Court Opinion

ID: 4484559
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:49.816563+00
Date Added: 2024-06-11T08:49:14.719318
License: Public Domain

Chabot, J, dissenting: The term, "yield,” appears twice in subparagraph (A) of section 103(c)(2). The majority define the first "yield” one way and the second "yield” a different way; they acknowledge that the definition they assign to the second "yield” is not the literal meaning of this term; and they invalidate Treasury regulations which define both "yields” consistently with each other and with the common and accepted meaning of this term. Respectfully, I dissent. Tax exemption is not available for interest on an arbitrage bond (sec. 103(c)(1)). The Congress defined "arbitrage bond” in paragraph (2) of section 103(c), as follows: (2) Arbitrage bond. — For purposes of this subsection, the term "arbitrage bond” means any obligation which is issued as part of an issue all or a major portion of the proceeds of which are reasonably expected to be used directly or indirectly— (A) to acquire securities (within the meaning of section 165(g)(2)(A) or (B)) or obligations (other than obligations described in subsection (a)(1) or (2)) which may be reasonably expected at the time of issuance of such issue, to produce a yield over the term of the issue which is materially higher (taking into account any discount or premium) than the yield on obligations of such issue, or (B) to replace funds which were used directly or indirectly to acquire securities or obligations described in subparagraph (A). [Emphasis supplied.] The majority appear to agree that the first "yield” is to be calculated in terms of the rate of return to the bond holder, but refuse to apply the same meaning to the second "yield.” The second "yield,” they say, is to be calculated in terms of the cost to the bond issuer. Of course, if the Congress had meant to describe two different concepts, one would have expected it to have used two different terms — e.g., "yield to the holder” and "cost to the issuer.” However, the Congress used one term, in two places in the same subparagraph, enacted at one time. The majority ascribe an unusual degree of blindness to the Congress in giving such different meanings to these two proximate uses of the one term. Also, the majority ignore the instruction of the Supreme Court in Commissioner v. Lester, 366 U.S. 299, 304 (1961), as follows: And, as we have frequently stated, the Code must be given "as great an internal symmetry and consistency as its words permit.” United States v. Olympic Radio & Television, 349 U.S. 232, 236 (1955). The majority concede that the literal language of section 103(c)(2)(A) requires a comparison in the instant case between (1) the rate of return to a holder of petitioner’s bonds and (2) the rate of return to petitioner as a holder of U.S. Treasury obligations. Majority opinion at p. 669 supra. Focusing on the holder in defining the term "yield,” gives to the term its common and accepted meaning in finance — the rate of return on investment. Webster’s New International Dictionary 2973 (2d ed. 1959); G. Munn & F. Garcia, Encyclopedia of Banking and Finance 948 (7th ed. 1973); S. Levine, 1 Financial Analyst’s Handbook 339 (1975). This focus on the holder is evidently the meaning of "yield” as used in public advertisements of new issues of petitioner’s obligations. In refusing to give the second "yield” its common and accepted meaning, the majority ignore this Court’s very recent guidance as to statutory interpretation in Glass v. Commissioner, 76 T.C. 949, 954-955 (1981), as follows: The words by which "the legislature undertook to give expression to its wishes” are, however, usually the most "persuasive evidence” of the purpose and meaning of a statute. United States v. Amer. Trucking Ass’ns., 310 U.S. 534, 543 (1940); Gutierrez v. Commissioner, 53 T.C. 394, 400 (1969), affd. per order (D.C. Cir. 1971). Unless the language of the statute is plainly at variance with some clearly defined legislative policy, we cannot look beyond the normal meaning of the words chosen by Congress. Busse v. Commissioner, 479 F.2d 1147, 1151-1153 (7th Cir. 1973), affg. 58 T.C. 389 (1972). * * * The Treasury regulations provide a method for applying the term "yield” consistently, that is, a method for giving the term its common and accepted meaning in both places where the term appears in section 103(c)(2)(A). Notwithstanding this conformity of the regulations to the statutory scheme, the majority invalidate the regulations, essentially ignoring the Supreme Court’s recent instructions in Commissioner v. Portland Cement Co. of Utah, 450 U.S. 156 (1981), regarding the standards that Court uses (and, presumably, this Court is to use) in testing the validity of regulations, as follows: These regulations command our respect, for Congress has delegated to the Secretary of the Treasury, not to this Court, the task "of administering the tax laws of the Nation.” United States v. Cartwright, 411 U.S. 546, 550 (1973); accord, United States v. Correll, 389 U.S. 299, 307 (1967); see 26 U.S.C. § 7805(a). We therefore must defer to Treasury Regulations that "implement the congressional mandate in some reasonable manner.” United States v. Correll, 389 U.S. at 307; accord, National Muffler Dealers Assn.v. United States, 440 U.S. 472, 476-477 (1979). To put the same principle conversely, Treasury Regulations "must be sustained unless unreasonable and plainly inconsistent with the revenue statutes.” Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501 (1948); accord, Fulman v. United States, 434 U.S. 528, 533 (1978); Bingler v. Johnson, 394 U.S. 741, 749-751 (1969). * * * The basic reason given by the majority for their actions in the instant case is that the legislative history includes a number of statements of congressional concern about restricting "profits” on the issuance of State and local obligations. The majority refuse to affirm a rule that produces "a situation which would force local governments to lose money.” (Majority opinion at p. 673 supra.) Firstly, the term "profit” is not itself an unambiguous term. Secondly, the Congress chose to enact "yield” and not "profit.” (The term "yield” does have a common and accepted meaning, recognized by the majority and accepted by them as the meaning to be applied to the first place the term appears.) Thirdly, we have very recently discarded the notion that the Congress’ enactment in this area should be construed narrowly, to deal only with the specific abuse situations that stirred the Congress to act. In Fairfax County Economic Development Authority v. Commissioner, 77 T.C. 546 (1981), we discussed both the arbitrage bond provisions and the industrial development bond provisions, and analyzed the Congress’ actions as follows (p. 558): In both cases, Congress attacked the general problem rather than the narrow, triggering incidents upon which its concerns were based, in order to prevent the erosion of the Federal tax base and protect the market for genuine State and municipal bonds. * * * Given (1) our recent Court-reviewed analysis of what the Congress sought to do, (2) the likelihood that the regulations here invalidated would serve to "prevent the erosion of the Federal tax base and protect the market for genuine State and municipal bonds,” (3) the consistency of the regulations with the statute, (4) the Congress’ choice of words with common and accepted meanings, and (5) the Supreme Court’s and our own Court’s recent pronouncements about statutory construction, generally, and section 103(c), in particular, I must respectfully dissent from both the majority’s conclusions and their reasoning.