Gunther v. Comm'r of Internal Revenue
| Decision Date | 19 January 1989 |
| Docket Number | Docket No. 11115-84. |
| Citation | 92 T.C. 39,92 T.C. No. 5 |
| Parties | H. DALE GUNTHER and MARIE M. GUNTHER, GENE W. GUNTHER AND LOIS H. GUNTHER, JAMES L. BJORKMAN and PENELOPE A. BJORKMAN, PETER C. GUNTHER AND MARY LOU GUNTHER, DONALD S. ROBINSON AND PAMELA G. ROBINSON, PRUDENCE G. HILLIER AND GARY B. GUNTHER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners controlled corporations C and B. Petitioners transferred to C all of their B stock and received in return securities (11-year debentures) and C stock.
Held: Section 351, I.R.C. 1954, operates to preclude application of section 301 dividend treatment; under section 351(a), petitioners' gains on the transactions are not recognized. Haserot v. Commissioner, 41 T.C. 562 (1964), and 46 T.C. 864 (1966), affd. sub nom. Commissioner v. Stickney, 399 F.2d 828 (CA6 1968), followed. James M. Neis, Thomas P. Fitzgerald, and Susan Cisle, for the petitioners.
Warren P. Simonsen, for the respondent.
CHABOT, Judge:* Respondent determined deficiencies in Federal individual income tax against petitioners for 1981 as follows:
FINDINGS OF FACT
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.
When the joint petition was filed in the instant case, all the petitioners resided in Galesburg, Illinois.
Petitioners H. Dale Gunther (hereinafter sometimes referred to as ‘Dale‘) and Gene W. Gunther (hereinafter sometimes referred to as ‘Gene‘) are brothers. 2 Penelope A. Bjorkman, Peter C. Gunther, Pamela G. Robinson, and Prudence G. Hillier are Dale's children. Gary B. Gunther and Linda Gunther are Gene's children. Although Linda Gunther was also involved as a participant in the transaction in issue, she is not a petitioner in the instant case. (Dale, Dale's children, Gene, and Gene's children are hereinafter sometimes referred to collectively as ‘the Gunthers‘.)
The Congress' 1982 Act revision is far more limited than the earlier proposals. In addition, the Congress believed that it was necessary to exclude two detailed categories of situations from even the very narrow rule of new section 304(b)(3)(A). In the Deficit Reduction Act of 1984 (paragraphs (2), (3)(A), (3)(B), and (4) of section 712(1), Pub. L. 98-369, 98 Stat. 494, 953), the Congress further fine-tuned the carefully limited 1982 Act modifications of the traffic-cop rules.
The Congress has the constitutional responsibility and institutional capability to bring to bear conflicting views of proper tax policy, as well as conflicting views of pragmatic politics and practical administrability. We have neither the constitutional responsibility nor the institutional capability.
We must fill in gaps in the statute or resolve conflicts between provisions when the statute does not provide the answer, if it is necessary to do so in order to resolve the case before us. We should not revise the statute, when the statute does provide the answer, merely because we believe we could have done a better job.
In its unanimous opinion in Crooks v. Harrelson, 282 U.S. 55, 60 (1930), the Supreme Court gave us the following advice as to tax statues:
Courts have sometimes exercised a high degree of ingenuity in the effort to find justification for wrenching from the words of a statute a meaning which literally they did not bear in order to escape consequences thought to be absurd or to entail great hardship. But an application of the principle so nearly approaches the boundary between the exercise of the judicial power and that of the legislative power as to call rather for great caution and circumspection in order to avoid usurpation of the latter. Monson v. Chester, 22 Pick. 385, 387. It is not enough merely that hard and objectionable or absurd consequences, which probably were not within the contemplation of the framers, are produced by an act of legislation. Laws enacted with good intention, when put to the test, frequently, and to the surprise of the law maker himself, turn out to be mischievous, absurd, or otherwise objectionable. But in such case the remedy lies with the law making authority, and not with the courts. See In re Alma Spinning Company, L.R. 16 Ch. Div. 681, 686; King v. Commissioners, 5 A. & E. 804, 816; Abley v. Dale, L.J. (1851) N.S. Pt. 2, Vol. 20, 233, 235. And see generally Chung Fook v. White, 264 U.S. 443, 445; Commr. of Immigration v. Gottlieb, 265 U.S. 310, 313.
More recently, the Supreme Court's almost-unanimous opinion in Badaracco v. Commissioner, 464 U.S. at 398, told us the following about tax statutes:
The cases before us, however, concern the construction of existing statutes. The relevant question is not whether, as an abstract matter, the rule advocated by petitioners accords with good policy. The question we must consider is whether the policy petitioners favor is that which Congress effectuated by its enactment of section 6501. Courts are not authorized to rewrite a statute because they might deem its effects susceptible of improvement. See TVA v. Hill, 437 U.S. 153, 194-195 (1978). * * *
In both Harrelson and Badaracco, the Supreme Court rejected taxpayers' pleas for ‘interpretations‘ that would straighten out perceived ‘rucks‘ in the texture of the statute. In the instant case, we reject respondent's call for such judicial repairs. The Congress has straightened out the ruck; as the 1982 Act's text shows, it did so with evident awareness of problems that had not been presented to this Court and it did so prospectively only.
Accordingly, because petitioners' exchange of stock in Builders for stock and securities in Construction is governed by section 351, we hold that petitioners correctly reported no gain or loss on the exchange on their respective 1981 Federal income tax returns.
Decision will be entered for petitioners.
Reviewed by the Court.
While I believe that the separate opinion of Judge Tannenwald in Haserot II and the dissenting opinion in this case are better reasoned and would reach a more appropriate result, I nevertheless concur in the result reached by the majority. If we were writing on a clean slate, I would have supported the opposite result. Petitioners, however, were entitled to rely on Haserot I which we published and the Court of Appeals for the Sixth Circuit affirmed over 24 years ago. Additionally, Congress has generally resolved this issue in section 226(a)(1) of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248.
The majority upholds our decision in Haserot v. Commissioner, 41 T.C. 562 (1964) (Haserot I) and maintains that Congressional intent is best served by holding that when both section 351 and section 304 apply, section 351 should control. I respectfully dissent. I agree with the separate opinion of Judge Tannenwald in Haserot II, and I believe that Haserot I was wrongly decided when written and that we should not uphold it now.
The majority compares the role of a ‘traffic cop‘ at an intersection to our task as a court because we both must direct the paths of two conflicting forces. While the majority quite correctly notes that occasionally the Court must decide between apparently conflicting statutory directives, the majority is mistaken in thinking that our ‘traffic-
cop‘ role permits only one solution. The majority states that here we have been given a ‘clear, unambiguous rule to govern our traffic-cop activities‘ (majority opinion at p. 32) as if we patrolled an intersection where only one light was green at a time. Unfortunately, if I may extend the majority's analogy, our ‘traffic-cop‘ is faced with green lights in both directions and the choice of which lane should take priority is far from clear.
The majority stresses that the legislative history of H.R. 8300, ultimately the Internal Revenue Act of 1954, contained directions for interpreting the overlap between section 351 and sections 301 and 302. The majority notes that the Senate Finance Committee amended the House bill but failed to discuss the relationship between sections 351 and 304. From this omission the majority draws the inference that Congress meant for section 351 to control when in conflict with section 304. However, the converse inference can just as easily be drawn. We conclude that Congress considered only the relationship between section 351 and sections 301 and 302 when enacting the amended legislation. Congress' silence on the interaction between sections 351 and 304 certainly should be read as an oversight and not as an expression of intent.
The majority's decision rests largely on its conclusion that the ‘literal language‘ of sections 304 and 351 allows no other result. However, an interpretation of ‘literal language‘ which leads to an absurd and irrational result should not be strictly followed. Rather than literally reading the statute to produce an absurd result, we should consider several possible interpretations of the statute, examine their effect, look to the legislative history, and adjudicate what interpretation carries out the legislative purpose. See United States v. Gilmore, 372 U.S. 39, 44-45 (1963); Ziegler v. Commissioner, 70 T.C. 139, 143 (1978); Doing v. Commissioner, 58 T.C. 115, 129 (1972). See also J.C. Penney Co. v. Commissioner, 37 T.C. 1013, 1017 (1962), affd. 312 F.2d 655 (2d Cir. 1962) ().
The legislative history of sections 351 and 304 demonstrates that section 304 of the 1954 Code was Congress'
response to the tax avoidance possibilities inherent in sales of stock of...
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