Oppenheimer v. District of Columbia

• Decision Date: 17 June 1966
• Docket Number: No. 18639.,18639.
• Citation: 124 US App. DC 221,363 F.2d 708
• Parties: Beatrice W. OPPENHEIMER, Petitioner, v. DISTRICT OF COLUMBIA, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

124 US App. DC 221, 363 F.2d 708 (1966)

Beatrice W. OPPENHEIMER, Petitioner, v. DISTRICT OF COLUMBIA, Respondent.

No. 18639.

United States Court of Appeals District of Columbia Circuit.

Argued January 19, 1965.

Decided June 17, 1966.

Petition for Rehearing Denied August 17, 1966.

Mr. Gilbert Hahn, Jr., Washington, D. C., for petitioner.

Mr. Henry E. Wixon, Asst. Corporation Counsel for the District of Columbia, with whom Messrs. Milton D. Korman, Acting Corporation Counsel, and Donald T. Fish, Asst. Corporation Counsel at the time the brief was filed, were on the brief, for respondent.

Before DANAHER, WRIGHT and McGOWAN, Circuit Judges.

Petition for Rehearing En Banc Denied August 17, 1966.

McGOWAN, Circuit Judge.

There are a number of anomalies inherent in residence in the District of Columbia, but none is more striking than that of being simultaneously subjected to differing schemes of income taxation devised by the same legislature. The resulting confusion plagues taxpayer, tax collector, and court alike. This review of a decision of the District of Columbia Tax Court does not lessen the problem, nor is anything likely to do so short of a Congressional determination that one income tax structure at a time is enough for any legislative body to erect for those under its jurisdiction. In this case we divine, albeit with Congressional illumination of a very faint order indeed, that affirmance of the decision appealed from is most consonant with the legislative purpose.

I

The present controversy is over deficiencies in income tax asserted against petitioner for the calendar years 1960 and 1961. The deficiencies in each case result from a disallowance of claimed deductions for depreciation of real properties originally acquired by petitioner as a distribution in complete liquidation of a corporation in which she had owned stock for a number of years. The question turns upon what valuation, for purposes of future depreciability, petitioner was entitled to assign to these properties when they came into her direct ownership.

The dissolution of the former corporate owner of the properties occurred in 1953. At that time petitioner's capital investment in the shares held by her was $49,912.62; and the earned surplus on the corporation's books allocable to her shares was $135,248.75. She received in liquidation assets then valued at $842,513.95, which assets included the real properties in question. The valuation of these latter reflected $657,352.28 in unrealized appreciation over their cost to the corporation. These properties have since been operated by petitioner as an unincorporated business. In petitioner's franchise tax returns for 1953 through 1961, petitioner has taken each year a depreciation deduction founded upon the assumption that the depreciation base of the real properties in her hands was their fair market value (which necessarily includes the unrealized appreciation) on the day they were distributed to her in liquidation.

These deductions in respect of 1953 through 1959 totalled $421,663.61. Those years are not in issue here, because it was not until 1960 that the assessing authorities first challenged petitioner's assumption. They then took the position that the proper depreciation base for these properties could not exceed the total of the petitioner's interest in the earned surplus account ($135,248.75). Since this amount had already been more than exhausted by the deductions taken by petitioner for 1953 through 1959, no allowance for 1960 and 1961 was permitted.

The District of Columbia Tax Court sustained this result. It did enlarge the depreciation base by the addition of the $49,912.62 representing petitioner's interest in the capital account at the time of dissolution, but even this revised figure fell substantially below the total of the depreciation deductions taken by petitioner in the earlier years. In this court, the District of Columbia has accepted the propriety of this revision but, as indicated above, whether it is the one or the other does not affect the outcome of this case.

This is not the first time petitioner has been before this court in a tax controversy stemming from the corporate dissolution and liquidation involved here. The District contended earlier that petitioner's taxable income for 1953 included the difference between the cost to her of her stock and the market value of the properties received by her in liquidation. This difference was claimed by the District to be a "dividend" within the meaning of 47 D.C.Code § 1551c(m).¹ However, this court concurred with the Tax Court in rejecting this claim. District of Columbia v. Oppenheimer, 112 U.S. App.D.C. 239, 301 F.2d 563 (1962). We noted that an unrealized appreciation in a corporation's assets could not be regarded as a part of its earned surplus; and we reminded that we have held the dividend distributions taxable under § 1551c(m) to be limited to those attributable to earned surplus. See Berliner v. District of Columbia, 103 U.S.App.D.C. 351, 258 F.2d 651, cert. denied, 357 U.S. 937, 78 S.Ct. 1384, 2 L.Ed.2d 1551 (1958). Thus it was that petitioner was held to have received in 1953 taxable income by reason of the liquidation only in the amount of the earned surplus of $135,248.75.

The Tax Court was of the view in the instant proceeding that Congress could not have intended that petitioner acquire, by virtue of a corporate liquidation, a stepped-up depreciation base largely comprised of an untaxed, because unrealized, rise in market value. Petitioner's argument essentially is that it is not for the Tax Court to attribute a purpose to Congress at odds with the plain words used by it. It is because we do not find those words quite so compelling as does petitioner that we leave undisturbed the deficiencies asserted by the District in respect of the 1960 and 1961 returns.

II

The statutory point of departure is the clear purpose on the part of Congress to allow a deduction from gross income of a "reasonable allowance for exhaustion, wear, and tear of property used in the trade or business * * *." 47 D.C. Code § 1557b(a) (7). This section does not further define the allowances permissible under it. It says rather that the "basis upon which such allowances are to be computed is the basis provided for in" Section 1583e, which, as shown in the margin,² sets up four categories for the determination of basis for depreciation allowances. It is the second of these to which petitioner points as justifying her use of market value at the time of liquidation. She urges that the transaction by which she became the owner of the real properties was an "exchange" of her shares of stock for such properties, entitling her to the depreciation base of current market value.

In classic corporate theory, however, uncomplicated by tax considerations, the liquidating distribution by a dissolved corporation of its assets to its shareholders does not partake of the nature of a bargained sale or exchange. One of the rights of a stockholder is to share in the distribution of the assets of a corporation as and when it goes out of existence. His shares are turned in for extinction, and he takes as of right his proportion of the assets formerly owned by the corporation. See First National Bank of Boston v. State of Maine, 284 U.S. 312, 330, 52 S.Ct. 174, 76 L.Ed. 313 (1932).

When Congress addressed itself to the problem of fitting corporation liquidations into its scheme of capital gains taxation for federal taxpayers generally, it thought it necessary to say that distributions in liquidation "shall be treated as payments in exchange for stock or shares * * *" (Emphasis supplied).³ In the income tax statute made applicable to the District of Columbia — so vastly different as it is in its approach to capital gains taxation — Congress has made no similar provision. We are, thus, under no compulsion to hold that a transaction which Congress has found it necessary to say "shall be treated as" an exchange in one context must be taken to be one in another.

In Berliner, supra, it was argued to this court that a distribution in corporate liquidation should not be included in taxable income because it represented "gains from the sale or exchange of a capital asset" within the meaning of Section 1551c(l), and was therefore exempt from taxation by reason of Section 1557a(b) (11). We rejected that contention, noting that, at least for purposes of inclusion in taxable income, Congress had, in Section 1551c(m), made express provision for distributions in corporate liquidation. Although Congress has, to put it mildly, been appreciably less precise in addressing itself to the depreciation basis of property received in liquidation, we do not think that we are thereby forced to fix such basis by reference to the "exchange" category set forth in Section 1583e. To do so would be to say that a stockholder, simply by deciding to dissolve and liquidate the corporation, may acquire a depreciation base consisting of a book write-up of a value on which, very properly, no tax need be paid upon its receipt by the stockholder. We think it much more likely that Congress intended to have its express — and only — language in the District taxing statute on corporate distributions in liquidation point the way for handling the depreciation basis of property distributed in liquidation.

The deficiencies in income tax claimed by the District in this case for the years 1960 and 1961 are sustainable irrespective of whether petitioner be regarded as entitled to some, or no, depreciation in respect of these properties. This is because, in any event, the maximum allowable depreciation on any theory short of the "exchange" approach had already been availed of by petitioner in the earlier years. It is of interest to note, however, that the District did not, in brief and argument to us, assert that, because of the alleged inability of petitioner to bring herself within any...