Court Opinion

ID: 9442821
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:00:55.530331+00
Date Added: 2024-06-11T17:29:15.059847
License: Public Domain

CLARK, Circuit Judge
(dissenting in part).
I agree with the remand of the case for trial, but I disagree with the disposition made of the major issue which makes remand of little importance. For my part I should prefer to postpone decision until we have a complete record of the actual facts, rather than merely the various asseverations of the parties. Quite possibly ultimate decision would not be changed, the issue being one of statutory meaning; but fuller knowledge does justify a greater confidence in adjudication, whatever the outcome. Thus the opinion rests largely, if not wholly, on the unfairness to the railroad if it “was obliged to conform to § 113(b) (1) (C) of the Internal Revenue Code.” In argument the contention appeared to rest upon the assertion that the railroad’s records would not reflect proper additions to the pre-1913 capital account and hence taking depreciation to March 1, 1913, would be in effect a one-way approach, always subtracting but never adding to this account. The Commissioner contests this and a trial might well show the railroad’s books to be better than it thinks and sufficient at least to set up tolerably clear accounts for the purpose in hand. But if we must now make decision, I cannot avoid a conclusion that an express statutory mandate — applying equally to all taxpayers, with no exceptions for railroads — has been disobeyed.
It should be made clear just what the statute does, and for what purpose; for *954with deference I must suggest that many extraneous issues seem to have come in, and that views of depreciation accounting, whether hybrid, mutilated, or otherwise reprehensible, but dealing with ordinary yearly income tax computations from 1913 on, have (so far as I can discover) little pertinence to the narrow issue before us. The question is what is the statutory, i.e., arbitrary, basis to be ascribed to property held on March 1, 1913, primarily for the purpose of ascertaining gain or loss on ultimate disposition of the property and secondarily for such other purposes, including the computing of yearly deductions for depreciation, as the statute may additionally specify. So I.R.C. § 113, 26 U.S.C.A. § 113, after providing in (a) for the unadjusted basis as usually the cost of the property, but in the case of property acquired before March 1, 1913, the “fair market value” if less than cost (subparag. 14), goes on in (b) to formulate the “adjusted basis.” The pertinent provision is as follows: “(1) General rule. Proper adjustment in respect of the property shall in all cases be made—
“ * * * (C) in respect of any period prior to March 1, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent sustained.” (Emphasis supplied.)
This is now so old a rule, United States v. Ludey, 274 U.S. 295, 297, 298, 47 S.Ct. 608, 71 L.Ed. 1054, that, if for no other ground than ancient use in income tax law, one would, it seems, hesitate to upset it for all corporations or even individuals. Further, given the definite change from unconstitutionality to constitutionality of the income tax, some method, more or less arbitrary in any event, had to be devised in 1913 to settle these problems. Certainly I cannot now think of a better, or even a fairer, one. But if we now read some exceptions into the statute they surely must apply to all taxpayers equally in like situation. What are the facts that might give special position to railroads — other than the mere passage of time which may prevent other taxpayers from now raising question ? A full trial might illuminate these matters further, but at present I have difficulty in seeing what they are. The I. C. C. rules of accounting until 1942 do not seem to me to answer this narrow question, nor do the Commissioner’s rulings or regulations dealing with the separate matter of adjusting yearly income tax payments after the initial take-off. Further, of course, the Commissioner cannot estop the United States or set aside clear statutory commands.
Retirement accounting could be employed — or claimed — by a business corporation or individual. Suppose the “small-business” man, about which we now hear so much, was to claim, in reduction of a substantial capital gain, that his 1913 value was substantially the original cost of the property whenever acquired because of his practice in always replacing his machinery and plant whenever there was need. Could he not rely upon this decision as his authority? Perhaps time has sealed the mouths of all except the group of taxpayers now before us; but how can we be sure we are not now opening a veritable Pandora’s box ?
There seems little gain in discussion by me here of the respondent’s further claim of res judicata because of the earlier Los Angeles case, though I should think the contention not valid and am hence brought to the discussion of the Revenue Code provision above.