Court Opinion

ID: 8596667
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:03:56.509149+00
Date Added: 2024-06-11T16:54:59.132757
License: Public Domain

NICHOLS, Judge,
concurring:
I join in the opinion and in the judgment of the court but add a few observations for reasons that will appear.
The court says in Part I that plaintiff staked its entire case on proving that the profits made by DISA were comparable to those made on similar resales by uncontrolled merchandising agencies, the "resale price method.” That is correct: a study of the briefs and record reveals no effort by plaintiff to sustain its burden by presentation of a fact-based and reason-illuminated case on any alternative theory as a backup if its above theory might fail, as it has, to convince the court. The incorrectness of the methods the Commissioner used when he made the allocations originally is irrelevant by "law of the case,” as shown in fn 22, and I believe under accepted practice in tax litigation could not have been made relevant, for the taxpayer must prove he has overpaid, not that the Commissioner erred. Our concern is more with the ultimate results than with his method. Eli Lilly & Co. v. United States, 178 Ct. Cl. 666, 372 F.2d 990 (1967). Thus Part III of the opinion is really superfluous and we could have come to our "Conclusion of Law” at the end of Part II. I join in Part III because I believe it is well to show, when happily we can, that the result we reach is not only correct, but also fair and just.
The evidence referred to supports that conclusion, however, in the weakest possible way. In our renegotiation cases under 50 U.S.C. app. §§ 1211-1233 we have elected to make determinations of excessive profits on the basis of proofs as weak, or weaker, where that is all the parties have offered to us. Bata Shoe Co. v. United States, 219 Ct. Cl. 240, 595 F.2d 9 (1979); Manufacturers Service Co. v. United States, 217 Ct. Cl. 387, 582 F.2d 561 (1978); Mills Manufacturing Corp. v. United States, 215 Ct. Cl. 536, 571 F.2d 1162 (1978); A. C. Ball Co. v. United States, 209 Ct. Cl. 223, 531 F.2d 993 (1976). See my concurrence in Manufacturers Service Co., v. United States, 217 Ct. Cl. at 414, 582 F.2d at 578, where I said we were making bricks without straw. Examination of the record in this case will convince anyone that the task of properly reallocating income from subsidiary to parent under § 482, where, as here, one of the *362Commissioner’s express formulae is not applicable, is no whit less difficult or complex than determing how much of the profits a company derived from defense contracts was excessive, while the statutory and regulatory guidelines that are a little help in the renegotiation case are absent here. There are possible for use as many methods as there are experts the parties can afford to hire, and no two methods will lead to the same result. "Whenever a price problem is discussed * * *, divergent figures are likely to be recommended without a semblance of consensus.” 38 Harv.Bus.Review 125 (1960) as quoted in Eli Lilly & Co. v. United States, 178 Ct. Cl. at 668, 372 F.2d at 992. The theory that one in charge of a controlled group knows exactly the monetary difference between the transactions he engineers, and what they would have been if conducted at arm’s-length, will not stand analysis. See my dissent in Morton-Norwich Products, Inc. v. United states, ante at 83.
Assuming, still, that no formula prescribed by regulation can be used, if the Commissioner adheres in court to his original method, it would seem we would have to affirm him unless we thought his choice of method arbitrary and capricious. If he abandons his original method and through his counsel supported by expert witnesses, urges the court to adopt another, the taxpayer’s task is not much facilitated. Young & Rubicam, Inc. v. United States, 187 Ct. Cl. 635, 655, 410 F.2d 1233, 1245 (1969). If the new method justifies the same reallocation or more, and does not look unreasonable, the taxpayer cannot refute it just by showing that other experts, using other methods, would reallocate a lesser amount, or none at all. Where we know from our renegotiation experience that there is no one sure formula to determine excessive profits, and that all methods, or all permitted by law, must be considered and balanced one against another, here, to hold for the taxpayer, it looks as if we would have to hold that no acceptable method supports the Commissioner’s result. The taxpayer to win, as a practical matter, would have to show that some method favored by him was so much more convincing than others than no such other was reasonable. Rarely will he do it.
The Commissioner it seems to me gets the best of both worlds: as in more ordinary types of tax litigation, his *363counsel is not committed to having to defend the Commissioner’s basic fact finding and reasoning, as in most cases of judicial review of discretionary action; and on the other hand, the determination stands as not arbitrary and capricious, or an abuse of discretion, if any reasonable looking approach sustains it. In Young & Rubicam, Inc., supra, a § 482 reallocation was invalidated, but it did not involve issues of pricing judgment.
It is not surprising, therefore, that taxpayer’s able counsel here put all his chips on the regulatory resale price method, to the virtual exclusion of any reliance on any "fourth method,” really a chaos of any and all methods. After Part II, the sustaining of the determination in Part III involves no real difficulty, their being nothing of substance to oppose it.
Whether the involved regulations leave too many cases for the fourth method is a question the court touches on lightly. The congressional request to write regulations to govern these § 482 reallocations is one sentence long:
It is believed that the Treasury should explore the possibility of developing and promulgating regulations under this authority [§ 482] which would provide additional guidelines and formulas for the allocation of income and deductions in cases involving foreign income. [1962] U.S. Code Cong. & Ad. News 3732, 3739.
Clearly the result of our decision is that this has not been done in respect to the reallocation here involved, and it remains in the almost if not wholly unreviewable discretion of the Treasury, as it was when the suggestion was made. The Treasury wisely believes, or in the past has believed, that it should not have discretion to decide how much money anyone should have to pay to support the government. It was for this reason that it always urged, and always successfully, that the duty of administering the various Renegotiation Acts, now all defunct, should devolve elsewhere than on Treasury. So it is somewhat an anomaly that in the matter of § 482 it is in a position that out renegotiates renegotiation with respect to deciding a taxpayer’s liability by exercise of discretion.