Court Opinion

ID: 6925297
Source: CourtListenerOpinion
Date Created: 2022-07-23 23:18:03.236308+00
Date Added: 2024-06-11T16:06:54.689308
License: Public Domain

TUTTLE, Chief Judge
(dissenting).
With every deference to the views of my colleagues, and to the Courts of Appeal for the Ninth and Fourth Circuits, I must respectfully dissent.
The critical sentence of the majority opinion with which I differ is: “Thus, section 337 was intended to eliminate double taxation of gains realized from sales of corporate assets during a period of liquidation, but it is not intended to eliminate entirely the tax on such gains.”
Prior to the enactment'of this section of the Code in 1954, if a corporation commenced negotiations looking toward the .sale of its assets prior to its complete *114liquidation, even though the sale was not consummated until after liquidation and the assets were transferred by the stockholders and not the corporation, it had been held in Commissioner v. Court Holding Co., 324 U.S. 331, 65 S.Ct. 707, 89 L.Ed. 981, that the corporation would owe a tax on the gain realized from the sale of the assets. Thereafter, of course, upon the exchange of the remaining assets, including the purchase price of the property thus sold, for the company’s stock in liquidation, there would be a tax to the stockholders. There was, thus, a double tax. By the enactment of Section 337, Congress provided that if there was a complete liquidation within twelve months after the adoption of a plan of complete liquidation, a sale of the corporation’s property, whether made by the corporation or made by the stockholders, or initiated by the corporation and completed by the stockholders, would not create a tax liability to the corporation. Since, of course, by hypothesis, this provision would apply only where there is complete liquidation of the corporation within twelve months, the fact that this sale of the corporation’s property would not be taxable to it means, in common parlance, that the gain would be forever and totally exempt from tax. The majority here, and the Court in Hawaiian Trust Co. v. U. S., 9 Cir., 291 F.2d 761, and, more recently, the Court in Commissioner of Internal Revenue v. Universal Leaf Tobacco Co., 4 Cir., 318 F.2d 658, dealing with a different section, seem to base their conclusion largely on the fact that Congress did not, in enacting Section 337, use the word “exempt” that it used in Section 265 denying expense deductions which are allocable to income which is “wholly exempt” from taxation. 'They point to the language in Section 337 which speaks of the gain from a sale like that made by the taxpayer here as not being “recognized.” The thrust of the argument is that since Congress merely said that this gain should not be “recognized” this does not mean that it shall be “forever exempt.” It appears to me that the language of Section 337, using the term “recognized” instead of the word “exempt,” is plain. As it relates to the facts of this case the gain is just as exempt under Section 337 as if Congress had used that precise word.
What the other courts and the majority have overlooked, it seems to me, is that in adopting Section 337 Congress realized that in some situations property sold by a liquidating corporation might result in a loss as well as in a gain. It was the purpose of the lawmakers, as it has frequently been their purpose, to withdraw all tax effect from such a sale, whether the sale results in a loss or a gain to the corporation. Obviously, under some circumstances if the sale resulted in a loss and a loss were recognized for tax purposes this would have tax consequences to the corporation of which it might take proper tax advantage.
In order to cover both the possibility of loss or gain, Congress was required to use a word that would cover both situations. In doing so it selected the language “no gain or loss shall be recognized.” It would simply not have made sense grammatically if Congress had said that “gain or loss from the sale or exchange by such corporation shall be wholly exempt from taxation,” because such language would not be applicable to a loss under any circumstances. There is no such thing as an exempt loss. The fact is that by making this gain non-recognizable Congress made it wholly exempt from taxation. It simply used the word that had this effect with respect to a gain but which also expresses its intent that a loss could not be used if the transaction resulted in loss. The Court now holds that by using language which would be applicable in case of either gain or loss, Congress did not intend to accomplish the obvious result where a gain is involved.
It is my opinion that Congress intended to accomplish exactly what the language stated — that is that this liquidated corporation would never have to pay a ■tax resulting from the gain it enjoyed from the sale on this property. The fact that this did not place a taxpayer in *115the identical position that it would have enjoyed without reference to Section 337 if it had undertaken the negotiation of the sale of the property only after complete liquidation so that it would not have been affected by the Court Holding Company doctrine is completely irrelevant. The income tax paid to the state of Louisiana by the corporation on account of the sale by it of the property here involved is an expense “which is allocable to one or more classes of income * * * wholly exempt from” the federal income tax. It is not, therefore, allowable as a deduction under Section 265.
I would, therefore, reverse the decision of the Tax Court.