Stinnett v. Commissioner

Tannenwald, ./., concurring: The vice of respondent’s regulations is that, in an attempt t'o minimize the effect of our decision in W. C. Gamman, 46 T.C. 1 (1966), respondent ¡has abandoned the “actually stock” concept contained in his original regulations. In my opinion, it is this concept that was in the mind of the Congress when section 1371 (c) (4) was enacted, although I concede that the legislative history of that particular section is devoid of any material which would be of any direct assistance. Clearly, Congress was not concerned merely with different rights and liabilities among persons who had shareholder status as distinct from such rights and liabilities which inhere in that status as such. As the majority opinion points out, if this were not the case, the provisions of subchapter S dealing with indebtedness to shareholders would be, at the very least, anomalous. Moreover, there are prior indications that Congress had in mind shareholder status as such and was concerned with the allocation of undistributed earnings among shareholders because of differing claims on earnings which stemmed from their shareholder status. 1 To me, the essential question, under subchapter S, is whether .the instrument has sufficient characteristics under the applicable local law to be designated ¡as “actually stock.” See concurring opinion of Withey, J., in W. C. Gamman, 46 T.C. at 12-13 .

I also think it significant that there is no authority under subchapter S for the respondent to promulgate legislative regulations. This is in sharp contrast to such a grant of such authority in section 1244 which was enacted along with subchapter S and was also designed to aid small business concerns.' In this connection, it should be noted that section 415 of the recently enacted Tax Eeform Act of 1969, Pub. L. 91-172, 83 Stat. 487 (Dec. 30, 1969), provides legislative authority to respondent to determine whether “an interest in a corporation is to be treated for purposes of this title as stock or indebtedness.” (Emphasis added.) This extremely broad grant still leaves open the question whether it includes authority to prescribe what is a second class of stock for purposes of subchapter S. Unfortunately, the legislative history is utterly silent on this point.

Withey, Hoyt, and FeatherstoN, JJ., agree with this concurring opinion. Similar provisions to accompany the 3954 Code, which were not adopted, were discussed in S. Rept. No. 1622, 83d Cong., 2d Sess. (1954), which stated (p. 453) : “No class of stock may be preferred oyer another as to either dividends, distributions, or voting rights. If this requirement were not made, undistributed current earnings could not be taxed to the shareholders without great complications.”