Harper v. Commissioner

Tannenwald, J., concurring in part and dissenting in part: I agree with the majority opinion that warnings with respect to constitutional rights, including the right to counsel, specified in Miranda v. Arizona, 384 U.S. 436 (1966), are unnecessary in order for evidence procured through noncustodial interrogation to be admissible in a civil tax case.

Nevertheless, I do not believe that petitioners’ filing of a fraudulent return, within the meaning of section 6653 (b), should preclude the petitioners from computing their income tax liability by use of the installment method. In holding to the contrary, the majority ignores the language of this Court in F. E. McGillick Co., 42 T.C. 1059, 1066-1067 (1964), where we stated:

From our analysis of the statute, correlative regulations, and eases, we now conclude that the controlling legal principle is as stated in the Baca ease. To reiterate, that principle is “that the statute does not authorize the imposition of an added penalty for the late filing of [a] tax return in the nature of a forfeiture of the rights of the taxpayer to make an election to treat as an installment sale a sale which in all other respects is subject to such treatment.” Accordingly, we will hereafter follow the principles announced by the Court of Appeals in Baca.

Baca v. Commissioner, 326 F. 2d 189 (C.A. 5, 1964), remanding 38 T.C. 609 (1962), thus referred to by the Court, in turn relied upon Hornberger v. Commissioner, 289 F. 2d 602 (C.A. 5, 1961), reversing a Memorandum Opinion of this Court, where the Fifth Circuit stated:

We are not dealing with a statute which in express terms requires an election by the taxpayer at a certain time or in a certain manner, or that in fact even mentions'an “election” at all. [289 IT. 2d at 604.]

It rejected the view that “the failure to give the facts touching on the sale [excusable in this case] somehow should be penalized.” 289 F. 2d at 605 . “If a failure to report an income producing sale is excusable and may be corrected without penalty for all other purposes of the income tax laws, we perceive no reason why, if reported or claimed as an installment sale while the year of sale is still open to adjustment under the statute and if it has not been treated in an inconsistent manner, this should not entitle the taxpayer to installment treatment of the sale.” 289 F. 2d at 606 .

In Baca, respondent had attempted to distinguish Hornberger by emphasizing that the omission in that case had been nonnegligent. 326 F. 2d at 191 . The Fifth Circuit rejected respondent’s contention and stated “We think that the penalty provisions for negligence and for failure to make a timely estimate completely exhaust the power in the Commissioner or the courts to penalize for these omissions.” Ibid. It held that, despite the taxpayer’s negligence, he was entitled to elect the installment method.

The majority herein states that a requisite for use of the installment method of reporting gain on sales is good faith disclosure of the sale on the taxpayer’s original or amended return or in a statement attached thereto. I think Baca disposes of any good-faith requirement, because it makes clear that negligent failure to file a return is not equated with lack of good faith or nonexcusable omissions. I fail to see why the fraud penalty should require a different result in this area. Congress considered the 50-percent addition for fraud, together with criminal provisions, a sufficient deterrent to the sort of concealment found in this case. “The law does not lightly impose penalties and courts look with disfavor on forfeitures.” Baca v. Commissioner, 326 F. 2d at 191 . A finding of fraud does not require, or even authorize, us to construe every aspect of the tax law against the petitioner.

Section 1.453-8 (b) (1), Income Tax Regs., effective December 18, 1958, does not affect the force of Baca. Initially, respondent took the position that, under these regulations, the failure to disclose the transaction on the return “for the year of the sale” disqualified taxpayers from adopting the installment provisions. This position was upheld by the Tenth Circuit. Ackerman v. United States, 318 F. 2d 402 (C.A. 10, 1963). But in Bookwalter v. Mayer, 345 F. 2d 476 (C.A. 8, 1965), where the taxpayer had offered to amend his return, the Eighth Circuit rejected the position that “by silence, taxpayer forfeits his right to make an election. * * * [T]he Commissioner knows how to use apt language to compel an election in an original return.” 1 345 F. 2d at 418, 479 . The Commissioner has since acquiesced in made his claim at trial. Thus, I do not regard an amended return as the exclusive means of adopting the installment method.

Bookwalter is admittedly distinguishable on its facts from the instant case. There the taxpayer did not report the transaction in the year of sale because he received no payments in that year. His was an honest mistake, unlike that of the petitioners, but to distinguish Bookwalter requires a rejection of the reasoning of Baoa and our own holding in F. E. McGillick Co., supra, solely because petitioners filed a fraudulent return.

I would hold that imposition of the addition to tax for fraud is the exclusive penalty applicable in this case. 2

Sterrett, J., agrees with this opinion. Compare sec. 1.458-8(a) Cl), Income Tax Regs., where a dealer in personal property is required to make his election to use the installment method “on or before the time specified' (including extensions thereof) for filing such return.”

1 note that, in view of the finding of fraud for the first year and consents extending the period of limitations for the subsequent years, there is no possibility herein that giving the petitioners the right to elect the installment method will cause any of the profit to escape taxation. Compare also see.-1311 et seq.