Court Opinion

ID: 4476457
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:01.75754+00
Date Added: 2024-06-11T14:51:55.850052
License: Public Domain

Turner, J., dissenting: The facts, in my opinion, bring the instant case squarely within the provisions of section 3801- of the Internal Revenue Code. In subsection (b) thereof, it is provided that when a determination under the income tax laws determines the basis of property for gain or loss on a sale or exchange, and in respect of any transaction upon which such basis depends there was an erroneous omission from the gross income of the taxpayer and, on the date the determination becomes final, correction of the effect of the error is prevented by operation of internal revenue laws other than section 3801 and section 3761, the effect of the error shall be corrected by an adjustment made under section 3801, if there is adopted in the determination a position maintained by the taxpayer with respect to whom the determination is made, which position is inconsistent with the erroneous omission. Under section 3801 (c), it is provided that the adjustment authorized under subsection (b) shall be made in the same manner as if there were a deficiency with respect to the taxpayer, and as if on the date of the determination specified in subsection (b) one year remained before the expiration of the period of limitation upon assessment for such taxable year. In keeping with the position maintained by the taxpayer, this Court, in the proceeding docketed at 14104, and pursuant to the pronouncements of the Supreme Court in Commissioner v. Korell, 339 U. S. 619, entered its decision for 1944, based on the allowance under section 125 of the Internal Revenue Code of the claimed deductions for amortization of the bond premiums paid on the purchase of the American Telephone & Telegraph Company and the Commonwealth Edison Company debentures. On the basis of this decision, it was thus apparent that the respondent, in making the refund for 1945, erroneously and contrary to the position which had been taken by the taxpayer, but in harmony with his own determination that the bond discount was not deductible for 1944, had omitted from 1945 income a part of the taxable gain realized by petitioner in that year on the sale of the said deben!,ures. Following the Supreme Court, this Court in its decision for 1944 in the proceeding at Docket No. 14104, adopted the position which had been maintained by the taxpayer, which position was inconsistent with the position which had been taken by the respondent, which position of the respondent resulted in his erroneous omission from 1945 income of a part of the taxable gain realized by petitioner in that year on the sale of the debentures, all of which, in my opinion, brings the instant case within the provisions of section 3801 (b) (5) of the Code. It is said in the Court’s opinion herein, however, that, even so, the 1944 determination was a determination of a deduction from gross income, not a determination of petitioner’s basis for the debentures for gain or loss on the sale or exchange thereof and, accordingly, section 3801 (b) (5) is not applicable, since that section applies only if the determination was a determination of basis for the said debentures and that a determination that bond amortization is an allowable deduction in computing net income is not comprehended. The conclusion, in my opinion, not only ignores the general scheme of the statute, but is contrary to specific provisions thereof. The general definition of basis of property for gain or loss purposes is cost. Section 113 (a), Internal Kevenue Code. So far as appears, there can be no question that the bond premium was de facto a part of petitioner’s cost of the debentures herein, and in the absence of some statutory adjusting requirement, would be a part of the taxpayer’s basis therefor, under section 113 (a). In providing for' the deductions prescribed in section 125, however, Congress was not unaware of the logical impact of the deduction allowed on a taxpayer’s basis, for gain or loss purposes, for the bonds. It accordingly made specific provision in section 113 (b) (1) (H), to the effect that the basis of debentures, in the circumstances here, shall be the basis determined under subsection (a), adjusted “to the extent of the deductions allowable pursuant to section 125 (a) (1) with respect thereto.” The deductions determined and allowed by the decision in the proceeding at Docket No. 14104 were obviously deductions allowable pursuant to section 125 (a)(1). It accordingly follows that the decision of this Court in that proceeding, to the effect that petitioner was entitled to the deduction under section 125, was by statutory fiat a determination of the taxpayer’s basis for the said debentures, for gain or loss, on the subsequent sale or exchange thereof. It is accordingly my view that the contrary conclusions expressed by this Court in its opinion herein are erroneous. Murdock, J., agrees with this dissent.