Court Opinion

ID: 4480371
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:14.791563+00
Date Added: 2024-06-11T14:53:59.413359
License: Public Domain

Tannenwald, J., concurring: 'Since this is the first case reviewed by the Court after Malat v. Riddell, I think it extremely important that we be crystal clear as to the basis for our decision. Otherwise we will simply provide more fuel for the fires of further litigation in this area. There are three elements in the identical language of sections 1221(1) and 1231(b) (1) ((B) : 1. “Primarily” which, as the Supreme Court has mandated, means of “first importance.” The element of substantiality is no longer enough. By the same token, the proscribed purpose does not, I believe, have to be capable of a quantitative measurement of more than 50 percent. It should be sufficient if such purpose is primus inter pares. 2. “For sale to customers.” This is the least significant element. Unquestionably, any person who proposes to sell his property has “for sale” as his purpose. Equally clearly, anyone who buys the property is a “customer.” 3. “In the ordinary course of business.” This phrase is crucial. Thus, the taxpayer must be in a business of which the sale is a part. In addition, even though a sale is usually the “ordinary” way of disposing of property, it must also be in the “ordinary course” of the business. Thus, a decision by a manufacturer to sell an outmoded plant would not be within the proscribed purpose. These are the distinctions which I think the Supreme Court had in mind when it said in Malat v. Riddell: The purpose of the statutory provision with which we deal is to differentiate between the “profits and losses arising from the everyday operation of a business” on the one hand (Corn Products Co. v. Commissioner, 350 U.S. 46, 52) and “the realization of appreciation in value accrued over a substantial period of time” on the other. (Commissioner v. Gillette Motor Co., 364 U.S. 130, 134.) All of the foregoing are essential elements which must be satisfied when the witching hour of sale arrives. Unquestionably in many cases involving change of purpose, the profit is realized in two parts. One part is properly attributable to the appreciation in value during the period when the property was held for investment. The other part represents the fruits of the business. To tax all of such appreciation as ordinary income where the activity is turned into a business may inflict hardship on the taxpayer; contrariwise, to tax all of such appreciation at long-term capital gains may give the taxpayer an unjustifiable windfall. Perhaps some method of allocation within an appropriate statutory framework is indicated. See Surrey and Warren, Cases on Federal Income Taxation 695-696 (1960). BRUCE, Fat, and Dawson, JJ., agree with this concurring opinion.