Court Opinion

ID: 8596555
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:03:49.28718+00
Date Added: 2024-06-11T16:54:58.758048
License: Public Domain

NICHOLS, Judge,
concurring in the result:
I concur in the result and in the able opinion of the court, except as stated. In constructing the fraction set forth in f.n. 1, the established and uniform practice had been to take into account the losses of loss member corporations in both numerator and demoninator. Defendant published a regulation, as the court sets forth, without any advance notice sufficient to disclose what was in contemplation, and without any explanation of the basis and purpose. The new regulation required use of the figure zero for loss member corporations in lieu of the actual loss. The Secretary had, under I.R.C. § 1502, authority to prescribe regulations for consolidated returns—
[I]n such manner as clearly to reflect the income tax liability and the various factors necessary for determination of such liability and in order to prevent avoidance of such liability.
This is a delegation of law-making authority, as distinguished from mere interpretation of law, and any failure to follow prescribed statutory procedure makes the regulation void as to anyone adversely affected by it. Chrysler Corp. v. Brown, 441 U.S. 281 (1979). Defendant does not deny that the change makes a material shift in the tax liability of many consolidated groups. It only says the change is neutral in its overall effect on the revenue. Thus the change operates to shift a tax burden (here, a substantial one) from some groups to others.
I believe that whether, as a matter of substantive law, the change is a proper exercise, or an abuse, of the discretion conferred, turns on whether it is necessary clearly to reflect taxable income, etc. This is a question of fact, dependent for its resolution on the opinion of members of a discipline to which we do not belong, the accountants. For judicial review, therefore, a statement of basis and reasons was a paramount necessity and the absence of such a statement frustrates judicial review. *433Testimony by expert accountants might have supplied the lack or rendered it harmless. The case was submitted without such testimony. Statements by counsel are not evidence, but in any event, defendant’s counsel here properly held his imaginations and speculations on a relatively short leash. Defendant seems to expect us to adhere to a rule of credo quia incredibile est. The change looks unreasonable, but we are supposed to stifle our doubts and not to make inquiries.
I am unwilling to state that the involved regulation is invalid, as a position that I could not in consistency abandon, in case defendant promulgated the same regulation again, but this time with due notice and an adequate explanation. Without an explanation, against the background of prior inconsistent practice, with no known problems confronted, the regulation looks invalid, but I would be willing to yield to the superior expertise of the accounting profession should it be forthcoming.
Thus I would have preferred to rest the case wholly on the irregularities as to procedure, in this case, where the need of such procedures is so strikingly illustrated. Defendant has made a new law, shifting the tax burdens of other consolidated groups to this group, giving it no advance notice or opportunity to be heard, and stating no reason.