Court Opinion

ID: 4482010
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:15.156744+00
Date Added: 2024-06-11T15:03:37.980204
License: Public Domain

Dawson, J., dissenting: In almost all respects I agree with the views expressed by Judge Hoyt in his dissenting opinion. But, since the rationale of the majority herein is so astonishing, I am impelled to add the following comments. It is simply hokey to say that what happened here gave rise to a “debt” due from the petitioner to S & D Meats, Inc., and to draw an analogy to cases like United States v. Merrill, 211 F. 2d 297 (C.A. 9, 1954), and J. W. Gaddy, 38 T.C. 943 (1962). I am surprised that the majority has chosen to fan the flickering flame of form under circumstances where it rewards the thief with an unintended tax benefit and places in jeopardy the victim’s embezzlement loss deduction. It may now be argued that the petitioner’s promise to repay the embezzled funds offsets any claimed loss in that year. If any loss is to be allowed, it might have to be postponed until the so-called promise to repay is shown to be worthless. This creates an absurd situation. The effect of the majority opinion is to destroy the underpinnings of the Supreme Court’s decision in the James case. In any event, I think the rationale of the Merrill case, so heavily relied upon by the majority, is of questionable validity. It erroneously permits a cash basis taxpayer to deduct from or offset against his income for the taxable year an amount which is merely acknowledged to be owed to another but has not yet been paid. I see no distinction between this situation and one where a cash basis taxpayer executes a promissory note for the repayment of a loan together with interest, due in installments over several years. Surely we would not conclude that this cash basis taxpayer could deduct all the interest due over the term of the loan in the first year when he executed his note, even though the face amount of the note is for the amount of the loan plus the interest due. To the extent that a renunciation of the Merrill holding would work a hardship in certain circumstances, relief should be obtained through congressional expansion of the ameliorative provisions now contained in section 1341 of the Code. Naum and Witi-iet, JJ., agree with this dissent.