Dittler Bros., Inc. v. Commissioner

Hall, J., concurring in part and dissenting in part: The majority opinion appears correct in rejecting respondent’s absolute refusal to grant a favorable section 367 ruling. However, under the statute we have the further duty of determining what, if any, conditions should be attached to a favorable ruling. The majority would deprive respondent of the opportunity to impose such conditions because he failed to specify whether (if forced to rule favorably) he would impose conditions and if so what those conditions would be. The majority does not state whether respondent must specify such conditions as a fallback position in his original adverse ruling or merely in the litigation before us. However, I think respondent has done all that is required of him when he rules unfavorably. It would be a waste of administrative time for respondent to be required to anticipate a possible judicial reversal of his basic negative position and specify in his ruling the conditions he would impose, if any, should his ruling be reversed. Not every adverse ruling will lead to judicial proceedings. On the other hand, I do believe it reasonable to require respondent, in proceedings before us under section 7477, to spell out not only what his position is on the primary issue but also what, if any, conditions he would impose should he not be upheld on the primary issue. This procedural question, however, is a close one. It could well be argued that the same reasons for not requiring extensive expenditure of administrative time in what may prove a purely academic exercise should also excuse him from asserting appropriate conditions for a favorable ruling until and unless we have ruled against him on the main issue. Because this is the first case under this new section of the statute, we should recognize that respondent has not been apprised of his responsibility to assert fallback cohdi-tions, and should give him the opportunity to do so in supplemental proceedings. We should, by this opinion, apprise him of his duty in future cases to specify before us any conditions he would impose on a favorable ruling as a fallback position. While the statute appears to permit us to devise our own conditions, I do not believe this Court should attempt to play administrator. Our role should be limited to accepting, curtailing, or rejecting conditions proposed by respondent.

This particular case provides a good example of the desirability of this procedure. Here, petitioner was willing to execute a closing agreement which would have bound it to cause 75 percent of OLINV’s profits to be declared as dividends as a condition to a favorable ruling. It may well be that respondent would wish to see this (and possibly other) conditions imposed could he have foreseen our rejection of his primary position. I think he should be given the chance to specify such conditions and, if they are not agreeable to petitioner, to litigate the question before us in supplementary proceedings.

The majority opinion has the unfortunate side effect of greatly reducing the flexibility which Congress sought to build into the new procedure under section 7477. In the typical controverted section 367 situation, including the case before us, the real issue before the Internal Revenue Service is not whether there should be an unconditional ruling under section 367 or no ruling at all. The issue is more typically whether respondent should refuse to rule at all or should rule favorably with certain toll charges or other conditions. This is the usual real-life problem in section 367 practice.

We hold, here, that the taxpayer should have his ruling without conditions, not because conditions would necessarily be inappropriate, but because respondent exercised insufficient foresight to foresee our disagreement with his position and fashion a timely fallback position. We failed to instruct respondent whether the fallback position must be explicated in the administrative record or only in the proceeding before us. In this particular case, a case of first impression, this result produces a windfall for the taxpayer, who probably emerges better off than he would have had respondent been more clairvoyant.

In the next case, our inflexibility may be to the disadvantage of the taxpayer. Faced with the Hobson’s choice of requiring respondent to rule' favorably with no conditions or toll charges, or of upholding respondent in the failure to rule, we may be tempted to decide that it is better simply to uphold respondent. This would be likely if the case cries out for a toll charge and we have so bound our hands that our procedures do not permit us to require it. If so, a taxpayer who should be allowed through the gate with a toll charge will find the gate completely closed.

Undeniably, it is convenient for the Court not to have to prolong litigation with secondary proceedings over toll charges and conditions, and the majority opinion perhaps spares us consideration of difficult issues. However, our Court exists not for its own sake but for the benefit of the litigants before it. Regrettably, as Congress has recently chosen to bestow various new forms of jurisdiction upon us in the declaratory relief area, we have reacted with the most begrudging and narrow interpretations, engendering both statutory and judicial reversals of our positions. See, e.g., Sheppard & Myers v. Commissioner, 67 T.C. 26 (1976), in effect reversed by amendments to sections 7428(a) and 7476(a); Federal Land Bank Association v. Commissioner, 67 T.C. 29 (1976), revd. 573 F.2d 179 (4th Cir. 1978).

We should take the hint and attempt, where we can do so within a fair construction of the congressional language, to read these new provisions so as to effectuate rather than frustrate the congressional purpose.