Court Opinion

ID: 4482454
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:30.000311+00
Date Added: 2024-06-11T15:03:43.771036
License: Public Domain

Tannenwald, J., dissenting in part: I disagree with that portion of the majority opinion which is based upon the legal conclusion that an accumulation of current earnings during the taxable year 1968 is a sine qua non for the imposition of the accumulated-earnings tax for that year. In W. S. Farish & Co., 38 B.T.A. 150 (1938), affd. 104 F. 2d 833 (C.A. 5,1939), the issue was the proper basis for accounting for property transferred to the corporation in a section 351 (then section 112 (b) (5)) exchange. The Board of Tax Appeals held that, although the transferor’s cost was proper in computing taxable income, it was the book cost for the corporation that should be used in computing earnings and profits for the purposes of the tax on unreasonable accumulations of earnings. That case is therefore not controlling. In Corporate Investment Co., 40 B.T.A. 1156 (1939), the decision was based upon the ground that, although there were in fact earnings and profits as a result of a subsequent audit, the officer-shareholders of the corporation had made an honest mistake in estimating such earnings and profits at the end of the taxable year involved. Consequently, no improper motivation was found to exist. That case is therefore likewise not controlling. In American Metal Products Corporation, 34 T.C. 89 (1960), affd. 287 F. 2d 860 (C.A. 8, 1961), the issue of earnings and profits versus taxable income was not raised or argued by the parties. It was raised by this Court on its own motion and disposed of without analysis and simply in reliance on Farish and Corporate Investment Co. See 34 T.C. at 104. The issue was not appealed by the respondent, so the affirmance by the Eighth Circuit is of no significance. I see no difficulty in interpreting section '532 so as to include earnings and profits of prior years within the statutory clause “by permitting earnings and profits to accumulate instead of being divided or distributed.” A past situation can be “permitted” to become a current situation. In short, I find the reasoning of Judge Battisti in Ostendorf-Morris Co. v. United States, an unreported case (N.D. Ohio 1968, 26 A.F.T.R. 2d 70-5369, 70-2 U.S.T.C. par. 9550), totally persuasive. See also Opper, J., dissenting, in Corporate Investment Co., supra at 1177-1179.