Court Opinion

ID: 4483741
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:16.133516+00
Date Added: 2024-06-11T07:58:22.360272
License: Public Domain

Goffe, J., dissenting: I respectfully dissent. The majority gratuitously undertakes to overrule a reported opinion of this Court which respondent has not even requested. Respondent argued only that Schiffman v. Commissioner, 47 T.C. 537 (1967), and Pittsburgh Milk Co. v. Commissioner, 26 T.C. 707 (1956), were distinguishable. Such a practice not only unfairly deprives petitioners of the opportunity to argue the viability of Schiff-man on which they had every right to rely, the holding of the majority violates the doctrine of stare decisis in overruling Schiffman which was itself correct. Schiffman was decided over 11 years ago and the Commissioner acquiesced in the decision shortly after it was published. He withdrew his acquiescence only after the trial in the instant case but did not argue at trial or on brief that the Court should reconsider its holding in Schiffynan. In the intervening 11 years no court has, in any way, criticized our holding in Schiffman. Indeed, we have, in numerous cases, relied upon Schiffman as valid judicial precedent. Pendola v. Commissioner, 50 T.C. 509 (1968); Diamond v. Commissioner, 56 T.C. 530 (1971); Kenner v. Commissioner, T.C. Memo. 1974-273; Pierson v. Commissioner, T.C. Memo. 1976-281; Max Sobel Wholesale Liquors v. Commissioner, 69 T.C. 477 (1977). In the last cited case, Max Sobel Wholesale Liquors, a Court-reviewed opinion decided only a scant 4 months ago, we held that Pittsburgh Milk Co., on which we relied in deciding Schiffman, had not been overruled. Not even the dissenting judges in Max Sobel Wholesale Liquors suggested that Pittsburgh Milk Co. had been overruled. The doctrine of stare decisis embodies an important social policy representing an element of continuity in law and is rooted in the psychologic need to satisfy reasonable expectations. Helvering v. Hallock, 309 U.S. 106, 119 (1940); Sylvan v. Commissioner, 65 T.C. 548 (1975). The majority points to no intervening event during the 11 years that this Court and the Commissioner of Internal Revenue considered Schiffman to be correct, that should cause us to reexamine Schiffman. Indeed, the majority infers that Schiffman, conceded by the majority not to be distinguishable from the instant case, would open the door to wholesale evasion of the purposes of section 162(c). No doubt our recent holding in Max Sobel Wholesale Liquors will result in avoidance of the applicability of section 162(c) because of our holding that cost of goods sold is not a deduction, but we expressed no such concern nor did the dissenting judges base their opinion on any widespread avoidance of section 162(c). The majority fails to address itself to the rationale upon which Schiffman was based; i.e., that the taxpayer had no claim of right to the money represented by the rebate or kickback. The Court was correct when it stated in Schiffman, In our judgment, the issue herein does not turn on whether there was a direct confrontation between the customer and the insurance company or whether the latter had knowledge of petitioner’s clandestine arrangements. Rather, we think that the fundamental consideration is whether the customer paid or was required to pay such amounts to petitioner, so that it could be said that he received them under a claim of right or turned his back on income to which he was otherwise entitled. * * * [47 T.C. at 541.] In my view the majority in the instant case incorrectly overrules that test and presumably bases its opinion upon a proposition rejected in Schiffman; i.e., an examination of the relationships to see who is the seller of the insurance policies. The majority fails to focus upon the facts as applied to the taxpayer before the Court. Petitioner had no claim of right to commission income unless and until he was responsible for the issuance of an insurance policy. In order to build up a right to future commissions he constructed transactions with customers which resulted in the issuance of policies of life insurance. By reason of the bargains he struck, however, he had no claim of right to the commissions; they were dedicated, as part of the overall bargains which he struck, to the payment of premiums. Petitioner was a cash basis taxpayer and the transactions he entered into to sell the life insurance policies did not confer upon him a claim of right to the commission income. The substance of the transactions for the sales of insurance nets no income to petitioners. I would, therefore, hold that the commission income dedicated to the payment of premiums by use of rebates and loans is excludable from petitioner’s gross income. He had no right to the income unless he sold the insurance policies but he did not sell the insurance policies without dedication of the commission income to the payment of premiums. I do not condone what petitioner did any more than I condoned the activities involved in Schiffman or Max Sobel Wholesale Liquors, but I strongly oppose warping the claim of right doctrine in favor of respondent when he didn’t ask for it to construct phantom income and a phantom deduction that must be denied under section 162(c). We recognized the distinction between deductions and cost of goods sold in Max Sobel Wholesale Liquors. We should not now, because more taxpayers may avoid section 162(c) than we thought when we decided Schiffman, strain the claim of right doctrine to overrule a precedent of long standing which was eminently correct. Scott, Fay, Irwin, Quealy, and Chabot, JJ., agree with this dissenting opinion.