Court Opinion

ID: 9448168
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:24:48.943216+00
Date Added: 2024-06-11T17:31:18.940136
License: Public Domain

STEPHENS, Circuit Judge
(concurring).
The question before the court is whether the Tax Court acted correctly in excluding as deductible items for the year 1949 two promissory notes, representing contributions to a stock bonus and profit sharing trust.
The first note in question, for $30,466.-86, was delivered to the trustee in May of 1948 and presents no problem. Our *671first opinion in this matter decided, inter alia, that the delivery of the note determined the date in which the contribution was deemed to be paid. Accordingly, the Tax Court correctly determined that as to this note 1948 was the proper year in which the deduction should have been taken.
The second note presents a real issue. This note was delivered to the trustee on February 28, 1949. Section 23 (p) (1), Internal Revenue Code of 1939, provides:
“(1) General rule. — If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan * * * such contributions * * * shall not be deductible under subsection (a) [ordinary and necessary business expenses] but shall be deductible, if deductible under subsection (a) without regard to this subsection, under this subsection but only to the following extent:”
Limitations then follow under subparagraphs (A), (B), (C), and (D), each, inter alia, requiring actual payment during the taxable year. There then follows subparagraph (E):
“For the purposes of subparagraphs (A), (B), and (C), a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within sixty days after the close of the taxable year of accrual.”
Treasury Regulations 111, promulgated under the Internal Revenue Code of 1939, Section 29.23(p)-l, states in part:
“Deductions under section 23 (p) are generally allowable only for the year for which the contribution or compensation is paid, regardless of the fact that the taxpayer may make his return on the accrual basis. Exceptions are made * * * as provided by section 23(p) (1) (E), in the case of payments made by a taxpayer on the accrual basis within 60 days after the close of the taxable year of accrual. This latter provision is intended to permit a taxpayer on the accrual basis to deduct such accrued contribution or compensation, provided payment is actually made within 60 days after the close of the year of accrual.” (Emphasis supplied.)
There is at once apparent an ambiguity as between the statute and the regulation. While the former is phrased in mandatory terms, the latter is permissive in tone. The Tax Court appears not to have considered the matter. Petitioner has seized upon the difference in statute and regulation in challenging the Tax Court’s ruling. The contention of respondent, accepted by the Tax Court, is that the note for $66,342.82, being delivered within 60 days of the end of the year of accrual (1948), to the extent of $42,347.54 (the maximum which can be allocated to the year 1948 under the limitation of 15% of the aggregate compensation of eligible employees) must be charged to that year. Petitioner, with his eye on the regulation, claims that the year of payment is permissive rather than mandatory. Therefore, contends petitioner, at his option, the note can be charged to 1949, the year of delivery, even though such delivery was made within 60 days of the close of the taxable year of 1948 and was on the account of that year. If in his contention petitioner is correct, the computation of taxes owing for 1949 and 1950 accepted by the Tax Court is clearly in need of revision.
The authorities are silent as to the problem of construction which is presented. The American Law Institute, “Basic Pension and Profit Sharing Plans” (June, 1957), page 17, in discussing the counterpart of section 23 (p) (1) (E) in the 1954 Code, states:
“ * * * an accrual basis taxpayer may accrue a contribution as of the last day of the employer’s taxable year and deduct the contribution, subject to the applicable limitations as to amount, if it is actually paid by the due date for filing the employer’s tax returns for the tax*672able year. Before the 1954 Code the accrued contribution had to be paid within 60 days after the end of the taxable year.” (Emphasis supplied.)
The above language is couched in permissive terms, but again, there is ambiguity. There is no statement that taxpayers have an option in the matter; merely that they have 60 more days in which to make payment than taxpayers on a cash basis. 4 Mertens, Law of Federal Income Taxation, sec. 25B.29 terms the sixty day period a “grace period.” This description suggests that an accrual basis taxpayer is given extra time, a period of “grace,” in which to determine the amount of his contribution and make payment thereof. Other references are unenlightening as to the issue presented. The Legislative History is completely silent upon the question of whether section 23(p) (1) (E) is permissive or mandatory.
The sixty day period bestowed by section 23(p) (1) (E) is given without re.gard to the nature or size of the business involved, but solely upon the nature of the accounting system employed. The “grace” period is not available to the ■cash basis taxpayer. The reason for the difference in treatment must be found in the difference in accounting systems. 'The distinction between the two lies in the comparative availability of financial •data. Very simply, the accrual basis taxpayer was thought to need more time to dig out the necessary information upon which to determine the amount of his ■contribution. Sixty days was apparently thought to be a reasonable time for this purpose. Having determined the amount ■of his contribution, the accrual basis taxpayer was allowed to relate the payment back to the year in which it arose (as is required by the other subparagraphs ■of section 23(p) (1)), matching the expense with the income from the same period.
If the foregoing analysis is correct, then the connotation of option for which petitioner seeks acceptance has no rational foundation. The statute was not intended to allow accrual basis taxpayers to choose their year, but merely to accommodate the type of accounting system which they employed.
The weakness of petitioner’s contention is made more apparent by the change made in section 23(p) (1) (E) under the 1954 Code. By the new Code, the sixty day period has been extended to the due date for filing the employer’s tax return. The section is otherwise unchanged. Currently, taking a calendar year taxpayer, this means that an accrued payment would not have to be paid before April 15 in the case of a non-corporate taxpayer, or March 15 in the case of a corporate taxpayer. By these dates outer limits are set for both the payment of taxes for the previous year and also the relating back to such year the kind of payments here under discussion. In each instance the accrual basis taxpayer must have the required information to perform the necessary acts. This is not to say that the taxpayer can’t pay sooner, it is simply bounds beyond which, in the absence of a special grant of extension, he cannot go. On the other hand, should petitioner’s position be adopted, under the 1954 Code a non-corporate accrual basis taxpayer could at his leisure, up to April 15, choose the year in which to take the deduction for his contribution. There is no apparent reason why Congress should so discriminate between taxpayers simply on the basis of their accounting systems. In the absence of such reason, we return to the clear command of the statute, that “a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within sixty days after the close of the taxable year of accrual.” The statute in question is properly construed as mandatory. Unless, then, there exists some other reason for allowing the deduction of the note in 1949, it must be considered as having been an allowable deduction only in 1948.
Petitioner asserts that such reason exists, by way of estoppel. This contention *673requires further discussion of the facts. It appears that originally petitioner attempted to take the note in question as a deduction for the year 1948. Respondent disallowed this as a deduction, presumably for the reason that, prior to our previous decision, he believed delivery of the note not to be payment thereof. We decided otherwise. Retrospectively, it now appears that petitioner’s original claim was entirely proper. His problem now is that 1948 is a year barred by the statute of limitations, and he is thus denied any benefits from his contribution with respect to that year. He thus claims estoppel in that respondent denied the deduction in the first place and now wishes to relate the payments back to the barred year. These facts are true enough, but whether they give rise to an estoppel is another matter.
In the first place this doctrine is not lightly applied against the government. If applied at all, it will be done sparingly and with the utmost caution. Goldstein v. United States, 8 Cir., 1955, 227 F.2d 1. This is because its application in any case “would result in having individual tax liability depend, not upon factors prescribed by Congress as applicable to all, but upon the statements and conduct of a particular Government officer in respect of each individual.” James Couzens, 11 B.T.A. 1040. One case, Stockstrom v. Commissioner, 1951, 88 U.S.App.D.C. 286, 190 F.2d 288, 30 A.L.R.2d 443, which liberally applied estoppel against the Government was disapproved by the Supreme Court in Automobile Club of Michigan v. Commissioner, 1956, 353 U.S. 180, 77 S.Ct. 707, 1 L.Ed.2d 746, to the extent that it held estoppel a bar to the correction by the Commissioner of a mistake of law. Respondent’s error here was apparently that mere delivery of the note to the trustee was not sufficient for payment of the obligation thereby incurred as a matter of law. The Commissioner is not estopped, and indeed would be derelict if he did not choose the position which he now takes. There was no fault, but a need for clarification in the law only now resolved.