Court Opinion

ID: 9473045
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:17:54.888426+00
Date Added: 2024-06-11T17:43:17.404974
License: Public Domain

CORNELIA G. KENNEDY, Circuit Judge,
dissenting.
I respectfully dissent. I agree with the majority’s conclusion that all of the bonus money which was awarded post-mortem is income in respect of a decedent. I disagree, however, with the majority’s assumption that sections 661 and 662 of the Internal Revenue Code conflict with section 691. I also disagree with the assumption that if section 691 applies to the instant case the inquiry is ended and taxpayer must lose. I believe that these sections can be reconciled and that proper analysis of section 691’s application here leads to a result in favor of taxpayer.
Taxpayer is a trust and a beneficiary of the Robert Estate. Upon distributing the bonus award rights to taxpayer pursuant to decedent’s bequest, the estate deducted the value of those rights from its own taxable income, in accordance with section 661.1 Upon receiving the rights, taxpayer quite reasonably thought of them as “amounts properly paid, credited or required to be distributed” and therefore, in accordance with section 662, included the value of the rights in its gross taxable income for each year in which it received rights. In subsequent years, when the bonuses were actually paid out, they would sometimes exceed and sometimes fab short of the value previously claimed as income by the taxpayer. When the actual award exceeded the value, previously claimed, taxpayer included the excess in its gross taxable income for the year the award was paid out. When the actual award fell short of the value previously claimed, taxpayer did not seek credit for the difference. In short, taxpayer paid income tax on all of the bonus money.
Now taxpayer is told that, prior payment notwithstanding, it must pay that tax again. This is so, according to the majority, because section 691 requires that income in respect of a decedent be reported *1134as income “when it [is] received, not when the rights to it [are] received.” I read section 691 differently.
Section 691(a)(1) states,
The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period ... shall be included in the gross income, for the taxable year when received, of:
(A) the estate of the decedent, if the right to receive the amount is acquired by the decedent’s estate from the decedent;
(B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s estate from the decedent; or
(C) the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent’s estate of such right.
The most salient feature of this section is that it addresses the question, “who must include the income in respect of a decedent in their gross income?” not the question, “when must income in respect of a decedent be reported?” In this light, section 691 does not conflict with sections 661 and 662. The majority fears that application of sections 661 and 662 in the instant case would “effectively write section 691 out of the Code, since every distribution of a right to section 691 income would be susceptible to treatment as a section 662 distribution to a beneficiary.” This is simply incorrect. Sections 661 and 662 apply to cases where an estate or trust has distributed to a beneficiary amounts properly paid, credited or otherwise required to be distributed. Subsections (A) and (B) of section 691(a)(1) encompass numerous situations where no such distribution would be made. Only subsection (C) of section 691(a)(1) would necessarily intersect with sections 661 and 662.
Even where these statutes overlap, however, there is no conflict. The instant case illustrates the point. The taxpayer received, by bequest, the right to the bonus awards. Because this was “required to be distributed,” section 662 would apply and require taxpayer to include the value of the right in its gross income. Section 691(a)(1)(C) addresses the question of who must include income in respect of a decedent in their gross income in situations where the income passes through the estate to a beneficiary. Subsection (C) resolves the issue by allocating the income to the beneficiary. In this regard, subsection (C) adopts the same approach as sections 661 and 662. There is no conflict.
Difficulty arises only if we give an overly technical reading to a peripheral aspect of these statutes, i.e., when the amount must be claimed. Section 691 requires the taxpayer include the bonuses in its gross income “for the taxable year when received.” The majority asserts, without support or analysis, that this means that taxpayer must claim each bonus amount in the year the cash is received and may not claim it in the year the right to it is received. However, as to when the amount must be claimed, neither section 691 nor section 662 clearly distinguishes between receipt of the right and receipt of the property. Either way, the tax is paid. I cannot believe, and no one has proffered any explanation as to why it would be, that by including the axiomatic language “for the taxable year when received,” Congress intended to prohibit people from placing a value on a property right and treating it as gross income in the year the right is received.2
A reasonable reading of either section 662 or section 691 might lead any taxpayer to conclude exactly what taxpayer here concluded: that the value of the rights to *1135the bonuses had to be included in gross income for the year in which the right was received.3 A basic tenet of statutory construction is that, where possible, we construe statutes to be in harmony rather than in conflict. Instead of doing this, the majority harshly interprets an ambiguous statutory scheme to the detriment of a party who attempted to comply with the law according to a reasonable reading of the statutes involved.
I would reverse the decision of the Tax Court and enter a finding of no deficiency.

. At the core of the Commissioner’s theory of this case is the notion that allowing the estate to take the § 661 deduction without first having to claim the value of the bonus rights as income results in a windfall. While this may be, it is a windfall that is expressly authorized by § 661. It is also a windfall that benefits only the estate, not taxpayer. If the Commissioner objects to this windfall, he should have sought a determination of deficiency against the estate and challenged the estate’s use of the § 661 deduction. Taxpayer, a beneficiary, had nothing to do with the estate’s windfall. Taxpayer, in fact, would have benefitted more by postponing the payment of income tax until the money was received than by paying the tax when the right was received.

. Indeed, it would be anomalous that the estate be allowed to deduct the bonus one year and the beneficiary not be required to pay the tax until several years later, which is the position the Commissioner takes.

. This conclusion is supported by the treatment of annuities in the regulations under section 661, which require inclusion of the entire value of an annuity in the year the right to receive annuity payments is acquired. See Treas.Reg. § 1.661(a)-2(c).