Court Opinion

ID: 4472409
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:24:59.747484+00
Date Added: 2024-06-11T15:03:23.954766
License: Public Domain

Chiechi, J., concurring: Although I agree with the majority’s holding that the income in question is foreign base company sales income under section 954(d)(1) and therefore is subpart F income includable under section 951(a) in the gross income of International, I cannot join in two of the three rationales upon which the majority relies to reach that holding. I concur only in the rationale set forth by the majority under the heading “Aggregate Versus Entity”-, that is to say, to effectuate the purpose of Congress in enacting sub-part F, the aggregate nature of Brinco as a partnership must be emphasized in applying section 954(d)(1). That rationale amply supports the majority’s conclusion that “Brown Cayman should be put into the shoes of Brinco for [purposes of] determining whether Brown Cayman was earning commission income on sales by third parties to International” (majority op. p. 119). I cannot join in the ratio decidendi stated by the majority under the heading “Subchapter K’ that relies on section 702(a)(7) and section 1.702-l(a)(8)(ii), Income Tax Regs., since, as pointed out by Judge Ruwe in his concurring opinion, that regulation, and therefore that section, does not technically apply because Brown Cayman, as a controlled foreign corporation, has no tax liability. Although Congress may well have intended that section 702(a)(7) apply in the circumstances presented here, that section requires that a partner take into account separately his distributive share of the partnership’s other items of income, gain, loss, deduction, or credit only “to the extent provided by regulations prescribed by the Secretary” (emphasis added). The regulations prescribed by the Secretary (namely, section 1.702-l(a)(8)(ii), Income Tax Regs.) do not provide that Brown Cayman take such other items into account. Nor can I join in the third rationale of the majority (and the only rationale in Judge Ruwe’s concurring opinion) that is based on the language “in connection with” that appears in section 954(d)(1). To the extent the majority (and Judge Ruwe) suggests that rationale is separate from and independent of the ratio decidendi stated by the majority under the heading “Aggregate Versus Entity”, I disagree. It seems to me that Brown Cayman’s distributive share of Brinco’s profits cannot be characterized as “income * * * derived in connection with * * * the purchase of personal property from any person on behalf of a related person” unless the aggregate approach to Brinco were emphasized in order to give that share of those profits the same character in the hands of Brown Cayman as those profits have in the hands of Brinco, namely, commission income derived from the purchase of personal property on behalf of International. Sec. 954(d)(1). Only after the aggregate approach is applied to pass through to Brown Cayman the character of those profits as such commission income can those profits be considered “derived in connection with * * * the purchase of personal property * * * on behalf of a related person”, since Brown Cayman, and not Brinco, is a related person with respect to International. Sec. 954(d)(1) (emphasis added); see sec. 954(d)(3). The ratio decidendi stated by the majority under the heading “{T\n connection with” (and by Judge Ruwe in his concurring opinion) cannot, in my opinion, stand alone; it is wholly dependent on and results from the application of the aggregate theory of partnerships to Brinco.