Pollack v. Commissioner

Tannenwald, J., dissenting: The applicability of the Corn Products doctrine in the context of a business related investment has recently been the subject of an exhaustive analysis by this Court in W. W. Windle Co. v. Commissioner, 65 T.C. 694 (1976). Although we found the doctrine was not applicable in that case, we recognized that under certain conditions it would continue to apply and cause an investment in corporate stock to be treated as business related for tax purposes. See also Bell Fibre Products Corp. v. Commissioner, T.C. Memo. 1977-42 , on appeal (7th Cir., Sept. 9,1977). On the basis of the record herein and taking into account the fact that I was not the trial judge, I am not prepared to decide whether or not petitioner has met the requisite conditions.

My problem is with the majority’s conclusion that as a matter of law the Corn Products doctrine does not apply to the sale or disposition of an interest in a partnership. Neither the legislative history of section 741 nor logic supports this result.

Prior to 1950, the Government took the position that a sale or disposition of an interest in a partnership should be treated as a sale or disposition of the partner’s undivided interest in each of the partnership’s assets. The courts consistently rejected this position and held that a partnership interest should generally be treated as a capital asset under section 117 of the Internal Revenue Code of 1939 (predecessor of 1954 Code section 1221). In response, the Government reversed its position. G.C.M. 26379, 1950- 1 C.B. 58 . This was the existing law when the 1954 Code was enacted and the legislative history indicates that Congress, in section 741, intended to codify this rule. H. Rept. 1337, 83d Cong., 2d Sess. 70 (1954); S. Rept. 1622, 83d Cong., 2d Sess. 96 (1954).

Since section 741 was merely a codification of the general treatment of a partnership interest as a capital asset under the predecessor of section 1221, it should not be viewed as a bar to ordinary income or loss treatment in situations that are inconsistent with the basic concept of a capital asset as an investment. In Corn Products Co. v. Commissioner, 350 U.S. 46 (1955), the Supreme Court held that the definition of capital asset in the 1939 Code, sec. 117 (now sec. 1221), must be construed narrowly and its exceptions construed broadly to effectuate Congress’ purpose. The Court interpreted legislative intent as follows:

Congress intended that profits and losses arising from the everyday operation of a business be considered as ordinary income or loss rather than capital gain or loss. [ 350 U.S. at 52 .]

If petitioner’s investment represented shares of stock in a corporation rather than an interest in a limited partnership, this Court would presumably consider whether the Corn Products doctrine applies. W. W. Windle Co. v. Commissioner, supra. I do not think that the tax treatment of petitioner’s transaction, insofar as that doctrine is concerned, should be different because he invested in a partnership rather than a corporation. To be sure, there may be limits to the application of the doctrine. See W. W. Windle Co. v. Commissioner, supra at 713. But the existence of such limits should not be extended to an absolute refusal to apply the doctrine. In other areas, we have seen fit to apply general principles of tax law in overriding what appeared to be specific statutory language. Thus, we have utilized the tax benefit rule in cases to which sections 336 and 337 otherwise applied. Tennessee Carolina Transportation, Inc. v. Commissioner, 65 T.C. 440 (1975), on appeal (6th Cir. Aug. 4,1976); Estate of Munter v. Commissioner, 63 T.C. 663 (1975). While I recognize that the Corn Products doctrine may not have the pervasive applicability of the tax benefit rule, there is at least a useful analogy between the two principles as far as the instant case is concerned. 1

Simpson, J., agrees with this dissenting opinion. I note, by way of contrast, the broadened applicability of capital gain treatment accorded certain taxpayers in the business of inventing by sec. 1235. In this situation, unlike the instant situation, the literal statutory language is augmented by clearly supportive legislative history. See S. Rept. 1337,83d Cong., 2d Sess. A 280 (1954); S. Rept. 1622,83d Cong., 2d Sess. 440 (1954).