Court Opinion

ID: 9653224
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:41:31.846382+00
Date Added: 2024-06-11T18:12:48.231630
License: Public Domain

L. HAND, Circuit Judge
(concurring).
If we must insist that for taxing purposes a corporation is a juristic person distinct from its shareholders, I should find difficulty in holding that the lessor had a taxable income here. Moreover, I agree that Lucas v. Earl, 281 U. S. 111, 50 S. Ct. 241, 74 L. Ed. 731, Burnet v. Leininger, 285 U. S. 136, 52 S. Ct. 345, 76 L. Ed. 665, and Parker v. Routzahn, 56 F.(2d) 730 (C. C. A. 6), do not cover the point, for in these the assignor’s future performance was a condition upon the promisor’s obligation, whose payment was the “income.” That is the only difference I can see between such eases and Hall v. Burnet, 60 App. D. C. 332, 54 F.(2d) 443, 83 A. L. R. 86, for instance, in which the obligations were absolute at the time of assignment, though payable in the future. When such contracts are assigned, the assignor is not liable for the tax. U. S. v. Looney, 29 F.(2d) 884 (C. C. A. 5); Nelson v. Ferguson, 56 F.(2d) 121 (C. C. A. 3). Indeed, where the assignor’s continued performance is a condition, I have some difficulty in thinking of the income as remaimng within the assignor’s control, merely because he can defeat the payments by defaulting; but I accept that explanation for lack of any better distinction. At any rate, as I have said, the doctrine of Lucas v. Earl does not rule this situation, because the lessor here had nothing further to do; the consideration for the rent was the conveyance of the term, and the successive payments were absolutely due thereafter, unless the lessor re-entered.
However, a corporation is not distinct from its shareholders in such a situation as tMs. Every one agrees that the rent is somebody’s income and may be taxed; the objection is to taxing it at the rate wMch Congress has laid down for corporations, and collecting all of it from one shareholder, so far as he has received payment from the lessee. But a corporation, however completely it is a juristic person, is also an association of persons who have chosen the corporate form for their convenience; and it is upon the basis of that convenience that Congress has imposed upon them collectively a higher rate. Although here the rent passed directly to the associates, the shareholders, instead of through their common treasury, nevertheless they continued to enjoy the advantages of the corporate form; the payments reached them only be*15cause they remained members of the association ; they will no longer receive them when they leave the group; the original bargain by which the rents were reserved was made with them and by them as such associates. Moreover, and this is the main thing, if they are not pro hae vice identified with the corporation, they will escape the rate which is levied on the group for the very reason that it is a group-, and uses the form for whoso use the rate is prescribed. This being the setting, we do no violence to language, if we say that the payments, though made directly to each shareholder, were payments to the associates as a group; and that they are identified with the corporation, so far as it must be considered as having- an independent personality, a vexed question at best. The statute itself (section 2 (a) (2) Revenue Act 1926, 26 USCA § 1262 (a) (2), by including “associations,” uses the word “corporation” somewhat loosely; we may by implication reverse the definition, though there be a formal incorporation, because the opposite view nullifies the purpose of the act. There could not be much doubt about it, if the transaction had been openly devised to avoid the higher rates. If so, it can make no difference that it occurred at a time when such a motive did not, and could not, exist. The pattern is exactly the same, and the purpose of a taxpayer to- avoid taxation ought never to he relevant, if the transaction is not fictitious.
This conclusion is much fortified by a series of departmental rulings which antedate several re-enactments of the income tax acts. Article 102, Regulations 33; article 546 of Regulations 45; article 547, Regulations 62, 65 and 69; article 70, Regulations 64. Further, while the Supreme Court has refused to consider the point, a number of decisions in the lower courts, unanimous I think, accord with my view. Anderson v. Morris & Essex R. R., 216 F. 83 (C. C. A. 2); West End Street Ry. v. Malley, 246 F. 625 (C. C. A. 1); Blalock v. Georgia Ry. & Elec. Co., 246 F. 387 (C. C. A. 5); Rensselaer & Saratoga R. R. v. Irwin, 249 F. 726 (C. C. A. 2); Northern Ry. Co. of N. J. v. Lowe, 250 F. 856 (C. C. A. 2); American Tel. & Cable Co. v. U. S., 61 Ct. Cl. 326.
It is another question whether the shareholders are transferees under section 280 (a) (1) of the Revenue Act of 1926, 26 USCA § 1069 (a) (1). The section gives an administrative remedy for “the liability, at law or in equity, of a transferee of property of a taxpayer.” I have some doubt whether this includes only liabilities existing by virtue of the state law, as my brothers believe, and at any rate I think it unnecessary to declare so here; the point was expressly reserved in Phillips v. Commissioner, 283 U. S. 589, 602, 51 S. Ct. 608, 75 L. Ed. 1289. The liability imposed by the section must be that of a transferee of the taxpayer. Here there was no transfer from the taxpayer, the lessor, unless we go back to the date of the lease itself. I might be content to treat that as a transfer, thong-h it was made at the same time when the right to the rents was created. But the notion on which the lessor is considered as receiving any income at all is, as I have tried to show, that payments to the group are payments to the corporation; if the rents were transferred originally this could not be so. Therefore, either there was no income or there was no transfer; both there could not be. The Treasury may of course levy on thr lessor’s reversion, though it is presumably worthless. Theoretically perhaps it might levy on the rents received, treating them as assets of the taxpayer, which by hypothesis they are, if it had any income. This has not been tried; the shareholders have been taxed; for the liability assessed ag-ainst them under section 280 (a) (1) is indeed a tax. United States v. Updike, 281 U. S. 489, 50 S. Ct. 367, 74 L. Ed. 984. There must be some warrant of law for such a tax, and there is none unless they are transferees, which as I have said would out the ground from under the tax against the lessor, itself a condition upon the derivative liability. What the fate should be, under the laws as they stand, of such an attempt to levy upon the rents as assets of the taxpayer, I need not say. For these reasons I eoneur.