Court Opinion

ID: 4486484
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:28.055109+00
Date Added: 2024-06-11T15:03:49.990417
License: Public Domain

SWIFT, J., concurring: A further explanation may be helpful as to why the at-risk rules of section 465 do not apply to the partnerships’ activities at issue in this case. As the majority opinion explains and as respondent acknowledges in his motion for reconsideration, until respondent promulgates regulations under section 465(c)(3)(D), the at-risk rules of section 465(c) are only applicable to the specific “old activities” described in section 465(c)(1). Clearly, research and development activities are not included among those “old activities.” As I understand the facts, the underlying activities engaged in by the partnerships involved in this case during the years in issue were research and development, not the leasing of property, and the deductions at issue relate to those research and development activities, not to the leasing of property. Accordingly, as new activities with respect to which regulations have not been promulgated, the at-risk rules of section 465(c) are not applicable to the partnerships’ activities, nor to the deductions claimed by the partnerships with respect to such activities. HAMBLEN, J., agrees with this concurring opinion. HALPERN, J., concurring: I concur with the result reached by the majority and, in part, with the majority’s analysis. I have difficulty, however, understanding the majority’s analysis of section 465(c)(1)(C). Section 465(c)(1) states that section 465 applies only to taxpayers engaged in certain specified activities. Section 465(c)(1)(C) further provides that such activities include “the activity of * * * leasing any section 1245 property (as defined in section 1245(a)(3)).” Section 1245(a)(3) defines “section 1245 property” as including personal property “which is or has been property of a character subject to the allowance for depreciation provided in section 167.” I believe that the majority here mistakenly focuses on the definition of “section 1245 property.” The correct focus, I believe, should be on whether, during the years in issue, the taxpayers were engaged in leasing activities. The majority concludes that, because the computer software was not, during the years in issue, “property of a character subject to the allowance for depreciation provided in section 167,” the limited partnerships could not, during the years in issue, have been “engaged in the activity of * * * leasing any section 1245 property.” Sec. 1245(a)(3) and sec. 465(c)(1)(C). The majority reaches that result by focusing on the definition of “section 1245 property.” The majority’s conclusion suggests that a taxpayer cannot be engaged in “the activity of * * * leasing any section 1245 property” until the leased property is currently “of a character subject to the allowance for depreciation provided in section 167.” Sec. 465(c)(1)(C) and sec. 1245(a)(3). Put another way, the majority’s conclusion suggests that a taxpayer cannot be engaged in the activity of leasing section 1245 property until such property has been placed in service for the purposes of section 167. I believe the majority has interpreted section 465(c)(1)(C) too narrowly. The majority’s conclusion generally will exclude from limitation under section 465 losses incurred by a taxpayer in a tax year prior to the tax year during which the leased property becomes “section 1245 property” by virtue of having been placed in service. The effect of the majority’s conclusion is that section 465 could not be applied to a taxpayer who deducts under section 174 research or experimental expenditures during a tax year when the leased property has yet to become property that could be depreciated under section 167. The reference in section 465(c)(1)(C) to “section 1245 property” need not be read to exclude from the application of section 465 a taxpayer that enters into leases in a tax year prior to the tax year during which the leased property is placed in service for purposes of section 167 (i.e., becomes “section 1245 property”). Thus, section 465(c)(1)(C) need not be interpreted to preclude the conclusion that such taxpayer has, in the years during which the leases were entered into, engaged in leasing section 1245 property. The focus should be on whether the taxpayer has engaged during the relevant tax years in any leasing activities, not on whether the leased property is during the relevant tax years “section 1245 property.”1  Since the majority’s opinion contains no indication that the limited partnerships had engaged in any leasing activities during the tax years at issue, I concur with the result reached by the majority.  With regard to whether the taxpayer has engaged in any leasing activities, the relevant legislative history provides that: “Under the at risk rule as it applies to equipment leasing, the taxpayer is considered to be in a leasing activity if he has an ownership interest, either direct or indirect, in section 1245 property (as defined in sec. 1245(a)(3)) which is leased or held for leasing.” S. Rept. 94-938, at 85 (1976), 1976-3 C.B. (Vol. 3) 123. There is no reason to believe that the leasing of computer software should be treated differently.