Court Opinion

ID: 4483003
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:50.109139+00
Date Added: 2024-06-11T14:54:02.527053
License: Public Domain

Drennen, J., dissenting: The issue in this case concerns the construction and application of the mitigating provisions contained in sections 1311-1315 of the Code. Specifically, the question is whether Congress intended to use the words “deduction or credit” in section 1312(2) in the limited “term of art” sense attributed to it by the majority or in a broader sense that would provide the relief respondent justifiably seeks in this case. In my view the purpose for which these provisions of the Code were enacted suggests the broader use. In the report of the Senate Finance Committee, S. Rept. No. 1567, 75th Cong., 3d Sess. (1938), 1939-1 (Part 2) C.B. 779, 815, concerning these provisions, it was pointed out that under existing law unfair benefits had been obtained by the taxpayer or the Commissioner assuming inconsistent positions and then taking shelter behind the barrier of the statute of limitations, and that this was a plain misuse of the fundamental purpose of these statutes; that the Federal courts in some tax cases had. sought to prevent such inequitable results by applying various equitable principles; but that legislation had long been needed to supplement the equitable principles applied by the courts and to check the growing volume of litigation by taking the profit out of inconsistency. After setting forth certain principles on which the proposed legislation was based, the report stated: (2) Subject to the foregoing principles, disputes as to the year in which income or deductions belong, or as to the person who should have the tax burden of income or the tax benefit of deductions, should never result in a double tax or a double reduction of tax, or an inequitable avoidance of tax. There is no question in my mind that the position taken by petitioner in claiming and being allowed a deduction for an embezzlement loss for 1965 in B. C. Cook & Sons, Inc., was inconsistent with the reduction of taxable income in the years 1958-61, “whether fortuitous or the result of design,” because of the increase in cost of goods sold in those years resulting from the same scheme of embezzlement that gave rise to the embezzlement loss; and that the “double reduction of tax,” or “inequitable avoidance of tax” resulting from such inconsistent positions falls clearly within the intended scope of the mitigation provisions. Yet the majority rely on technical distinctions between “deductions” from gross income and reductions of or offsets against gross income to deny the applicability of the mitigation provisions. I find nothing in the legislative history or purpose of the mitigation provisions that suggests that Congress intended to use the words “deduction or credit” in section 1312(2) in such a limited or technical sense as ascribed to them by the majority. The purpose of the statute was to avoid abuse of the statute of limitations to obtain inequitable tax benefits. In my view a liberal interpretation of the words used would best accomplish that objective when all the other requisites are present as they are here. I would agree that the mitigation provisions were probably not intended to cure all abuses of the statute of limitations but I think the circumstances of this case qualify for the benefits thereof. Congress was concerned with double deductions and credits which produced tax avoidance, not with the fine distinctions between deductions from gross income and reductions of gross income. This is particularly true here where the very same actions or transactions of the’ embezzler gave rise to both the reductions in gross income in the years 1958-61 and the loss deduction this Court allowed for 1965. While it is true that in the cases cited in the majority opinion the courts have ascribed a limited meaning to the word “deduction” under certain circumstances, it is also true that the word is often used in a very general sense in ordinary tax parlance. It is a recognized rule of statutory construction that the same word or phrase appearing in different places in the internal revenue laws themselves may have different meanings depending upon the context and legislative purpose involved. See Helvering v. Stockholms &c. Bank, 293 U.S. 84, 86-88 (1934); Helvering v. Morgan’s, Inc., 293 U.S. 121, 128 (1934); cf. Rohmer v. Commissioner, 153 F.2d 61, 65 (2d Cir. 1946). John D. McComish, 64 T.C. 909 (1975). Since the avowed purpose of Congress in enacting the mitigation provisions was to prevent the avoidance or overpayment-of tax by taking inconsistent positions and then relying on the statute of limitations, I cannot conceive that Congress would have purposefully used the word in these sections in a narrow sense that would make the provisions inapplicable unless specifically mentioned in the law. It would be impractical for Congress to enumerate all of the specific circumstances in which the provisions could be applied. In construing a statute,, the Supreme Court has said: There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one “plainly at variance with the policy of the legislation as a whole” this Court has followed that purpose, rather than the literal words. * * * [Fn. ref. omitted. United States v. Amer. Trucking Assns., 310 U.S. 534, 543 (1940).] The strict letter of an act must, however, yield to its evident spirit and purpose, when this is necessary to give effect to the intent of Congress. * * * [Fleischmann Co. v. United States, 270 U.S. 349, 360 (1926).] Statutes are not to be so literally construed as to defeat the purpose of the legislature. * * * [Hill v. American Surety Co., 200 U.S. 197, 203 (1906).] In my opinion respondent will be justifiably confused by the result reached by the majority. In the earlier B. C. Cook & Sons, Inc., case in which this Court allowed the loss deduction for 1965, 59 T.C. 516, the majority opinion repeatedly referred to the increases in cost of goods sold by the fictitious invoices as though they were tantamount to deductions. Respondent’s argument was that where the taxpayer has previously derived a tax benefit through an erroneous deduction or otherwise, he may not deduct the same amount in a subsequent year after the Commissioner is barred by the statute of limitations from adjusting the tax for the prior year. Our majority opinion stated: “But the key to the decision here lies in the fact that the petitioner erroneously deducted nonexistent purchases in computing its cost of goods sold for prior years.” Petitioner asserted in its reply brief that the proper procedure for respondent to follow if he believed that petitioner had received a double benefit was under the mitigation provisions. And finally our opinion stated that “the deduction must be allowed in its proper year and that the Commissioner’s recourse is through the correction procedures set forth in sections 1311 through 1315.” (Emphasis added.) Certainly the majority of this Court was equating the increase in costs of goods sold as a deduction similar to that allowed for 1965, and I fail to understand why the present majority relies on technical distinctions to deny the recourse suggested to respondent in our opinion in the prior case. Probably in reliance thereon, respondent did not appeal the prior case. He must now feel that he was enticed out on to a limb which we now saw off. Raumand Wilbur, JJ., agree with this dissent.