Court Opinion

ID: 9445052
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:18:55.873385+00
Date Added: 2024-06-11T17:30:06.764008
License: Public Domain

CLARK, Chief Judge
(dissenting).
The very care and concern so manifest in Judge Waterman’s able opinion to search out arguments for a result somewhat startling in its possibilities for lessened tax liability of interconnected *129corporations itself carries warning of the difficulties, not to say technicalities, of the conclusion reached and the lifting-by-bootstraps reasoning necessary to reach it. Of course I have been at this business long enough now not to be startled by new vagaries of statutory interpretation in tax law; moreover, we are but a station on the way to definitive exposition by the Supreme Court, and then perhaps to new legislation at the behest of the Treasury to plug the gaps which judges, aided by astute tax counsel, have uncovered. So this case, if it is at all unique in the normal tax process I have indicated, is so only perhaps in being somewhat more striking in that Congress in attempting to stop a comparatively small leak in revenues through the operation of consolidated returns from intertwined corporations now finds itself with the intent by repeal of this provision to open up a large leak, indeed, operable merely by denominating an intercorporate allocation of surplus a debt, not a dividend. Since the matter of repayment is so obviously not a matter of present or perhaps even of potential concern, I cannot think such view of legislative intent at all realistic. And the basic rationale that the indebtedness must be genuine because only a valid indebtedness will give rise to, i. e., make legal, the hoped-for tax benefit to me seems a naive ground for upholding a tax deduction.
Hence in my view the approach adopted by the Tax Court in its en banc decision, 21 T.C. 513, while perhaps not so neat and tidy as the one now to be substituted, seems more appropriate to the circumstances and more in consonance with the probable intent of Congress. It is in effect to test the genuineness of the intercorporate indebtedness by objective standards, rather than by the subjective purpose of the parties to relieve themselves of a tax burden, even if tax minimization be accepted as a laudable ambition. Once we adopt this method of approach all of the factors rejected in the opinion, as well as others discussed below, are seen to be persuasive considerations which added together amply justify the finding made of lack of genuine debtor-creditor relationship between these close corporations. Indeed, I suggest there is hardly anything to offset these objective indicia of lack of indebtedness in the ordinary sense, i. e., a debt whose nonpayment leads to foreclosure or attachment and execution, except the obvious subjective desire to secure the maximum tax relief. This, as is ruled in John Kelley Co. v. C. I. R., (Talbot Mills v. C. I. R.), 326 U.S. 521, 66 S.Ct. 299, 90 L.Ed. 278, is an excellent occasion for an appellate court to accept the trier’s careful weighing of the facts. The obvious invitation extended by our failure to do so here seems to me to open a Pandora’s box for the future. Surely the process whereby the taxpayer has supplemented its product— cheese — by a marvelous by-product — the pure gold of tax avoidance — will stimulate imitators.