Court Opinion

ID: 4481924
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:11.870144+00
Date Added: 2024-06-11T14:54:01.034048
License: Public Domain

DkeNNEN, /., dissenting: I disagree with the majority because I think the conclusion it reaches represents judicial legislating far beyond the scope of the authority of this or any other court. The language of section 165(a) is clear and puts no limitations on the losses that are deductible by corporations. As pointed out in Judge Tannenwald’s dissenting opinion the juxtaposition of sections 23 (e) and 23 (f) in the 1939 Code points up even more clearly the statutory distinctions between losses allowable to individuals and losses allowable to corporations, and the legislative history of section 165 indicates that no substantive change was intended. Indeed when the provisions for deducting losses were rearranged in the 1954 Code it can hardly be argued that Congress was not aware of what it was doing in placing the limitation on the deductibility of losses by individuals only. It has long been acknowledged that deductions are matters of legislative grace in the income tax laws. I do not believe it is the function of the courts to decide what the law should be or to even express an opinion thereon, unless the statutory law is unclear, which is not the case in this instance. If a change in this provision of the law is deemed to be desirable, I would leave it to Congress to make the change. I would apply the present law as it reads and allow the deduction. Atkins, FoeRKStee, and Irwin, JJ., agree with this dissent. Tannenwald, J., dissenting: The task of this Court is to apply the statute as we find it, and it cannot be gainsaid that its language, insofar as this case is concerned, is crystal clear. Section 165 is contained in part VI of subchapter B of chapter 1 of the Internal Revenue Code, which bears the heading, “itemized deductions eor individuals and corporations.” Subsection (a) of section 165 specifically sets forth as the general rule: “There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.” (Emphasis added.) Subsection (c) carves out certain limitations “In the case of an individual.” 1  The 1939 Code dealt separately with losses — in section 23(f) without limitation “In the case of a corporation” and in section 23(e) with limitations “In the case of an individual” — and the legislative history of section 165 clearly indicates that no substantive change was intended in this respect. See S. Rept. No. 1622,83d Cong., 2d Sess., p. 198 (1954). The “held for use in its trade or business” test adopted by the majority produces a myriad of problems. Apparently it does not mean that the property must actually be used in the trade or business in order to get a loss on the sale. Compare Alamo Broadcasting Co., 15 T.C. 534 (1950), with Nulex, Inc., 30 T.C. 769 (1958); Rev. Rul. 56-520, 1956-2 C.B. 170. But the line which will necessarily have to be drawn will be murky and the test produces difficulty in the case of shared facilities provided on a cost basis. See S. Rept. No. 91-552, 91st Cong., 1st Sess., p. 104 (1969), relating to the enactment of section 213 2 of the Tax Reform Act of 1969, which disallows deductions where an activity is not engaged in for profit only in the limited situations “of an activity engaged in by an individual or an electing small business corporation.” Compare also Adirondack League Club, 55 T.C. 796 (1971), on appeal (C.A. 2, May 24, 1971). Along the same lines, if the Beaver Lake property had been destroyed by fire or other casualty, the absolute rule articulated by the majority opinion would deny any loss to petitioner. Thus, petitioner would be in a worse position than the individual shareholders would have been if they had owned the property directly. This result would obtain despite the fact that section 165(c), which allows such loss to the individuals, is clearly a limitation on section 165(a). That petitioner may not have been entitled to deduct expenses in respect of the Beaver Lake property is not a critical consideration. The rights to deductions under sections 162 and 212, on the one hand, and section 165, on the other, are not coextensive. See, e.g., Warner v. Commissioner, 167 F. 2d 633 (C.A. 2, 1948), affirming per curiam a Memorandum Opinion of this Court; E. R. Fenimore Johnson, 19 T.C. 93, 98 (1952); William C. Horrmann, 17 T.C. 903, 909 (1951). Helvering v. Owens, 305 U.S. 468 (1939), upon which the majority relies, does not demand that we rewrite section 165(a). In essence, that decision stands for the proposition that the measure of a loss is to be geared to the economic realities of the situation and is not to be measured by a theoretical computation. The underlying basis of Owens could enable us to limit the loss of petitioner herein to the difference between the proceeds of sale and the original cost less depreciation, albeit nondeductible depreciation. Indeed, Owens might even be applied to limit the loss to the difference between the proceeds of sale and the fair market value of the property on the date of sale. Compare Frank A. Newcombe, 54 T.C. 1298 (1970). Compare also section 1.165-7, Income Tax Begs., dealing with the measure of casualty losses by individuals. But compare Nulex, Inc., supra. Such an approach could result in a denial of the loss in its entirety on the ground that the sale price is proof of such fair market value. But respondent has advanced no arguments along the f oregoing lines and the record herein is insufficient for us to reach a decision on any such basis. Whether we think that Congress, if it had considered the problem involved herein, would have dealt with it in another manner is of no consequence. Compare, e.g., United States v. Hendler, 303 U.S. 564 (1938), which was followed immediately by the enactment of what is now section 357, dealing with the assumption of liabilities by a corporation upon a transfer of property to it upon incorporation; Commissioner v. Gracey, 159 F. 2d 324 (C.A. 5, 1947), affirming 5 T.C. 296 (1945), now overruled by section 1223 (1), in regard to the tacking oí holding periods where noncapital assets are exchanged for capital assets; and Wissing v. Commissioner, 441 F. 2d 533 (C.A. 6, 1971), affirming in part 54 T.C. 1428 (1970),3 dealing with the liability of a wife on a joint return in respect of unreported income of the husband, now modified by an amendment to section 6013 (e). On the record herein, I conclude that petitioner should be entitled to a capital loss on the sale of the Beaver Lake property. Richard R. Riss, Sr., 56 T.C. 388 (1971); cf. Nulex, Inc., supra. Compare also Hanover Bank v. Commissioner, 369 U.S. 672 (1962). FoeResteR, Fat, and IrwiN, JJ., agree with this dissent.   See. 165 is not the only section in part VI where distinctions are drawn between corporations and individuals. See see. 165(i), 166(d), 166(f), 170(b)(1) and (2), 170(d)(1) and (2), 171(a) (3), 172(d) (5), and 176. See also sec. 163(d), added by the Tax Reform Act of 1969.    See. 183.1.R.C. 1954.    See also Huelsman v. Commissioner, 416 F. 2d 477 (C.A. 6, 1969), remanding T.C. Memo, 1968-95.