Court Opinion

ID: 9481853
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:33:47.942277+00
Date Added: 2024-06-11T17:48:37.305691
License: Public Domain

HENLEY, Senior Circuit Judge,
concurring.
With deference to the views of the district court and the views of the majority concerning statutory construction, I feel compelled to concur in the result reached by the panel. My concurrence is reluctant. It is not at all clear to me that Congress wanted or anticipated application of the gift tax to a family transaction like the one consummated by the Krabbenhofts. Congress certainly did not anticipate the runaway interest rates in existence in the early 1980’s, including a prime rate of nearly twenty per cent. Although the total tax assessed in this ease was just over $50,-000.00, with interest for about ten years added on, the actual balance due now is much more than that amount.
Looking at § 483 in isolation and ignoring subsequent legislation, it is possible to conclude the “safe harbor” provision is applicable only to the income tax. In reaching this technical conclusion, one must accept the proposition that Congress either intended, or else simply failed to consider, the possible “gift tax traps” that would be created any time market rates rose above six per cent. The Krabbenhofts were caught by two of these traps. First, although their transaction was safe from income tax revaluation, it was revalued for gift tax purposes. The other trap that caught the Krabbenhofts resulted from the procedure of permanently determining gift tax on the date of sale. Since market rates were particularly high at that date, their long-term sale was forever valued at a substantial discount.1 In the real world, taxpayers can refinance their loans, but they cannot have their gift tax later readjusted for changed conditions.
At the time the Krabbenhofts transferred the land, the six per cent rate was the only specific statutory guidance they had. This rate appeared with respect to § 483 transfers, and in Treasury Regulation § 25.2512-9, which is used in valuing life and remainder interests. Historically, six per cent was a reasonable “safe harbor” rate with many loans and home mortgages issued during the 1970’s at even lower rates. It was not until about 1980 that rates began to skyrocket.
Unfortunately, Congress did not get around to dealing with the problem until the 1983-1984 term when it created a uniform market-based system of interest rates. Through §§ 1271-74, Congress enacted a market rate system for different types of loans that is updated periodically through Revenue Procedures. As government’s counsel confirmed at oral argument, sections such as 483 and 7872 (low interest or no interest loans), now govern the gift and income tax treatment of most loans. Congress also updated the estate and gift tax regulations to provide for a ten per cent interest rate for use in valuing life and remainder interests. The more comprehensive and realistic system of rates in existence now is of no help to the Krabbenhofts, however, because their transaction happened to fall in the legislative and economic “no man’s land” between 1980 and 1983.
The plain language of the statute strongly suggests the “safe harbor” provision is only relevant to the income tax. Even if one ignores the plain language and goes beyond the text, the legislative history presented on appeal is simply inadequate for me to conclude with confidence that the tax court and this panel have erred as a matter of law in interpreting § 483. The legislative history presented to us in this case is simply inconclusive as to the scope of § 483. The application of the statute based on the majority’s interpretation, though seemingly harsh in this case, has *535not been argued to be, and the record before us does not clearly demonstrate that it is, in violation of the due process, equal protection or other requirements of the Constitution, though such an argument might well be made in another case.
As for part B of the panel’s opinion, I agree that the trial court is in a much better position to evaluate the evidence than are we. It seems -to me that the valuation issue is a close one and that other evidence may have been available, though not presented in this case, that would have been sufficient to support the interest rate used by appellant and refute the government’s assessment.
Although this may be of small comfort to the Krabbenhofts, my concerns with the issues raised here are somewhat diminished by the hope that relatively few taxpayers will be affected by our decision here today. Not only might another taxpayer be successful on the merits where the Krabben-hofts were not, but only a small percentage. of transactions occurring in the early 1980’s are likely to be affected. As indicated, I concur in the result reached by the majority of the panel.

. At oral argument, government counsel admitted if an installment sale is made using a variable rate instrument, as long as the rate is tied to an index such that a market rate comparable to the Internal Revenue Service rate is assured, no gift tax revaluation of the transaction would likely occur. This may be the only way, however, for taxpayers consummating long-term installment sales during periods of high interest rates to complete a transaction in a manner that is both affordable for the buyer and safe from gift tax assessment.