Court Opinion

ID: 4472113
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:17:27.086602+00
Date Added: 2024-06-11T13:17:29.894006
License: Public Domain

Hill /., dissenting: The question here involves the application of section 107 (a), Internal Revenue Code, and subsections 6 (a), (b), and (d) (3) of the Current Tax Payment Act of 1943. Section 107 (a) is a relief provision to lighten the tax burden in respect of a lum.i sum payment of compensation for personal services rendered over a period of 36 months or more prior to the time of payment. It prescribes that the tax on such income shall be imposed for the year in which it is received, but to accomplish the relief indicated the lump sum payment is ratably apportioned for the computation of tax to the several tax periods over which the services were rendered. The tax is computed on each of such portions as if it had been received in the tax period to which it is apportioned. The total of the taxes so computed on the several portions is the measure of tax in respect of such lump sum payment to be imposed in the tax year in which such payment is received. The apportionment ratably of such payment to the several tax periods mentioned and the computation of the tax thereon as indicated does not add to or otherwise affect the tax liability in either of such prior tax periods. Section 107 plainly provides for its application as above stated and we have so held in Federico Stallforth, 6 T. C. 140. There is no provision in the Current Tax Payment Act which changes or varies such application. . In the instant proceeding the prior tax periods to which the section 107 income received in 1943 was attributed for computation of the tax thereon were 1936 to 1942, inclusive. The tax liability for each of such tax periods was fixed and determined on the basis of the taxable income received in each of such periods. For the year 1942 the tax liability so determined was $9,537.80. Subsections 6 (a) and (b) of the Current Tax Payment Act prescribe the method for placing taxpayers on the current tax payment basis, beginning with the tax year 1943. Subsection 6 (a) provides that if the tax liability for 1942 is less than the tax liability for 1943. (each computed without regard to the provisions of the Current Tax Payment Act) the tax for 1943 shall be the amount thereof normally computed on the basis of income received in that year and that there shall be added thereto an amount equal to one-fourth of the tax liability for 1942 (computed on the basis of income received in 1942). Subsection 6 (b) provides that if the tax liability for 1942 is greater than the tax liability for 1943 (each computed without regard to the provisions of the Current Tax Payment Act.) the tax for 1943 shall be the amount thereof so computed plus the amount of the excess of the tax for 1942 over such computed tax for 1943 and plus the additional amount of one-fourth of the regularly computed tax for 1943. Under both subsections 6 (a) and (b), the tax liability for 1942 is discharged as of September 1, 1943. The tax for 1943, computed on the basis of the income received in that year and without regard to the provisions of the Current Tax Payment Act, is $15,929.28. This amount being greater than the tax liability for 1942, subsection 6 (a) applies, under the provisions of which 75 per cent of the tax liability for 1942 is forgiven and an amount equal to 25 per cent of the tax liability for 1942 is added to the computed tax for 1943 of $15,929.28 to constitute the tax liability for 1943. Seventy-five per cent of the tax liability for 1942 is $7,153.35 and 25 per cent of the tax liability for 1942 is $2,384.45. The latter amount, added to the computed tax for 1943 of $15,929.28, makes the tax for 1943, under the provisions of the Current Tax Payment Act, $18,313.73, as determined by respondent. Petitioner contends and the majority -opinion holds that in determining petitioner’s tax liability for 1943 and 1942 under the Current Tax Payment Act only $13,923.68 of the $18,750 of section 107 income received in 1943 shall be taken into account in computing the 1943 tax and that the remainder, $4,826.32, shall be added to the income received in 1942 in computing the tax for that year. The latter amount is the portion of the section 107 income of 1943 attributable to 1942 for computation of tax for 1943 under provisions of section 107 (a). By such operation petitioner computes and the majority opinion holds the tax for 1942 to be $12,432.30 instead of $9,531780 and the tax for 1943 to be $16,142.86 instead of $18,313.73, as determined by respondent. In making such computation (which is approved by the majority opinion) petitioner includes in his 1943 return the portions of section 107 income attributable to each of the years 1936 to 1941, inclusive, and includes in his 1943 tax the total of the taxes computed thereon, but petitioner excludes (and the majority opinion approves) from his 1943 return that portion ($4,826.32) of his 1943 section 107 income attributable to 1942 for the computation thereon of the 1943 tax and adds such portion to his 1942 income for computation of his 1942 tax. The tax on $4,826.32, computed under the provisions of section 107 (a), was $2,894.50. Thus, petitioner transferred $2,894.50 from the tax of 1943 to the tax of 1942, notwithstanding that it was unquestionably a tax liability of 1943 and also was unquestionably not a tax liability for 1942. The resultant effect of such transfer was a forgiveness of 75 per cent of $2,894.50 of the 1943 tax, thereby relieving petitioner of a tax liability in the amount of $2,170.88, in diametric contradiction of the unmistakably clear provisions of section 107 (a) and of the Current Tax Payment Act. So, it is obvious that the majority opinion holds that under subsection 6 (a) of the Current Tax Payment Act petitioner is entitled (1) to a forgiveness of 75 per cent of his tax liability of $9,537.50 for 1942, amounting to $7,153.35, and (2) a forgiveness of 75 per cent of $2,894.50 of his tax liability for 1943, amounting to $2,170.88. This amounts to a total forgiveness of tax in the amount of $9,324.23, whereas petitioner’s 1942 tax liability was only $9,537.50. Petitioner’s forgiveness of tax under the Current. Tax Payment Act is limited to 75 per cent of the latter amount. The forgiveness approved by the majority is excessive in the amount of $2,170.88. Such excess results from the forgiveness of 75 per cent of $2,894.50 of the 1943 tax as above indicated. The statutory provisions in both the Current Tax Payment Act and in section 107 are directly and specifically contrary to the holding of the majority. This is true even without regard to subsection 6 (d) (3), but that subsection specifically provides that “Sections 105, 106 and 107 of such chapter (relating to limitations on tax) shall be applied without regard to subsections (a) and (b).” The language just quoted is so unmistakably clear as to require no interpretation. It is self-interpretative. In line with the plain provisions of the statutes involved, the Commissioner’s regulations, section 36.6 (b), T. D. 5300 (1943 C. B. 43), provide as follows: In any case in which * * * section 107 of the Internal Revenue Code * * * is applicable to either of the years 1942 or 1943, the tax liability for the respective years will first be determined by the application of such sections after which section 6 will be applied. It appears to me beyond question that the above quoted provision of the regulations correctly sets forth the method of application of section 107, Internal Revenue Code, and section 6 of the Current Tax Payment Act as prescribed therein. In the face of the clear provisions of the applicable statutes to the contrary, I find it difficult to understand the assurance with which the majority reaches its conclusion herein. Something is said therein about inequity to the recipient of section 107 income if the words of the section are taken at face value, but no such inequity is or can be, in my opinion, pointed out. On the other hand, it is apparent that the majority opinion discriminates in favor of recipients of section 107 income in 1943 and against such recipients in prior and subsequent years. Also, it nullifies in part the provisions of section 107 (a), without legislative or other authority therefor. I am so firmly convinced that the majority opinion is fundamentally erroneous that I can not refrain from expressing dissent. Turner, Leech, Disney, Harlan, and LeMire, JJ., agree with this dissent.