Court Opinion

ID: 4484037
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:28.210928+00
Date Added: 2024-06-11T11:33:35.825310
License: Public Domain

Goffe, J., concurring: In view of the impact of our decision, I feel compelled to comment briefly upon what I believe to be the primary problem in applying the statute as written. The principal means by which Congress has chosen to eliminate transactions between private foundations and disqualified persons is through the imposition of the second-level tax. In this connection, the clear intent of Congress reflected in the language of section 4941(b)(1) and in the accompanying legislative history, is to condition a self-dealer’s liability for the second-level tax upon his failure to undertake corrective action within the correction period. Thus, the self-dealer is not to be charged with the second-level tax provided he takes the steps necessary to undo the transaction prior to the time our decision with respect to the second-level tax becomes final. Therefore, since the underpinning of the statutory scheme is the second-level tax and because that tax is predicated upon a failure to timely correct, it is essential to determine whether any actions taken by a taxpayer to undo an act of self-dealing constitute correction within the meaning of the statute. In this regard, the statute unaccountably makes no provision for judicial review of the adequacy of corrective actions. To me, the need for review of corrective acts is necessary to insure that the statute is applied in a manner consistent with congressional intent and also to serve as a necessary protection for taxpayers. Unfortunately, however, there does not appear to be any legally sound and practicable solution to the problem within the present framework of the statute. To illustrate this point, assume that T, a disqualified person, engages in an act of self-dealing with a private foundation and is thereby subject to the first-level and second-level taxes under section- 4941. Assume further that this Court enters a decision sustaining the Commissioner’s determination with respect to both levels of tax and that our decision is subsequently appealed and affirmed. Thereafter, and prior to the time our decision becomes final, assume that T makes a bona fide effort to correct the act. Because there is no provision for judicial review at this point, if the Commissioner disagrees as to whether T properly corrected, there is nothing to prevent him from assessing and collecting the tax at the moment the decision becomes final.1 In such a case, there are no safeguards or procedures to protect a taxpayer who attempts to undertake correction. The taxpayer is, in short, at the mercy of the Commissioner and this, to me, demonstrates the most serious shortcoming of the statute. Neither Judge Tannenwald nor Judge Simpson in his dissenting opinion offers any satisfactory solution to this enigma, nor could they do so without redefining the term “correction period.” Specifically, Judge Simpson would reserve any judgment as to what will happen when the taxpayer undertakes to correct. However, our failing to recognize at this time that no procedure exists for judicial review of correction will serve only to compound the problem at a later date. Judge Tannenwald’s approach, a severance of the issue of liability of the first-level and second-level taxes, likewise will not resolve the dilemma. By statute, the correction period does not expire until our decision with respect to the second-level tax becomes final. Thus, regardless of when a decision as to the second-level tax is entered, a taxpayer has the opportunity to correct at any time prior to the decision’s becoming final, and so the problems created by the lack of judicial review of correction still exist. Finally, I have serious doubts as to whether we could sever the issue of liability for the first-level and second-level taxes as Judge Tannenwald proposes. One of the requisites for the imposition of the second-level tax is liability for the first-level tax. Similarly, in the case of certain additions to tax, e.g., section 6653, a precondition to their imposition is the existence of a deficiency. In redetermining a deficiency and an addition to tax, we do not sever the two issues and enter a decision as to the deficiency and thereafter await its outcome on appeal before -deciding the issue of the addition to tax. I disagree with Judge Tannenwald wherein he concludes that the second-level tax could be severed and a decision on the first-level tax would be appealable. I see no legal justification for treating the first-level and second-level taxes differently. In the first place, the legislative history makes it clear that the proposed assessments of the first-level and second-level taxes are to be set forth in a single statutory notice of deficiency.2 H. Rept. 91-413 (Part 2) (1969), 1969-3 C.B. 340, 351. Second, the legislative history also expresses the desire of Congress to avoid multiple proceedings in determining liability with respect to both levels of taxes. S. Rept. 91-552 (1969), 1969-3 C.B. 442, 446. Judge Tannenwald’s approach runs counter to this explicit intent. Moreover, I have serious doubt whether a decision on the first-level tax would be appealable. The general rule is that the only decisions of the Tax Court which are appealable are those in which a case is dismissed for lack of jurisdiction or those in which a dollar amount of a deficiency, overpayment or a deficiency of zero, or an overpayment of zero is entered. Michael v. Commissioner, 56 F.2d 825 (2d Cir. 1932). “That is to say, the word ‘decisions’ of the Tax Court has a meaning of art; it refers only to two kinds of judicial action by the Tax Court, viz, (1) ‘dismissing the proceeding’ pending before it, whether for lack of jurisdiction or otherwise, or (2) formally determining a deficiency, or the lack of a deficiency.” Commissioner v. Smith Paper, Inc., 222 F.2d 126, 129 (1st Cir. 1955). The only case in which an order was held not to be interlocutory but, instead, appealable is Louisville Builders Supply Co. v. Commissioner, 294 F.2d 333 (6th Cir. 1961). In that case, the Court of Appeals reversed an order of the Tax Court granting the Government’s motion to take the deposition to perpetuate testimony where the taxpayer had not filed a petition in the Tax Court. Even in that case, the Court of Appeals hastened to point out, at page 339, “The Tax Court decision in the case at bar granted all the relief sought and disposed of the entire proceeding pending before it. The order entered was not interlocutory, and we consider it a decision of the Tax Court subject to our review.” Applying Judge Tannen-wald’s procedure would not dispose of all the relief sought because the taxpayer seeks a holding that he is not subject to the second-level tax. While I share the views expressed in the dissenting opinions that the courts should not lightly interpret a statute so as to invalidate it, I think this obligation must be weighed with the need to apply the statute which was enacted by Congress. Our function is to interpret legislation, not rewrite it. In order to implement the rationales of Judges Tannenwald and Simpson, we would be involved in rule making. But our rule-making function is limited. The function of [court] rules is to regulate the practice of the court and to facilitate the transaction of its business. This function embraces, among other things, the regulation of the forms, operation and effect of process; and the prescribing of forms, modes and times for proceedings. Most rules are merely a formulation of the previous practice of the court. Occasionally, a rule is employed to express, in convenient form, as applicable to certain classes of cases, a principle of substantive law which has been established by statute or decisions. But no rule of court can enlarge or restrict jurisdiction. Nor can a rule abrogate or modify the substantive law. * * * [ Washington-Southern Co. v. Baltimore Co., 263 U.S. 629, 635 (1924); emphasis added.] Clymer v. United States, 38 F.2d 581 (10th Cir. 1930); Concord Casualty & Surety Co. v. United States, 69 F.2d 78 (2d Cir. 1934); In the Matter of C.A.P., 356 A.2d 335 (D.C. Cir. 1976). The [court] rule which has been adverted to by counsel was framed to simplify and expedite practice and procedure. However expressed or however understood, it can not enlarge the scope of the statute, nor modify the conditions which are imposed upon the jurisdiction of the court. * * * [The Brig Hiram, 23 Ct. Cl. 431, 440 (1888).] This court may make rules to govern its own proceedings to the extent provided by law but it has no power to enforce a rule which changes the effect of a Federal statute. [Graf v. United States, 87 Ct. Cl. 495, 496 (1938).] It is axiomatic that the rule-making power must conform with constitutional and statutory limitations. Consequently, rules of court, unless their validity is to be questioned, must, of necessity, be reconciled with pertinent statutes. * * * [Berkey Technical Corp. v. United States, 380 F. Supp. 786, 789 (Cust. Ct. 1973).] There is no peculiar efficacy in a rule of court where none is authorized by statute; a rule does not make law or restrict law; it is nothing more than the order or direction of a court reduced to a convenient written form. It regulates practice; it does not confer rights. * * * [ William W. Gilbert v. United States, 35 Ct. Cl. 573, 575-576 (1900).] I conclude from the foregoing authorities that we could not accomplish the goals recommended by Judges Tannenwald and Simpson in their dissenting opinions, which leaves no other course open but to concur with the majority. Fay and Wiles, JJ., agree with this concurring opinion.   Given the uncertainty of what acts constitute correction, disputes between the Commissioner and a taxpayer are inevitable.    This point differentiates Judge Tannenwald’s suggestion that the containment of the first-level and second-level taxes in a single notice is similar to a deficiency notice covering more than 1 taxable year. Unlike the situation of the first-level and second-level taxes, in the case of more than 1 taxable year it is perfectly proper to have a deficiency notice for each year.