Court Opinion

ID: 9468864
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:25:30.540255+00
Date Added: 2024-06-11T17:41:05.422476
License: Public Domain

SNEED, Circuit Judge,
specially concurring:
I concur in the court’s opinion except part IV.B., and with respect to that part, I concur in the result.
Treas. Reg. § 1.595—1(e)(6) is less persuasive to me than it appears to be to my brothers. It can be read as the appellant insists. It nowhere suggests, other than in the parenthetical clause pertaining to “interest under applicable local law,” that under certain circumstances a portion of the “amount realized” should be treated as tax*1351able gain. Any amount so treated does not represent “a recovery of capital.” “A recovery of capital” is no different from “a return of capital” which normally is that portion of the amount realized that represents a return to the taxpayer of an amount equal to the adjusted basis of the property he exchanged. Interest income does not represent a return of the taxpayer’s adjusted basis or net remaining investment in an obligation. The regulation, however, can be read to require that such income under the circumstances of this case be so treated.
I agree, however, that such a reading yields an improper result when measured against sound tax theory. Our task, as I see it, is to reach the proper result in an acceptable manner notwithstanding the obstacle this example of poor regulation writing by the Department of Treasury presents. The key, it seems to me, lies in the language of I.R.C. § 595(b) that requires that the property acquired on foreclosure “be considered as property having the same characteristics as the indebtedness for which such property was security.” The “indebtedness” that the foreclosed property secured possessed the characteristic of yielding interest. To have the same characteristics as the “indebtedness” the foreclosed property must also have that ability. In this case that characteristic bore fruit. Approached this way it is possible to suggest that the Treasury Regulation upon which the taxpayer relies concerns itself only with those characteristics of the property that correspond to the characteristics of the principal (as opposed to its interest bearing characteristic) of the indebtedness. Any amount realized with respect to the acquired property’s principal characteristics very properly may be treated as “a recovery of capital” within the structure Congress has devised for taxing building and loan associations. The regulation reads very nicely when so construed.
It is true that this construction blunts the force of the regulation’s literal language; but it is better to do this than it is to distort the language and purpose of the statute which the regulation purports to interpret. Deference to an agency’s interpretation of a governing statute does not include inflexible adherence to the literal language by which the interpretation is expressed.