Parks v. C. I. R.

• Decision Date: 13 August 1982
• Docket Number: No. 81-1221,81-1221
• Citation: 686 F.2d 408
• Parties: 82-2 USTC P 9584 Haworth H. PARKS, et al., Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 408

686 F.2d 408

82-2 USTC P 9584

Haworth H. PARKS, et al., Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.

No. 81-1221.

United States Court of Appeals Sixth Circuit.

Decided Aug. 13, 1982.

John F. Murray, Acting Asst. Atty. Gen., Michael L. Paup, Jonathan S. Cohen, James F. Miller, Dept. of Justice, Tax Div., Washington, D. C., for respondent-appellant.

William Hance Lassiter, Jr., Laurence Papel, Nashville, Tenn., for petitioners-appellees.

Before KEITH and CONTIE, Circuit Judges, and PECK, Senior Circuit judge.

ORDER

This appeal involves the single issue of whether the appellee taxpayers realized taxable income as a result of interest-free loans they received from a close corporation of which they were officers, directors, and shareholders.

The facts are stipulated. During the years 1972 to 1974, the corporation made loans to the taxpayers. No interest was charged and none was paid. There is no dispute that the loans were bona fide; the Commissioner did not seek to tax the proceeds of the loan but rather sought to include in gross income the benefit received from having the use of the money without paying interest.

The Tax Court ruled in favor of the taxpayers, relying on its previous decision in J. Simpson Dean v. Commissioner, 35 T.C. 1083 (1961). In Dean, the Tax Court held that interest-free loans conferred no taxable benefits on the borrowers. The Dean court reasoned that nothing should be included in gross income because if the taxpayer would have paid interest, he would have been entitled to a corresponding deduction for interest paid under Section 163 of the Internal Revenue Code of 1954, 26 U.S.C. § 163.

The Commissioner attacks Dean on two grounds. He first contends that since the rent-free loan of a car by a corporation constitutes income to the recipient, it is illogical to treat the rent-free use of money any differently. To do so, the Commissioner contends, is inconsistent with the broad interpretation of income set forth in Section 61 of the Code, 26 U.S.C. § 61. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct. 473, 99 L.Ed. 483 (1955). Second, the Commissioner contends that Section 163 only provides a deduction for interest actually paid or accrued. Since no interest was actually charged or paid, the Commissioner contends that the loans provided taxable income to the taxpayers with no corresponding deduction for interest.

In 1973, twelve years after Dean had been decided, the Commissioner announced his non-acquiescence in Dean. Since that time, the Commissioner has attacked the Dean decision in several circuits with a notable lack of success. No court of appeals has accepted the Commissioner's position. See Beaton v. C.I.R., 664 F.2d 315 (1st Cir. 1981); Baker v. C.I.R., 677 F.2d 11 (2d Cir. 1982); Suttle v. C.I.R., 625 F.2d 1127 (4th Cir. 1980); Martin v. C.I.R., 649 F.2d 1133 (5th Cir. 1981); and C.I.R. v. Greenspun, 670 F.2d 123 (9th Cir. 1982). The only court to accept the Commissioner's position is the United States Court of Claims in Hardee v. United States, Trial Division 81-1221, No. 84-79T, slip op. (Ct.Cl. July 6, 1982).

While we concede that the Commissioner's attack on Dean is not without...