Court Opinion

ID: 4480535
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:22.926862+00
Date Added: 2024-06-11T15:03:34.445845
License: Public Domain

Bruce, J., dissenting: I do not agree with the opinion of the majority allowing the petitioners a deduction for the $100,000 paid by them in settlement of the civil action brought against them by the United States under 31 U.S.C. secs. 231-233, sometimes called the False Claims statute. In my opinion the allowance of such deduction clearly frustrates the national policy of the United States, which is sharply defined by the False Claims statute. Section 231 is a codification of and refers to sections 5438 and 3490 of the Eevised Statutes. These sections, now distributed through the statutes, are parts of what was originally the Act of March 2, 1863, 12 Stat. 696. Section 5438, standing alone, is a criminal statute, the first three clauses of which proscribe three distinct offenses relating to the mating or presenting of false, fictitious, or fraudulent claims upon or against the United States, or conspiring to obtain the payment or allowance of 'any false or fraudulent claim. Section 3490 provides that any person who shall do or commit “any of the acts prohibited by any of the provisions” of section 5438 shall “forfeit and pay to the United States the sum of $2,000, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such act * * * and such forfeiture and damages shall be sued for in the same suit.” This is a civil remedy and the device for specific sums plus double damages was intended to make sure that the Government would be made “completely Whole.” United States ex rel Marcus v. Hess, 317 U.S. 537, 549, 551-552; United States v. Rohleder, 157 F. 2d 126; United States v. Grannis, 172 F. 2d 507, certiorari denied 337 U.S. 918. These provisions considered together, as they must be, indicate a purpose to reach any person, criminally and civilly, who knowingly caused or assisted in causing the Government to pay claims which were grounded in fraud. To allow such person, a tax deduction for the amount paid as the result of such actions would, in my opinion, clearly frustrate the national policy demonstrated by these statutes. Commissioner v. Tellier, 383 U.S. 687, is distinguishable and, in my opinion, does not require a different conclusion. The Tellier case dealt with the question of the de-ductibility of legal fees or expenses incurred in connection with the defense of a criminal action. In the present case the Commissioner has conceded the deductibility of legal expenses. Except as to the issue relating to the deductibility of legal fees, the case of David B. Faulk, 26 T.C. 948, was, in my opinion, correctly decided and should be followed. I might add that, in my opinion, the petitioners’ characterization of the payment as damages for breach of contract did not change the nature of the controversy being settled. In fact, as the offer in compromise states, the Government claimed and continued to claim that the petitioners had not complied, in all respects, with the specifications and warranties contained in the Navy contracts. The Government’s cause of action was grounded in fraud, and the payment by petitioners was in satisfaction of the Government’s claim — a sanction clearly spelled out in a statute of the United States. The allowance of the deduction would dilute the effect of that sanction. This case is thus closer to Tank Truck Rentals v. Commissioner, 356 U.S. 30, than it is to Tellier, and I would follow the path indicated by it. I respectfully dissent from the opinion of the maj ority. Batoi, Pieece, Dawson, JJ., agree with this dissent. Dawson, /., dissenting: I agree with the dissenting opinion of Judge Bruce and with the Commissioner’s position that the allowance of the deduction claimed by Grossman, Inc., would frustrate the sharply defined public policy underlying the Federal False Claims Act. I shed no crocodile tears for any corporation which knowingly defrauds the United States Government. While defective “wiping cloths” might be relatively innocuous, the next time it could be parachute silk, ammunition, or anti-ballistic missiles vital to our national defense. Unlike the majority, I would not confer a Federal income tax deduction on “damages,” however characterized, flowing from a fraudulent and flagrant violation of the False Claims Act. In construing the “ordinary and necessary” language of the business expense deduction, the Supreme Court said in Tank Truck Rentals v. Commissioner, 356 U.S. at 33-34: A finding of “necessity” cannot be made, however, if allowance of the deduction would frustrate sharply defined national or state policies proscribing particular types of conduct, evidenced by some governmental declaration thereof. * * * To allow a deduction, under these circumstances would frustrate national policy in a severe and direct fashion by reducing the “sting” of the sanction provided by Congress. Theref ore, I am unable to make in this case the finding of “necessity” which the Tank Track case requires. Baum, /., agrees with this dissent.