Court Opinion

ID: 9480383
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:46:30.344455+00
Date Added: 2024-06-11T17:47:39.386575
License: Public Domain

LEAVY, Circuit Judge,
dissenting:
In Peck I, the tax court held that the transfer served a legitimate business purpose, and it concluded that the Commissioner could not “disallow” the deduction because section 482 authorized him only to “distribute, apportion, or allocate” certain items. Peck v. Commissioner, 43 T.C.M. (CCH) 291, 295 (1982).
The court went on to hold in favor of the Commissioner on the contention that the rent deduction should be reduced by the amount of those additional payments for expenses directly attributable to the land transferred to the corporation (as distinguished from payments attributable to the improvements retained by the taxpayers). Id. The holding in footnote 8 of Peck I is as follows:
Petitioners’ payment of property taxes and mortgage payments related to both land and improvements on the real estate. Only those payments attributable to the land and allocable to the lease period constitute “excessive” rent. The exact amounts are a proper subject for the parties under Rule 155, Tax Court Rules of Practice and Procedure. Respondent suggests the tax assessor’s ratio for allocating value between land and improvements should be adopted to allocate the portion of taxes and mortgage payments attributable to the land. Petitioners did not offer another method of allocation and did not object to respondent’s suggestion. Accordingly, for purposes of computing the portion of taxes and mortgage payments attributable to the land, the parties are directed to use the tax assessor’s ratio of allocating 25 percent of the total property market value to the land. Of course, all gardening expenses are attributable to the land.
Id. at 296.
I dissent from the majority holding that the formula in footnote 8 binds the taxpay*531ers for the years 1977 and 1978. I agree with the majority’s holding that the taxpayers are barred by collateral estoppel from the contention that the lease as written is reasonable. However, once that is decided, the Commissioner is required to exercise his discretion under section 482. The taxpayers should be allowed to contest the exercise of that discretion rather than be bound by a formula announced in Peck I which is now being applied prospectively.
The lease calls for an adjustment of the rent after five years based upon the Consumer Price Index. The lease as written is, as far as we know, enforceable under local law. If the taxpayers are bound for the years 1977 and 1978 by a formula allocation, then I fear they will be bound by the same formula for the entire remaining life of the lease. By applying collateral estop-pel to the narrow question of the Commissioner’s power under section 482, the majority may have rewritten the terms of the lease. If the deduction claimed by the taxpayers needs to be reallocated to avoid the ills that section 482 was designed to prevent, it should be done only on a year by year basis.