Court Opinion

ID: 4484119
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:31.504631+00
Date Added: 2024-06-11T08:49:14.547162
License: Public Domain

Chabot, J., dissenting: Petitioner distributed property to its shareholders. The shareholders, more-or-less promptly, sold the property.1 The majority do not find that petitioner sold the property, yet the majority hold that the gains on the sales are to be imputed to petitioner. From this holding I respectfully dissent. The majority rely on United States v. Lynch, 192 F.2d 718 (9th Cir. 1951), in imputing the gains to petitioner. In Lynch, the corporation had physical possession of the apples assertedly distributed to its shareholders (192 F.2d at 719); the apples were part of the corporation’s inventory (192 F.2d at 720); “the sale was to be made by utilizing the corporation’s facilities in the ordinary course of its business” (192 F.2d at 720); and the corporation did not charge its “customers” (i.e., the shareholders) a selling commission and certain customary handling charges were not imposed (192 F.2d at 721). In the instant case, in contrast, petitioner did not have physical possession of the distributed navy beans. Petitioner distributed to its shareholders the warehouse receipts evidencing the right to the distributed beans. Petitioner’s selling facilities and personnel were not used to arrange for or to execute the sales of the distributed beans or warehouse receipts. In the foregoing important elements, the instant case differs from that dealt with in Lynch. A holding for petitioner herein may conflict with some of the sweeping language in the Court of Appeals’ opinion in Lynch, but it would be entirely compatible with what the Court of Appeals did in that case and with the Court of Appeals’ evaluation of the facts it faced in that case. See Peter Pan Seafoods, Inc. v. United States, 417 F.2d 670, 674 (9th Cir. 1969); United States v. Horschel, 205 F.2d 646, 650 (9th Cir. 1953). The majority herein dismiss the opinion of the Court of Appeals for the Fifth Circuit in Hines v. United States, 477 F.2d 1063 (1973). The only stated ground for so doing is that the Hines approach is not controlling here because appeal in the instant case would be to the Sixth Circuit, and not to the Fifth Circuit. In Hines, too, some of the sweeping language of the opinion may go beyond the Court of Appeals’ analysis of the facts it faced. Nevertheless, a decision for petitioner herein would be consistent with what the Court of Appeals did in Hines. The majority do not hold that there has been an anticipatory assignment of income. Rather, they conclude that petitioner should be taxable on the gains because the distributions proceeded from tax-avoidance motives and without any substantial business purpose. However, taxpayers may so arrange their affairs that their taxes may be as low as possible (Gregory v. Helvering, 293 U.S. 465 (1935)), and what they did, rather than what they might have done, controls their liability. Seminole Flavor Co. v. Commissioner, 4 T.C. 1215, 1235 (1945); Koppers Co. v. Commissioner, 2 T.C. 152, 158 (1943). The petitioner herein chose to make distributions of dividends in kind rather than sell the appreciated property and retain the proceeds or distribute the proceeds. This petitioner may do so in the exercise of its business judgment and in accordance with the wishes of its shareholders, even if the sole purpose of distributing in kind rather than distributing cash is to lessen petitioner’s taxes.2  The law penalizes corporations that refuse to issue dividends in order to avoid tax on their shareholders. Petitioner herein is, in effect, penalized because it issued dividends which increased its shareholders’ incomes subject to tax. It is sometimes charged that corporations are used to pass through artificial losses in order to reduce their shareholders’ Federal income tax liabilities. In the instant case, the set of transactions increased petitioner’s shareholders’ incomes subject to tax. Concerns are expressed about so-called “tax-free” dividends, which enable shareholders to receive funds from their corporations without having to take these funds into income. We have no indication that a decision for petitioner in the instant case would result in such “tax-free” dividends. Cases arise which involve the asserted use of a corporate form to divert income from the true owners of a business to those owners’ children or other low-tax-bracket family members. No such tax avoidance is charged here. Nothing in the legislature’s command,3 the actions of the Courts of Appeals cited by the majority herein,4 or this Court’s precedents5 justifies taxing to petitioner the gains realized by petitioner’s shareholders. Sterrett, Hall, and Nims, JJ., agree with this dissenting opinion.  Dividend 1 was sold within 8 weeks after the distribution; dividends 2,3, and 4 were each sold on the same day as the distribution; dividend 5 was sold within 4 weeks after the distribution.   See San Diego Transit-Mixed Concrete Co. v. Commissioner, T.C. Memo. 1962-141.   See United States v. Rutherford, 442 U.S. 544 (1979), where the Supreme Court, in a different context, noted that “Under our constitutional framework, federal courts do not sit as councils of revision, empowered to rewrite legislation in accord with their own conceptions of prudent public policy.”   See T. David, “The Imputed Sale and Anticipatory Assignment of Income Doctrines: Their Effect on IRC §§ 311 & 336,” 15 Buffalo L. Rev, 154, 158-159 (1965).   See Rogers v. Commissioner, 38 T.C. 785 (1962), where we held that a donor of an interest in standing timber that he contributed to a charitable organization is not taxable on the gain from the sale of contributed timber even though (1) it was understood at the time of the contribution that the timber was to be sold, (2) the timber remained on the donor’s land until the timber was sold, and (3) the donor did substantially all the work in selling the timber.