Judge Kern dissenting for himself and five other Tax Court judges
How later courts described this case
- Judge Kern dissenting for himself and five other Tax Court judges
Written by the judges who cited it.
Later courts went against this
Questioned by Wilkerson v. Commissioner, 655 F.2d 980 (1981)
The court found it unnecessary to consider the continued viability of the Burgess rule, as the loans at issue were “plainly for no purpose other than the repayment of interest.
Distinguished
Distinguished by Goodstein v. Commissioner, 30 T.C. 1178 (1958)
Cf. Newton A. Burgess, 8 T. C. 47, which is distinguishable on its facts from the instant case.
The opinion
Kern, /., dissenting: I am unable to agree with the conclusion reached by the majority.
On or before December 30,1941, petitioner was obligated to pay to Archer & Co. the sum of $4,136.44 as interest upon his notes. While it would appear that he had funds sufficient to pay his other bills payable, it is obvious that unless he borrowed money he could not pay the interest. He certainly could not pay his other bills and also pay the interest. On or about December 22, 1941, he obtained as an additional loan from Archer & Co. the sum of $4,000. On December 26, 1941, petitioner paid to Archer & Co. $4,219.33, which was the amount due as interest on his notes, plus interest in the amount of $82.89 on the additional loan of $4,000 which was payable in advance. These being the evidentiary facts found, I would conclude that petitioner borrowed $4,000 from Archer & Co. on December 22,1941, for the purpose of paying interest to Archer & Co. on December 26, 1941, in the total sum of $4,219.33.
If petitioner executed his note to Archer & Co. on December 22, 1941, in the amount of $4,000, and Archer & Co. thereupon credited petitioner’s indebtedness to it on account of interest ($4,219.33) by that amount ($4,000), it is clear that petitioner, who was on the cash basis, made no cash payment of interest deductible by him in 1941. Keith v. Commissioner, 193 Fed. (2d) 596; see John C. Cleaver, 6 T. C. 452 ; affd., 158 Fed. (2d) 342.
In the instant case there are two factual variations: (1) Instead of taking the shortcuts of bookkeeping entries, the parties went through the full performance of Archer & Co. giving its check to petitioner in the sum of $4,000, petitioner depositing this check in his bank, and then petitioner giving his check to Archer & Co. in the sum of $4,000 plus $219.33; and (2) instead of the borrowing of the interest and the payment of the interest being simultaneous, there was a time interval of a few days (including Christmas) between the borrowing and the payment. These variations, in my opinion, are immaterial and can not exempt this case fi*om being governed by the general rule followed in the cases above cited and laid down by the authorities which those cases discuss. That general rule may be stated as follows: When a taxpayer, on a cash basis, borrows money from a creditor with which lie pays interest upon a debt owed to that creditor, there has been no cash payment of interest which is deductible from gross incóme.
Murdock, Disnet, Harron, Opper, and Johnson, JJ., agree with this dissent.