both transactions occurred in the same year. In United States v. Skelly Oil Co., 394 U.S. 678 (1969), a sufficient relationship was found because the percentage depletion allowance would have been reduced, had the payment at issue been made in the year income was initially recognized under the claim of right. In the present case, there was no such integral relationship between the sale of stock and the payment to MGM. Had Mr. Cummings made the payment to MGM in the same year as the sale and purchase, there would have been no reason to require that the payment be offset against the gain realized on the sale. When he sold his MGM stock, he sold a capital asset and realized a capital gain. The subsequent purchase of other MGM stock for a lower price does not, as a matter of tax law, provide a basis for reducing or offsetting the capital gain already realized. William L. Mitchell, 52 T.C. at 174. Nor is the capital gain reduced by the payment to MGM. The Seventh Circuit in Anderson appears to have assumed that there was a violation of section 16(b) and that the payment was made in satisfaction of a liability resulting from such violation. However, in Anderson, and also in the case before us today, there has been no determination that the taxpayer violated section 16(b) or that he was liable under that section to make any payment. As we pointed out before, Mr. Cummings made the payment promptly after learning of the position taken by the Securities Exchange Commission (SEC); he acted without legal advice; and these circumstances indicate clearly that the payment was not made because of a recognition of a legal duty to do so. On the contrary, it is clear that the payment was made for business reasons and for reasons growing out of his responsibility as a director of MGM. He made the payment to protect his business reputation and to avoid a delay in the issuance of the MGM proxy statement. In United States v. Generes, 405 U.S. 93 (1972), the Supreme Court pointed out that when an individual, who is both a shareholder and an employee of a corporation, makes or guarantees a loan of the corporation, it is necessary to decide in which capacity he acted. In like manner, it is also necessary to decide whether, when Mr. Cummings made the payment to MGM, he was acting as a shareholder or as a director, and we remain convinced that it was as a director that he decided to make the payment to MGM. In our opinion, Tank Truck Rentals v. Commissioner, supra, is not applicable in this case. In that case, the Court denied a deduction for fines paid as a result of the admitted violation of a State law, because allowance of the claimed deduction would have resulted in an immediate and severe frustration of public policy. Each case was to be decided on the basis of its own facts and circumstances (Tank Truck Rentals v. Commissioner, 356 U.S. at 35; see also Laurence M. Marks, 27 T.C. 464, 469 (1956)), and the circumstances here are significantly different from those in Tank Truck Rentals. There has been no finding that Mr. Cummings violated the law by his sale and purchase of MGM stock; there was merely the indication by the SEC that he may have done so. This situation is similar to that in Joseph P. Pike, 44 T.C. 787, 798-799 (1965), in which we stated that Tank Truck Rentals is inapplicable when the payment at issue is not attributable to the violation of the State law but only to the allegation of a violation— in such circumstance, the payment cannot be considered a penalty. Accordingly, in the circumstances of this case, we believe that the petitioner recognized capital gains as a shareholder, but made the payment to MGM in his capacity as a director. Had the payment been made in the same year as the gain was recognized, it would not have reduced the amount of such capital gain. Thus, Arrowsmith v. Commissioner, supra, has no applicability in this case. The respondent's motion for reconsideration and revision of the opinion is hereby denied. Reviewed by the Court. Decision will be entered for the petitioners. TANNENWALD, J., did not participate in the consideration and disposition of this case. DAWSON, J., dissenting: I respectfully dissent for the reasons stated in my dissenting opinion in James E. Anderson, 56 T.C. at 13771379. I would follow the reversal of the Anderson case by the Court of Appeals for the Seventh Circuit, 480 F. 2d 1304 (C.A. 7, 1973). See also Mitchell v. Commissioner, 428 F. 2d 259 (C.A. 6, 1970), reversing 52 T.C. 170 (1969). FEATHERSTON, QUEALY, GOFFE, and HALL, JJ., agree with this dissent. DRENNEN, J., dissenting: I did not participate in this Court's consideration of, and decision in, James E. Anderson, 56 T.C. 1370, and hence feel less compunction about taking a position contrary to the position we took in William L. Mitchell, 52 T.C. 170, than some of my colleagues. I am inclined to agree with Judge Dawson in his dissenting opinion in Anderson that the Supreme Court in United States v. Skelly Oil Co., 394 U.S. 678, meant that the Code should not be interpreted to permit the equivalent of a double deduction absent a clear declaration by Congress of such intent. I recognize that artful, technical arguments can be made that the Court had different circum stances and different deductions before it in Skelly Oil than we have here and, therefore, that case is not controlling here. But I believe that is more wishful thinking than practical analysis of the Court's opinion and that Skelly Oil should be considered controlling here. Such is the view taken by two Courts of Appeals in reversing this Court in Mitchell v. Commissioner, 428 F. 2d 256 (C.A. 6, 1970), and Anderson v. Commissioner, 480 F. 2d 1304 (C.A. 7, 1973). While I realize that the proposal I am making is not before the Court in this case, and may never be urged by either a taxpayer or the Commissioner, because a tax benefit in the hand is worth two possible ones in the future, I am still of the view, suggested in my concurring opinion in Mitchell, that perhaps the best way to resolve the conflicting legal arguments and equities under circumstances such as here present would be to add the amount repaid because of the threat of section 16(b) of the Securities Exchange Act of 1934 to the basis of the stock purchased and presently held by the taxpayer. Surely the purchase in both the purchase-sale and the sale-purchase transactions is basically responsible for triggering the repayment because of the possible violation of section 16(b) and thus the repayment is tantamount to an additional cost of the purchased stock. This would deny the purported "insider" recognition of his repayment loss until he disposes of the stock, the purchase of which triggered the payment, and the gain or loss on such ultimate disposition will be characterized the same for tax purposes as the gain he realized and had recognized on the sale of his previously held stock. I recognize that this proposal would not be applicable in circumstances such as those in United States v. Skelly Oil Co., supra, and Arrowsmith v. Commissioner, 344 U.S. 6 (1952), where no purchase was involved, but that should not prevent it from being applied in circumstances in which it might provide the better solution. COLUMBIA IRON & METAL COMPANY, PETITIONER V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 8304-71. Filed October 2, 1973. The petitioner, a corporation that reported income in accordance with the accrual method of accounting, made charitable contributions within 22 months after the close of the taxable year 1969. All the requirements of sec. 170(a) (2), I.R.C. 1954, and sec. 1.170– 3(b), Income Tax Regs., which allow the deduction to be claimed in 1969, have been met, except that the copy of the corporate minutes authorizing the contribution and the verified, written declaration of an officer of the corporation were filed subsequent to the filing of the return. Held, the petitioner has substantially complied with the Richard Katcher, for the petitioner. Larry L. Nameroff, for the respondent. OPINION SIMPSON, Judge: The respondent determined a deficiency of $28,142.40 in the Federal income tax of the petitioner for the year 1969. The only issue for decision is whether the petitioner, an accrual method taxpayer, is entitled to a deduction in the year 1969 for certain charitable contributions authorized by its board of directors in such year and actually paid within 22 months after the close of such year. This case has been submitted under Rule 30, Tax Court Rules of Practice, and most of the facts have been stipulated. The petitioner, Columbia Iron & Metal Co., was an Ohio corporation, with its principal place of business in Cleveland, Ohio, at the time of the filing of the petition in this case. It filed its Federal income tax return for its taxable year ending December 31, 1969, with the Internal Revenue Service Center, Cincinnati, Ohio. The petitioner maintained its books and records and reported income in accordance with the accrual method of accounting. At a special meeting held on December 13, 1969, the board of directors of the petitioner authorized payment of the following contributions by March 1, 1970: Donee Greater Cleveland Neighborhood Centers Association_-_. Jewish Community Federation___ Amount $500 7, 100 45, 700 53, 300 In accordance with the board's resolution, $500 was paid to the Greater Cleveland Neighborhood Centers Association on January 27, 1970, and the gifts to the two other donees were made on February 20, 1970. At all times relevant, contributions to each of the three organizations qualified for charitable deductions under section 170 of the Internal Revenue Code of 1954.1 In its return for 1969, the petitioner claimed deductions for charitable contributions in the total amount of $125,446, including deductions for the three contributions authorized in 1969 and paid in 1970. A schedule attached to the return listed the donee, amount, and date of payment of each of the petitioner's charitable contributions for 1 All statutory references are to the Internal Revenue Code of 1954. which a deduction was claimed. The three contributions paid in 1970 were included in the schedule and were additionally described as "Accrued at December 31, 1969." The petitioner did not attach to its return a copy of the resolution authorizing the three contributions, nor a written and verified statement of an officer that the contributions were authorized in 1969. However, on July 24, 1970, a copy of the corporate minutes was given to an agent of the respondent in the course of an examination of the petitioner's 1969 income tax return. After a conference with the Court to discuss settlement, the petitioner submitted to the Court a written declaration by an officer of the corporation, made under the penalties of perjury, that the three contributions were authorized by the board of directors of the corporation in 1969, and a copy of such declaration was served on the respondent. The respondent disallowed the petitioner's claimed charitable deduction to the extent of $53,300, the amount of the three contributions not paid in 1969. Section 170(a) (1) provides that, ordinarily, charitable contributions are deductible only in the taxable year in which made, regardless of the method of accounting employed by the donor. However, section 170(a) (2) sets forth an exception to such general rule and provides: In the case of a corporation reporting its taxable income on the accrual basis, if— (A) the board of directors authorizes a charitable contribution during any taxable year, and (B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the third month following the close of such taxable year, then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary or his delegate shall by regulations prescribe. The parties have treated section 1.170-3 of the Income Tax Regulations as applicable in this case. In pertinent part, such section provides: (b) Election by corporations on an accrual method. * **The election must be made at the time the return for the taxable year is filed, by reporting the contribution on the return. There shall be attached to the return when filed a written declaration that the resolution authorizing the contribution was adopted by the board of directors during the taxable year, and the declaration shall be verified by a statement signed by an officer authorized to sign the return that it is made under the penalties of perjury. There shall also be attached to the return 2 According to sec. 1.170-0 of the regulations, sec. 1.170-3 is applicable to contributions made before 1970, and sec. 1.170A-11(b)(2) is applicable to contributions made after 1969. However, since the relevant provisions of both sections are identical, it makes no difference in this case which section is applicable. |