Court Opinion

ID: 4489839
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:03.54393+00
Date Added: 2024-06-11T15:03:55.399227
License: Public Domain

Milliicen,1
dissenting: The controlling issue in this proceeding is whether petitioner had the right to capitalize interest and taxes paid as carrying charges on its unproductive realty. The Revenue Act of 1924 contains the following provision:
Sec. 202. (a) Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis provided in subdivision (a) or (b) of section 204, and the loss shall be the excess of such basis over the amount realized.
fb) In computing the amount of gain or loss under subdivision (a) proper adjustment shall be made for (1) any expenditure properly chargeable to capital account, and (2) any item of loss, exhaustion, wear and tear, obsolescence, amortization, or depletion, previously allowed with respect to such property.
In submitting the draft of the 1924 Act, the Committee on Ways and Means of the House of Representatives said, with reference to subdivision (b):
There is no provision in the existing law which corresponds to subdivision (b), but the rule laid down therein is substantially the same as the construction placed upon the existing law by the Treasury Department. It provides .that in computing gain or loss from the sale or other disposition of property •.the cost or other basis of the property (and in the appropriate case the fair ¡market value as of March 1, 1913) shall be increased by the amount of items (properly chargeable to capital account and decreased by the depreciation and ¡similar deductions allowed with respect to the property. Under this provision capital charges, such as improvements, and betterments, and carrying ¡charges, such as taxes on unproductive property, are to be added to the cost <of the property in determining the gain or loss from its subsequent sale, and items such as depreciation and obsolescence previously allowed with respect to the property are to be subtracted from the cost of the property in determining the gain or loss from its subsequent sale.
Respondent’s regulation in respect of this provision is article 1561 of Regulations 65, which, in part, provides:
The amount realized from the sale or other disposition of property is the sum of any money received plus the fair market value of the property (other than money) received. In computing the amount of gain or loss, however, the cost or other basis of the property must be increased by the cost of capital improvements and betterments made to the property since the basic date, and *782by carrying charges, such as taxes on unproductive property, and decreased by the depreciation and similar deductions previously allowed with respect to the property.
It may appear that this regulation is in conflict with the decision of the Board in Ottawa Realty Co., 5 B. T. A. 474, and Arthur C. Fraser, 6 B. T. A. 346, affirmed in Fraser v. Commissioner, 25 Fed. (2d) 653, and other cases, but these cases were decided under the provisions of revenue acts which did not contain a provision similar to section 202 (b) of the Bevenue Act of 1924. The meaning of the words used in section 202 (b) can be ascertained only by reference to sources other than the provision itself, and I know of no source more authoritative than the report of the committee of that branch of the Federal legislature which originates all tax legislation. I am of ojiinion that the regulation quoted is a reasonable construction of the provision. Provisions similar to section 202 (b) are to be found in section 202 (b) of the Bevenue Act of 1926 and section 111 (b) of the Bevenue Act of 1928. The provisions of the Bevenue Acts of 1926 and 1928 were enacted after the promulgation of respondent’s regulation and may be construed as adopting respondent’s interpretation.
In the instant proceeding, it is disclosed that petitioner capitalized the items in controversy upon its books at the time the items were paid and made its original returns in accord with its method of accounting, and that none of these returns disclosed any tax due. It, however, appears that in the year 1924 petitioner, of its own volition, made amended returns for the years 1913 to 1917, inclusive, that none of these returns disclosed any income, except the return for the year 1914, and that in all these returns petitioner took as a deduction all taxes and interest paid with respect to its unproductive real estate. It is true that the return for the year 1914 was made at a time when the assessment and collection of the taxes were barred by the statute of limitations. Nevertheless, this was a voluntary return, with the result that the payment was voluntary. Petitioner in that return received the benefit of the deduction for taxes and interest. In my opinion he should not be allowed this benefit a second time.
I am of opinion that since petitioner did not receive the benefit of these deductions for the years 1913 to 1917, inclusive, except for the year 1914, it should be permitted to capitalize these items, with respect to all said years, except the year 1914.
But little aid can be derived from the treatment accorded carrying charges by the Treasury Department, for, as stated by Judge Hand in Fraser v. Commissioner, 25 Fed. (2d) 653, “The Treasury has undoubtedly fluctuated in its dealing with the matter.” The Department permitted the capitalization of carrying *783charges on unproductive timber property long prior to the enactment of the Kevenue Act of 1924. See article 231 of Regulations 45 and 62. This was done without even apparent statutory authority. It does seem to me that the Board should not, in the light of the report of the Ways and Means Committee accompanying the Keve-nue Act of 1924 and subsequent enactment of the same provisions in the Kevenue Acts of 1926 and 1928, construe the statute so as to deny the deduction claimed.
Phillips, Green, and Van Fossan agree with this dissent.

 This decision was prepared during Mr. Milliken’s term of office.