Court Opinion

ID: 4472217
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:19:59.530887+00
Date Added: 2024-06-11T14:53:47.312985
License: Public Domain

HALPERN, J., dissenting: The majority has taken a path that leads it to declare one regulation invalid and to reject the literal meaning of a second on the theory that the only purpose of the second is to recite the self-evident. Sec. 1.993-6(e)(1) and (2), Income Tax Regs., respectively. I disagree with the majority’s approach not because I think that either result is necessarily wrong but because I think that such results may be avoidable. Having disposed of respondent’s astonishing proposition that qualified export receipts, a subset of gross receipts, are to be determined using a method of accounting different from that used to determine gross receipts, HISC would have been home free as a DISC were it not for the “commissions” from domestic sales received by HISC. Petitioner argues that those “commissions” inadvertently were included in gross income. What precisely petitioner means by that is unclear. Does petitioner mean that the domestic “commissions” inadvertently were included in gross income, when, perhaps, they should not have been included because they represented a contribution to capital or were offset by an obligation to make reimbursement? Alternatively, does petitioner mean that they were correctly included in gross income but incorrectly characterized as commissions? We do not know. The findings of fact made by the majority state only that “during the taxable year ended March 31, 1982, commissions from domestic sales * * * were paid to and reported by HISC.” Majority op. p. 296. (Assumably the same was true for HlSC’s taxable year ended March 31, 1983, the only year for which it would make a difference.) The majority’s opinion, insofar as it concerns the treatment of such “commissions” under section 1.993-6(e)(l) and (2), Income Tax Regs., is predicated on the following near-tautology: “Because Hughes paid HISC a commission on the domestic sales, it is a transaction that gave rise to a commission.” Majority op. pp. 300-301. Having thus persuaded itself, without adequate analysis, that the domestic “commissions” are indeed commissions, the majority finds itself confronted with the regulatory questions that it proceeds to answer. If the domestic “commissions” were either not includable as gross income or not includable as commissions, then it is likely that (as with HlSC’s taxable year ended March 31, 1982) we could avoid any confrontation with either section 1.993-6(e)(l) or (2), Income Tax Regs.1 I suspect that, for whatever reasons, the parties did not focus adequately on those questions.2 I would call the parties back to assist us in better understanding the “inadvertence” of petitioner’s including the domestic “commissions” in gross income. A better understanding might lead to a conclusion that would avoid a confrontation with section 1.993-6(e)(l) and (2), Income Tax Regs; we might arrive at the same bottom line (decision for petitioner), but stand on a less controversial footing. Our approach here seems to insure respondent’s appeal, which, in a sense, means that we have not settled the controversy but merely passed it along. Given the all-but-repeal of the DISC provisions in 1985, we may never again be faced with the validity of section 1.993-6(e)(l), Income Tax Regs., and, thus, avoiding the question today may not simply save it for another day. Also, as stated, we have raised what I consider to be an unnecessary controversy concerning the meaning of section 1.993-6(e)(2), Income Tax Regs. I would avoid those results. Because I do not see the necessity of the results reached by the majority, I respectfully dissent. Whalen, J., agrees with this dissent.   Accepting arguendo that the domestic “commissions” themselves constitute an item of gross income (perhaps under the claim of right doctrine), then, if in fact that item does not constitute a commission under the commission agreement between HISC and Hughes, because HISC is not, under that agreement, entitled to any commission on domestic sales, only the item itself (and not any domestic sales gross receipts of Hughes) would be considered a gross receipt of HISC. See sec. 1.993-6(a), Income Tax Regs. Indeed, if all that is so, and, for HlSC’s 1983 taxable year, the aggregate “commissions” on the $13,784,333 of domestic sales receipts are no more than $2,490,242 (roughly 18 percent of such domestic sales receipts), then HISC would qualify under the 95-percent gross receipts test: 348,315,640 - 13,784,333-241,451,118 93,080,189 348,315,640 + 2,408,715-241,451,118 - 13,784,333 + 2,490,242 = 97,979,146 = 95%    For that reason, I would not make too much of petitioner’s reply brief “concession” described in majority op. note 8 that gross receipts attributable to the domestic commissions should only be included in the denominator of the gross receipts fraction if sec. 1.993-6(e)(2), Income Tax Regs., does not apply.