Court Opinion

ID: 9459891
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:34:39.603155+00
Date Added: 2024-06-11T17:36:22.934479
License: Public Domain

KOELSCH, Circuit Judge
(dissenting.)
If a judgment on the merits would be worth the judicial time, the outlay of 'money, and the attorney’s efforts, I would hasten to join in the court’s opinion. No good purpose would be served, now that the judicial process has been initiated, to dismiss this suit only to have a similar one commenced and prosecuted at some future time. However, I am convinced that the trial, which the Commissioner seeks to avoid, will settle nothing more than the church’s income tax status for the particular years under consideration — 1965 and 1966. Why, then, should we permit litigation which bids fair to be involved and time consuming to continue ?
The collateral estoppel effect of a judgment in an income tax matter is generally limited, because each year’s taxes are based upon facts peculiar to that particular year, and give rise to separate claims by the Collector. Although the doctrine does operate in the field of tax law, the factual peculiarities of the subject have limited its application.
Thus in Tait v. Western Md. Ry. Co., 289 U.S. 620, 53 S.Ct. 706, 77 L.Ed. 1405 (1933) the Court, concluding that the concept of res judicata was applicable in the field of tax law despite the scheme of annual tax periods, held that a prior adverse determination regarding the deductibility of an amortized proportion of the discount on sales of bonds by the taxpayer’s predecessors estopped the Collector from relitigating that issue in a suit involving a later period. However, it should be noted that the allowable discount constituted a “static fact” — one which did not derive its legal impact from events of the later period.
*319On the other hand, Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948) established two areas in which collateral estoppel does not operate: The first, where the legal climate changes in the interim between the suits; there, although the material fact is “static,” the prior determination is not controlling. The second, where different — in the sense of new — facts have arisen, such as a series of contracts or directors’ resolutions, although such facts may be similar or identical to facts that were peculiar to a prior year, the prior determination on the “old” facts does not control the decision regarding the legal impact of the “new.”
This “separable facts” doctrine in tax cases has been criticized as being too mechanical in its operation and exalting form over substance [United States v. Russell Mfg. Co., 349 F.2d 13 (2d Cir. 1965)] and has been confused by lower courts; but it is still good law. See Branscomb, Collateral Estoppel in Tax Cases: Static and Separable Facts, 37 Texas L.Rev. 584, 588-97 (1959). The doctrine has been defended as an application of the general rule that an issue must in fact be litigated before it can have an estoppel effect on a subsequent litigation '[Heckman, Collateral Estoppel as the Answer to Multiple Litigation Problems in Federal Tax Law: Another View of Sunnen and The Evergreens, 19 Case W.Res.L.Rev. 230, 240 (1968)] and on the basis that the relitigation of genuinely identical sets of facts with the same legal implications which the doctrine necessitates in tax cases may well require less judicial time than the appeals and remands involved in an erroneous determination by a trial court that collateral estoppel applies. Branscomb, supra, 37 Tex.L.Rev. at p. 591; 85 Harv.L.Rev. 1478 (1972).
The record in the instant case makes clear that a trial would simply establish the “separable facts” of Sunnen, not the “static facts” of Tait.
Under § 501(c)(3) church is eligible for exemption if it is a corporation “organized and operated exclusively for religious — purposes—[and] no part of the net earning of which inures to the benefit of any private shareholder or individual — ” The Tax Regulations relating to this section of the statute [Treas. Reg. § 1.501(c) (3)-l (1959)] set up two essential requirements for an exemption; one organizational and the other operational. Both must be met. A determination of the first requires an analysis of the corporation’s charter to determine whether it was organized exclusively for religious purposes; of the second, a consideration of the actual day to day operation of the corporation. Here the Commissioner has forthrightly admitted that the church meets the organizational requirement of § 501(c)(3) and, accordingly, has made clear that his objection to church’s claim of exemption is predicated solely upon operational grounds.
There are, of course, a variety of bases upon which the Commissioner can challenge a claim of exempt status, all of which involve a consideration and determination of the financial operation of the church during a given tax year. For instance, as in Founding Church of Scientology v. United States, 412 F.2d 1197, 188 Ct.Cl. 490 (1969), he may take the position that exemption should be denied because church income inured to the private benefit of its founder. Or he may assert that exemption is lost because church paid unreasonable salaries. However, under the “separable facts” doctrine, a determination that church has or has not violated the “inurement of benefits” clause during 1965 and 1966 would have no estoppel effect in litiga-' tion concerning the same issues with respect to subsequent years.1 This result follows both under Sunnen and under *320the general principle of collateral estoppel that an issue must be actually litigated in order to have an impact in subsequent litigation of' a different claim. Developments in the Law — Res Judicata, 65 Harv.L.Rev. 818, 840 (1952).
The judgment should be reversed.

. A fortiori with respect to salaries; the dollar amounts may be precisely the same but the reasonableness will vary with changes in living standards and community mores from year to year.