Court Opinion

ID: 4486082
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:10.335031+00
Date Added: 2024-06-11T07:58:28.574077
License: Public Domain

WELLS, J. dissenting: I agree with Judge Swift’s dissent insofar as it goes. I would go further than Judge Swift, however, and hold that payments under the tuition assistance program are exempt from income. I base this conclusion upon the moratorium,1 which became effective on October 1, 1977. Although the moratorium, itself, only specifically mentioned a freeze on issuance of regulations, Congress’ intent was more expansive. United States v. Ryan, 284 U.S. 167, 175 (1931). The House report stated: While the provisions of this bill relate only to the issuance of regulations, it is the intent of the committee that the Treasury Department will not alter, or deviate from, in any significant way the historical treatment of fringe benefits through the issuance of revenue rulings of revenue procedures, etc. Effective date The provision is effective upon enactment. Revenue effect This provision will not affect estimated budget receipts since it, in effect, continues present administrative practice. [H. Rept. 95-1232, 1978-2 C.B. 365, 366. Emphasis supplied.] See also S. Rept. 95-746, 1978-2 C.B. 422, 424. Respondent admits in his brief that “Congress’ intent in enacting the moratorium was to prevent administrative action by respondent that was inconsistent with prior practice until Congress could review the fringe benefit issues and ultimately legislative tax policy in the area.” Respondent’s brief continues this admission with, “The moratorium was intended to prevent respondent from taxing types of fringe benefits that had previously been left untaxed until Congress could review the fringe benefit area.” I assume respondent’s admissions were based on the House report’s statement that “present administrative practice” would continue. Thus, the enactment of the moratorium causes the historical treatment of fringe benefits by respondent to be particularly relevant to any determination of what the law is with respect to the taxability of tuition assistance programs. Where respondent’s argument and my view of the issue differ, however, is in establishing what the “historical treatment of fringe benefits” was at the time of the moratorium. Respondent asserts that the historical treatment of benefits such as those at issue is set forth in section 1.117-3(a), Income Tax Regs., which was adopted in 1956. I, however, do not read that regulation as explicitly stating that payments such as those made for petitioner’s children do not qualify for exclusion from gross income. Rather, I note that there is evidence of more definite statements made by respondent of the historical treatment of such payments. Respondent correctly notes that no relevant revenue rulings or revenue procedures were in force as of the moratorium’s effective date. The majority refuses to consider the private letter rulings (PLRs) and technical advice memoranda (TAMs) that were outstanding on October 1, 1977. The majority concludes correctly that, under usual circumstances, such documents are not authority in deciding questions of law. The interposition of the moratorium by Congress, however, is an unusual circumstance.2 In enacting the moratorium, Congress added greater weight to the existing, and theretofore nonprecedential, “historical treatment” by respondent in documents such as PLRs and TAMs. The House report addresses the treatment of fringe benefits through “revenue rulings, revenue procedures, etc.” (Emphasis supplied.) H. Rept. 95-1232, supra at 5, 1978-2 C.B. at 366. The insertion of “etc.” into that sentence was redundant and totally meaningless unless Congress was stating that documents other than revenue rulings and revenue procedures, such as PLRs and TAMs, were included in the moratorium. Thus, I would not rely on PLRs and TAMs as per se authority by themselves; rather, I would utilize them as an analytical tool here because Congress chose to elevate respondent’s positions in relevant PLRs and TAMs, i.e., respondent’s “historical treatment,” to positions of great meaning and relevance until such time as the moratorium expired (by which time Congress was hoping that it could have time to reevaluate and clarify the state of the law in the fringe benefit area).3  Petitioner has forwarded a TAM in support of the proposition that respondent’s position as of October 1, 1977, was that tuition payments such as those made by New York University for petitioner’s children were scholarships, and not includable in gross income. On February 5, 1977, TAM 7702089010B (the February TAM) was issued by respondent in regard to a scholarship plan sponsored by the University of Rochester (Rochester). The Rochester plan therein provided for a payment of up to $1,500 to defray costs of tuition of children who were dependents of regular faculty members and who attended another college or university. The plan also provided for a waiver of tuition costs for dependent children who attended Rochester. The only requirements of the plan were that the child’s parent be employed by Rochester and that the child qualify as a dependent for Federal tax purposes. The Rochester plan thus is identical to the New York University plan of petitioner in all material respects. The February 5, 1977, TAM reversed TAM 7612179010B, which had been issued to Rochester on December 17, 1976. The December TAM had held that the tuition provided under Rochester’s plan did not qualify as a nontaxable scholarship. The holding of the February TAM was as follows: This Memorandum is to inform you that the technical advice memorandum of December 17, 1976, should not be applied to future years. Instructions will be issued by Audit regarding the treatment of tuition remission cases. It is our understanding that the instructions will conclude that, until publication of Service position, the issues presented in your technical advice request should not be raised. In light of the history behind the February TAM, that paragraph only can be read to say that respondent’s position, at least until a subsequent publication, was that he would not assert the issue of the taxability of the tuition payments. Respondent did not show that he published any contrary position or issued any contrary rulings after the February TAM and before the date the moratorium went into effect.4 Thus, as of October 1, 1977, the date at which respondent’s historical treatment was frozen by the moratorium, respondent’s position was that of the February TAM, i.e., that he would not contest the nonincludability of the tuition payments in income of employees of educational institutions, such as New York University. My conclusion is bolstered even more by a document forwarded as evidence by petitioner. This document was an analysis supporting TAM 7839006, issued by respondent on June 16, 1978. That TAM held that tuition payments by an employer were not includable in the employee’s gross income.5 The provisions under which the employer made the payments on behalf of the employee to the payee university were, in all material aspects, like those of the New York University plan at issue herein. The supporting document recommended that respondent not contest the includability of the tuition payments, based on the following: In proposing the amendments to Regulations l-117(3)(a) and l-117(4)(c) the Service gave recognition to the fact that the tuition remission programs being maintained by “educational institutions” are compensatory in nature and, therefore, cannot be considered as fellowships or scholarships under 117 of the Code. Subsequently an [sic] IR-1735 dated 1/13/77 the Service announced its withdrawal of the proposed regulations. The reason given by the Service was as follows: “On January 7, 1977 a public hearing was held on proposed regulations. Testimony presented at that hearing, as well as written statements submitted previously and thereafter, pointed out problems associated with changing the tax treatment of amounts received under tuition remission programs. In view of these problems and the joint study of the tax treatment of scholarships and fellowships called for by the House and Senate Committee Reports on the Tax Reform Act of 1976, it has been concluded that the notice of proposed rule making should be withdrawn.’ [sic] To litigate this issue in the instant case, in the view of the undersigned, would appear to be inconsistent with the Service’s avowed position on tuition remission programs, and may conflict with Policy Statement P-4-7 which prohibits discrimination as between taxpayers. [Emphasis supplied.] Thus, although the TAM and supporting document were issued after the moratorium went into effect, I think they provide exemplary evidence of what respondent considered the historical treatment of fringe benefits to be when the moratorium went into effect only a few months earlier. In short, respondent was stating that his “avowed position” was not to contest the exclusion of such tuition payments from income, at least where the plan was maintained by a qualified educational institution. The majority relies on several cases which it determines to be controlling, although it does not tell us why. Thus, I can not understand the majority’s reasoning that it is bound by these cases. In Wheeler; Greensboro Pathology Associates, P.A.; Grant-Jacoby, Inc.; and Armantrout, none of the employers making the tuition payments was an educational institution. The holdings in those four cases comport with respondent’s 1977 administrative position (as noted in some of the above-referenced TAMs) that tuition payments by an employer which was not an educational institution were includable in gross income. The 1969 Bingler case cited by the majority is also distinguishable on the same ground. This analysis makes it readily apparent why the historical treatment of this issue by respondent is particularly relevant and telling. Congress knew the position of respondent at the time it enacted the moratorium and was telling respondent not to deviate from that position until Congress could decide what it wanted to do. See Cammarano v. United States, 358 U.S. 498, 511 (1959); Massachusetts Mutual Life Ins. Co. v. United States, 288 U.S. 269, 273 (1933). I also believe that the majority’s reliance on Western Reserve Academy v. United States, 619 F. Supp. 394 (N.D. Ohio 1985), affd. per curiam 801 F.2d 250 (6th Cir. 1986), is misplaced. First, the instant case is appealable to the Second Circuit, not the Sixth, so the holding of Western Reserve can be no more than persuasive to this Court. Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971).6 Even on its facts, Western Reserve is distinguishable. The Court therein specifically noted, “This is not an action to determine faculty members’ individual income tax liability for tuition awards made to their children.” 619 F. Supp. at 396. The issue therein was the liability of the employer for withholding and FICA taxes on the quantum of the tuition remittances. A more significant difference between the two cases, however, is that the plan in Western Reserve paid the value of the tuition directly to the employee/parent (619 F. Supp. at 396); the school did not make direct payments to the other educational institution, as did the New York University plan (see majority opinion at p. 432). The most glaring defect in the Western Reserve case, however, is that the Court therein never considered the impact of the moratorium; the moratorium is mentioned nowhere in the Court’s opinion. Thus, I would not give significant deference to the opinion since it failed to address a relevant, vital congressional directive on the issue at hand. In short, I am not persuaded that the cases cited by the majority are sufficiently instructive for this Court to rely on them. Last, let me stress that I have examined the TAMs only to determine the historical treatment of the issue by respondent, which Congress, by virtue of the moratorium, elevated to a position of significant relevance in any analysis. If section 117 or the regulation thereunder, section 1.117-3(a), had adequately provided for the treatment of payments such as those remitted for petitioner by New York University, neither the moratorium nor the above analysis would have been required.7 Congress, however, recognized the inadequacies in this area of the law and chose to adopt the moratorium, which, as the committee reports noted, “continues present administrative practice.” H. Rept. 95-1232, supra, 1978-2 C.B. at 366; S. Rept. 95-746, supra, 1978-2 C.B. at 424. In commenting on the revenue effect of “present administrative practice,” both the House and Senate reports declare that the moratorium would “not affect estimated budget receipts.” Although Congress agreed that respondent could study “the question of the appropriate tax treatment of fringe benefits,” Congress specifically thought respondent was prevented from “deviating from the present administration of the tax laws.” (Emphasis supplied.) S. Rept. 95-746, supra, 1978-2 C.B. at 424. In advancing positions such as those respondent has argued in this case, respondent has contravened the congressional freeze. The audit process and respondent’s determination of deficiencies are included within the scope of the administration of the tax laws. Congress certainly thought it was preventing respondent from advancing those positions on audit when it specifically declared what revenue impact the moratorium would have, i.e., none. Respondent himself thought he was prevented from raising the issue, as shown in our above discussion of respondent’s TAMs (which are issued for revenue agents in the course of an audit to give guidance on what positions the Government may maintain). Thus, considering the totality of section 117 as written, its legislative history, the impreciseness of the language of the regulations, and, by authority of the moratorium, respondent’s historical treatment of payments such as of those herein, I would hold for petitioner and find that the tuition remissions were not includable in income. To hold otherwise would be to ignore the mandate of Congress’ moratorium and find that it was a nullity. This Court’s role here is to find Congress’ intent — not to abrogate it.8  Clapp, Williams, and Whalen, JJ., agree with this dissent.   The majority uses the term “moratorium” to describe the laws passed by Congress; however, I have not seen where Congress ever used the term to describe the laws. I use the term “moratorium” only to comport with the majority’s language in describing the laws enacted by Congress. Also, I wonder whether the term “moratorium” might be a misnomer; it might be just as apt a description to label the laws as a “freeze” on the treatment of fringe benefits.    Even though PLRs and TAMs by themselves are not binding legal authority, both the Supreme Court and this Court have used PLRs to determine respondent’s treatment of an issue and his interpretation of law. See Rowan Cos. v. United States, 452 U.S. 247, 261 n. 17 (1981) (Supreme Court still considered PLRs as evidence of respondent’s position, notwithstanding the enactment in 1976 of the provision in sec. 6110(j)(3) that PLRs have no precedential force); Hanover Bank v. Commissioner, 369 U.S. 672, 686-687 (1962); Woods Investment Co. v. Commissioner, 85 T.C. 274, 281 n. 15 (1985) (Court-reviewed).    An argument could be made that, rather than simply elevating the historical treatment (as evidenced by PLRs and TAMS) to a position of relevance, Congress’ intent in enacting the moratorium was to elevate the historical treatment, i.e, the present administrative practice, so as to codify that treatment and engraft it onto the Code.    Respondent did forward TAM 7703022130A, which was issued on Mar. 2, 1977. The employer in that TAM, however, was not “a section 151 (c)(4) educational institution” (which is one described in sec. 170(b)(l)(A)(ii)), so the facts of that TAM are distinguishable from the issue herein.    TAM 7839006 later was revoked by TAM 8146003, but it was revoked only because of a subsequent finding that the employer did not qualify as an educational organization described in sec. 170(b)(l)(A)(ii). Neither petitioner nor respondent suggests that New York University does not so qualify.    I note also that the Wheeler and Greensboro Pathology Associates, P.A. cases were from the Federal Circuit, and we also are not controlled by decisions of that Court.    Even respondent ignores his own previous interpretations of that regulation in order to advance an inconsistent argument in this case.    In reference to the moratorium, the majority suggests that this Court has no jurisdiction over the matter because the statute included no remedy for a violation by respondent. There is an alternative argument, with which I do not necessarily agree, in response to the issue of our jurisdiction. Respondent’s failure to adhere to the “historical treatment of fringe benefits” might be said to be a failure to comply with the statutory requirements of the moratorium. In such a case, respondent’s failure to comply with such statutory requirements “renders the deficiency notice null and void and leaves nothing on which Tax Court jurisdiction can rest.” Scar v. Commissioner, 814 F.2d 1363, 1370 (9th Cir. 1987). I am left to wonder, however, why the majority neglects to address this argument in its discussion of the Court’s jurisdiction.