Court Opinion

ID: 9470226
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:59:57.836716+00
Date Added: 2024-06-11T17:41:47.579764
License: Public Domain

KRAVITCH, Circuit Judge,
dissenting:
Because I believe the trial judge improperly instructed the jury as to the definition of “accrual” for purposes of the foreign tax credit, I dissent.
Appellant’s defense rested on his attempt to demonstrate that no tax deficiency existed in this case because, as a citizen of the Dominican Republic, he was entitled to a foreign tax credit. The presence of a tax deficiency is an essential element of tax evasion.1 Appellant argued that even though he failed to report the income in question in either the United States or the Dominican Republic, the Dominican Republic tax accrued at the close of each of the tax years involved. This Dominican Republic tax liability entitled appellant to a credit against his United States taxes. Therefore, appellant argues, no tax deficiency existed because there was no United States tax due and owing.
As the majority notes, the trial judge first instructed the jury that for a foreign tax credit to accrue “all events [must] have occurred which fix the amount of the tax and determine the liability of the taxpayer to pay it.” This instruction was entirely in accord with decades of tax law following the Supreme Court’s decision in United States v. Anderson, 269 U.S. 422, 46 S.Ct. 131, 70 L.Ed. 347 (1926). By adding an additional gloss to the accepted definition of “accrual,” however, the trial judge confused the jury, and thus committed reversible error.
The charge as given by the trial court required the jury to find that the tax had accrued only if the foreign government (1) was aware of the taxable income; (2) had computed the tax due; and (3) the defendant had failed to contest or had acquiesced in the amount of the tax due. This standard is incorrect. The tax on which the credit is based accrues regardless of these conditions. See Texas Co. v. Commissioner, 9 T.C. 78, 83 (1947).
The accepted test of accrual that applies generally as well as in the foreign tax credit context is the “all events” test espoused by the Court in Anderson.2 See Rev.Rul. 61-93,1961-1 C.B. 390.3 Accrual occurs for purposes of the foreign tax credit when the foreign tax liability becomes fixed and determinable. This is not necessarily the same as when the tax is levied, as the majority would hold. Accrual is not dependent upon a formal assessment by the taxing government. A tax liability accrues at the close of the taxing period, when the taxing authority can readily determine the amount of the liability. That the precise amount of income, and therefore tax liability, is not known at the close of the period is irrelevant. It is enough that the amount of the tax is reasonably determinable.
The majority premises its decision on United States v. Campbell, 351 F.2d 336 (2d Cir.1965), in which the Second Circuit held that a taxpayer accused of tax evasion could not assert a foreign tax credit as a defense because'he did not claim the credit promptly. At the time of the Campbell decision, there was a substantial body of *1154law holding that a foreign tax credit had to be claimed promptly or else it was lost. Under 26 U.S.C. § 6511(d)(3)(A),4 however, a taxpayer may now claim the credit at any time within ten years of the date he files his return, even if he chose not to take the credit initially. See Hart v. United States, 585 F.2d 1025 (Ct.Cl.1978) (en banc). Thus, one prong of Campbell is no longer applicable.
The majority is understandably concerned, as was the Campbell court, that a taxpayer might claim a foreign tax credit without ever paying the foreign tax, or that he might avoid tax liability by not reporting the income to either country until the IRS detects the omission. That concern, however, is misplaced in this case, as it was in Campbell. Despite the majority’s protestations, a taxpayer who avails himself of the “intricate technicalities” of the tax law will not go undetected or unpunished. If the foreign tax is not paid for which the credit is claimed, the IRS can redetermine the taxpayer’s United States tax for the year in question. If the foreign country’s statute of limitations runs, thus extinguishing the taxpayer’s liability for the foreign tax, that taxpayer becomes liable for tax evasion under 26 U.S.C. § 7601 if he fails to make the proper adjustments to his United States returns for the years in question. Where the foreign statute of limitations has not yet run, as appellant claims here, a tax evasion case is not timely. A taxpayer in appellant’s position might be indicted under 26 U.S.C. § 7206 for filing a false return if he fails to report the foreign income and the foreign tax credit. In my opinion, the government indicted appellant for the wrong crime at the wrong time. Appellant should have been charged with a violation of § 7206, not § 7201. See United States v. Taylor, 574 F.2d 232 (5th Cir.1978) (taxpayer violates § 7206 if he willfully files a false return with the knowledge that the return is not true and correct as to every material matter, if no taxes are in fact due).
If the Internal Revenue Code bars the availability of a tax evasion prosecution in this situation, then our hands are tied. Congress is the appropriate body to change the law. We cannot effectuate such a change by allowing an improper gloss to be attached to the meaning of “accrual.”
Appellant is entitled to an appropriate jury charge on his defense denying the existence of a tax deficiency. Because the instruction denied him that right, I respectfully dissent.

. The other two elements of tax evasion under 26 U.S.C. § 7201 are an affirmative act constituting evasion and \yhlfulness. Appellant does not dispute the presence of these two elements.

. The Supreme Court stated the test as follows: In a technical legal sense it may be argued that a tax does not accrue until it has been assessed and becomes due; but it is also true that in advance of the assessment of a tax, all the events may occur which fix the amount of the tax and determine the liability of the taxpayer to pay it.
United States v. Anderson, 269 U.S. 422, 441, 46 S.Ct. 131, 134, 70 L.Ed. 347, 351 (1926).

. In the Ruling the Service states:
[I]t is apparent that, for the purpose of the foreign tax credit, foreign income taxes are considered as accrued in the taxable year in which the taxpayer’s liability for such foreign taxes becomes fixed and determinable. Generally such accrual occurs in the United States taxable year within which the taxpayer’s foreign taxable year ends.
Rev.Rul. 61-93, 1961-1 C.B. 390, 391.

. 26 U.S.C. § 6511(d)(3)(A) provides:
If the claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any possession of the United States for which credit is allowed against the tax imposed by subtitle A in accordance with the provisions of section 901 or the provisions of any treaty to which the United States is a party, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be 10 years from the date prescribed by law for filing the return for the year with respect to which the claim is made.