 Cir., 115 F.2d 167, 173; Griffin v. Smith, 7 Cir., 101 F.2d 348, certiorari denied, 308 U.S. 561, 60 S.Ct. 73, 84 L.Ed. 471; Saunders v. Commissioner, 10 Cir., 101 F.2d 407, 409.
The advantages or disadvantages of the government or the taxpayer in a particular case should have no weight in construing or. applying the law.
Second, because the taxpayer failed to sustain the burden of establishing its right to any deduction.
It is elementary that deduction provisions of a taxing statute must be strictly construed, and that a taxpayer claiming a deduction must be able to point to the applicable statute and prove that his claim is within its terms. Deputy v. DuPont, 308 U.S. 488, 493, 60 S.Ct. 363, 84 L.Ed. 416; White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 83 L.Ed. 172; Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212. In the instant case it is stipulated that the refunds for which the deduction is claimed were made “in order [1] to avoid threatened litigation, [2] keep the good will of its customers, and [3] compromise said disputed claims.” (Italics supplied.) There is no evidence showing what amount of the refunds was attributable to any of these three separate elements. Whatever indefinite amount was paid to keep the good will of the customers was not a deductible business expense but rather a capital expenditure and not deductible in any event. Welch v. Helvering, supra. In so far as the record discloses refunds may have been made to some customers for one of these reasons, to others for another reason, or all of the reasons stated may have entered into each transaction with all the taxpayer’s customers. Assuming that the taxpayer upon the record is entitled to some deduction, it has not shown any definite amount to which it is entitled. Mere proof that payments were made to customers is not sufficient to show that such payments are deductible under any statute cited by the taxpayer.
I think the majority opinion of the Board is wrong, and that the decision under review should be reversed and the determination of the Commissioner affirmed.