Court Opinion

ID: 4484582
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:50.855897+00
Date Added: 2024-06-11T07:58:24.877033
License: Public Domain

Fay, J., concurring: I concur only in the majority’s conclusion that petitioner’s motion to dismiss for lack of jurisdiction should be denied. I disagree strongly with the majority opinion’s reasons for its result. It is clear that we have jurisdiction over the asserted second tier tax, just as we had jurisdiction in Adams v. Commissioner, 72 T.C. 81 (1979), on appeal (2d Cir., June 23,1981). In Adams, we did not dismiss for lack of jurisdiction. Rather, we determined there was no deficiency and decided the case for the taxpayer. Therefore, I cannot fault the majority’s refusal to dismiss for lack of jurisdiction. However, the majority opinion goes well beyond deciding the simple jurisdictional issue. In essence, the majority opinion treats petitioner’s motion herein as one for partial summary judgment and concludes that the 1980 amendments to the second tier tax are applicable to petitioner. It is with that conclusion that I cannot agree. Stated simply, the issue decided by the majority in this case is whether the Second Tier Tax Correction Act of 1980 (the 1980 Act), Pub. L. 96-596, 94 Stat. 3469, applies to cases pending in this Court on or prior to the date of enactment, December 24, 1980.1 The issue is troublesome because the effective dates for the 1980 Act are set forth in the statute as follows: SEC. 2(d) Effective Dates.— (1) First tier taxes. — The amendments made by this section with respect to any first tier tax shall take effect as if included in the Internal Revenue Code of 1954 when such tax was first imposed. (2) Second tier taxes. — The amendments made by this section with respect to any second tier tax shall apply only with respect to taxes assessed after the date of the enactment of this Act [Dec. 24, 1980]. Nothing in the preceding sentence shall be construed to permit the assessment of a tax in a case to which, on the date of the enactment of this Act, the doctrine of res judicata applies. [94 Stat. 3474; emphasis added.] The legislative history provides only that: The bill applies to second-tier taxes assessed after the date of enactment of the bill (except in cases where a court decision with respect to that tax is final on that date). [H. Rept. 96-912 (1980), 1980-2 C.B. 658.[2] "Assessed” is an odd choice in this context. Basically, "assessed” is a term of art meaning "billed” whereby a taxpayer’s liability is recorded by the Secretary. Sec. 6203. Subject to a few exceptions which do not apply here, assessment is prohibited unless the taxpayer first receives a notice of deficiency under section 6212, and, if the taxpayer timely files a petition in this Court, until our decision has become final. Sec. 6213(a). See sec. 7481(b) ("final”). Thus, assessment is something that happens, if at all, only at the end of a given tax case’s progress through this Court. The majority opinion purports to accept a literal meaning of "assessed” concluding, that since the second tier taxes at issue herein have not been "assessed,” the 1980 Act applies in this case. What the majority opinion fails to perceive is that if the words "taxes assessed after the date of enactment [December 24, 1980]” are taken literally, then we cannot possibly know whether the 1980 Act applies since we have absolutely no way of knowing if these taxes ever will be assessed at all.3 Obviously, taxes never assessed are not assessed "after” any date. Technically, the majority reads assessed as "might be assessed.” Thus, in order to reach the majority result herein, the effective date language cannot be read literally. Petitioner contends that "assessed” really means "asserted.” Thus, the 1980 Act would apply only to second tier taxes asserted after December 24,1980, rather than being completely retroactive. Petitioner’s argument is supported by the fact that Congress clearly made the first tier tax amendments completely retroactive and obviously meant something else when they used different language in prescribing an effective date for the second tier amendments. Furthermore, section 2(^)(2) of the 1980 Act provides: "Nothing in the preceding sentence shall be construed to permit the assessment of a tax in a case to which, on the date of the enactment of this Act, the doctrine of res judicata applies.” Strictly speaking, this sentence is without legal effect. Section 6212(c) already bars any further action by the Commissioner once a decision is final. .See, e.g., Midland Mortgage Co. v. Commissioner, 73 T.C. 902 (1980).4 Section 6212(c) specifically applies to acts taxable under chapter 42. Sec. 101(f)(2) (amending sec. 6212(C)), Tax Reform Act of 1969, 1969-3 C.B. 30. Perhaps Congress was trying to exempt pending cases or only cases in which a decision of this Court had been entered.5 Nevertheless, what Congress intended is far from clear, given the language employed. While petitioner’s interpretation is the most sensible one in my view, I recognize that rewriting "assessed” to be "asserted” is probably not within our province as interpreters, rather than drafters, of the law. Assuming that the majority opinion is correct in reading "assessed” to mean "may be assessed” so as to make the 1980 Act completely retroactive, I cannot agree that no grave constitutional problems exist. I fully realize that the invalidation of a tax statute on constitutional grounds is often regarded as a vestigial historical anomaly that is but a remote possibility today. See, e.g., Sidney v. Commissioner, 273 F.2d 928, 932 (2d Cir. 1960). See also Laing v. United States, 423 U.S. 161, 185 (1976) (Justice Brennan, concurring). Nonetheless, I think the majority opinion in this case does not adequately deal with what are fundamental constitutional infirmities in the statute. Petitioner argues that, to be constitutionally valid, the retroactivity of a taxing statute must be plainly expressed, and cites United States v. Darusmont, 449 U.S. 292 (1981). Darusmont may suggest but does not clearly stand for this proposition. However, Commissioner v. Acker, 361 U.S. 87, 91-92 (1959), discussed below, strongly supports petitioner’s argument. In any case, I do agree with petitioner that the statute is unclear. The majority opinion relies mainly upon a veritable host of cases which have held that income tax statutes may be retroactive. See United States v. Darusmont, supra, and cases cited; Buttke v. Commissioner, 72 T.C. 677 and cases cited (1979), affd. 625 F.2d 202 (8th Cir. 1980); Hochman, "The Supreme Court and the Constitutionality of Retroactive Legislation,” 73 Harv. L. Rev. 692, 706-711 (1960). In Darusmont, the Supreme Court relied heavily on the fact that an income tax was in issue: The Court consistently has held that the application of an income tax statute to the entire calendar year in which enactment took place does not per se violate the Due Process Clause of the Fifth Amendment. [449 U.S. at 297; emphasis added.] We do not regard [the cases invalidating the retroactivity of the gift tax] as controlling authority with respect to any retroactive feature of a federal income tax. [449 U.S. at 299; emphasis added.] Moreover, the Court specifically indicated its rationale in such cases: "Taxation is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract. It is but a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Since no citizen enjoys immunity from that burden, its retroactive imposition does not necessarily infringe due process, and to challenge the present tax it is not enough to point out that the taxable event, the receipt of income, antedated the statute.” [449 U.S. at 298, quoting Welch v. Henry, 305 U.S. 134, 146-147 (1938).] See also Cohan v. Commissioner, 39 F.2d 540, 545 (2d Cir. 1930). The foregoing rationale plainly does not apply to the self-dealing and other second tier taxes of sections 4942-4947. Such taxes are not income taxes (they are excise taxes), and they are not revenue-producing taxes. The statute itself and the legislative histories of both the Tax Reform Act of 1969 and the 1980 Act make it clear that these second tier taxes were intended never to be collected. See Adams v. Commissioner, 72 T.C. at 87. In fact, these penalty taxes are not even remotely related to revenue collection as are, for example, the 50-percent fraud penalty of section 6653(b) (which compensates thé Government for its extra effort to investigate and to collect taxes owed, Helvering v. Mitchell, 303 U.S. 391, 401 (1938)) and the 100-percent penalty for failure to withhold under section 6672 (which is primarily a collection device, Bolding v. United States, 215 Ct. Cl. 148, 565 F.2d 663, 669 n. 3 (1977)). In the case of excise taxes, the Supreme Court has uniformly held that a wholly new type of excise tax may not be imposed retroactively. Nichols v. Coolidge, 274 U.S. 531 (1927) (retroactive application of the estate tax held unconstitutional); Untermyer v. Anderson, 276 U.S. 440 (1928) (retroactive application of the gift tax held unconstitutional). See also Sidney v. Commissioner, supra. Even in Untermyer, where the gift tax bill had been passed by both Houses of Congress but the conference report had not yet been adopted, the Court held: The mere fact that a gift was made while the bill containing the questioned provisions was in the last stage of progress through Congress we think is not enough to differentiate this cause from [Blodgett v. Holden, 275 U.S. 142 (1927), modified 276 U.S. 594 (1928)] and to relieve the legislation of the arbitrary character there ascribed to it. * * * The taxpayer * * * cannot foresee and ought not to be required to guess the outcome of pending measures. The future of every bill while before Congress is necessarily uncertain. The will of the lawmakers is not definitely expressed until final action thereon has been taken. [276 U.S. at 445-446.] [6] Thus, in Untermyer, the retroactive application of the gift tax was held to be arbitrary and invalid under the due process clause of the Fifth Amendment. Thus, the real issue in this case is the following: Does the 1980 Act actually seek to impose the second tier excise taxes retroactively, or does it merely cure infirmities in the administration of the statute so that a tax already enacted can be collected? This distinction is subtle and is not easy to apply, but I believe it is critical. In a number of cases, the Supreme Court has upheld the retroactive enactment of "curative” statutes. See United States v. Heinszen & Co., 206 U.S. 370 (1907); Graham & Foster v. Goodcell, 282 U.S. 409, 429 (1931); Hochman, supra at 703-706. In both of the above cited cases, taxes which had been validly imposed and were concededly owing turned out to have been collected without authority,7 and Congress subsequently validated their earlier collection. In each case, Congress retroactively abolished unexpected technical defenses to taxes which had already been paid. In Graham & Foster v. Goodcell, supra, the Court carefully distinguished its cases holding the retroactive imposition of certain taxes unconstitutional: This is not a case of an attempt retroactively to create a liability in relation to a transaction as to which no liability had previously attached. There is no question here as to the original liability of the taxpayers. The tax was a valid one, and the fact that the taxpayers had been indebted to the Government for the amount which was subsequently collected is not now open to dispute. * * * The question is whether these circumstances remove the case from the operation of the general rule that it is not consistent with due process to take away from a private party a right to recover the amount that is due when the act is passed. [282 U.S. at 426; fn. ref. omitted.] In those circumstances, the Court held the retroactivity of the curative statute constitutional:8  It is apparent, as the result of the decisions, that a distinction is made between a bare attempt of the legislature retroactively to create liabilities for transactions which, fully consummated in the past, are deemed to leave no ground for legislative intervention, and the case of a curative statute aptly designed to remedy mistakes and defects in the administration of government where the remedy can be applied without injustice. [282 U.S. at 429.] The majority opinion seeks to bring this case within the rule of Graham & Foster v. Goodcell by holding that "these amendments can and validly do apply to acts of self-dealing which occurred before the enactment of the amendments, and which, when performed, were subject to an existing tax.” (Emphasis added.) Majority opinion, supra at pp. 921-923. I believe the majority opinion oversimplifies the issue. We are not, in this case, dealing with defects in the administration or collection of a tax otherwise imposed. In Adams we held the statute was defective in that it imposed no tax until after our decision was final: Under this statutory scheme, the second-level tax is not imposed, assuming no correction occurs, until the expiration of the correction period. However, the correction period does not expire until the decision of this Court with respect to the second-level tax becomes final. * * * Pursuant to section 4941(b)(1), the expiration of the correction period is a prerequisite to the imposition of the second-level tax. If the tax is not imposed until the correction period expires, it is clearly not imposed on the date of the mailing of the statutory notice and, therefore, there is no "deficiency” as that term is defined in section 6211(a). Because petitioner has sought this Court’s redetermination of a deficiency determined by respondent, and because no deficiency exists, we are bound to enter a decision for petitioner as to the second-level tax. [Adams v. Commissioner, 72 T.C. at 85-86. Emphasis added.] Moreover, it was exactly this defect that Congress cured when the 1980 Act amended the second tier taxes of sections 4941 et seq. Under section 4941(b)(1), as amended, the 200-percent second tier penalty tax for self-dealing is imposed where an act of self-dealing is not corrected within the "taxable period.” The "taxable period” is, in most cases, now defined under section 4941(e)(1)(A) as follows: • SEC. 4941(e)(1). Taxable period. — The term "taxable period” means, with respect to any act of self-dealing, the period beginning with the date on which the act of self-dealing occurs and ending on the earliest of— (A) the date of mailing a notice of deficiency with respect to the tax imposed by subsection (a)(1) under section 6212, * * * [Emphasis added.] By so defining the "taxable period” in the statute (and similar changes were made for the other second tier taxes), the second tier tax is now imposed as of the date the deficiency notice was mailed. Under prior law, such tax was not imposed until after a court decision determining the tax had become final. Thus, with respect to pending cases in this Court, the 1980 Act, if it is indeed retroactive, imposes second tier taxes in situations where no tax had yet been imposed at the time of enactment. I recognize that the 1980 Act in many ways appears to effect what could be called a "technical fix.” However, the 1980 Act, if indeed it applies to pending cases, seeks retroactively to impose a tax upon transactions entered into prior to enactment. Thus, the 1980 Act cannot be viewed as granting administrative powers to collect a tax previously imposed. The foregoing analysis would be enough, in my opinion, to invalidate any retroactivity attributable to the 1980 Act, but there are further considerations weighing heavily against the act, arising out of the nature of the tax, itself. In Commissioner v. Acker, 361 U.S. 87 (1959), the Supreme Court held that the penalty under section 294(d)(2), I.R.C. 1939, for underestimation of estimated tax did not apply where no declaration of estimated tax had been filed.9 The Court reasoned: We are here concerned with a taxing Act which imposes a penalty. The law is settled that "penal statutes are to be construed strictly,” * * * and that one "is not to be subjected to a penalty unless the words of the statute plainly impose it.” [361 U.S. at 91; citations omitted.] On that ground, the Court (invalidating a long-standing regulation) ruled that the statute was not clear enough to justify imposing the penalty. I think that rationale applies with equal force in the instant case. In fact, I have serious doubt whether the second tier tax on self-dealers should really be called a tax at all. I think the second tier taxes are nothing more than civil penalties masquerading as excise taxes. See United States v. Constantine, 296 U.S. 287 (1935).10 These so-called taxes will produce no revenue because they are not intended to be collected. Instead, they are solely intended to be a threat so ominous that no one will choose not to correct. The idea, of course, is that backing up this threat with the heavy machinery of the collection process makes the threat potent. The legislative history repeatedly refers to the second tier taxes as "sanctions.” E.g., S. Rept. 91-552 (1969), 1969-3 C.B. at 445. See also Adams v. Commissioner, supra; 4 B. Bittker, Federal Taxation of Income, Estates, and Gifts par. 101.2 (1981). In short, the second tier taxes seek to impose civil penalties whether we also label them "taxes” or not. See Tank Truck Rentals v. Commissioner, 356 U.S. 30, 36 (1958). See generally Clark, "Civil and Criminal Penalties and Forfeitures: A Framework for Constitutional Analysis,” 60 Minn. L. Rev. 379 (1976). I do not believe the due process clause of the Fifth Amendment permits the retroactive imposition of civil penalties for acts or omissions predating enactment.11  Accordingly, I would grant petitioner a partial summary judgment as to the second tier taxes either on the ground that (1) the 1980 Act, read literally, does not apply to any petitioner who files a petition in this Court because we do not know if the taxes in issue will be assessed at all, or that (2) retroactive application of the 1980 Act would be unconstitutional.  If the 1980 Act is not retroactive, petitioner is entitled to partial summary judgment under Adams v. Commissioner, 72 T.C. 81 (1979), on appeal (2d Cir., June 23,1981).   But see Joint Committee on Taxation, Summary of Miscellaneous Tax Bills Passed by the Congress in the Post-Election Session 9 (Dec. 23, 1980) (implying that the 1980 Act was prospective only): 3Under the bill, the second-tier excise tax will be imposed before any litigation begins (in order to insure that the Court will have jurisdiction) but is to be forgiven if the prohibited act is corrected within a correction period. [Emphasis added.]”   In fact, it is highly unlikely that second tier taxes ever will be assessed. See secs. 4961(a) and 4962(eXl).   The majority opinion, supra at note 8, attempts to sidestep this problem by specifically declining to address the question whether the 1980 Act has retroactively overruled our decisions in Adams v. Commissioner, note 1 supra, and Larchmont Foundation, Inc. v. Commissioner, 72 T.C. 131 (1979), remanded by unpublished order (7th Cir., June 11, 1981). However, since both of those cases have been appealed, it is obvious to me that in neither case is there yet a final decision to which res judicata would apply. Thus, I see no way for us to avoid the conclusion that Adams and Larchmont Foundation have been affected as well. On the Government’s motion, the Court of Appeals for the Seventh Circuit recently remanded Larchmont Foundation to this Court for us to determine whether the 1980 Act applies to decided cases still pending on appeal. A similar motion will probably be made before the Second Circuit Court of Appeals in Adams. These aspects of the problem in this case will not simply go away; accordingly, I cannot take seriously the suggestion that these issues need not be considered at this time. See note 5 infra.   Perhaps Congress, by negative implication, was trying to suggest that all pending cases are affected by the 1980 Act. In other words, Congress may have meant that only cases in which final decisions have been entered are not affected. See H. Rept. 96-912 (1980), 1980-2 C.B. 658. If so, the majority’s result would be correct. And if so, the taxpayers in Adams v. Commissioner, note 1 supra, and in Larchmont Foundation, Inc. v. Commissioner, note 4 supra will now lose the cases we decided in their favor 2 years ago.   But see United States v. Darusmont, 449 U.S. 292, 299 (1981), where the Court noted, in dicta: "Assuming, for purposes of argument, that personal notice is relevant, appellee is hardly in a position to claim surprise at the 1976 amendments to the minimum tax. The proposed increase in rate had been under public discussion for almost a year before its enactment.”   In each case, unauthorized collection resulted from statutory quirks revealed by unexpected holdings of the Supreme Court.   Compare Forbes Boat Line v. Board of Commissioners of Everglades Drainage District, 258 U.S. 338 (1922).   This result has been changed under sec. 6654 of the 1954 Code. See Commissioner v. Acker, 361 U.S. 87, 90 n. 3 (1959).   Cf. Mobil Oil Corp. v. Tully, 639 F.2d 912, 918 (2d Cir. 1981), cert. denied sub nom. Tully v. New England Petroleum Corp., 452 U.S. 967 (1981).   I therefore would not further inquire whether any other constitutional provisions or limitations might also come into play here. See, e.g., United States v. Constantine, 296 U.S. 287 (1935).