Court Opinion

ID: 4472952
Source: CourtListenerOpinion
Date Created: 2020-01-14 19:35:00.889384+00
Date Added: 2024-06-11T15:04:30.863351
License: Public Domain

Muedock, /., dissenting: Section 30.721-3 of [Regulations 109 was considered in Soabar Co., 7 T. C. 89, 95, and the conclusion reached that no portion of net abnormal income of a tax year is to he attributed to other years where the excess of the income of this class for the tax year over 125 per cent of the average of this class for the four years was due solely to an improvement in business conditions. Obviously, this improvement means improvement generally, not improvement just in the taxpayer’s business. If it were to be measured only by improvement in the taxpayer’s business, there never could be any relief under section 721. This very mistake is made in the majority opinion through footnote 5, where reference is made to figures which show, not a general improvement in business conditions, but an increase in the commissions which this particular taxpayer realized in 1940 over those realized by it in the four preceding years. The increased commissions of this taxpayer in 1940 may have been due to some extent to an improvement in business conditions generally. Any failure of proof there must bear heavily upon the taxpayer. A large part of the 1940 commissions should be attributed to 1940 because that was the year in which the business was obtained and the subsequent servicing of the contracts was not at all comparable in importance to the obtaining of the business. Therefore, I would attribute a large part of the commissions to 1940, including enough to take care of any improvement in business conditions generally. However, I would not assign two-thirds of the net abnormal income to 1940. Two-fifths would be sufficient. I disagree with the report in attributing any of the net abnormal income to periods beyond those during which the contracts were actually being performed. Hindsight can be used in attributing a part of the net abnormal income for 1940 to other years in which it was actually earned. The report falls into error in allocating it equally over a five-year period when the evidence shows that it was actually earned in a shorter period.