Court Opinion

ID: 9470569
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:09:28.410495+00
Date Added: 2024-06-11T17:41:58.640909
License: Public Domain

NICHOLS, Circuit Judge,
dissenting:
Respectfully, I dissent. I appreciate we have a difficult question. A treasury regulation is entitled to judicial deference unless it clearly misconstrues the statute it ostensibly interprets. I have respect for the Tax Court dissenters as well as the majority there and here, but I think the dissenters and our panel overlook a vital consideration which was obviously much in the mind of the Tax Court majority, namely, how far Congress can effectively go in enacting legislation by means other than bills passed by both Houses and placed before the President for his signature or veto?
The author of the Tax Court majority opinion, Honorable Leo Irwin, was a chief counsel of the House Ways and Means Committee for 14 years (see Congressional Directory, 1981 ed. at 741), and is entitled to special deference when he touches in an opinion, as he does here, upon transactions in the Congress.
I am sure the court will agree there would have been no regulation but for the so-called legislative history. The regulation was issued only in 1978, as Judge Irwin points out, and so is not contemporary with the legislation to be construed: actually it was finalized after the trial and briefing in this case. This reduces the deference to which the regulation would otherwise be entitled. The legislative history is the key to the case. The IRS Commissioner hardly can ignore the kind of pronouncement made in the Report of the Senate Finance Committee on the Tax Reform Act of 1969, S.Rep. No. 91-522 (1969) 1969-3 C.B. 500, 502, as quoted by the court, supra. But for that statement I do not think it would ever have occurred' to anyone that legislation dealing with income and deductions of other taxpayers, § 83, implicitly denies a deduction to a taxpayer that statute never mentions, to which he would otherwise be entitled. The suggestion is made that the convoluted language of § 83(h) indirectly indicates such an intention. The Tax Court is in a better position than we are to appreciate whether the Congress normally grants or withdraws deductions in such an arcane and cryptic manner.
The Committee Report is in my view ambiguous whether the legislative command there unambiguously stated derives its authority from—
(1) The requirements of prior law, as construed by the Committee,
(2) The requirements of the reported bill, as construed by the Committee, or
(3) The command of the Senate Finance Committee itself.
My experience on the Hill is much inferi- or to Judge Irwin’s. However, such as it is, it leads me to adopt explanation (3) as the correct one. The objections to (1) and (2) are compelling. If the Committee had intended (1), surely it would have explained how existing law so required. But in any *832case, the Committee’s interpretation of pri- or law, though worthy of respectful consideration, is nowhere near as compelling on courts as its interpretation of the bill reported. If the Committee is in error about prior laws, courts are free to say so.
On the other hand, explanation (2) founders on the utter absence of congruity between the language of the bill and the language of the report. The latter deals with a subject the former never touches. It would seem any report draftsman, aware of the Committee’s wishes, would not state them in the report without a glance at the bill. Making such a glance, he would perceive the absence of anything in the bill to match his statements about it, and he would leap to correct the deficiency in the bill. Or would he? The legislative situation could make it difficult to amend the bill without endangering other purposes deemed more important, perhaps its passage in that session. There might be a temptation to try to put across a Committee command.
At any event, in support of the probability of (3) that the statement in question is a Committee command, everyone ■ who has ■dealt with congressional committees knows that their reports, when made, are replete with Committee commands. They expect this, they require that, they disapprove of the other, and it must not be done. I suppose members and staff are all aware, when they think about it, that such Committee commands are of dubious legal authority. As a practical matter they are usually effective because addressed to persons who cannot afford to incur Committee wrath.. The “legislative history” here involved is of course really addressed to the IRS Commissioner, who is commanded to try to put it across, and if he fails, that will occur many years hence, and besides, the wench will be dead. It will also be, though, the same country. (Cf. Christopher Marlowe.)
This may seem like an improbable scenario, and doubtless it is, but Conan Doyle’s writings about Sherlock Holmes teach that, when all explanations of an occurrence are improbable, the more improbable ones must be rejected, and the least improbable accepted as true.
Judge Irwin expresses his appreciation of the situation in a more diplomatic manner, but as I read him, he perceives it as I do. He cannot see how the “legislative history” has any credibility or plausibility, other than as a Committee command. It follows that one must and I do conclude that the Finance Committee wanted very much for the stockholder to be required for tax purposes to treat as a capital contribution to the corporation the stock he distributed to employees to retain them in corporate employ. The only trouble is the Committee failed to embody its wishes in an enacted bill. If this failure is not decisive of the case before us, the Committee is potent indeed.
I have not attempted to collect all the decisions dealing with this problem of statutory construction, which has become acute so recently, and of which even the capable counsel in the case before us may not be wholly aware. They did not cite one case which I deem to be a striking parallel. It is an en banc decision of the old Court of Claims, now defunct. Hart v. United States, 218 Ct.Cl. 212, 585 F.2d 1025 (1978), dealing with an earlier Revenue Act, that raised issues so complex I will not attempt to explain them. There were committee reports embodying a legislative command not stated in the bill reported, clearly or ambiguously. There was an obedient IRS Regulation. Reference is made to the discussion in that case and to the cases there cited. I will quote a few sentences, 218 Ct.Cl. at 231, 585 F.2d at 1035:
We could hope for. beneficial results, too, if this case should lead congressional committees to write corrective legislation when they perceive errors in statutes, rather than make bold [bald?] assertions in committee reports, in the hope they will be accepted as valid legislative history. People are entitled to find in the statute books the laws that govern them.