Court Opinion

ID: 9639698
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:45:20.136587+00
Date Added: 2024-06-11T18:10:21.080498
License: Public Domain

MINTON, Circuit Judge
(dissenting).
When Congress passed the legislation in question, it was attempting to prevent the evasion of income and other taxes by the use of the personal holding company. By this device, an artist, business executive, movie star or other person whose income from his exceptional talents was great, would form a corporation and contract his *884services to such corporation at a nominal sum. The corporation would then in turn contract with the real employer for the large income ' such employer was willing to pay for the exceptional talents of the designated party, and the talented person would thereby escape taxes. The talented person was always named in the contract with the real employer. The statute under consideration had for its purpose to tax heavily the income from a contract of this kind which called for the services of a designated person.
In the case at bar, the petitioner corporation was no such device for tax evasion. It was a corporation organized to conduct a legitimate business. True, the services of Mr. Gillam were its most valuable asset, and the contract did exact his services by name. No doubt the parties especially desired his services. But his services were not the only services the petitioner rendered. In the contract that produced the considerations the Government would tax, the petitioner contracted for and rendered budgetary, accounting and income tax services that Gillam was wholly incapable of performing, and some of which, such as the making of income and other tax reports, could not have been of the slightest assistance to Gillam in the performance of his services. Indeed, of the services rendered by the petitioner to earn the $24,000 income involved in this case, $16,000 was for services rendered by petitioner’s staff other than Gil-lam. I cannot agree that these services were incidental, and on a par with those of a craftsman’s helper who “fetched and carried” tools and materials for the craftsman to perform his job. These large and valuable services, which Gillam did not and could not perform, were not rendered just in apprenticeship or as assistance to Gillam in the performance of his duties. The services were independent services* rendered by the petitioner. Gilliam did not render all of the services paid for. He did not render over a third of the total services performed by the petitioner.
The case at bar is that of a corporation engaged in rendering a legitimate busi-, ness service with no purpose to use the corporation to evade taxes. If Gillam’s name had not been mentioned in the contract, there would have been no basis for the Government’s claim. Because his name was mentioned in the contract, the Government takes in taxes and penalties 92% of the income of the corporation. I had always understood that tax statutes dealt with realities — the substance of things and not the form. The only reality in this case is that the taxpayer has to pay a large penalizing tax because the Government pursued the phantom of a form. Legitimate business should not be subjected to such penalizing statutes under a strained construction. Tax statutes are to be strictly construed in favor of the taxpayer where the Government is trying to bring the taxpayer within the provisions of the statute. Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211.
I think the decision of the Tax Court should be reversed.