Suffness v. U.S., 92-1122

• Decision Date: 08 October 1992
• Docket Number: No. 92-1122,92-1122
• Citation: 974 F.2d 608
• Parties: -5865, 92-2 USTC P 50,513 Michael B. SUFFNESS, and Dorit R. Suffness, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 608

974 F.2d 608

70 A.F.T.R.2d 92-5865, 92-2 USTC P 50,513

Michael B. SUFFNESS, and Dorit R. Suffness, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 92-1122

Summary Calendar.

United States Court of Appeals,

Fifth Circuit.

Oct. 8, 1992.

Rehearing Denied April 20. 1993.

Michael B. Suffness and Dorit R. Suffness, pro se.

Marvin Collins, U.S. Atty., Dept. of Justice, Dallas, Tex., Gary R. Allen, Chief, Appellate Section, Tax Div., Dept. of Justice, Teresa T. Milton, Bruce R. Ellisen, Atty., Washington, D.C., for defendant-appellee.

Appeal from the United States District Court For the Northern District of Texas.

Before KING and WIENER, Circuit Judges. ^*

WIENER, Circuit Judge.

Plaintiffs-Appellants Michael B. and Dorit R. Suffness, husband and wife (Taxpayers) appeal the adverse judgment of the

                district court, rendered following the bench trial of Taxpayers' income tax refund suit on stipulated facts.   The sole issue before the court was whether Taxpayers owed interest on the amount of additional tax remitted by Taxpayers after they failed timely to reinvest, in property of like kind, the proceeds of the involuntary conversion of their corporate stock certified by the Federal Communications Commission (FCC) to be "broadcasting property" and thus qualified for deferral of recognition of gain.   Agreeing fully with the district court's judgment denying Taxpayers' claim for a refund of the disputed interest, which the government had collected by offset against Taxpayers' subsequent income tax refund for 1988, we affirm
                

I FACTS AND PROCEEDINGS

As stipulated to the district court, Taxpayers filed their United States Income Tax Return for calendar year 1986 (the return) on or about May 28, 1987. ¹ In the return, Taxpayers fully reported the involuntary conversion sale of twenty-five shares of the common stock of Connection Communications Corporation (CCC), duly certified by the FCC as "broadcasting property" for purposes of deferred recognition of gain under §§ 1071 and 1033 of the Internal Revenue Code of 1954 (IRC). ² On the return, Taxpayers properly elected to defer recognition of the gain from the involuntary conversion of their stock in CCC. But as Taxpayers did not, within two years after the year of the involuntary conversion, reinvest the proceeds from their CCC stock in property similar or related in service or use, they were required to and did file an amended 1986 return, ³ timely paying therewith the correct amount of additional tax--$15,072--on the gain from the involuntary disposition of the CCC stock in that year. Taxpayers did not, however, remit interest on the additional tax. The undisputed amount of such interest, calculated from the due date of the 1986 return (April 15, 1987) through the date tax was paid (March 13, 1989) is $3,166.95.

On May 22, 1989, the government collected the $3,166.95 interest by offsetting that amount from Taxpayers' 1988 income tax refund, unrelated to the subject transaction. Taxpayers timely filed a claim for refund which the government denied. Taxpayers then filed the instant refund suit in federal district court, and the government answered. The parties stipulated the facts, after which each moved for Judgment on the Pleadings or Summary Judgment. The district court denied Taxpayers' motions and granted the motions of the government, 788 F.Supp. 304 (N.D.Tex.1992), dismissing the Taxpayers' suit. They appealed timely to this court.

II ANALYSIS

When the sale or exchange of radio broadcasting property, including stock in a corporation, is certified by the FCC as necessary or appropriate to effectuate FCC policy with respect to radio station ownership, ⁴ the transaction is deemed to be an involuntary conversion for tax purposes. ⁵ A taxpayer whose certified broadcasting property is thus involuntarily converted has the option either to (1) report the gain realized and pay tax thereon currently, or (2) defer recognition of such gain and reinvest the proceeds in property "similar or related in service or use to the property so converted" within two years after the close of the taxable year in which gain was realized. ⁶ If a taxpayer elects deferral but thereafter fails to make a qualifying investment in property of like kind within that two-year period, he or she must recognize Neither the IRC section covering FCC certified broadcasting property ⁸ nor the section covering deferral of recognition of gain realized on involuntary conversion of qualified property ⁹ expressly mention interest in connection with the additional tax that must be remitted when the proceeds of conversion are not timely reinvested in qualified property. Nevertheless, the IRC does contain a section providing for the payment of interest on all taxes paid subsequent to the date due, irrespective of the reason for the delayed, late, or delinquent payment. ¹⁰ That provision contains no exception for a situation in which the tax that is being paid was previously deferred pending possible reinvestment of the proceeds of involuntary conversion.

the gain retroactively to the year in which it was realized. ⁷

The principal thrust of the argument in Taxpayers' brief to this court is that, as the IRC section and Treasury Regulation covering subsequent payment of previously deferred tax on gain realized in an involuntary conversion situation "are silent as to the imposition of interest if reinvestment is not made during the two-year deferral period," the general provisions of the IRC regarding imposition of interest on taxes not paid on or before the last day prescribed for their payment is inapplicable. We find such logic fallacious. The IRC is, after all, a code; and any recognized method of code interpretation supports precisely the reverse logic: As the general provision imposes interest on all late tax payments, only an express provision in derogation of the general rule could exempt from interest some particular type of tax when paid subsequent to its normal due date. In other words, the silence of the general provision does not exempt the transaction authorized by the particular provision; to the contrary, absent an express exception, the general provision always applies. Thus, the Taxpayers' criticism of the district court's ruling is misplaced when they insist that simply because the general IRC provision does not expressly impose interest on additional tax paid following the specifically authorized deferral period for reinvestment of the proceeds of involuntary conversion, the interest rule contained in the general provision cannot apply.

We recognize that logic and reason are not always ingredients of the IRC, Treasury Regulations, Revenue Rulings--or even tax jurisprudence--but they are in the instant situation. Options to defer recognition of gain by reinvesting the proceeds realized therefrom are exceptions to the basic rule requiring recognition of gain in the year realized. As such, they are acts of grace, of which the one here at issue is a specific example. ¹¹ It embodies the acknowledgment that forced divestment of broadcasting property to implement the FCC's policy on station ownership could work a severe tax and cash flow hardship on the divesting taxpayer. ¹² In that regard, involuntary conversion of broadcasting property is not unlike the forced sale of immovable (real) property when a sovereign exercises the power of expropriation or eminent domain.

Here, as in other involuntary conversion situations, the option either to defer gain or recognize it currently rests entirely with the taxpayer. If the taxpayer elects to defer, he or she does so subject to the express condition of making a timely reinvestment in qualifying property--in which case recognition of gain is deferred until the replacement property is eventually sold or exchanged. Failure timely to reinvest in qualified property, however, automatically revokes the election retroactively, obligating the taxpayer who has elected deferral to recognize the gain as though it occurred in the year of conversion. Thus, the tax that was due with the return for the year of the involuntary conversion is again due thereon, albeit such tax is not delinquent.

                Obviously, the condition of reinvestment is a resolutory condition or condition subsequent, the eventual failure of which dissolves the right ab initio.   The legal effect of such a retroactive dissolution on the right thus dissolved--here, tentative deferral of gain recognition--is that such right is deemed never to have existed
                

Equally fallacious is the other thrust of Taxpayers' argument: that the phrase "the last date prescribed for payment" in the general interest provision ¹³ should mean the date on which the tax return is due for the year in which the two-year reinvestment period expires, not the due date of the return for the year in which the involuntary conversion occurred. Taxpayers continue to insist that their interpretation is proper when read in context of general IRC provisions...