Court Opinion

ID: 9468812
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:24:13.223718+00
Date Added: 2024-06-11T17:41:03.979257
License: Public Domain

WIDENER, Circuit Judge,
dissenting:
I respectfully dissent.
I think the Tax Court had the proper thought in mind when it treated the case as one under Maryland law. I express no opinion on the correctness of the Tax Court’s decision that the divorces in question were invalid under Maryland law, but note, as does the majority, that various inferior Maryland courts have held similar divorces obtained in foreign countries to be valid.
I think the case should be certified to the Maryland courts under the applicable statutes of that State. This case presents a classic opportunity to take advantage of the certification procedure permitted by the statutes of various states, including Maryland, so that we may actually decide a case at hand instead of deciding as we are bound to do what the opinion of a State court of last resort would be, Commissioner v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967), or upon an assumption as we do here.
Whether or not a divorce may be a sham transaction under federal tax law in the face of a ruling by a State court of competent jurisdiction that the very divorce in question is valid is a question of first impression. This court now answers that question in the affirmative without even permitting the Tax Court an opportunity to rule on the question in the case at hand, and without considering applicable Supreme Court and circuit precedent.
I think the necessity of obtaining a ruling from the Maryland court is evident from the opinion of the majority itself, with only little outside reference needed.
It is only simple logic to say that a divorce which is not a sham under Maryland law would have harder going when sought to be treated as a sham under federal tax law, if indeed that is possible at all.
*1389My thought is expressed in the Chisholm case so heavily relied upon by the majority and indeed is a part of the very quotation relied upon in the majority opinion. It is:
“We may assume that purpose may be the touchstone, but the purpose which counts is one which defeats or contradicts the apparent transaction, not the purpose to escape taxation which the apparent, but not the whole, transaction would realize.” 79 F.2d at 15.
The same thought has been expressed in this circuit in Bridges v. C.I.R., 325 F.2d 180 (4th Cir. 1963).1 Bridges construed Knetsch v. United States, 364 U.S. 361, 81 S.Ct. 132, 5 L.Ed.2d 128 (1960). Because Bridges has not been overruled or modified by an en banc court, it is the law in this circuit. Knetsch I take to be one of the leading cases on the subject at hand.
Knetsch involved claimed payments of interest as deductions. The Court held that the interest payments were sham because there was in reality no principal indebtedness. At page 365, 81 S.Ct. at page 134, it stated the rule in such cases:
“But the question for determination is whether what was done, apart from the tax motive, was the thing which the statute intended.”
In Bridges we held that the rule from Knetsch, just above quoted, was “the determinative question,” 325 F.2d at 184, and went on to explain “If there is, under the realities of the terms of the transaction, some reasonable hope of the transaction appreciably affecting the taxpayers’ beneficial interest other than by a tax reduction, the transaction would not be a sham for tax purposes. [Citations omitted] Furthermore, if there is, under the realities of the terms of the transaction, some real risk of loss to the taxpayer, other than whatever loss might be actually built in (as it was in the instant [Bridges] case), the transaction would not be a sham for tax purposes.” 325 F.2d at 184-185.
As the language I have quoted from Chisholm, Knetsch and Bridges illustrates, the ascertainment of the validity of the divorce is necessary in determining “whether what was done, apart from the tax motive, was the thing which the statute intended.”
I find it remarkable that the majority does not even mention Knetsch in its opinion, and even more remarkable that it does not mention Bridges in connection with the rule to be followed in deciding such cases, its only mention of Bridges being with reference to the clearly erroneous standard.
If the majority had simply remanded to the Tax Court, I would have less objection to the opinion. The remand, however, has unnecessarily, and I think unreasonably, restricted the decision of the Tax Court on remand. That court may not now decide because of our preemption whether a divorce may be a sham in the face of a State court decision that it is valid, which, after all, is the most important aspect of the case.

. Bridges involved the deliberate payment of interest, in excess of the profit realized in trading on Treasury notes and bonds, in order to make a profit after taxes. 325 F.2d 182, 183.