Court Opinion

ID: 4485159
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:13.012545+00
Date Added: 2024-06-11T14:54:05.854440
License: Public Domain

Whitaker, J., concurring: While I concur in the result reached, the majority fails to apply the per. se rule which, in my opinion, is mandated by the statute. Section 302(c)(1) and (2)(A)(i) prescribes that the family attribution rules may not be waived if after a redemption the former shareholder performs any services for, or receives any remuneration from, the redeeming corporation as an officer, director, or employee. The parenthetical language of section 302(c)(2)(A)(i) — "(including an interest as officer, director, or employee)” — is neither ambiguous nor equivocal; it contains no qualification such as that suggested by the majority. Nothing in the statutory language or legislative history suggests that an "interest as officer, director, or employee” must be substantial to be prohibited. Rather, it contains a flat rule. While Congress did not address directly the issue of whether a per se rule was to be applied in interpreting the parenthetical language of section 302(c)(2)(A)(i), it is clear that section 302(c) was intended to bring an element of certainty to an area that had become a confusing morass under prior law. Congress recognized that it was necessary to replace the difficult detailed factual inquiries that had become commonplace. With regard to corporate redemptions, the House report states: Redemptions of stock. — Under present law it is not clear when a stock redemption results in capital gain or ordinary income. * * * Your committee’s bill sets forth definite conditions under which stock may be redeemed at capital-gain rates. * * * At the present time a possible opportunity for tax avoidance results where redemptions are effected in the case of family-owned corporations. To prevent tax avoidance, but at the same time to provide definitive rules for the guidance of taxpayers, your committee has provided precise standards whereby under specific circumstances, a shareholder may be considered as owning stock held by members of his immediate family (or by partnerships, corporations, or trusts which he controls). [H. Rept. 1337, 83d Cong., 2d Sess. 36-36 (1954).] Section 302(c) thus was enacted as something of a "safe haven.”1 Facts and circumstances must be considered in the application of some of the section 302(b) and (c) rules, such as the determination under section 302(b)(1) as to dividend equivalency, but we should not judicially modify the mechanical rules where they can be applied mechanically. Contrary to the majority’s view, Congress did intend to "prohibit the retention of all employment relationships.” In the context of Lewis v. Commissioner, 47 T.C. 129 (1966), I do agree with Judge Simpson that "Congress did not intend us to hold that an officer or director who performs no duties, receives no compensation, and exercises no influence has retained an interest in the corporation.” 47 T.C. at 137 (Simpson, J., concurring). The principle of substance over form prevents us from applying the per se rule where no duties are performed and no compensation received by reason of status as an officer, director, or employee. But where, as here, the facts are otherwise, the congressional attempt to achieve certainty should be allowed to operate.2  Our two more recent cases, Chertkof v. Commissioner, 72 T.C. 1113 (1979), affd. 649 F.2d 264 (4th Cir. 1981), and Estate of Lennard v. Commissioner, 61 T.C. 554 (1974), are not inconsistent with the per se rule. They simply recognize that where the interest challenged is something other than an interest as an officer, director, or employee, we must examine the facts and circumstances. Obviously, I agree with the majority that the redemption of petitioners’ stock in the instant proceeding should not be treated as a distribution in exchange for petitioners’ stock under section 302(b)(3). My disagreement is with the majority’s insistence on judicially legislating this Court into the additional burden of inquiring into the level of employment. Dawson, Sterrett, Goffe, Nims, Parker, Hamblen, and Clapp, JJ., agree with this concurring opinion.   Rose, "The Prohibited Interest of Section 302(cX2XA),” 36 Tax L. Rev. 131, 145 (1981). A "safe haven” is not very safe where it depends on being able to forecast what this Court may consider to be a permissible "level of employment.” "When the resolution of an issue hinges on factual determinations, each case will turn on the circumstances there involved. As previously noted, while such an ad hoc administration provides flexibility, it impairs the predictability of consequences.” Kahn, "Stock Redemptions: The Standards for Qualifying as a Purchase Under Section 302(b),” 50 Fordham L. Rev. (Part I) 1, 28 (1981-82).    Conservative tax advice, including apparently the advice petitioners received from their tax accountant, has long opted for resignation by a redeeming shareholder. See Gardner & Randall, "Distributions in Redemption of Stock: Changing Definitions for a Termination of Interest,” 8 J. Corp. Tax’n 240, 248 (1981-82); and Bittker, "Stock Redemptions and Partial Liquidations Under the Internal Revenue Code of 1954,” 9 Stanford L. Rev. 13, 33 (1956).