Court Opinion

ID: 4495795
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:31.174617+00
Date Added: 2024-06-11T08:00:12.850840
License: Public Domain

McMahoN,
dissenting in part and concurring in part: In American Chicle Co., 23 B. T. A. 221, we originally held that no income was derived on the retirement of either taxpayer’s own bonds or assumed bonds of another corporation. However, we thereafter entered an order modifying our opinion to hold, under United States v. Kirby Lumber Co., 284 U. S. 1, decided subsequent to our original decision, that petitioner derived income on retirement of its own bonds for less than face, but we adhered to our holding as to the bonds of the predecessor, made upon the authority of New York, Chicago & St. Louis Railroad Co., 23 B. T. A. 177, on the ground that the payments of such bonds at their retirement were payments on the purchase price of assets acquired by taxpayer from the other corporation. In Commissioner v. American Chicle Co., 65 Fed. (2d) 454, the Court of Appeals for the Second Circuit affirmed our holding, and in part stated:
The question depends for its answer upon the scope of the decision of the Supreme Court in United States v. Kirby Lumber Company, 284 U. S. 1. * * *
The Supreme Court in Helvering v. American Chicle Co., 291 U. S. 426, reversed the decision of the Second Circuit and stated in part:
Assessments by petitioner which treated as realized income the difference between the face value of certain bonds assumed by respondent in 1914 and the amount at which it purchased them in 1922,1924 and 1925, were disapproved by the Board of Tax Appeals. The court below affirmed this action, and the matter is hereby certiorari. The meager stipulated facts presented only a narrow point; and to that our decision must be limited.
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The case before us is this:
In connection with the purchase of the assets of another company, in 1914, respondent assumed — promised to pay — more than $2,000,000 of the seller’s outstanding bonds. During 1922, 1924 and 1925 it purchased a considerable number of these bonds in the market at less than their face. The Commissioner assessed the difference between these two amounts as income.
We find nothing to distinguish this cause in principle from United States v. Kirby Lumber Co., 284 U. S. 1, 52 S. Ct. 4, 76 L. Ed. 131. The doctrine there announced is controlling here.
Anything else said by the Supreme Court in deciding that case was primarily for the purpose of showing the distinction between that case and Bowers v. Kerbaugh-Empire Co., 271 U. S. 170; and, under the doctrine of the Kirby case as expressly interpreted and adhered *1209to by the Supreme Court in the American Chicle case, the result reached in the latter case followed irrespective of any reference to the Bowers case. Hence, under the doctrine of the American Chicle case, there is no escape from the principle that, for Federal income tax purposes, one who assumes the payment of obligations of another, figuratively speaking, steps into the shoes of such other, gets into the same position, as to such obligations and thereafter, with respect thereto, is in the same position as such other would have been in if there had been no such assumption, and he is also thereafter in the same position as the one assuming such obligations would be in if he issued similar obligations of his own instead of thfis assuming another’s obligation; and in the instant proceeding it is immaterial whether petitioner or its subsidiaries called and retired the bonds. When the assuming corporation meets expense of this character it is expense to it just as much as it is expense to the obligor if the obligor meets it. Under either view the unamortized discount and premiums in question here are deductible. In American Chicle Co., 23 B. T. A. 221, we held that the taxpayer had the right to deduct in the year of retirement of bonds issued by it the unamortized discount. This holding was not challenged or disturbed upon review of the case by the United States Circuit Court of Appeals or the Supreme Court. Following American Chicle Co., 23 B. T. A. 221, the Board, in National Tile Co., 30 B. T. A. 32, held that the taxpayer was entitled to deduct unamortized discount, expense of issuance, and premium paid in connection with the retirement of bonds issued by it. Neither of these cases has been overruled or reversed and they are binding upon us as precedents. If there is anything in any of the precedents which calls for a different result here it is in principle contrary to the final decisions in the American Chicle case, to sound reasoning, and to good practice; and they should not be followed.
In principle, cases involving mergers and consolidations, wherein the continuing or resulting corporation, by operation of law, is required to assume and subsequently discharge bonds of the merged or consolidated corporation, and wherein it has been held that the former may deduct unamortized discount on bonds issued by the latter, support the foregoing conclusion herein set forth as to un-amortized discount, Western Maryland Railway Co. v. Commissioner, 33 Fed. (2d) 695; New York Central Railroad Co. v. Commissioner, 79 Fed. (2d) 247; and Illinois Power & Light Corporation, 33 B. T. A. 1189; and there is no sound reason in principle for differentiating, in this respect, between unamortized discount and premiums. Illinois Power & Light Corporation, supra. The reasons for permitting deductions of such unamortized discount are even stronger *1210when applied to such premiums. Too, the reasons for allowing both such types of deductions to such continuing or resulting corporations are even stronger when applied to an assuming corporation, such as we have here, since there is on its part a binding contract to discharge based on a consideration, and hence a resulting closer relationship between it and the original obligors, in addition to the operation of law, which is the only basis of close relationship or proximity in the foregoing cases involving continuing or resulting corporations.
American Gas & Electric Co., 33 B. T. A. 471, testing its doctrine by the result there reached, is distinguishable from the instant proceeding. There the situation presented is as if corporation B assumed the liabilities, including outstanding bonds, of corporation A, corporation C in turn assumed such liabilities from corporation B, and corporations C and D then combined to form the taxpayer, corporation E; and it was held that the taxpayer, the last corporation in the chain, was not entitled to amortize over the remaining life of the bonds the unamortized discount and the expenses incidental to the original issuance of the bonds. There it could not be said that the taxpayer stepped into the shoes of the corporation which issued the bonds, or that there was a direct connection or close relationship between it and such corporation, or that there was any proximity between them; the contrary being true in the instant proceeding as between petitioner and its subsidiaries, the only corporation with which we are here concerned.
New Colonial Ice Co. v. Helvering, 292 U. S. 435, is not in point since it involves a net loss deduction under the provisions of statutes which are expressly limited in their application to net losses of “the taxpayer.”
I concur in the allowance by the majority of all deductions allowed by them herein and agree with the dissenting opinions of Members Black and Smith; and, by a parity of the reasoning which led to the allowance of such deductions by the majority and of the reasoning which leads to the conclusions reached in those dissenting opinions and to the conclusions reached in this dissenting opinion upon the subjects of premiums and unamortized discount, upon the showing here made, deductions of all other expenses in question here should be allowed as well as unamortized discount, premiums, and those allowed by the majority. See also Helvering v. Taylor, 293 U. S. 507.
The majority approaches and disposes of the premiums disallowed by them from the standpoint of losses; we are not here concerned with losses; we are concerned only with the deductibility of expenses as to all items.