Court Opinion

ID: 9468773
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:23:11.054069+00
Date Added: 2024-06-11T17:41:02.775139
License: Public Domain

VAN GRAAFEILAND, Circuit Judge,
concurring:
Because appellants’ attorneys have proceeded in this matter as if their clients’ interests were identical, I concur in the result reached by my colleagues. Had counsel seen fit to distinguish the merits of the Paduano claim from those of the other appellants, I would find affirmance of that claim more troublesome.
In May 1969, Mr. Paduano relinquished all of his interest in Stonehedge Development Corporation and Seneca Sewerage Corporation. The only evidence presented in the Tax Court indicated that, although Paduano remained a nominal partner in CCP, he in fact retired from active participation in that partnership. Despite these undisputed facts, Mr. and Mrs. Paduano *142have been held liable to pay a tax on nonexistent income allocated from the corporations to the partnership and which, of course, the Paduanos never received.
When actual partnership income is involved, the law is clear that each partner must pay a tax on his distributive portion of that income. United States v. Basye, 410 U.S. 441, 448, 93 S.Ct. 1080, 1085, 35 L.Ed.2d 412 (1973). However, “[t]hat which is not in fact the taxpayer’s income cannot be made such by calling it income.” Hoeper v. Tax Commission, 284 U.S. 206, 215, 52 S.Ct. 120, 121, 76 L.Ed.2d 248 (1931). Taxable income contemplates the existence of an economic benefit which is subject to the dominion and control of the taxpayer. Commissioner v. Kowalski, 434 U.S. 77, 83, 98 S.Ct. 315, 319, 54 L.Ed.2d 252 (1977); Commissioner v. First Security Bank, 405 U.S. 394, 403, 92 S.Ct. 1085, 1091, 31 L.Ed.2d 318 (1972). Because the Paduanos had no interest in or control over the corporations during the taxable years in question and derived no benefit whatever from the interest-free loans to those entities, the allocation of income from the corporations to the Paduanos has constitutional implications which are bothersome. Although courts look upon tax legislation with an indulgent eye, a levy which is so arbitrary and capricious as to amount to confiscation may be held to violate the Fifth Amendment. Heiner v. Donnan, 285 U.S. 312, 326, 52 S.Ct. 358, 361, 76 L.Ed. 772 (1932); Nichols v. Coolidge, 274 U.S. 531, 542, 47 S.Ct. 710, 713, 71 L.Ed. 1184 (1927).
Because this issue has been neither briefed nor argued, I discuss it only to indicate my belief that the Commissioner’s power of allocation under section 482 is not without constitutional limitations.