Court Opinion

ID: 4476505
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:03.114043+00
Date Added: 2024-06-11T14:53:54.154703
License: Public Domain

Opper, J., concurring: North American Mortgage Co., 18 B. T. A. 418, has remained apparently undisturbed as a precedent for many years. But it has long since lost its authority and in my judgment should be expressly repudiated. It is inconsistent with the present result and this accordingly appears to me an appropriate occasion for such a declaration. In the North American Mortgage case Dutch guilders were converted into dollars which were loaned in this country and repaid without gain or loss. Had the transaction stopped there it might be said that the loan and repayment had occasioned no taxable consequence, and that the transaction in foreign exchange was as yet incomplete. That was in fact the situation in B. F. Goodrich Co., 1 T. C. 1098, and constitutes the distinction from the present proceeding. See Roberts “Borrowings in Foreign Currency,” 26 Taxes (November 1948) 1033, 1037. But in the North American Mortgage case the dollars acquired in repayment of the loans were then reconverted to Dutch guilders at a profit due to a more favorable rate of exchange. It is this gain on the foreign exchange transaction which should have been taxed in the North American Mortgage case and which is being taxed here, as I think, correctly. A page or at least a paragraph of history may be helpful as an explanation. After the decision in the North American Mortgage case and in reliance upon it Norfolk Southern Railroad Co., 22 B. T. A. 302, was decided, holding that no gain wotild be realized from a loan and repayment. Another authority upon which that case relied was Kirby Lumber Co. which had in the meantime been decided by the Board of Tax Appeals, 19 B. T. A. 1046. After the last mentioned decision was reversed, United States v. Kirby Lumber Co., 284 U. S. 1, the Norfolk Southern Railroad Co. case was in turn modified for similar reasons (C. A. 4) 63 F. 2d 304, certiorari denied 290 U. S. 672. Although the subject has since led to some collateral approaches from time to time, the question has so far as I know had no direct discussion in any published case. See General Motors Corporation, 35 B. T. A. 523; Foundation Co., 14 T. C. 1333; American Pad & Textile Co., 16 T. C. 1304; Seaboard Finance Co., 20 T. C. 405. There seems to me no reason to disturb the well-established principle of such cases as Bernuth Lembcke Company, Inc., 1 B. T. A. 1051, nor indeed to suggest without qualification in the words of B. F. Goodrich, supra, 1103, that “mere borrowing and returning of property does not result in taxable gain.” Cf. Kades, “Devaluation Revalued,” 28 Taxes (April 1950) 365. In both such situations a collateral transaction in foreign exchange may be involved. See, e. g., International Mortgage & Investment Corporation, 36 B. T. A. 187. The full scope of a taxpayer’s gain or loss will not be given effect in his tax liability unless the foreign exchange transaction is also dealt with. See James A. Wheatley, 8 B. T. A. 1246. There is nothing inconsistent in the two concepts. I agree with the present conclusion but consider that the state of the law should be clarified by an express repudiation of the theory of the North American Mortgage case.