Court Opinion

ID: 4484050
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:28.756879+00
Date Added: 2024-06-11T15:03:40.624772
License: Public Domain

Nims, J., dissenting: The majority’s reluctance to reverse the long-standing holding in Dean v. Commissioner, 35 T.C. 1083, is understandable. We decided the Dean case in 1961, and the Commissioner acquiesced de facto for 12 years. Nonacquiescence was ultimately announced in 1973 (1973-2 C.B. 4). Nonetheless, we have the duty of deciding the case before us on the basis of the facts presented. It is undisputed that in the transaction at hand, the petitioner realized a substantial, well-defined, ongoing economic benefit, namely, the use of $4 million at 3-percent interest at a time when the parties have agreed the available rate from an outside lender would have been 6 percent. As a matter of fact, the 3-percent rate was provided only because of Hughes’ and Toolco’s apprehension that the Internal Revenue Service would react unfavorably to an interest-free loan. The majority opinion, following the Dean rationale, in effect provides petitioner a constructive interest deduction with which to offset the conceded income. If this approach is pursued, the Court may expect to be eventually confronted with a case in which the Commissioner asserts imputed interest income to the lender — a quid pro quo for the constructive deduction allowed the borrower. One can easily visualize this occurring, for example, in the stockholder-controlled corporation context. While I could not support respondent’s “present value” approach in determining the asserted deficiencies, I would hold that petitioner is taxable under section 61(a) on the value of the use of the unpaid loan balances during the years in question, measured by the difference between the 3-percent interest actually paid and the 6-percent going rate.