Court Opinion

ID: 4481357
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:51.145064+00
Date Added: 2024-06-11T14:54:00.630164
License: Public Domain

TaNNENWAld, /., dissenting: I cannot agree that the “entity” theory of partnerships is the touchstone for disposing of this case. Even if that theory is determinative of issues involving the applicability of the provisions of the Code dealing with partnerships (secs. 701 through 708), it clearly need not be applied beyond those provisions. Thus the conference report at the time of the enactment of the 1954 Code specifically states: Both the House provisions and the Senate amendment provide for the use of the “entity” approach in the treatment of the transactions between a partner and a partnership which are described above. No inference is intended, however, that a partnership is to be considered as a separate entity for the purpose of applying other provisions of the internal revenue laws if the concept of the partnership as a collection of individuals is more appropriate for such provisions. An illustration of such a provision is section 543(a) (6), which treats income from the rental of property to shareholders as personal holding company income under certain conditions. [H. Rept. No. 2543, 83d Cong., 2d Sess., p. 59 (1954).] This legislative admonition is especially apt in construing a complex set of provisions such as those dealing with the investment credit, the more so when it is recognized that section 38(b) confers upon the Secretary of the Treasury or his delegate specific statutory authority to “prescribe such regulations as may be necessary to carry out the purposes of” those provisions. It has long been'established that such a grant of discretion furnishes powerful support for regulations and that they should not be declared invalid unless clearly contrary to the legislative mandate. Commissioner v. South Texas Co., 333 U.S. 496 (1948); Lucas v. American Code Co., 280 U.S. 445 (1930). If for no other reason, Manhattan Co. v. Commissioner, 297 U.S. 129 (1936), relied upon by the majority, is distinguishable in that no specific legislative grant of authority was involved. In this case, it cannot be denied that Edward Moradian physically used the property and that, after the acquisition of Hagopian’s partnership interest by Georgia Moradian, the property continued physically to be used in the same business operations — a business in which Edward Moradian continued to have a substantial, i.e., 50-percent interest. Concededly, there may be some latent difficulties in sustaining respondent’s regulations under any and all circumstances, e.g., if Edward Moradian had only a 1-percent interest in the Hagopian-Moradian partnership. But these same difficulties, to a large extent, inhere in the application of sections 267 and 707 (b), apart from any problem involving the investment credit, stemming from the fact that neither section, by its terms, deals with partnerships where family relationships are involved. Compare sec. 1.267(b)-l(b) (1), Income Tax Begs. In addition, the problem is further complicated in the investment credit area by the facts that section 48(c) provides for total disallowance of the credit, section 267 provides for partial disallowance of losses, and section 179(d), which is the connecting strand between these sections, uses the phrase, “the disallowance of losses” — an equivocation, to say the least, since the word “the” can be construed to encompass partial or total disallowances, or both. Given the factual circumstances involved herein and the statutory background heretofore outlined, I cannot say that respondent’s attempt to fill in the lacunae represents an unwarranted extension of the statute. The application of the within regulations to a situation where a “related” person continues to have a substantial interest in the ownership and use of the property, in my opinion, reasonably implements the intention of the Congress in circumscribing the credit in respect of used section 38 property. DeeNNEN, Baum:, and Atkots, JJ., agree with this dissent.