Court Opinion

ID: 4498426
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:56.796112+00
Date Added: 2024-06-11T08:00:10.090879
License: Public Domain

Murdock,
dissenting: The majority opinion, I believe, reaches an incorrect result on both issues. The Commissioner determined that the petitioner realized a profit in 1934 from the partial liquidation of its *890wholly owned subsidiary, Schuman Motors. The determination is supported by the following evidence: Schuman Motors’ only business, the distribution of Studebaker cars, was terminated in 1984, when it gave up the Studebaker franchise and completely closed out its stock of cars; it then had no further business purpose, no employees, and practically no assets except the amount owed it by the petitioner; it dissolved a few years later without ever again engaging in any business; it declared a special dividend of $20,000 at the end of 1934 and could have declared a larger one in the full amount owed it by the petitioner ; and the petitioner, at all times material hereto, had custody of all assets of Schuman Motors, was its agent in all business transacted, kept its books, handled all of its financial transactions through the petitioner’s own bank account, and controlled Schuman Motors completely. The evidence that there was no resolution to dissolve and no complete dissolution until later is not necessarily inconsistent with the determination of the Commissioner that there was a partial liquidation in 1934. W. F. Kennemer, 35 B. T. A. 415; affd., 96 Fed. (2d) 177. The self-serving testimony of officers that they did not intend to dissolve Schu-man Motors but intended to use it for a new purpose later is not sufficient, with the other evidence, to show that the Commissioner erred.
The second issue has really two parts — (a) whether the taxpayer must report its interest for 1934 upon an accrual basis, and (b) if it must use the accrual basis, whether any amount in excess of the interest which actually accrued during the year may be included in interest for 1934. I agree with the majority that interest must be reported upon an accrual basis. The interest which actually accrued in 1934 has been stipulated to be less than the amount reported on the cash basis and less than $18,141.37, the amount which the Commissioner has included as interest for 1934. Consequently, unless some adjustment is to be made to correct an error of the petitioner in failing to report for taxation interest which accrued in prior years, the change from the cash to the accrual method of reporting interest will really benefit the taxpayer. The Commissioner has not made claim for any increase in the deficiency. It must be remembered that the taxpayer has not requested permission to change its method. The change is entirely involuntary upon its part. The case of Hardy, Inc. v. Commissioner, relied upon in the majority opinion, was one in which the taxpayer asked permission to change and, of course, the Commissioner had a right to make the necessary adjustments under such circumstances. But the adjustment was made there for the earlier year of change. Thus, the holding of the majority is without adequate authority to support it. Not only is there an absence of any request to change from the method which the taxpayer has guilelessly used, but the Commissioner has known for years that the taxpayer was using that inconsistent method. The Commissioner may not arbitrarily choose 1934 as *891the year in which to make up for possible errors of the past. Grauman’s Greater Hollywood Theater, Inc., 37 B. T. A. 448; Sugar Creek Coal & Mining Co., 31 B. T. A. 344; Tide Water Oil Co., 29 B. T. A. 1208; Bank of Commerce, 10 B. T. A. 73; Cooper-Brannan Naval Stores Co., 9 B. T. A. 105. Cf. S. Rossin & Sons, Inc. v. Commissioner, 113 Fed. (2d) 652; Williams Land Co. v. United States, 31 Fed. Supp. 154.
Van Fossan, Turner, and Mellott agree with this dissent.