Court Opinion

ID: 9448167
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:24:48.938814+00
Date Added: 2024-06-11T17:31:18.937963
License: Public Domain

CHAMBERS, Circuit Judge.
Reference is here made to this court’s decision in Time Oil Co. v. Commissioner, 258 F.2d 237, decided the first time the case was here. This opinion starts from there.
The taxpayer almost lost its income tax deductions for its contributions to a stock bonus and profit sharing plan for its employees because of some deviations from the original written plan. However, we held the deviations were de minimis and declined to sustain the Commissioner in his contentions that the departures from plan were fatal.
There was a second issue in the first ease: In what years were the payments deductible? This arose because notes were given by the taxpayer to the trust in payment of its obligation to make contributions. When here before, the Commissioner contended the year of payment of a note was the year for the deduction. There is much to be said for this position, but we determined not to set up a conflict with the Third Circuit, which had held that delivery of the note fixed the time. Sachs v. Commissioner, 3 Cir., 208 F.2d 313.
Specifically we said:
“After taking the view of the law hereinabove indicated, this court must now come to the question of the year of deductibility of the employer’s payments. The Third Circuit has taken the view that a taxpayer on an accrual basis is entitled to deduct promissory notes as a contribution in the year issued. Sachs v. Commissioner (Slaymaker Lock Co. v. Commissioner) 3 Cir., 208 F.2d 313. This court fully agrees with the case of Anthony P. Miller, Inc. v. C.I.R., 3 Cir., 164 F.2d 268, 4 A.L.R.2d 1219 (on its facts) upon which the Court of Appeals for the Third Circuit relies in Sachs and Slaymaker. Under Section 23 (p) (1) (E) of the 1939 Code, 26 U.S.C.A. § 23 (p) (1) (E) a taxpayer ‘on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within sixty days after the close of the taxable year.’ The Sachs-Slaymaker decision is a reasonable, but not a required, extension of the Miller case. The point is a close one. In such circumstances it seems unnecessary to set up a conflict between circuits. Therefore, it is held that delivery of the notes to' the trustee constituted payment by Time Oil Company as of the delivery date. This would determine the year of deductibility.
“In the background of this case is the question of amounts allowable as deductions under permissible limits of the statute. It would appear that under the principles laid down the allowable deductions can be readily calculated by the tax court for the years in which the note obligations were discharged.” (Emphasis added currently.) [258 F.2d 239.]
The use of the last word “discharged” has produced at least a part of the trouble. And on remand taxpayer sought to take advantage of “discharged.” This it sought to do because, on account of limitations of time, it asserts it cannot get its deduction back into 1948, when it delivered to the trustees in the month of May of that year a note for $30,466.86, which was ultimately paid April 20, 1949.1 The note was to meet obligations *669to the fund which arose during the year 1947. Taxpayer’s books were on an accrual basis.
Also involved in “what year?” is a note issued, dated and delivered February 28, 1949, by the taxpayer for the 1948 contribution to the trustees. The note was in the amount of $66,342.82 and was paid and discharged August 8, 1950. For this, as well as the $30,466.86 note, the taxpayer, in its computation submitted to the tax court, claimed deductibility as an expense in the year 1949. Notice that it does not argue that the larger note must be deducted in 1950,2 the year of payment of the note, or in 1948 (by virtue of delivery on February 28, 1949, within the 60-day grace period on 1948 of Section 23(p) (1) (E) of the Internal Revenue Code of 1939). The latter, it argues against.
It was clear enough to the tax court that our use of the word “discharged,” in concluding our former opinion, was an inadvertence. And we so hold. This being the same panel, our holding can be a matter of fact rather than surmise.
But for the unfortunate use of the word “discharged,” taxpayer would have little to argue about, and we could now simply say that the law of the case was established on the prior appeal.
The taxpayer claims “estoppel” and points out that, when it was here before, the Commissioner took the view that the year of payment (rather than delivery) of such notes as we have here was crucial.3 But we decided otherwise.
As a general proposition taxpayers may report income on a cash receipts basis or on an accrual basis, depending on how the books are kept. See Section 441 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 441. But of course on either basis some accounting concepts vary from accountant to accountant. And at a number of points specific sections of the Revenue Code upset normal accounting concepts, presumably as a matter of public policy, and so upset for tax purposes such accounting.4
Obviously, under 23(p) as it came into the revenue law under Section 162(b) of the Revenue Act of 1942, e. 619, 56 Stat. 798, it was thought advisable, before deduction was made, to require that there be something more than a book credit on the taxpayer’s books. This, one may surmise, was for the benefit of employees, beneficiaries of the plan.
Of course, it is open to any taxpayer to “pay” all or part of the contribution within the taxable year. Such was just what happened in Sachs v. Commissioner (Slaymaker v. Commissioner), 3 Cir., 208 F.2d 313, upon which this court based its first decision herein. (Payment was by notes and the notes were discharged more than 60 days after the end of the taxable year.)
But where the contributions are a percentage of profits it is difficult to ascertain before the end of the year what one’s profits are. So in the statute a compromise was made with the accrual system under which supposedly the majority of larger business concerns operate. Thus, we have Section 23 (p) (1) (E).
*670There may be valid argument that we should not have followed Slaymaker and Sachs, supra, and should have required a cash payment instead of holding that delivery of a negotiable promissory note is a payment. (Obviously our holding as made would require that such a note would be payment for a cash-basis taxpayer, too.) But 23(p) (1) (E) says a taxpayer on an accrual basis “shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within sixty days after the close of the taxable year of accrual.” (Emphasis added.) In the law “shall” is often bent to say “may,” and if that were done here we could say the taxpayer’s note for $66,342.82, delivered on February 28, 1949, at the taxpayer’s option, ■could be taken as either for the taxable year 1948 or for the year 1949, because it was delivered in 1949. Taxpayers really do not need that option, and we find no support in the statutory history for it. All they need to know is what the law is. When they know that, they can control the date of the cash payment or delivery of the note. They then can honestly make the facts. (To give the option of either 1948 or 1949 would be giving a second choice to an accrual taxpayer not given to a cash-basis taxpayer.)
Assuming the policy that “payment” is required for a deduction, once he knows the law, a taxpayer has a lot of room for maneuver. He can pay up as late as 60 days after the close of the taxable year (now, under Section 404 of the 1954 Code, 26 U.S.C.A. § 404, until the date the return is filed, or the time of an extension), or he can make the payment, if his agreement permits, after the grace period is gone.
But it is no wonder the taxpayer did not know the law (and the courts have trouble with it) when Section 23(p) (1) commences with the following language:
“(1) General rule. — If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation, shall not be deductible wider subsection (a) but shall be deductible, if deductible under subsection (a) without regard to this subsection, under this subsection but only to the following extent:” (Emphasis supplied.)
To indulge in a bit of whimsy, one may wonder how the government could ever fasten on a taxpayer the wilfully wilful intent to violate the law we required in the felony case of tax evasions of Forster v. United States, 9 Cir., 237 F.2d 617, if somehow a tax evasion charge could be bottomed on a violation involving in some way Section 23(p) (1) (E).
Here we can do nothing for the taxpayer. But with candor the Commissioner suggests the taxpayer possibly may be entitled to some relief under Sections 1311-1315, Internal Revenue Code of 1954, 26 U.S.C.A. §§ 1311-1315. He does not concede it. While we do not announce that taxpayer must be relieved under those sections, we do think in the circumstances of this case there is a lot of equity in that position. (Consideration of those sections by us now would be premature.) The law shouldn’t be, if it is, that the taxpayer is to be hung from the limb of the wrong year — when there was no sure way of finding the limb until the courts could put their mark on it. See Dubuque Packing Co. v. United States, D.C., 126 F.Supp. 796, at pages 804, 805.
The decision of the tax court under our mandate is affirmed.

. Taxpayer’s taxable years were his calendar years. Thus the 1948 note has presented no 60-day point under Section 23 (p) (1) (E) Internal Revenue Code of 1939, providing,
“ * * * [^] taxpayer on the accrual basis shall be deemed to have made a *669payment on the last day of the year of accrual if the payment is on account of such taxable year and is made -within sixty days after the close of the taxable year of accrual.”

. In referring to our inadvertent use of the word “discharge” the petitioner does say, “The use of the word ‘discharged’ would clearly indicate a deduction at the time of payment of the note if deduction had not been allowed at the time the note was issued.” But it is elsewhere in its brief, as well as on remand in the tax court, that it claims 1949 as the tax year of deductibility for the sixty-six thousand dollar note.

. Taxpayer originally, on his return, claimed the 1948 note described supra to be deductible in 1947, the year the obligation to the trust fund arose.

. For example under Section 24 of the 1939 Code, 26 U.S.C.A. § 24, now part of Section 267 of the 1954 Code, 26 U.S.C.A. § 267, payments between those closely related by blood or law to the taxpayer must be paid within two and one-lialf months after the close of a taxable year if deduction is claimed for the year reported.