Court Opinion

ID: 9700345
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:22:52.517058+00
Date Added: 2024-06-11T18:21:07.674252
License: Public Domain

MADDEN, Judge
(dissenting).
When the plaintiff William E. Perry conveyed the property in question to the town, he inserted a condition that if the property was not used to finance an addition to the library, it should be returned to him. He thus retained an interest in the property, of a highly contingent nature, an interest not at all likely to expand into complete ownership. But his contingent interest did expand into complete ownership.
If one sells a piece of land, and is paid for it, but puts a condition in the deed that if liquor is sold on the premises he is to get the land back, he has a contingent interest comparable to that of the grantor plaintiff in the instant case. If the condition happens and he gets the land back, I suppose there are no immediate income tax consequences. If he later sells it, I suppose his basis would be zero, because he was once paid for the land, and his capital gain or loss was computed at that time.
The factor in the instant case that produces possible tax consequences is that the conveyance subject to the condition subsequent was a conveyance to charity, and therefore was deductible, and was deducted from otherwise taxable income in the year in which the conveyance was made.
The plaintiff urges that the reconveyance from the town to him was a gift, and therefore expressly tax free to him as recipient, under section 22(b) (3) of the Internal Revenue Code of 1939. This would present the unusual situation of a gift from a charity, in contrast to the usual one of a gift to a charity. The interest which the plaintiff reserved in the property when he conveyed it to the town was,the reason and consideration for the town’s reconveyance to him, and the transaction was not a gift.
What we have, then, is the unanticipated recovery by a former owner of property of that property after he has given it up for lost. The plaintiff was in a situation comparable to that of the person who has had to pax taxes and hopes that he may get them back later by litigation, or the one who has given up all real hope of collecting a debt owed to him. In the latter case, the income tax law allows a deduction from income for the taxes paid, and for the bad debt. In these latter sitúa-*273tions, if the taxpayer recovered his taxes or collected his bad debt in a later year, the administrative authorities and the courts, without the help of any statute, required him to pay income tax upon his recovery. Of course, one does not ordinarily acquire taxable income by collecting a debt, or by a refund of taxes which he never should have had to pay. The reason that the money was regarded as taxable in the special cases referred to was that, once having used the taxes paid or the bad debt as a tax deduction, the prospect of recovery was, for income tax purposes, written off, though as a legal claim it still existed. Having been written off, the later realization of the claim was, again for tax purposes, like a windfall to the taxpayer, and within the broad definition of taxable income. See Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 75 S. Ct. 473, 99 L.Ed. 483; Park & Tilford Distillers Corp. v. United States, 107 F. Supp. 941, 123 Ct.Cl. 509.
Section 22(b) (12) was not the origin of the' doctrine of taxability in the situations described above. It was rather a limitation upon the existing judge-made rule of taxability, limiting the amount of the recovery which could be taxed to the amount which had actually been used as a deduction in the prior year. Section 22(b) (12) applies only to the later recovery of bad debts, taxes, and delinquency amounts.
The doctrine which existed prior to section 22(b) (12) would certainly have been applicable to other situations which fell within the reason of the doctrine. For example, if one had taken a deduction for property stolen from him, and had in a later year recovered the stolen property, he would, I should suppose, have been taxable upon its value. He owned it all the time for most legal purposes, but for income tax purposes he had written it off. I think the same is true of the unique situation of the plaintiff.
From what I have said, it would follow that the law prior to the enactment of section 22(b) (12) would be applicable to situations other than those covered by that section. There is no indication that Congress intended to change the law except to put the limitation noted above upon it, for the benefit of the taxpayer in the kind of cases that most frequently arise. We need not decide whether the limitation would be applicable in the instant ease, since the plaintiff received full tax deductions for the charitable gifts in the years in which they were made.
If the foregoing analysis is correct, the property reconveyed to the plaintiff was taxable income. I think it should be treated as such. The comparable recoveries, in the cases of bad debts and refunds of taxes, were so treated under the judge-made law which preceded the enactment of section 22(b) (12) and are so treated under that section. If Congress, in enacting section 22(b) (12) had chosen to provide in it for the meticulous recomputation which the court’s opinion requires, that would have been a reason for the court’s doing so in this analogous case not covered by the statute. Since Congress did not regard such a recom-putation as necessary to do equity in the numerous cases covered by the statute, I think the plaintiff’s unusual situation should not be accorded a treatment different from that accorded other taxpayers whose claims to equitable treatment are exactly equivalent to those of the plaintiff.
LARAMORE, Judge, joins in the foregoing dissenting opinion.