Court Opinion

ID: 4485198
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:14.378037+00
Date Added: 2024-06-11T14:53:46.951484
License: Public Domain

Kórner, J., dissenting: I find that I must dissent from the majority opinion in this case, while at the same time being unable to agree with Judge Hamblen’s dissenting opinion. This results from my view that both the majority and Judge Hamblen have taken an overly simplistic view of the facts which are presented in this case, as well as the applicable law, by telescoping the relevant events which occurred here, so as to produce a single transaction giving rise to a deductible loss, rather than two distinct and separable events having different tax consequences. As the result of taking this foreshortened view of the facts and legal principles involved, the majority arrives at conclusions which are completely irreconcilable with the conclusions expressed in Judge Hamblen’s dissent, although both sides were viewing the identical set of facts. Thus, it appears to me that the majority opinion is correct in part, and Judge Hamblen’s opinion is also correct in part, but a complete and correct solution to the instant problem can only be achieved by applying their solutions separately to the parts of the problem which they addressed. Analyzing the problem chronologically, and separating it into its two component parts, I agree with Judge. Hamblen’s analysis of section 165(a) and (e), and his conclusion that this petitioner was the victim of a loss arising from theft, even though he was not the immediate purchaser from the fraudulent vendor, Dooley; that his loss, and the cause therefor, was not discovered until the lawsuit against petitioner by Mr. Spoo was concluded by judgment in 1977; and that he was therefore entitled to a theft loss deduction in that year under section 165(a). Section 165(b), however, clearly provides that— For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property. The agreed facts are that petitioner paid $4,400 for his nonexistent rights, and this was therefore his cost basis. He sold those "rights” in 1960 for $8,000 but, as the result of the litigation concluded in 1977, he had to refund that $8,000 as part of the overall judgment against him of $20,792, so that his original cost basis was then restored. I would therefore hold that he suffered a theft loss in 1959, when he purchased the nonexistent rights, in the amount of $4,400, which, not being discovered until 1977, was deductible by him in that year under section 165(e), subject to the limiting provisions of section 165(c)(3).1  To this extent, then, I agree with Judge Hamblen’s dissent, but I cannot agree that the mantle of section 165 can be extended to cover the further loss which petitioner incurred as the result of the judgement rendered against him in 1977, arising out of an entirely separate transaction. This brings me to the part of the problem on which the majority focused exclusively. When the assignee of petitioner’s vendee sought to exercise the land rights involved herein, and was rejected, petitioner was sued for breach of warranty of title and, as the result of losing that lawsuit, petitioner had to pay a judgment and incidental costs of $20,792. I agree with the majority that the "origin-of-the-claim” test is applicable here; that the nature of the claim was with respect to petitioner’s title to the property sold, and that the result of this litigation was that petitioner incurred a capital loss. I disagree with the majority, however, as to the amount of that loss. Contained within the total judgment which petitioner had to pay was obviously a refund of the $8,000 purchase price which he had obtained when he sold his alleged rights to Mr. Spoo in I960.2 To the extent that petitioner’s cost basis was thus restored, he is entitled to a theft loss, as I have indicated above, and such amount must therefore be carved out in computing the amount of capital loss to which he is entitled. A further adjustment would appear to be required for the fact that petitioner apparently reported for tax purposes the $3,600 gain which he thought he had upon the "sale” of his nonexistent rights to Mr. Spoo in 1960 for $8,000 ($8,000 - $4,400 = $3,600). This correction of the prior erroneous reporting should be allowed to petitioner for 1977 as part of the overall computation of his long-term capital loss under the provisions of section 1341 (involving the recomputation of tax where the taxpayer restores a substantial amount theretofore held under claim of right). I would accordingly recompute the nature and amount of petitioner’s losses in accordance with the following: Petitioner paid out Petitioner received Original cost of rights. $4,400 Petitioner’s sales proceeds. Judgment and costs paid by petitioner. 20,792 $8,000 Totals. 25,192 8,000 Less amount received. 8,000 Petitioner’s net out-of-pocket loss. 17,192 Less theft loss allowable. 4,400 Balance. 12,792 Long-term capital gain previously reported. 3,600 Long-term capital loss. 16,392 In this fashion, and only in this fashion, is petitioner made whole for his two distinct types of loss as permitted by the Code, without any duplication of deductions and without omitting any deduction to which he is legitimately entitled. I would accordingly allow petitioner a theft loss of $4,400, subject to the limitations of section 165(c)(3), and I would further allow him a long-term capital loss of $16,392, subject to the provisions of subchapter P, all for the year 1977. Whitaker, J., agrees with this dissent.   As in effect in 1977, sec. 165(c) (3) provided that casualty losses, including theft losses, were allowable as deductions only to the extent such losses excluded $100.    Such amount would not be part of the plaintiff’s "damages” for petitioner’s breach of his warranty of title. Even absent any warranty of title, the $8,000 purchase price could presumably have been recovered from petitioner by the plaintiff on the ground of failure of consideration.