Court Opinion

ID: 4496083
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:40.127179+00
Date Added: 2024-06-11T14:54:13.583571
License: Public Domain

McMahon,
concurring: It is, in effect, found by the majority that the stipulated facts show that in 1930 the partnership discharged its obligations by the giving of consideration in an amount of $16,134.02 less than the face of such obligations, through the crediting by the creditors of that amount of interest, paid previous to 1930, in satisfaction of the indebtedness to that extent existing in 1930; and that the partnership was solvent in 1930. The question of law presented by such factual situation is whether taxable income was derived in 1930 as a result of the discharge of indebtedness in that amount.
In Helvering v. American Chicle Co., 291 U. S. 426, the Supreme Court held that where a corporation in 1914 purchased all the assets of another company and in part payment therefor assumed certain bonds of such other company and in 1922 retired some of the assumed bonds for less than their face value, the difference between the retirement price and the face valúe constituted taxable income to the corporation in 1922. The Supreme Court there stated in part:
The case before us is this:
In connection with the purchase of the assets of another company in 1914, respondent assumed — promised to pay — more than $2,000,000 of the seller’s outstanding bonds. During 1922, 1924 and 1925 it purchased a considerable number of these bonds in the market at less than their face. The Commissioner assessed the difference between these two amounts as income.
We find nothing to distinguish this cause in principle from United States v. Kirby Lumber Co., 284 U. S. 1, 52 S. Ct. 4, 76 L. Ed. 131. The doctrine there *430announced is controlling here. Bowers v. Kerbough-Empire Co., 271 U. S. 170, 46 S. Ct. 449, 70 L. Ed. 886, is not applicable. The final outcome of the dealings was revealed — the taxpayer suffered a loss. Here, for aught we know, there was substantial profit — certainly, the record does not show the contrary. Doubtless, respondent’s books indicated a decrease of liabilities with corresponding increase of net assets.
The Supreme Court thus held in the American Chicle Co. case, notwithstanding that in the Kirby case, referred to in the above quotation, the taxpayer discharged its own obligations which had been issued at par for cash; and in the latter case the Supreme Court stated:
* * * As a result of its dealings it made available $137,521.30 assets previously offset by the obligation of bonds now extinct. We see nothing to be gained by the discussion of judicial definitions. The defendant in error has realized within the year an accession to income, if we take words in their plain popular meaning, as they should be taken here. * * *
See Twin Ports Bridge Co., 27 B. T. A. 346.
Section 213 of the Revenue Act of 1926 defines “gross income” to include, among other things, “or gains or profits and income derived from any source whatever”; and the Supreme Court, in the American Chicle Co., in effect, and in the Kirby case expressly, defined this very phraseology to include the difference between the face of fixed obligations of a taxpayer and the amount below that at which such obligations are discharged, there being there, as here, no showing that such difference did not result in taxable gain. The instant pro-: ceeding is governed by the American Ohicle Co. case and the Kirby case. Here, as in those cases, it appears that the petitioner discharged its obligations at less than face, resulting in taxable income to it; and there is here no showing to the contrary.
As pointed out herein, the stipulated facts show that in 1930 the partnership was solvent. Its assets exceeded its liabilities and it had a large net income. As stated in Commissioner v. Simmons Gin Co., 43 Fed. (2d) 327: “There is a distinction between the release or discharge of a liability to a solvent and to an insolvent taxpayer.” B. F. Avery & Sons, Inc., 26 B. T. A. 1393, is to the same effect.
Meyer Jewelry Co., 3 B. T. A. 1319; Porte F. Quinn, 31 B. T. A. 142; Dallas Transfer & Terminal Warehouse Co. v. Commissioner, 70 Fed. (2d) 95; and Burnet v. Campbell Co., 50 Fed. (2d) 487, are distinguishable from the instant proceeding. In Meyer Jewelry Co. the evidence showed that the taxpayer “could not have, in fact, paid whether voluntarily relieved of payment or not.” In Porte F. Quinn the evidence established that the cancellation of indebtedness did not make available assets to the taxpayer and that the taxpayer was insolvent. In Dallas Transfer & Terminal Warehouse Co. v. Com*431missioner it was shown that the taxpayer was insolvent, and conveyed away, completely disposed of, its only assets referred to therein. The Circuit Court there distinguished the Kirby case by stating that in the Kirby case the taxpayer had greater “clear” or net assets than it had before the discharge of the obligations, whereas in the Dallas case, having thus parted with such assets, it did not. In Burnet v. Campbell Co. it appeared that the taxpayer was in financial distress in that its creditors, all of them so far as the reports show, agreed to compromise their claims against the taxpayer and that the taxpayer was probably insolvent. It may be added that there the taxpayer probably also had no assets left after the composition.
It may be further added that Meyer Jewelry Co., supra, and Burnet v. Campbell Co., supra, were decided prior to the Supreme Court decisions in the Kirby case and the American Chicle Co. case, which cases of the Supreme Court are therein expressly distinguished by the Supreme Court from Bowers v. Kerbaugh Empire Co., 271 U. S. 110, relied upon by the Circuit Court in the Campbell Co. case. In the Campbell Co. case the Circuit Court also relied upon Meyer Jewelry Co., which is distinguishable from the instant proceeding, as hereinabove pointed out. In view of the decision of the Supreme Court in the Kirby and American Chicle Co. cases, the doctrine of Meyer Jewelry Co. and Burnet v. Campbell Co. should in any event be limited to the peculiar facts and circumstances there presented.
Eastside Manufacturing Co., 18 B. T. A. 461; Progress Paper Co., 20 B. T. A. 234; E. B. Higley & Co., 25 B. T. A. 127; and Towers & Sullivan Manufacturing Co., 25 B. T. A. 922, are all distinguishable from the instant proceeding upon the facts. However, if there is anything in any of them in conflict with the views here set forth they are, to that extent, in error and should not be adhered to.
For the foregoing reasons I concur in the result reached by the majority.