Court Opinion

ID: 4484701
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:56.361366+00
Date Added: 2024-06-11T12:05:40.181956
License: Public Domain

Featherston, J, concurring: I agree with the majority’s conclusion. As I understand respondent’s argument in support of the validity of section 1.57-l(f)(3), Income Tax Regs., the underlying premise is that Congress made a mistake in drafting Code section 57(a)(6). As applied to nonqualifying stock, Code section 83(a) expressly modifies the phrase "fair market value” by a parenthetical provision that such value shall be "determined without regard to any restriction other than a restriction which by its terms will never lapse.” Code section 57(a)(6), which prescribes one of the tax preference items to which the minimum tax applies, contains no similar modification of the term "fair market value.” This latter section has the effect of imposing the minimum tax on the amount by which "the fair market value” of the qualified stock "at the time of exercise exceeds the option price.” The argument supporting the regulation assumes that Congress merely neglected to include in section 57(a)(6) the parenthetical provision which it inserted in section 83(a); to cure that oversight and carry out what respondent views as the congressional intent, the regulation was adopted to extend the section 83(a) valuation method to the minimum tax provisions. The willing buyer, willing seller concept of "fair market value” is nearly as old as the income tax law itself. United States v. Cartwright, 411 U.S. 546, 551 (1973). Within this ordinary meaning of the term, it is undisputed that the SEC restriction here reduced the public trading value of the stock received by petitioner. The majority opinion effectively makes the point that section 57(a)(6), without the section 83(a) parenthetical modification of the accepted definition of fair market value, is clear and unambiguous and that adding the parenthetical modification by regulation goes beyond the words of the section. Ordinarily, there is "no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes.” United States v. American Trucking Ass’ns., 310 U.S. 534, 543 (1940); Busse v. Commissioner, 479 F.2d 1147, 1151 (7th Cir. 1973). Neither "the taxing authorities nor the courts are justified in virtually amending a taxing act because they are of the opinion that Congress may have had or should have had a different intention than that which was expressed in the act.” Helvering v. Rebsamen Motors, Inc., 128 F.2d 584, 588 (8th Cir. 1942). That reasoning is particularly forceful here because both section 57(a)(6) and section 83 were added to the Code by the Revenue Act of 1969 when the entire gamut of stock restriction problems was carefully examined. I can find nothing written or spoken by the Congress in connection with the 1969 congressional examination of stock restrictions that refutes Justice Powell’s statement in Kolom v. Commissioner, 454 U.S. 1011, 1016 (1981), 81-2 USTC par. 9741, at 88,487, quoted in note 11 of the majority opinion, that: "It is this policy of encouraging employee stock ownership that explains why the language of section 57 and section 83 differs.” To effectuate this policy, section 83(e) provides that section 83 shall not apply to "a transaction to which section 421 applies.” For income tax purposes, this means that the application of section 83 (and thus, the valuation method contained in section 83(a)) is prohibited where section 421 applies (as it does in the instant case). Yet, as explained by Justice Powell, without anything in the language of section 57(a)(6) or its legislative history to support it and in frustration of the underlying policy, the regulation applies the section 83(a) valuation method to the minimum tax provisions with respect to qualified stock. I think it is important that section 56 by clear wording imposes a tax "In addition to the other taxes” imposed under the income tax provisions. This additional tax, the minimum tax, is, in effect, a "flat tax” imposed on specified tax preference items without the ameliorating effects of most deductions, bases adjustments, or carryover and carryback deductions prescribed for the income tax. All the tax preference items except the one here involved are deductions (accelerated depreciation, amortization of various assets, etc.) for which the full tax benefit has been received; the section 57(a)(6) stock option item, in contrast, is an income item, and Congress had to make a policy decision as to what valuation methods should be used to measure the "economic income” (S. Rept. 91-552 (1969), 1969-3 C.B. 423, 495), derived from stock options qualified under section 421. The assumption underlying the disputed regulation appears to be that Congress intended to prescribe the section 83 valuation method for minimum tax purposes because it measures the amount of income that would be subject to immediate income tax, and therefore the amount subject to preferential deferral, but for section 421. Thus, the regulation would treat as a tax preference item the full amount of the spread between the option price and the public trading value of the taxpayer’s shares (subject only to nonlapse restrictions) as of the date he exercised his option. But the stock could not have been sold at the full public trading value when it was received and may never be salable at that price. The disputed regulation, therefore, has the effect of imposing the minimum tax not on "economic income” but on "value” which the taxpayer has not received and which he may never receive and’ without any possible recoupment through capital loss or other deductions. A conclusion that the statute produces that result should, in my judgment, be supported by a clear expression of legislative intent, and I do not find any evidence of such intent. To the contrary, in defining the term "fair market value,” I think Congress made a policy judgment when it omitted from section 57(a)(6) the parenthetical language contained in section 83(a) and intended the term "fair market value” as used in section 57(a)(6) to have its traditional meaning. In the words of Justice Powell in Kolom v. Commissioner, supra: "Any other understanding of the term would defeat the purpose §§ 57, 421 and 422 were designed to serve.” I have a very healthy regard for Treasury regulations. They serve a salutary purpose which is vital to the administration of the income tax laws, and they are entitled to great deference. But the Supreme Court has repeatedly stricken down Treasury regulations which are inconsistent with, or go beyond, the statute they are designed to implement. See, e.g., United States v. Cartwright, supra at 557; Rowan Cos. v. United States, 452 U.S. 247 (1981); United States v. Vogel Fertilizer Co., 455 U.S. 16 (1982). It is true that privately imposed stock sales restrictions are subject to manipulation and that spurious restrictions may cause abuses. But, as discussed above, the minimum tax provides none of the ameliorating offsets available in computing the income tax, and the disputed regulation reaches not only spurious restrictions but all nonlapse restrictions, including restrictions mandated by statute, such as the one in the instant case. I think the Court is here compelled to hold the regulation invalid. Tannenwald, Fay, Irwin, Sterrett, Goffe, and Korner, JJ., agree with this concurring opinion.