Court Opinion

ID: 4493247
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:51.125631+00
Date Added: 2024-06-11T15:03:59.791106
License: Public Domain

SteRNhagen,
dissenting: I think that the respondent is entitled to a judgment for the full amount of both the deficiency and the penalty. The provision of section 907(a), Revenue Act of 1924, as amended by section 601, Revenue Act of 1928, is:
* * * In any proceeding [before the Board] involving the issue whether the petitioner has been guilty of fraud with intent to evade tax, where no hearing has been held before the enactment of the Revenue Act of 1928, the burden of proof in respect of such issue shall be upon the Commissioner. * * *
Although the statement in paragraph 3 of the petition is that the entire amount representing both tax and penalty is in controversy, it will be noted that there is no assignment of error as to the determination of fraud. The respondent urges, therefore, that the fraud penalty was not put in issue and it was therefore not incumbent upon him either to plead affirmatively or to prove fraud, since the statute places' the burden upon him only when the proceeding involves the issue of fraud. This seems to me to be the correct view. The assignments of error and the allegations of fact are what determine the *1019issues; and not the statement, pursuant to the Eules, of the “ amount in controversy.”
The history of Eule 5 shows that it was not the function of the statement of the amount in controversy to determine the issue. Eule 5 was adopted under the Eevenue Act of 1924. In that statute, section 900 (h) provided:
⅜ * * If the amount of tax in controversy is more than $10,000 the oral testimony taken at the hearing shall be reduced to writing and the report shall contain an opinion in writing in addition to the findings of fact and decision. * * ,⅜
In many cases the Commissioner’s determination of deficiency involves numerous adjustments, sometimes entirely separate and sometimes interdependent. An appeal from the deficiency is not necessarily an appeal from every item in it, nor is it confined to the items determined as set forth in the notice. The amount in controversy may be more or less than the amount set forth in the notice and the issues may include new substantive items not touched by the notice of deficiency. The rule which was first adopted in July 1924 contained no requirement of a statement of the amount in controversy, but the form tentatively suggested in the appendix to the Eules included paragraph 3, as follows:
3. The taxes in controversy are (income) (profits) taxes for the (calendar or fiscal) years (_^_) and are ( more^) than $10,000.00. . \ less /
This was followed by assignments of error and allegations of fact.
The revision of November 1, 1925, changed Eule 5 to include:
(e) A statement of the amount of the deficiency, the nature of the tax, the year for which asserted, and the amount thereof (as nearly as may be determined) in controversy.
And the appended suggested form was modified so that paragraph 3 was suggested in the following form:
3. The taxes in controversy are (income) (profits) (estate) (gift) taxes for the (calendar or fiscal) years (_) and are than $10,-000.00, to wit: _ dollars (state exactly if possible or approximately the amount disputed).
The revised Eules of April 1, 1926, after the enactment in February of the Eevenue Act of 1926, did not change Eule 5, but modified the suggested form by omitting the $10,000 provision, which had likewise been omitted from the new statute. Paragraph 3 then became:
3. The taxes in controversy are (income, profits, estate, or gift) taxes for the (calendar or fiscal) year 19 and for _dollars (state as exactly as possible the amount in dispute).
*1020Thus these provisions of the rule and form have remained ever since. From them, it is clear that paragraph 3 had no' function to frame the issue, but only to inform the Board for administrative purposes of the approximate amount involved.
But even if it had such a significance, it would still have less force to fix the issue than the specific assignments of error and allegations of fact. These were expressly designed to fix the issues and when they are clear, as in this petition they are, and need no illumination, they must dominate. To reverse the emphasis would tend to subvert the entire scheme of the pleading. Instead of shaping the course of the litigation, enabling the parties to prepare for specific issues and no others and avoid doubt as to the nature and extent of the contest, thus expediting the disposition of a voluminous docket, it would promote confusion, bickering, and delay.
The amount of the penalty, being 50 percent of the deficiency, necessarily fluctuates with the deficiency and hence, even when the petitioner admits fraud, the ampunt of penalty, as distinguished from the fact of fraud, is still in controversy to the extent that it exceeds 50 percent of the deficiency ultimately determined. It is entirely logical and consistent, therefore, for a taxpayer to admit the fact of fraud as ground for a penalty and yet state that the amount of penalty is in controversy until the amount of deficiency is settled. In such case, clearly, the fact of fraud would not be in issue, and the Commissioner would have no burden of proving it. We must assume Congress used the term “ issue ” deliberately in its accepted sense of a denied allegation.
There are some taxpayers who commit fraud, and if one chooses by his silence to acquiesce in the determination of fraud and thus, for example, avoid both an admission and the publication of the evidence in an open proceeding, there is no reason why the Commissioner should nevertheless collect and present the evidence. Under the law, the rules and the practice, a taxpayer who is confronted with a fraud penalty may litigate the issue by merely pleading it clearly. If he thus puts it in issue, the statute places the burden of proof on the Commissioner. Miller-Pocahontas Coal Co., 21 B.T.A. 1360. If he does not plead it, but only states that the amount in controversy includes it, there is, in my opinion, no burden on the respondent.
To sustain the Commissioner’s determination of a fraud penalty is not contrary to the statutory presumption implied in section 907 (a), nor does it contravene any doctrine against the presumption of fraud. The Commissioner has made a determination that the taxpayer fraudulently treated as a loan an item which the Commissioner holds to have been a dividend; and this determination the taxpayer *1021has not assailed. If no petition whatever had been filed, the Commissioner would have assessed both the deficiency and the penalty which he had officially determined. There would have been no occasion to consider a presumption because there would have been no issue. So here there is no issue as to fraud, and the Commissioner’s determination has a conclusive sanction. If, after the Commissioner’s determination, the taxpayer had elected the alternative remedy of payment and suit in court to recover, and had omitted to plead facts as to his freedom from fraud, there would have been no question in regard to a presumption, and the Commissioner would have been relieved of any defense of his determination of fraud or his assessment and collection of a penalty. There is no greater burden on the Commissioner before the Board, unless the taxpayer exercises his right to put the fact of fraud in issue in the manner which the Board’s Buies of Practice clearly and authoritatively prescribe. This, in my opinion, he has not done.
Marquette, MoeRis, Murdock, Goodrich, and Leech agree with this dissent.