Court Opinion

ID: 4484293
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:38.772517+00
Date Added: 2024-06-11T15:03:41.295512
License: Public Domain

Tannenwald, J., dissenting: While I am not disposed fully to accept Judge Goffe’s analysis in his dissenting opinion, I am in agreement with his conclusion that the respondent’s regulation (sec. 1.631-(b)(3)(ii)(a), Income Tax Regs.) is not within the ambit of section 631 and is therefore invalid. The regulation apparently rests upon the proposition that the provision for capital gains treatment by lessors of coal interests is sufficient to justify the denial of ordinary expense treatment to payments by a lessee of coal interests (which is generally accorded to royalty payments by a lessee under section 162) merely because such lessee also happens to be a sublessor. In my judgment, that condition is insufficient to justify respondent’s attempt by regulation to cure the lack of symmetry in the statutory scheme. The fact that subsection (c) of section 631 defines “owner” to include a “sublessor” is too thin a reed upon which to sustain respondent’s regulation. That definition appears to have been included simply for the purpose of assuring that a sublessor would receive capital gains treatment. I am reinforced in this conclusion by the fact that the subsection also makes clear that deductions for royalties are to be determined without regard to its provisions. I also note the fact that the majority had no difficulty in refusing to stretch the tax benefit rule in order to cure an asymmetrical result whereby petitioner reported sums as capital gains which, in every real sense, represented amounts which had properly been deducted as ordinary expenses in previous years. Compare Fribourg Navigation Co. v. Commissioner, 383 U.S. 272 (1966), where, in another context, the Supreme Court refused to sustain respondent in an attempt to remedy asymmetry in the statutory scheme relating to the deduction for depreciation in the year of sale and gain from the sale of depreciated property. Sterrett, J., agrees with this dissenting opinion.