Court Opinion

ID: 4499384
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:25.891711+00
Date Added: 2024-06-11T15:04:06.653214
License: Public Domain

Phillips,
dissenting: I dissent so far as a deduction is allowed in 1920 for an amount paid in that year to an employee for injuries sustained by him in 1919. It is the intention of the statute to tax the true earnings of each year as income for that year. Necessarily, this involves the deduction within the year of any expense connected with the production of the income of that year. It can not be logically contended that the amount paid in 1920 in settlement *331for injuries to an employee in 1919 has any relationship to the earnings for 1920, for the liability existed regardless of whether or not the company operated in 1920. If deducted in 1920, the true income is distorted to that extent. In these circumstances, it is my opinion that the amount paid was properly chargeable against 1919 income and was a deduction in computing the net income of that year. United States v. Anderson, 269 U. S. 422; 46 Sup. Ct. 131; 5 Am. Fed. Tax Rep. 5674.
Although it may be doubted whether there is any method by which net income from the operation of a business may be computed to the last cent, the statute lays down a rule by which taxpayers are to compute net income and should be so interpreted as to reflect the true net income as accurately as may be. This statute provides for numerous deductions from the gross income of a trade or business, among which are (1) all the ordinary and necessary expenses paid or incurred during the taxable year, (2) losses sustained in the taxable year and not compensated for by insurance or otherwise. The first of these deductions is general in its terms and the second specific. Under familiar rules of statutory interpretation, losses would be governed by the second provision, not by the first, and if, as the prevailing opinion indicates, the deduction is to be taken as a loss, it must be taken in the year in which sustained, regardless of the year in which it may have accrued or been paid. Martin Veneer Co. v. Commissioner, 5 B. T. A. 207.
The prevailing decision can only be justified upon the ground that the deduction claimed can not be classified as a loss, but must be treated as an ordinary and necessary business expense which is deductible when paid or incurred. If it should be so regarded, I can not consider this payment as more than the adjustment of a liability incurred in 1919, in which year the casualty occurred and the liability to compensate the employee arose. All that happened in 1920 was the determination and measurement of the previously existing liability. No new liability was incurred in that year.
It may be said that this presents a difficulty in administration, since the income can not be accurately determined at the end of the year. This is not unusual; witness the fact that the courts and this Board are constantly called upon at the present time to determine the correct income of periods ten years and more in the past. We might even be permitted the thought that this was one of the reasons for the provisions in the various taxing statutes allowing several years in which the Commissioner may make additional assessments and taxpayers may file claims for refund.