Court Opinion

ID: 4475808
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:42.372374+00
Date Added: 2024-06-11T14:53:53.773480
License: Public Domain

TietjeNS, /., dissenting: I respectfully record my dissent. Inherent in the majority opinion is recognition that petitioner suffered a loss within the provisions of the Internal Bevenue Code providing for deductibility of losses. With this I agree. However, the majority denies petitioner the deduction of this loss on the ground that to do so would “frustrate” a well defined public policy. With this I disagree. The majority seems to feel that to allow petitioner the deduction would in some way encourage corporate officers to indulge in short-swing speculation in the stocks of their companies despite the fact that the Securities Exchange Act would require any profits made from such transactions to be paid over by the officer to the corporation. I find nothing in the record to justify this fear. It is always “possible” that deductions will result in some advantage to a taxpayer. But that result flows from the very nature of deductions. Suffice it to say that there is nothing here to show that petitioner had any such motive in buying and selling stock. It is apparent that his liability to the corporation came as a surprise to him. He had reported as income and paid the required tax on the profits from his sale. That his subsequent purchase subjected him to the sanction of parting with a portion of the gain he had realized, so far as I can see, was unrelated to the fact that the Code might provide for de-ductibility of his loss or the possibility that the taxing authorities might deny him that deduction. To deny him the deduction, as the majority has done, seems to me to subject petitioner to a double sanction nowhere provided for, either by the Securities Exchange Act or the Internal Revenue Code. He paid the tax required on his profit. Part of the profit was later taken from him and turned over to the corporation. Why deny him the deduction ? Of course, as the majority says, the sanction imposed by the Securities Exchange Act of 1934 was designed as a deterrent to police insider stock dealing. But in concluding that this Court must add a further deterrent, if it be a deterrent (and I cannot find that it would be) to such transactions, I think the majority is wrong. The Exchange Act provides its own sanctions. If those sanctions are not harsh enough, Congress can remedy the situation. It has done so in similar situations. See Weather-Seal Manufacturing Co., 16 T. C. 1312. Too, I think the majority passes too lightly over the pronouncement of the Securities and Exchange Commission itself to the effect that failures to comply with the section of the Securities Exchange Act here involved are not “penal” or “unlawful” and do not even “subject insiders to injunctive proceedings.” The pronouncement continues: “It [sec. 16 (b) ] simply guards against the use of inside information since such information is not the personal property of the insiders themselves and since any profits resulting from its use belong to the insiders no more than does the information itself.” The majority is not “swayed by this characterization.” I would accord it more weight. Neither can I disregard the subsequent actions of the Commission in ameliorating the effect of section 16 (b) so far as purchases by corporate officers of equities in their corporation or its subsidiaries pursuant to stock options, bonus plans, etc., are concerned. 17 C. F. R., section 240.16b-3. While the applicability of these actions is not too clear in the case at hand, the amendments made by the Commission indicate to me that the policy of the Securities Exchange Act with reference to transactions of the kind here involved is not as well defined as the prevailing opinion argues. In my opinion, to allow this petitioner to deduct for tax purposes the amount he was required to pay over to the corporation will in no way interfere with the policy of the Securities Exchange Act of 1934. The exaction of that statute is more remedial than penal in providing that the profits of the transaction inure to the corporation rather than to the individual, and the payment made should have been allowed as a deduction. Arundell, Van Fossan, Black;, and Johnson, //., agree with this dissent.