Court Opinion

ID: 4479910
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:56.201544+00
Date Added: 2024-06-11T14:53:58.560648
License: Public Domain

Mulroney, J., dissenting: The only burden any taxpayer has under the interest deduction statute is to show, (1) the existence of an indebtedness during the year in question, and (2) that he made the payment that year sought as a deduction to the creditor which was directed to, or should have been applied to, the payment of interest on said indebtedness. We said in First National Co., 32 T.C. 798, 807, that the word “indebtedness” in the interest deduction statute “means an existing, unconditional, and legally enforcible obligation for the payment of money.”1 An indebtedness can be a statutory or contractual obligation to pay money. For the purpose of the operation of the interest deduction statute respondent’s position is that of any other creditor of the taxpayer. Petitioner’s first burden was to show the existence in the year 1955 of an obligation to pay the 1948 income and personal holding company taxes. Respondent on 'brief argues “no indebtedness existed in income or personal holding company taxes * * * during the taxable year 1955.” I feel petitioner satisfied his burden of showing the existence in the year 1955 of his 1948 tax obligation. Respondent’s assessment of June 8, 1956, is an admission that petitioner’s indebtedness for 1948 taxes was then in existence and had been in existence for prior years back to 1948. The assessment did not bring the indebtedness into existence. The indebtedness for taxes arises annually by operation of the taxing statutes. Also the existence of the obligation to pay the tax does not depend upon a taxpayer’s consent or agreement with the collector. The required unconditional and legally enforcible obligation to pay the 1948 taxes was created by the taxing statute. Respondent even collected interest on this 1948 tax indebtedness for the year 1955, and indeed for all of the years back to 1948. To uphold his argument that the 1948 tax indebtedness was not in existence in 1955 would be to say he collected interest on a debt for a year the debt was not in existence. It may well be that estoppel would lie against respondent in a case like this where respondent’s status is that of a creditor with respect to the indebtedness on which the interest deduction is claimed. It is incontestable that petitioner paid $20,000 interest in 1955 if the tax indebtedness to which the labeled interest payment was directed was then in existence. Respondent hardly argues otherwise. However, he does make some point of his deposit of the 1955 remittance in a suspense account. Again it is well to note respondent’s double role: He is a party to this litigation but he was also petitioner’s creditor. For the purpose of the application of the interest deduction statute, the taxpayer’s burden ends when he shows the existence of the indebtedness in the year in question and delivery in that year to his creditor of a check directed to the payment of interest on his debt. The taxpayer has no burden to show his creditor credited the payment to his interest liability. The interest deduction cannot be defeated by reason of the creditor’s bookkeeping arrangement for handling the remittance. The interest deduction statute does not give any creditor, including respondent when he happens to be the creditor, the right to dictate the year of interest deduction by delaying the entry of credit on his records of an interest payment. The cases cited by respondent where a suspense account deposit was of some significance are easily distinguishable. None of them involved the interest deduction statute where the respondent, if he is the creditor to whom the debt is owed, is cast in the role of any other creditor. I feel Fred J. Arheit, 31 T.C. 46, which respondent states on brief is the case on which he “primarily relies” was wrongly decided. I would overrule it and allow the deduction. Forrester and Hoyt, JJ., agree with this dissent.   Although this case was reversed on 'appeal on another Issue, the Court of Appeals for the Sixth Circuit specifically approved our definition of the term “indebtedness” in the interest deduction statute. First National Co. v. Commissioner, 289 F. 2d 861, 865.