Court Opinion

ID: 4476893
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:15.090124+00
Date Added: 2024-06-11T08:49:10.834768
License: Public Domain

Rice, J., dissenting: I dissent, among other reasons,1 because the legislative history of section 324 of the Revenue Act of 1951,2 which amended section 117 (j) of the Code, demonstrates conclusively that Congress never intended that livestock sales enjoy capital gains treatment to the virtually unlimited extent which the majority has permitted herein. The sole objective, which Congress sought by the amendment, was to insure that livestock used in a taxpayer’s trade or business be accorded the same treatment as any other asset so used. The Senate Finance Committee Report on the 1951 Act3 states: Section 117 (j) of the code provides, in effect, that a net gain from sales of “property used in the trade or business” of a taxpayer and held for more than 6 months is to be treated as a capital gain. In the case of a loss, it is to be treated as an ordinary loss. However, section 117 (j) states that this treatment is not to apply to “property of a kind which would be properly includible in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” In the case of farmers there has been considerable confusion and dispute for several years as to whether all livestock held for draft, dairy, or breeding purposes is “property used in the trade or business,” or whether in some eases the livestock should be deemed held “primarily for sale to customers in the ordinary course of his trade or business.” The “considerable confusion and dispute” of which the committee spoke arose because several decisions of this Court and the Courts of Appeals were not being followed by the respondent. In Albright v. United States, 173 F. 2d 339 (C. A. 8, 1949); Fawn Lake Ranch Co., 12 T. C. 1139 (1949); and United States v. Bennett, 186 F. 2d 407 (C. A. 5, 1951), the Tax Court and the Courts of Appeals for the Fifth and Eighth Circuits held that gain on the sale of culls which had been used in a breeding herd resulted in capital gain rather than ordinary income. When Congress enacted the Revenue Act of 1950,4 it was fully aware of the Albright and Fawn Lake cases. An amendment was offered on the Senate floor 5 designed to clarify section 117 (j) of the Code to give effect to the holding in those cases and thus establish beyond question that cattle could also be assets used by a taxpayer in his trade or business as a breeder. The debate on that amendment by its proponent and other Senators makes very clear that it was not intended to extend capital gains treatment to all sales of livestock by breeders, but only to the culls which had been used in the breeding herd — the situation in the Albright and Fawn Lake cases. The Chairman of the Finance Committee agreed to take the proposed amendment to conference with the restriction that it was to apply only to cattle, and only to cattle from the mother or breeding herd and not to their offspring. The amendment, as modified, was adopted by the Senate, but was rejected in the conference with the House. The conference committee, nonetheless, expressed the hope that the Treasury would thereafter follow the Albright decision. After the Bennett case was handed down by the Court of Appeals for the Fifth Circuit in 1951, following the rule of the Albright case, the Bureau of Internal Revenue issued a ruling, Mim. 6660, to the effect that capital gains treatment would be applied to sales of culls. Again quoting from the Report of the Senate Finance Committee, pages 41,42: However, this ruling contained a statement that this treatment might not be applied in the case of animals “not used for substantially their full period of usefulness.” This exception appears to have resulted in new uncertainties, and it has been stated that Bureau agents are interpreting this ruling to mean that only animals which have completely outlived their usefulness can qualify for the capital gains treatment. In view of the uncertainties resulting from the recent ruling (Mim. 6660), section 324 of your committee’s bill restates the sentence contained1 in the House bill as follows: Such term also includes livestock, regardless of age, held by the taxpayer for draft, breeding, or dairy purposes, and held by him for 12 months or mor' from the date of acquisition. Thus section 117 (j) will apply to livestock used for * * * breeding * * * purposes, * * * whether old or young; and the holding period will start with the date of acquisition, not with the date the animal * * * is put to such use. Insofar as the statute is made applicable to all livestock, “regardless of age” and “held by him for 12 months or more from the date of acquisition,” Congress obviously intended nothing more than to incorporate the holding of the aforementioned cases-into the law and thus require the Commissioner to follow them. The amendment raised doubts on the part of some Senators that it would permit capital gains treatment on all or most livestock sales. Those doubters were assured that no such broad extension of capital gains treatment was intended. In the course of the debate, the Chairman of the Finance Committee, in arguing for the defeat of a proposed amendment which would have eliminated section 324, made the following statement:6  Mr. George. Mr. President, the question, without this amendment, has been before the courts. Some courts have held one way on it, and the Treasury Department has seen fit to- disregard the holdings of the courts, and, sometimes in the same judicial circuit, has continued to administer the law according to its own interpretation. Generally the view has been that livestock used for breeding purposes and held for a longer period than a year does become a capital asset, and may be treated as such. The Treasury has disregarded that opinion. The House inserted the provision purely for the purpose of clarifying the particular section of the code applicable to the subject. It would be a most dangerous thing indeed to say now that the whole section should be impaired by an amendment which would deny to one capital asset the treatment which has been accorded capital assets heretofore, since the passage of the act. I sincerely hope that the amendment will not be adopted. The committee approved the committee amendment and the House included its provision solely because the Treasury has not followed the rulings of the circuit courts in this matter. [Emphasis added.] But, by our holding herein, we have extended capital gains treatment to the very sales which those Senators, who opposed section 324 and the similar amendment proposed in 1950, feared would be accorded such treatment, but which the managers of the bill on the floor assured them would not happen. By the enactment of section 324 in the 1951 Act, I am convinced that Congress did not intend to provide any special kind of treatment for cattle as distinguished from all other assets to which section 117 (j) had theretofore applied. The committee report refers to livestock used for breeding purposes. The statement of the Chairman of the Finance Committee contains the words “used for breeding purposes.” The over-all purpose of the amendment was to make it clear to the Commissioner of Internal Revenue that section 117 (j) would, in fact, apply to all livestock used by a breeder in his trade or business, in conformity with the rule laid down by the cases heretofore cited. The animals in question here were not so used, and the majority opinion rewrites the statute to read “held for breeding purposes even though never used therefor.” I would leave that prerogative to the Congress. Oppee, LeMiRe, and Raum, //., agree with this dissent.   See James M. McDonald, 17 T. C. 210 (1951).    65 Stat. 452.    S. Kept. No. 781, 82d Cong., 1st Sess. (1951), p. 41.    64 Stat. 906.    96 Cong. Rec. 14082 (1950).    97 Cong. Kec. 12337 (1951).