Court Opinion

ID: 9448609
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:41:15.127214+00
Date Added: 2024-06-11T17:31:30.240129
License: Public Domain

JONES, Chief Judge
(dissenting in part).
I think plaintiff should recover on the first issue, but on a different basis from that set out in the majority opinion.
Section 107(a) of the Internal Revenue Code of 1939, quoted in the opinion, permits moneys physically collected during one year, but actually earned through personal services performed during three or more years to be treated — for the purpose of placing a limit on the total income taxes which the recipient would be required to pay on such collection — as if collected ratably in each of the years during which the work was performed. It was a relief measure.4 Adjustments were to be made so that for tax purposes the results were to be the same as if the work had been performed and paid for during each of those years. The aggregate tax levies for 1951 were thus given a maximum limit.
Section 23 of the 1939 Code limits the deductions for charitable and other similar purposes to 15 percent of the adjusted, gross income.
The two sections should be construed together. The deduction section and the tax section are as intimately linked as the law of demand and supply. Without the tax section the limitation on the deduction would be meaningless. The deduction section follows and should be construed with the taxing section. Since the money is to be treated — for the purpose of measuring the ultimate tax — as if collected ratably during each of the 17 years, the deduction should be allotted in exactly the same way.
I would allow the charitable deduction to be treated as if made ratably during each of the years the tax has been treated as collected. The limitation of 15 percent should be treated as applied to the additional sums that were later treated as collected during each of those years. It seems illogical to treat sums collected in one year as if actually collected in other years for one purpose and as not collected during those other years for other purposes relating to the same subject, especially where the limitation of one is yoked directly to the other. It was an artificial method of reducing the tax levy on funds all of which were received in one year (1951) and all of *476which were taxed in and for 1951. The funds were not spread back. The taxes were not spread back. The taxes were merely calculated as if spread back.
Certain other sums were no doubt collected and deductions made during the earlier years. The additional deductions of 15 percent for each of the 17 years would apply only to the extra amount that was added for tax limitation purposes to the adjusted gross income for each of those years. Plaintiff has, no doubt, taken his charitable deductions for sums actually collected during those years. But he has not been given any charitable deduction for that portion of the adjusted income physically received in 1951 which was treated for tax purposes as if it had been collected during those previous years. Yet the statute gives him that right. To illustrate. For simplicity let us assume that the total net income for 1951 was $100,000 for a 5-year period, that the money was earned over a 5-year period, the tax rate remaining the same for the entire period. This would be taxed under the regular tax statutes except for the fact that section 107 permits the taxpayer a top limit on the total taxes to be collected.
I would treat the issue for tax purposes as if $20,000 had been earned ratably in each of the 6 years. I would then calculate the tax on the $17,000 net after making the ratable gift deduction of $3,000 for each of the 5 years.
It will also be noted that section 107, even if given a technical interpretation, does not say that the tax shall be levied anew for each of the 17 years. It merely places an over-all limitation on the amount of the taxes collected by stating that the aggregate of taxes paid shall not exceed the amount which would have been due and . payable "had it been included in the gross income of such individual ratably over that part of the period which precedes the date of such receipt or accrual.” It is a relief section. It does not actually carry the taxes back to those years. That would involve the assessment of penalties. It merely places a ceiling on the total taxes to be paid on the sums actually received in one year by saying in effect that the aggregate of the taxes paid on such sums shall not exceed the aggregate which would have been paid ratably during those years. The tax is not actually levied on each of the previous years. It is not even collected for each of those years. The language used is merely a measuring device for limiting the taxes to be paid, in this instance on sums collected in 1951, to a top limit of what they would have been had they been collected ratably over the previous years.
However, in order that a decision may be reached in this case, I concur with the conclusion of the majority on he first issue.
As to the counterclaim or setoff, I am inclined to the opinion that plaintiff should not be taxed on the 44.79 percent of the Bonnin interest. This was purchased in 1938 when there was no assurance there would ever be a recovery, nor what even the approximate amount might be. It seems this should be treated as an inchoate property interest. If treated as a sale it should be classed as capital gain. It was given away for educational purposes, and should not be taxed, assuming of course that it is within the 15 percent permitted as a deduction.
As to the proceeds of the one-third of the remaining 55.21 percent of the Bon-nin interest which was purchased in 1950, the same year a negotiated settle-men had been agreed upon between the parties and judgment recommended, and the same year the agreed settlement was approved by the court, it seems that the-principles set out in Arnfeld v. United States, 143 Ct.Cl. 277, 287, 163 F.Supp. 865, and the cases therein cited, should be applied. At that time recovery and the amounts had become reasonably certain. That part should be treated as income and the tax thereon should be allowed as a setoff against any amount which plaintiff is otherwise entitled to recover.

. The Senate Finance Committee Report filed in connection with the enactment o£ section 107 clearly shows that it was intended as a relief measure in hardship cases (S.Report No. 648, 76th Cong., 1st Sess., p. 7).