Court Opinion

ID: 4498640
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:03.224892+00
Date Added: 2024-06-11T15:04:13.226834
License: Public Domain

Arnold,
dissenting: I do not agree with the conclusion of the majority because in my opinion it errs in two respects. In the first place, the justification for the conclusion reached rests solely upon the exception contained in section 43, the application of which, it is held, will more clearly reflect petitioner’s income for the taxable year. Secondly, while the majority opinion relies upon section 43, it ignores the reasonable requirement contained in the Commissioner’s regulations dealing with the application of the exception.
In my opinion petitioner’s income is more clearly reflected by a computation in accordance with the method of accounting regularly employed in keeping its books than by the departure therefrom approved by the majority. Petitioner’s 1935 sales of flour were closed and completed transactions of that year. No obligation, express or implied, existed during 1935 to make reimbursement of any part of that year’s gross sales. The liability to vendees was first “paid or accrued” or “paid or incurred” in 1937 under agreements voluntarily entered into in that year, and, under the accrual system of accounting regularly employed by petitioner, such disbursements should properly be accounted for in that year. Accounting for 1937 liabilities in 1935 will not clearly reflect 1935 income; it distorts the income of both years. This Board should not permit a remedial provision of the statute to be used to distort income merely because the net result of shifting the deduction is to- lessen a taxpayer’s liability for taxes.
Section 43, so far as pertinent, appeared first in the Revenue Act of 1921, and provided that losses should be deducted in the year sustained, “unless, in order to clearly reflect the income, the loss should, in the opinion of the Commissioner, be accounted for as of a different period.” Sec. 234 (a) (4).
In the Revenue Act of 1924, Congress extended the principle in the 1921 Act relating to deduction of losses to all deductions and credits.
*775In section 200 (d) thereof it provided that “The deductions and credits provided for in this title shall he taken for the taxable year in which ‘paid or accrued’ or ‘paid or incurred’, dependent upon the method of accounting upon the basis of which the net income is computed under sections 212 or 232, unless in order to clearly reflect the income the deductions or credits should be taken as of a different period.”
Section 212 of the Eevenue Acts of 1924 and 1926 and section 41 of each succeeding revenue act delegate to the respondent the power to determine whether the method of accounting employed by a taxpayer clearly reflects its income, and, “if the method employed does not clearly reflect the income”, the statute provides that “the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income.” Sec. 41, Eevenue Acts of 1934 and 1936.
Eespondent’s regulations have consistently construed section 43 and its prototypes as requiring compliance with certain formalities as a prerequisite to shifting a deduction to a different period. Art. 146, Eegulation 62; art. 43-1, Eegulations 86 and 94. See also T. D. 3261 (1921), 1-1 C. B. 148. The regulations have always required a taxpayer to take the deduction in the year “paid or accrued” or “paid or incurred” and to submit with the return a complete statement of facts upon which it relies to take deductions as of a different taxable year. The Commissioner would then have the information before him and the years affected, from which it could be determined whether income would be more clearly reflected by shifting the deduction to the period requested. The requirement in the regulations is, in my opinion, a reasonable one and imposes no hardship upon a taxpayer. The successive reenactments of the statutory provisions without alteration must be taken as an approval by Congress of the administrative construction and to have imparted to the regulations the force and effect of law, Helvering v. Reynolds Tobacco Co., 306 U. S. 110, and unless petitioner has complied with the distinct method provided for in the regulations, it can not avail itself of the exception contained in section 43. Stokes v. United States, 19 Fed. Supp. 577, 580.
The record here does not show that petitioner deducted the repayments on its 1937 return or submitted a statement of facts upon which it relies, or requested that such deductions be taken as of a different period. Had the petitioner complied with the requirements of the regulations and had the Commissioner disallowed the deduction from 1935 gross income, it would be the province of the Board to determine whether or not petitioner’s income would be more clearly reflected by allowing the deduction as of the period claimed. Any shifting of credits and deductions from the year in which they are “paid or accrued” or “paid or incurred” to another *776taxable period changes the net income of both periods. Unless the information called for in the regulations is furnished the Commissioner, he can not determine whether the income will be more clearly reflected or not, nor can the Board on review of the Commissioner’s; determination.
The majority opinion computes net income upon the net result of a transaction or series of transactions spread over two or more taxable years. Such an interpretation will lead to endless delays and! confusion in determining and closing tax liabilities. While here the exception works to the taxpayer’s advantage, taxable income, to be clearly reflected, can not be determined upon the basis of advantage or disadvantage either to the taxpayer or the Government in any one particular year.