Court Opinion

ID: 4481736
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:03.971415+00
Date Added: 2024-06-11T14:54:00.934007
License: Public Domain

Simpson, J., concurring: In general, I agree with the conclusions of the majority of the Court, but I wish to express my views concerning the applicability of section 1311 in this case. The meaning of the provisions of section 1311(b) (1), relating to the maintenance of an inconsistent position, can be understood more easily if one has in mind the reason for such provisions. The general purpose of section 1311 was to permit adjustments with respect to taxable years closed by the statute of limitations. However, adjustments were authorized only against those persons who attempted to take advantage of the running of the statute of limitations. The provisions relating to the maintenance of an inconsistent position were included to carry out the latter objective, and that was the only reason for their inclusion. S. Rept. No. 1567, to accompany the Revenue Act of 1938 (Pub. L. No. 554), 75th Cong., 3d Sess., p. 49 (1938). Section 1311(b) (1) provides, in a case of this type, that no adjustment shall be made under section 1311 unless— * * * there is adopted in the determination a position maintained by the taxpayer with respect to whom the determination is made, and the position * * * maintained by the taxpayer * * * is inconsistent with the erroneous inclusion, exclusion, omission, allowance, disallowance, recognition, or nonrecognition, as the case m'ay be. To determine whether such provision is applicable in this case, the questions which must be considered are: Did the determination adopt a position maintained by the taxpayer? And was that position inconsistent with the erroneous omission of the gain from the proper taxable year ? It is first necessary to decide what is meant by “the position maintained by the taxpayer.” In their article, Maguire, Surrey, and Tray-nor suggested that: The inconsistency of the position is ascertained by reference to what was actually done in the earlier year rather than to what the taxpayer or the Commissioner may have urged at that time. * * * [Maguire, Surrey and Traynor, “Section 820 of the Revenue Act of 1938,” 48 Yale L. J. 735 (1938).] In Karpe v. United States, 335 F. 2d 454, 461 (1964), the Court of Claims said: The drafters by using the word “position” seem to have required that the court making the determination not only grant the result urged but also adopt the party’s general theory as a basis for reaching this result. * * * In that case, the taxpayer sought to avoid the applicability of section 1311 by arguing that the earlier determination had not adopted his theory. However, the Court of Claims concluded that it was sufficient that the determination had adopted the result sought by him and in general on the theory proposed by him. In the District Court case, Kent Homes’ position was that the gain was not taxable in 1958 because the transaction was not completed in that year. In support of that position, it argued that the transaction was completed in a later year, 1963. The only issue for the District Court to decide was whether there was a taxable transaction in 1958, and it decided there was not. The District Court was not required to decide what was the proper taxable year, and ordinarily, it would have expressed no opinion on that issue. It granted the result sought by Kent Homes and in general on the theory urged by the corporation. It is clear that the determination did adopt the position maintained by Kent Homes — the District Court held that there was no taxable transaction in 1958. As I understand the words of section 1311 (b(l), there is no requirement that the court in the earlier determination express any views as to the proper year for reporting the gain. Although a taxpayer may argue that the transaction is not taxable in the year in issue because it is taxable in some other year, there is no requirement that the court determine the year of taxability; in fact, it would be dictum for the court to do so. The only question is did the determination adopt the position maintained by the taxpayer; and if we distinguish between the position and arguments maintained by the taxpayer, it is clear that the court did adopt Kent Homes’ position. The applicability of section 1311 does not depend upon whether the court in the earlier determination adopted an inconsistent position— rather, the question, is whether the position maintained by Kent Homes was inconsistent with its failure to report the gain for the proper taxable year. Before the District Court, the corporation argued that the gain was taxable in a later year, but in fact, it did not report the gain for any subsequent year. In this case, we have now decided that the gain was taxable in 1959. The corporation’s failure to include the gain for 1959 is inconsistent with its position that the gain was taxable in a year subsequent to 1958. When the provisions now contained in sections 1311-1315 were enacted, the Senate Finance Committee stated: This section of the bill provides an equitable solution of certain classes of income-tax problems, now very numerous, which have caused much hardship to taxpayers and great difficulty to the Commissioner, the Board of Tax Appeals, and the courts. * * * ******* In each case, under existing law, an unfair benefit would have been obtained by assuming an inconsistent position and then taking shelter behind the protective barrier of the statute of limitations. Such resort to the statute of limitations is a plain misuse of its fundamental purpose. The purpose of the statute of limitations to prevent the litigation of stale claims is fully recognized and approved. But it was never intended to sanction active exploitation, by the beneficiary of the statutory bar, of opportunities only open to him if he assumes a position diametrically opposed to that taken prior to the running of the statute. * * * [S. Rept. No. 1567, supra at p. 48-49.] The facts of this case present a classic situation for which those provisions were designed. When the parties were before the District Court and the issue was whether the gain was taxable in 1958, the taxpayer sought to avoid taxation in that year of the admitted gain by arguing that it was taxable in a later year, 1963. Now that the respondent has attempted to tax the gain in 1963, the taxpayers argue that the transaction should have been taxed in 1959, but that since the statute of limitations has run for 1959, the gain cannot be taxed in that year. It is just this kind of exploitation of the statute of limitations for which section 1311 was enacted. It is not my purpose to justify what the respondent did, but he was laboring under a great deal of uncertainty as to what was the proper course of action. Perhaps, he should have anticipated the possibility that 1959 would ultimately be held to be the proper taxable year and have issued a notice of deficiency for such year before the expiration of the statute of limitations. However, while the statute of limitations was running, the taxpayers were arguing that the gain was taxable in 1963, and although I accept this Court’s interpretation and conclusion with respect to the decision of the Tenth Circuit in the case of Likins-Foster Honolulu Corp. v. Commissioner, 417 F. 2d 285 (1969), that decision does indicate that the respondent had some reason for believing that 1963 was the taxable year. The reasonableness of the respondent’s mistake is not the decisive question in the case, but it demonstrates dramatically the reason for section 1311. He acted with some reason in concluding that he should assert the deficiency for 1963; yet, years later, we now conclude that he was wrong and that he should have asserted the deficiency for 1959. I find it difficult to imagine a more persuasive case for applying section 1311. DRennen, Atkins, Dawson, Hoxt, and Featheiiston, JJ., agree with this concurring opinion.