Court Opinion

ID: 4477568
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:36.46432+00
Date Added: 2024-06-11T15:03:30.165400
License: Public Domain

Muedogk, J., concurring: $17,672.08, representing gains from sales of the Shamrock stock, was reported by the petitioner- as ordinary income in a prior year while in the taxable year this same amount, a part of the “amount realized” in those sales, was surrendered by the petitioner. Thus in the end the petitioner had no gain from the sales and yet reported a profit in a prior year. If he had surrendered the profit in the same year in which the sales had been made, obviously he would have had no income to report from those transactions. Here the sales occurred in one year, the profit was returned in a later year, and a deduction must be allowed in the later year to bring the petitioner’s income into balance, just as a recovery on a debt must be reported as income merely because it was previously allowed as a deduction. The one is really not a loss and the other is really not income, but in each case the adjustment should be made in the later year. No public policy is involved. This is not a case where the allowance of the deduction would weaken an effective method of enforcing a sharply defined public policy by mitigating the deterrent effect of sanctions imposed by section 16 (b) of the Securities Exchange Act of 1934 through a tax advantage, as would be the case of allowing a deduction for an ordinary fine or penalty. The petitioner merely restored the profits realized by him which he had previously reported as ordinary income. The' effect of allowing the deduction would be merely to offset the income already taxed. The disallowance on the other hand would in substance provide an added sanction — a consequence that is plainly outside the purpose of the revenue laws. Cf. dissents in William F. Davis, Jr., 17 T. C. 549, 559, et seq. The result reached in this case seems contrary to what was said and done in Robert Lehman, 25 T. C. 629, and William F. Davis, supra. Mulroney, J., agrees with this concurring opinion.