Court Opinion

ID: 8597503
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:04:53.485789+00
Date Added: 2024-06-11T16:55:01.806978
License: Public Domain

KASHIWA, Judge,
concurring in result:
I concur in the majority’s result but wish to state the reasoning I perceive necessary to that result.
The critical inquiry is whether a portion of this concededly § 38 property ceased to be § 38 property solely by reason of the § 1017 election plaintiff made in a subsequent taxable year. Defendant, it seems to me, has two basic arguments, *128neither of which are persuasive. One argument is that the later § 1017 adjustment is deemed under Treas. Reg. § 1.48-1(b)(2) to alter the use of that portion of the property in the year the asset was placed in service. While Treas. Reg. § 1.47-2(a)(2) does provide some support for the "look back,” I am not persuaded that this particular adjustment to basis necessarily alters the use of the property within the meaning of Treas. Reg. § 1.48-l(b)(2). While property not held for investment or business is not depreciable under § 167, it does not follow that when property is no longer depreciable the property is no longer used in the trade or business. The regulations concede as much. See Treas. Reg. § 1.47 — 2(a)(2)(iii) (Example 2). A second and related argument is that under Treas. Reg. § 1.47-2(c), a subsequent reduction in basis is otherwise a "cessation” as to that portion of the property. This issue is closer, but I conclude that regulation is inapplicable. First, the Government’s reading requires that all adjustments to basis trigger recapture. As that includes annual depreciation deductions, this reading seems at odds with the clear congressional intent that investment in depreciable property be encouraged. Second, the regulation is apparently directed at situations where the overall investment in an asset is reduced, as where a refund occurs. From the perspective of the asset’s seller, no reduction in overall investment occurs in a debt repurchase situation for the portion of the investment no longer borne by the purchasing debtor is borne (in the form of a loss) by the original bondholders. Unlike the refund situation, the asset’s seller has identical funds for further investment before and after the transaction. Admittedly, the debtor’s share of the investment is reduced, but § 108 provides explicit nonrecognition for that. Had Congress intended otherwise, it would have said so. Cf. Pacific Far East Line, Inc. v. United States, 211 Ct. Cl. 71, 84-86, 544 F. 2d 478, 485-486 (1976) (in the absence of contrary expression, other Code provisions apply and define investment credit provisions). Third, as Pacific Far East and related decisions indicate, we have consistently taken a liberal view of the investment credit. Of course, care must be taken when expanding certain of these cases, such as Oglebay Norton Co. v. United States, 221 Ct. Cl. 749, 610 F. *1292d 715 (1979), beyond their facts. See Moore McCormack Resources, Inc. v. United States, 224 Ct. Cl. 672, 674 n. 2 (1980). This debt repurchase situation, however, is an appropriate instance in which to apply that liberal view, especially given the ambiguity of Treas. Reg. § 1.47-2(c) and the nonrecognition policy embodied in § 108. Thus, that regulation is inapplicable to these facts. Although the majority apparently holds Treas. Reg. § 1.47-2(c) inapplicable, it proceeds beyond to intimate that the deemed useful life provision of that regulation may be invalid as contrary to the statute. As the regulation is inapplicable, it is unnecessary to pass on it as a substantive provision. An argument can certainly be made that the deemed useful life provision, limited as it appears to be to the refund situation, compare Treas. Reg. § 1.47 — l(a)(l)(i) (first sentence), reaches a point not covered by the statute and comports with the reality of the investment. Despite the suggestion in the majority’s opinion, today’s decision does not, and cannot, resolve that issue.