Taft Broadcasting Co. v. U.S., No. 88-3720

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Writing for the Court: Before RYAN and NORRIS, Circuit Judges, and TURNER; TURNER
• Citation: 929 F.2d 240
• Parties: -703, 91-1 USTC P 50,189 TAFT BROADCASTING COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Docket Number: No. 88-3720
• Decision Date: 27 March 1991

Page 240

929 F.2d 240 67 A.F.T.R.2d 91-703, 91-1 USTC P 50,189 TAFT BROADCASTING COMPANY, Plaintiff-Appellee,
v.
UNITED STATES of America, Defendant-Appellant. No. 88-3720. United States Court of Appeals,
Sixth Circuit. Argued April 14, 1989.
Decided March 27, 1991.

James J. Ryan and James H. Brun (argued), Taft, Stettinius & Hollister, Cincinnati, Ohio, for plaintiff-appellee.

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Robin L. Greenhouse, U.S. Dept. of Justice, Tax Div., Gary R. Allen, Acting Chief, William S. Rose, Robert S. Pomerance, and John A. Dudeck (argued), U.S. Department of Justice, Appellate Section Tax Div., Washington, D.C., for defendant-appellant.

Before RYAN and NORRIS, Circuit Judges, and TURNER, District Judge. ^*

TURNER, District Judge.

This appeal is brought by the United States following the entry of summary judgment by the district court in favor of the taxpayer, Taft Broadcasting Company, on its claim for a tax refund in the amount of $585,404. 685 F.Supp. 1033. The outcome in this case turns on whether the taxpayer is entitled under 26 U.S.C. Sec. 1033 to nonrecognition of gain it realized when it sold two radio stations in its 1973 tax year. The trial court determined on cross-motions for summary judgment that the taxpayer was entitled to nonrecognition of its gain and therefore to the refund. We reverse and remand for further proceedings.

STIPULATED FACTS

The facts in this record were stipulated in writing and filed by the parties prior to their filing of cross-motions for summary judgment. The facts as stipulated provide in part as follows:

In 1957, the taxpayer acquired two radio stations in Birmingham, Alabama. On March 31, 1973, which was the end of taxpayer's 1973 tax year, the taxpayer had an adjusted basis of $388,817 in the two radio stations. During the 1973 tax year, the taxpayer sold the two radio stations for $2,050,000 in a sale certified by the Federal Communications Commission and realized a capital gain on that sale of $1,633,456.

The taxpayer elected to apply the nonrecognition of gain provisions of Internal Revenue Code section 1033, as modified by section 1071, and stated its intent to purchase property of "like kind," as required for nonrecognition of gain, within the allowable two-year period. On July 29, 1974, the taxpayer entered into an Asset Purchase Agreement ("Agreement") to acquire two radio stations in Pittsburgh, Pennsylvania for the price of $3,500,000. The Agreement permitted the taxpayer to assign its rights under the Agreement to a wholly-owned subsidiary and on October 17, 1974, the taxpayer's Board of Directors authorized the incorporation of a wholly-owned subsidiary and the assignment of taxpayer's rights under the Agreement to that subsidiary. The next day the incorporation papers were filed under the name of Taft Broadcasting Company of Pennsylvania, Inc., and on October 22, 1974, the taxpayer "purchased" 100 shares of stock in the newly formed corporation for $1,000 and assigned its rights under the Agreement to the newly formed corporation, Taft Broadcasting Company of Pennsylvania, Inc. ("Taft of Pennsylvania"). On December 16, 1974, the newly formed corporation acquired title to the two radio stations in Pittsburgh which were the subject of the Agreement. On the next day, the taxpayer purchased additional stock in and from Taft of Pennsylvania for $2,049,000 and made a loan to Taft of Pennsylvania in the amount of $1,555,751. On that date, December 17, 1974, Taft of Pennsylvania completed payment for and "owned and operated" the two radio stations in Pittsburgh.

Thereafter the taxpayer claimed a refund for its 1973 tax year on other income taxes paid by it. The Internal Revenue Service disallowed the claimed refund to the extent of $585,404, taking the position that the taxpayer was not entitled to nonrecognition of the gain realized from the sale of the Birmingham radio stations. This suit resulted.

Section 1033 ¹ of the Internal Revenue Code deals with nonrecognition for income tax purposes of gain resulting from the involuntary conversion of properties owned

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by the taxpayer; essentially it allows the nonrecognition of gain realized from an involuntary conversion of property into similar property within a two year period.

Section 1071(a) ² provides that if the Federal Communications Commission (F.C.C.) certifies that a sale of property is necessary or appropriate to effectuate a change of F.C.C. policy or the adoption of a new policy, the taxpayer may elect to treat the sale as an involuntary conversion under section 1033.

The issues in this case do not involve any question about whether the Pittsburgh radio stations were similar properties; nor is there any question about whether the F.C.C. certified the sale of the Birmingham stations. These facts are undisputed.

THE ISSUES

The issues presented on this appeal by the government are twofold:

(1) Whether the taxpayer should be denied nonrecognition treatment under sections 1033 and 1071 because it did not acquire the subsidiary's stock by a "purchase" within the meaning of section 1033(a)(2)(A)(ii) of the statute;

(2) Whether the taxpayer should be denied nonrecognition treatment under sections 1033 and 1071 because Taft of Pennsylvania was not "operating" a radio station when taxpayer acquired its stock.

TAXPAYER'S "PURCHASE" OF STOCK

As to the first issue the government contends that the taxpayer is not entitled to nonrecognition treatment because it did not "purchase" the stock of the subsidiary as that term is used in the statute. The government argues that section

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1033(a)(2)(A)(ii) ³ grants nonrecognition of the gain from the prior involuntary disposition of assets only if the property used by the taxpayer to replace the disposed assets is acquired by "purchase" and there is no purchase under section 1033(a)(2)(A)(ii) unless the basis of the replacement property in taxpayer's hands "would be its cost within the meaning of section 1012." Section 1012 provides that the basis of property shall be its cost except as otherwise provided in subchapter C, among others. The government contends that the basis of the stock acquired by the taxpayer in its subsidiary, Taft of Pennsylvania, was not determined by its cost under section 1012, but by its carryover basis under section 358 of subchapter C. Section 358 provides that the basis of a shareholder's stock acquired under section 351 is the same as the property exchanged for the stock. Here the property exchanged for the stock was $2,050,000 which is the amount of cash paid for the stock and thus the basis of the stock, if determined under section 358, would be $2,050,000.

In response to the government's position on this first issue, the taxpayer contends that:

(1) this issue was not raised before the district judge and should therefore not be considered on appeal;

(2) the parties stipulated that the taxpayer had purchased the stock; and

(3) the stock was purchased within the meaning of section 1033.

Having anticipated the taxpayer's argument that this issue should not be heard for the first time in the appellate court, the government in its brief admitted: "We recognize that the Government did not draw the District Court's attention to Section 1033's definition of purchase, and the Court evidently remained unaware of it. But this does not preclude our raising the issue now." The government argued that this issue does not present a new argument but another reason to accept the argument made by the government before the district court. In the district court the government advocated that the taxpayer's acquisition of stock in its subsidiary on December 17, 1974, for $2,049,000, was merely a contribution to capital of the subsidiary and not an acquisition of a corporation; the government argued that an acquisition is required by section 1033 in order to utilize the nonrecognition of gain provisions of the statute. The district judge dealt with this contribution question in his opinion where he concluded that section 1071 modified the requirements of section 1033 to eliminate any requirement that the taxpayer acquire control of the corporation or actually acquire the corporation itself, rather than simply purchase stock in that corporation.

It stretches the issues beyond recognition to suggest that the issue of whether the taxpayer was required to acquire a corporation or simply buy its stock is the same as whether the determination of the basis of the stock in the hands of the taxpayer under section 358 precludes the transaction from being a "purchase." The issues are not the same and the issue which the government attempts to raise now for the first time in the appellate court was not presented to the district court.

A long line of cases in this circuit strongly reinforces the principle that issues not litigated in the trial court are generally not appropriate for appellate consideration in the first instance.

As a rule, this court declines to entertain arguments not presented in the first instance to the district court.

Meador v. Cabinet for Human Resources, 902 F.2d 474, 477 (6th Cir.1990), petition for cert. denied --- U.S. ----, 111 S.Ct. 182, 112 L.Ed.2d 145 (quoting from Newmyer v. Philatelic Leasing, Ltd., 888 F.2d 385, 397 (6th Cir.1989)).

We need not, however, address taxpayer's argument. The general rule is that issues not raised before the Tax Court are inappropriate for appellate consideration.

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Roth Steel Tube Co. v. C.I.R., 800 F.2d 625, 632 (6th Cir.1986), cert. denied, 481 U.S. 1014, 107 S.Ct. 1888, 95 L.Ed.2d 496 (1987).

This Court, however, will generally not consider questions not raised in the court below.

Russ' Kwik Car Wash v. Marathon Petroleum Co., 772 F.2d 214, 217 (6th Cir.1985).

In the interests of judicial economy and the finality of judgments, and mindful of our role as an appellate court, we have declined to review arguments not presented to the district court in the first instance...