Court Opinion

ID: 4479407
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:39.283412+00
Date Added: 2024-06-11T14:52:49.590579
License: Public Domain

Pierce, J., dissenting: The Court herein has, in substance and effect, imposed on the petitioner a unique and harsh ‘‘sanction” for her delay in filing her 1953 income tax return. It has held that, solely because the return in which she elected to use the installment basis for reporting gain from the sale of her farm was filed out of time, all the benefits of the installment sale basis provided by section 44 (b) of the 1939 Code, which otherwise would be available to her, were “forfeited” and “lost.” In my view, such holding is wholly unauthorized, either by the controlling statute or by applicable income tax regulations prescribed thereunder; it is not supported by the weight of judicial authority; and it also is out of harmony with a recent decision of the controlling circuit of the Court of Appeals, in which the decision of this Court was reversed. 1. Section 44(b) of the 1939 Code, which is the controlling statute, authorizes the use of the installment basis for reporting gains from sales of property which meet the conditions therein specifically prescribed. The terms of this statute are wholly permissive in character; and they contain no provision for “forfeiture” of the benefits therein provided, solely because of untimeliness in the filing of the taxpayer’s return. They provide, so far as here material: (b) Sales of Realty and Casual Sales of Personality [sic]. — In the case * * * (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed 30 per centum of the selling price * » *, the income may, under regulations prescribed by the Commissioner with the approval of the Secretary, he returned, on the basis and in the manner above prescribed in this section [i.e., on the installment basis]. [Emphasis supplied.] Section 39.44 of Income Tax Eegulations 118 (1953), which is the regulation prescribed for said statute, is to the same effect. Its provisions set forth specific and detailed rules for implementation of the statute; but it, likewise, contains no provision to the effect that where the prescribed statutory conditions have been met, the benefits of the statute will nevertheless be “forfeited” and “lost” if the taxpayer’s return is filed out of time. The 1939 Code, in section 291(a) thereof, itself specifies the nature and extent of the sanction which may be imposed in certain situations where a taxpayer’s return is filed out of time. Such statutory sanction is in the form of an “Addition to the Tax,” which in no way alters or affects the amount of the tax computed under other sections of the Code. Rather, such statutory sanction is measured in relation to the tax otherwise computable; and its amount is gauged with respect to the length of the period of the taxpayer’s delinquency, up to a specified maximum amount. All these provisions of the Code express the policy and will of the-Congress; and it is not within the power of the courts to either add' to or subtract therefrom. The Court here appears to have read into, the statute a requirement not found there., 2. In the instant case, there is no question that the petitioner did meet all the conditions precedent to the use of the installment basis which are specified in the above statute and regulations. The Court stated in its opinion herein: “There is no dispute that the payments which petitioner received in 1953 on the sale of her farm qualify as installment payments as defined by the statute * * * [and respondent] does not dispute that fact.” The Court also found that petitioner did file an income tax return for the year 1953 (although the same was filed out of time), that she therein reported the sale of her farm on the ■ installment basis, and that in accordance with such return, she paid income taxes on the sale, which she computed on the installment basis. Moreover, the deficiency notice herein shows that the respondent accepted such return and, in determining the deficiency for the year 1953, he computed such deficiency with respect to the “net income shown on return.” Indeed, such method for determining ■the deficiency is the one specifically required by sections 271(a) and 272 of the 1939 Code, for use in cases where “a return was made by the taxpayer.” The harshness of the Court’s decision herein lies in the fact that, solely by reason of untimeliness in the filing of petitioner’s 1953 return, the Court approved not merely an “Addition to the Tax” computed in the manner provided by section 291(a) (which would have been proper), but approved rather an accumulation of increased liabilities and additions to tax as follows: (a) A deficiency of $18,532.44, imposed by reason of the “forfeiture” of the taxpayer’s privilege of using the installment basis, because the return was untimely. (b) An increased sanction under section 291(a), in the amount of $4,633.11 — computed with respect to the enlarged tax resulting from the “forfeiture” of petitioner’s privilege to use the installment basis. (c) Another sanction under section 293(a), for negligence of the taxpayer in failing to observe the requirement for prompt filing of the return — again computed with respect to the increased tax resulting from said “forfeiture.” (d) Still another increased sanction under section 294(d) (1) (A), for the taxpayer’s failure to file a declaration of estimated tax — with the amount thereof being again measured by the increased tax resulting from said “forfeiture.” Since the “forfeiture” principle which the Court has approved, is based solely on “untimeliness” of the petitioner’s return, it would seem to follow that such principle would be applicable in all similar cases involving untimely returns — even though the delay in filing were only for a single day, and even though such delay was “due to reasonable cause and not due to willful neglect” (for which Congress has eliminated the imposition of any sanction under section 291(a)). All of this appears to me, to deviate from and be inconsistent with the scheme of the statute. 3. Judicial authority does not support the Court’s application of said “forfeiture” principle, under which the taxpayer was deprived of the benefits of the installment basis provided by section 44(b) of the Code. The Court indicated in its opinion, that it relied principally on three of our own prior decisions: Sarah Briarly, 29 B.T.A. 256; W. A. Ireland, 32 T.C. 994; and Cedar Valley Distillery, Inc., 16 T.C. 870. But all these cases are distinguishable on their facts, and are not apposite. None of them involved a situation (like the present) where the taxpayer had elected to use the installment basis, in an original return filed for the year of the sale; but rather, they were cases in which the taxpayer attempted, either at the trial or through use of an amended return, to switch his method of accounting to the installment basis. In the Briarly case, the taxpayer filed no return at all; and the collector then filed a return for her, after some 2 or more years, in which he treated the entire profit as income for the year of the sale. And in both the Ireland case and the Gedar Yalley case, the taxpayer did file a return for the year of the sale, but did not therein report the sale transaction, or. compute his profit on the installment basis. The Court of Appeals for the Sixth Circuit has in two cases (United States v. Eversman, 133 F. 2d 261; and Scales v. Commissioner, 211 F. 2d 133, reversing 18 T.C. 1263) pointed out that section 44(b) of the applicable statute defines its own requirements for use of the installment basis; and it stated that the failure of the taxpayer “to adopt fruitless ritualistic measures should not foreclose the allowance * * * [to the taxpayer] of all lawful benefits under the statute.” More recently, the Court of Appeals for the Fifth Circuit (which is the circuit that would normally have jurisdiction of any appeal from the decision in the instant case) decided the case of Hornberger v. Commissioner, 289 F. 2d 602, reversing a Memorandum Opinion of this Court. In that case, due to error by an accounting firm, a sale of realty which met all requirements of section 44(b) for use of the installment basis in computing the taxable gains therefrom, was not reported on the taxpayer’s return; and this Court denied the taxpayer an opportunity to correct the error and have the benefit of the installment basis — on the ground that the election to use such basis was untimely. The Fifth Circuit however, in reversing our decision, cited with approval the above-mentioned decisions of the Sixth Circuit in the Eversman and Scales cases, and allowed the use of the installment basis. It took the position that the Government, in denying to the taxpayer the privilege of using the installment basis, was reading into the statute a requirement for timely election not found there; and was seeking “to invoke a heavy sanction” that neither the statute nor the regulation promulgated thereunder, expressly authorized. For all the above reasons, I respectfully dissent from the Court’s holding herein — that the petitioner, solely by reason of the untimely filing of her 1953 return in which she elected to use the installment basis, had “forfeited” and “lost” all the benefits of that basis provided by section 44 (b) of the Code. FoRRestee and DreNNBN, JJ., agree with this dissent.