Court Opinion

ID: 4472366
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:23:57.374348+00
Date Added: 2024-06-11T15:03:23.854873
License: Public Domain

Hamblen, C.J., dissenting: I respectfully dissent because I think the legal analysis and conclusion contained in the majority opinion are flawed and incorrect. My views in this case are in accord with the legal analysis set forth in my dissenting opinion in the companion case of Simon v. Commissioner, 103 T.C. 247, 268 (1994) (Hamblen, C.J., dissenting), filed today. I likewise agree with the views expressed in the Simon dissenting opinions to the effect that collectibles, having intrinsic and independent value and utility, are not depreciable, even under acrs, because a determinable useful life generally cannot be established. Moreover, I think the failure to disallow the deduction in question would open a loophole that Congress never intended. I am persuaded that the statutory interpretation of sections 167 and 168 expressed in the majority opinion is incorrect; pertinent legislative history has been disregarded; the Ruggeri bass viol is both a playable and treasured work of art1 that should be treated as nondepreciable property; and applicable legal precedent has been ignored. Statutory Interpretation and Legislative History The majority opinion correctly states that a cardinal principle of statutory construction begins with the language of the statute.2 It then ignores that principle. The majority must acknowledge that under section 167 petitioner could not prevail, otherwise it must overrule the ratio decidendi of a legion of cases arising under section 167 and the regulations thereunder. Nonetheless, it concludes that the concept of useful life is not used in determining whether property is of a type subject to depreciation under section 168. Under section 168 both 3-year and 5-year recovery properties are defined as “section 1245 class property.” Sec. 168(c)(2)(A) and (B). The next logical inquiry should be to determine the limits of section 1245 class property. To this the majority turns a blind eye. Section 1245 class property is, inter alia, tangible property “which is or has been property of a character subject to the allowance for depreciation provided in section 167.” Secs. 1245(a)(3), 168(g)(3). As I understand the majority, this legerdemain is based on the perception of what Congress intended in enacting section 168. Although I do not think the majority’s selective reading from the legislative history withstands scrutiny, I am more concerned with its ignoring the statutory language by cutting depreciation free from its section 167 roots, which is precisely what has been done. Legal Precedent The majority opinion in this case does not specifically cite Browning v. Commissioner, T.C. Memo. 1988-293, affd. 890 F.2d 1084 (9th Cir. 1989), or Clinger v. Commissioner, T.C. Memo. 1990-459, although the majority in Simon v. Commissioner, supra, distinguished those cases. But it bears repeating that both opinions should be considered and, in my judgment, followed. In Browning, we held that the Stradivarius, Ruggeri, and Gabrielli violins were nondepreciable because the taxpayer, a professional musician, could not prove they had a determinable useful life. In affirming our decision, the Court of Appeals stated: They [the taxpayers] have failed to show any real decrease in value. The Tax Court did not clearly err when it found that the Brownings did not present sufficient evidence to refute the Commissioner’s ruling that the violins would actually appreciate in value over time rather than depreciate. ‡ * jfs ‡ ‡ # As the Tax Court noted, antique violins such as a Stradivarius are considered collectible items and not all purchasers need necessarily be professional musicians. Therefore, the violins have a value independent of their tonal qualities and that value may extend their useful lives which makes the violins more like pieces of art. * * * [890 F.2d at 1086-1087.] In Clinger v. Commissioner, supra, relating to a Gittins oil painting purchased by a professional artist for use in her studio, this Court specifically held: Accordingly, it is our opinion that the concept of useful life was not eliminated by the enactment of ACRS under ERTA; hence, where respondent has determined that a taxpayer’s assets have no determinable useful life and consequently are not depreciable, petitioner must establish that an asset used in a trade or business has a determinable useful life and prove the class of recovery property to which it is assigned. * * * See, e.g., Andrew Crispo Gallery, Inc. v. Commissioner, 16 F.3d 1336, 1342 (2d Cir. 1994), affg. in part, vacating in part and remanding T.C. Memo. 1992-106. As pointed out in my dissenting opinion in Simon v. Commissioner, supra at 272 (Hamblen, C.J., dissenting), the case of Noyce v. Commissioner, 97 T.C. 670 (1991), relied upon in the majority opinion here, “stands in sharp contrast to and is distinguishable from Browning and Clinger”. Wear and Tear I question whether the facts of this case are “remarkably similar” to the facts in Simon. As strong as the Simon facts might be in support of respondent’s position, here the facts relating to the lack of wear and tear to the Ruggeri bass viol are even stronger. The construction of the Ruggeri bass viol is sturdier and less delicate than that of the Tourte bows. Its cost was not consumed or used up during the 7 years petitioner owned it. Its utility as a playable instrument did not decrease. Its value increased, as evidenced by its exchange for the Busan bass viol that had a replacement value of $65,000. Petitioner agreed that, throughout the years he owned the Ruggeri bass viol, he kept it in excellent working condition by regular maintenance. There were no cracks or other damage to it. Wilbur Wamsley, petitioner’s expert witness, who had neither seen nor inspected the bass viol in question, testified that he had seen stringed instruments that have suffered damage. It is significant that his report states, in part, as follows: 1. In the hands of a professional musician, a bass viol will be played for several hours per day, transported to concerts and rehearsals, (and in some cases, to auditions), all of which activity, if professional maintenance is not kept current, will lead to the deterioration of the instrument, could have a deleterious effect on the quality of its sound, and will ultimately result in the loss of value of the instrument. [Emphasis added.] The “wear and tear” concept relates to the physical life of tangible property. The physical life must be lessened by wear and tear that cannot be corrected by regular maintenance. See Lindheimer v. Illinois Bell Tel. Co., 292 U.S. 151, 167 (1934) (depreciation represents “the loss, not restored by current maintenance, which is due to all the factors causing the ultimate retirement of the property. These facts embrace wear and tear, decay, inadequacy, and obsolescence.” (Emphasis added.)). Conclusion Clearly petitioner has not met his burden of proving that the Ruggeri bass viol has a determinable useful life or the particular class of recovery property to which it was assigned by petitioner. This is borne out by petitioner’s own testimony and that of two expert witnesses. Petitioner stated that when he purchased the Ruggeri bass viol, he subjectively anticipated that he would play the instrument until the end of his career. He was not sure how long that would be, but he thought it would be 30 to 40 years. Consequently, I think common sense tells us that it is chimerical to attribute a 5-year life to a bass viol that has been in existence for almost 3 centuries, and may last for many more as either a playable or a treasured work of art. Accordingly, I would hold that the Ruggeri bass viol was not of a character subject to the allowance for depreciation. Chabot, Jacobs, Whalen, and Halpern, JJ., agree with this dissent.   The record shows that antique bass viols are displayed in museums as ‘‘works of art”.    In United States v. American Trucking Associations, 310 U.S. 534, 543 (1940) (quoting Ozawa v. United States, 260 U.S. 178, 194 (1922)), the Supreme Court stated as follows: There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one “plainly at variance with the policy of the legislation as a whole” this Court has followed that purpose, rather than the literal words. * * * [Fn. refs, omitted.]