Court Opinion

ID: 9481980
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:37:04.149238+00
Date Added: 2024-06-11T17:48:41.859627
License: Public Domain

BOYCE F. MARTIN, Jr., Circuit Judge,
concurring.
While I agree with the result reached by the majority, I disagree with the application of collateral estoppel to the facts of this case. I respectfully disagree with the majority’s conclusion that Revenue Ruling 81-178 did not significantly change the legal climate with respect to the interpretation of “royalty” for purposes of section 512(b)(2) of the Internal Revenue Code.
In DAV1, the court of claims laconically stated that “DAV’s list rentals are the product of extensive business activity by DAV and do not fit within the types of ‘passive’ income set forth in section 512(b).” 650 F.2d at 1189. The court of claims’ opinion does not provide any further analysis of the issue other than noting that “[t]he ‘royalties’ there referenced are those which constitutes passive income, such as the compensation paid by a licenser for the use of the licenser’s patented invention.” Id. A fair reading of DAV1 suggests the court rested its conclusion solely on the fact that DAV’s list rentals were not “passively” generated. In Rev.Rul. 81-178, however, the Commissioner rejects this passive versus active test in determining what was to be considered a royalty for purposes of section 512(b)(2). Instead, *317Rev.Rul. 81-178 focused solely upon whether the payment related to the use of a valuable right.
The majority reads Rev.Rul. 81-178 as nothing more than “a conclusion from a specific set of facts that payments received for the use of those intangible assets are ‘ordinarily’ considered royalties.” The significance of Rev.Rul. 81-178, however, does not lie in its factual similarity to the present case, but rather in its analysis of what is properly considered a royalty. Indeed, all cases, in their simplest terms, are nothing more than conclusions based upon a specific set of facts, with their relevance primarily stemming from the principles they employ and help to establish. There is no question, at least in my mind, that Rev.Rul. 81-178 utilized an entirely different mode of analysis in reaching its conclusion than did the court of claims in DA VI, and furthermore, that the analysis employed in Rev.Ruling 81-178 is directly applicable to the issue before us.
Needless to say, I also believe that Rev. Rul. 81-128 did carry enough force in order to evidence a change in the “legal climate” sufficient to preclude the application of collateral estoppel. In my opinion, this case is not unlike those cases in which courts have recognized that a change in legal climate may be caused by an administrative agency which is empowered to interpret and apply its enabling legislation. See Graphic Communications Int’l Union, Local 554 v. Salem-Gravure, 843 F.2d 1490, 1493 (D.C.Cir.1988), cert. denied, 489 U.S. 1011, 109 S.Ct. 1119, 103 L.Ed.2d 182 (1989); Brock v. Williams Enter., 832 F.2d 567, 574 (11th Cir.1987). Although revenue rulings are not binding upon courts, they are binding upon the Commissioner in the absence of withdrawal, modification, or revocation. Silco, Inc. v. United States, 779 F.2d 282, 287 (5th Cir.1986).
Notwithstanding my opinion that the application of collateral estoppel is inappropriate in this case, I would nevertheless reach the same conclusion as did the majority of reversing the decision of the tax court. This exceedingly complex case centers around a single inauspicious question: Are the monies received by DAV for the use of its donor list by other organizations properly classified as royalties pursuant to 26 U.S.C. § 512(b)(2). Unfortunately, the term “royalties” is not defined in any precise manner for purposes of § 512(b)(2) in the Code. We thus must look to other evidence in order to determine what Congress meant. Should the term “royalties” encompass the income DAV receives for the use of its donor list or not?
This question appears to have been conclusively answered by Congress when it enacted section 513(h) in 1986. Section 513(h) specifically excludes payments to an exempt organization from another exempt organization for list rentals. Thus the income is non-taxable unrelated business income. 26 U.S.C. § 513(h). The legislative history of section 513(h) indicates that Congress was responding to the court of claims decision in DA VI in enacting this section. See H.R.Conf.Rep. No. 841, 99th Cong., 2d Sess., pt. 2, at 822 (1986), reprinted in 1986-3 (vol. 4) C.B. 822, U.S.Code Cong. & Admin.News 1986, 4075, 4910. Congress, in enacting this section, obviously felt that the court of claims decision in DA VI was the proper interpretation of “royalties” for purposes of § 512(b)(2) with respect to the payments received by an exempt organizations from a commercial organization. Why else would Congress have written § 513(h) to apply only to exempt organizations if it had disagreed with court of claims’ interpretation of the term “royalties” in § 512(b)(2)?
The acceptance of DAV’s position that the monies it receives from list rental are royalties under § 512(b)(2) would totally eviscerate section 513(h). Section 513(h) would be reduced to mere surplusage under DAV’s interpretation of § 512(b)(2) which would hold that all list rentals, and not just those to other exempt organizations, are excludable from unrelated business taxable income. Although § 513(h) was enacted after the relevant time period at issue in this case, its implications cannot be ignored. Once Congress has made its intentions clear, I think we should try to carry out those intentions. I do not think this issue is still open for debate. There is *318simply no way to reconcile Congress’ intent as evidenced by the enactment of § 513(h) and the position advanced by DAV. I would reverse the decision of the tax court and find that the monies received by DAV from list rentals are not excludable from unrelated business taxable income as royalties under § 512(b)(2).