Faura v. Commissioner

¶1dissenting: I agree with the majority’s analysis of the judicial decisions in which the issue in the instant case has previously been discussed. However, the majority’s reading of section 2119 of the Tax Reform Act of 1976 (hereinafter sometimes referred to as “section 2119, TRA76”) and the legislative events preceding its enactment appear to me to be both incorrect and wholly unnecessary to the decision of this case. Accordingly, I respectfully dissent.

¶21. Status of Revenue Rulings

¶3The majority seek to attack Rev. Rul. 73-395, 1973-2 C.B. 87, by creating the appearance of overwhelming congressional dissatisfaction with the ruling. This painful effort is not necessary. All that need be said about Rev. Rul. 73-395 is the familiar analysis that a revenue ruling is no more than an expression of the opinion or position of the Internal Revenue Service with respect to the law applicable to the facts recited therein and does not have the force of law. Stubbs, Overbeck & Associates v. United States, 445 F.2d 1142, 1146-1147 (5th Cir. 1971); Browne v. Commissioner, 73 T.C. 723 (1980), (Hall, J., concurring); Minnis v. Commissioner, 71 T.C. 1049, 1057 (1979), on appeal (5th Cir., June 22, 1979); Benninghoff v. Commissioner, 71 T.C. 216, 222 n. 4 (1978), on appeal (5th Cir., Dec. 4, 1978); Estate of Lang v. Commissioner, 64 T.C. 404, 406-407 (1975), on appeal (9th Cir., Jan. 6 and Jan. 19, 1976); Anders v. Commissioner, 48 T.C. 815, 821 (1967), revd. on other grounds 414 F.2d 1283 (10th Cir. 1969), cert. denied 396 U.S. 958 (1969); Beck Builders, Inc. v. Commissioner, 41 T.C. 616, 628 and n. 15 (1964).

¶4The majority appear to have concluded that it is necessary and appropriate to give Rev. Rul. 73-395 the “honor” of being drawn and quartered, and then thrown to the sharks. Not being satisfied with the extensive — but far from exhaustive — list of cases cited above, they have determined to examine into the legislative history of section 2119, TRA76. Unfortunately, this examination makes bad law and sets bad examples as to statutory interpretation; it does, however, illustrate the wisdom of being cautious in venturing into the realm of dictum.

¶52. Section 2119 of the Tax Reform Act of 1976

¶6A. Effect of events in the Senate. — The provision which became section 2119, TRA76 (set forth in the majority opinion at n. 11 supra), appeared in the House-passed bill (H.R. 10612) as section 1306. The House-passed bill defined the operative term, “prepub-lication expenditures,” as follows:

(c) Prepublication Expenditures Defined. — For purposes of this section, the term “prepublication expenditures” means expenditures paid or incurred by the taxpayer (in connection with his trade or business of publishing) for the writing, editing, compiling, illustrating, designing, or other development or improvement of a book, teaching aid, or similar product.

¶7As the majority note:

¶8(1) The report of the House Committee on Ways and Means (H. Rept. 94-658) “concerned itself exclusively with ‘publishers,’ and not ‘writers.’” (Majority opinion at p. 857 supra.)

¶9(2) Senator Ribicoff then introduced an amendment to the House-passed bill to deal with prepublication expenditures of writers, stating “Section 1306 of H.R. 10612 extends this relief only to publishers.” (Majority opinion at p. 857 n. 10 supra.)

¶10(3) The Senate Committee on Finance, in its report on H.R. 10612 (S. Rept. 94-938), “reiterated the substance of H. Rept. 94-658, supra." (Majority opinion at p. 858 supra.)

¶11(4) The Finance Committee report stated it is “appropriate to provide relief from Revenue Ruling 73-395 to authors, as well as to publishers.” (Majority opinion at p. 858 supra.)

¶12The majority fail to note that the Finance Committee, in its report, described its differences from the House-passed bill, as follows: “The committee amendment is substantially the same as the provision in the House bill, except that it extends its application to authors." (Emphasis added.) S. Rept. 94-938, p. 405 (1976), 1976-3 C.B. (Vol. 3) 443.

¶13The majority fail to note that the Finance Committee’s reported bill would have defined “prepublication expenditures” precisely the same as in the House-passed bill, except for the addition of the words “writing or,” as follows:

(c) Prepublication Expenditures Defined. — For purposes of this section, the term “prepublication expenditures” means expenditures paid or incurred by the taxpayer (in connection with his trade or business of writing or publishing) for the writing, editing, compiling, illustrating, designing, or other development or improvement of a book, teaching aid, or similar product. [H.R. 10612, 94th Cong., p. 815 (June 10, 1976), as reported by Senator Long; emphasis added.]

¶14The majority fail to note that the Senate Finance Committee withdrew the entire provision before the Senate had an opportunity to consider the matter. See 122 Cong. Rec. S12613 (daily ed. July 27, 1976). This section of the Finance Committee’s reported bill was the subject of criticism and was withdrawn after the committee held further hearings on this and several other provisions. See Staff of the Joint Comm, on Internal Revenue Taxation, Description of Provisions Listed for Further Hearings by the Comm, on Finance on July 20, 21, and 22,1976, at 1-2, 32-34 (Comm. Print July 19, 1976); Certain Committee Amendments to H.R. 10612: Hearings before the Senate Comm, on Finance, 94th Cong., 2d Sess. 3-4, 13, 147, 310, 318, 327-328, 471-478 (1976).

¶15What is clear, then, from the legislative history in the Senate? Firstly, the Finance Committee believed that the House-passed bill did not cover writers and that a change in statutory language was needed in order to cover writers. Secondly, the Finance Committee concluded that there was so little Senate support for any attack on Rev. Rul. 73-395 that the committee finally decided not to even present the matter to the Senate.

¶16B. Effect of conference action. — The majority note (majority opinion at p. 859 supra) that although the conference agreement followed the House-passed bill, it did so “with necessary technical changes” (emphasis in original). The majority fail to note that the “necessary technical changes” included every change proposed by the Senate Finance Committee, except the change that would have added the words “writing or.” They also fail to note that the conferees described the House-passed bill (which the conference agreement followed “with necessary technical changes”) as follows:

House bill. — Under present law, IRS regulations and Revenue Ruling 73-395,1973-2 Cum. Bull. 87, deny a current deduction for research in connection with literary, historical, or similar projects. The ruling requires that publishers’ prepublication expenditures must be capitalized and may be depreciated. The House bill, which applies to all open years, allows publishers to continue their customary, consistent tax accounting methods regarding prepublication expenditures without regard to Revenue Ruling 73-395 until the IRS issues new, prospective regulations. [S. Rept. 94-1236, p. 502 (1976), 1976-3 C.B. (Vol. 3) 906; emphasis added.]

¶17The majority note (majority opinion at p. 859 supra) that the enacted provision uses the personal pronoun “his” rather than “its.” The majority fail to note that the personal pronoun “his” was the word used in the House-passed bill, so that the use of “his” by the conferees did not change the scope of the House-passed bill. Also, there is no basis for the majority’s evident assumption that every publisher subject to the Internal Revenue Code is an entity, rather than an individual.

¶18The majority set forth (majority opinion at p. 860 supra) the text of two paragraphs of the General Explanation of the Tax Reform Act of 1976, in which the staff of the Joint Committee on Taxation explain the meaning of the provision. The quoted paragraphs state that section 2119, TRA76, “allows taxpayers to treat their prepublication expenditures” in the manner described. The majority “note that Congress specifically mandated suspension of Rev. Rul. 73-395, wherein respondent announced his decision not to follow the Stern decision which had held prepublication expenses of an author to be deductible.” (Majority opinion at p. 860 supra.) The majority fail to set forth the two paragraphs immediately preceding the quoted paragraphs of the Joint Committee staff explanation, as follows (pp. 634^635):

Reasons for change

The Congress was made aware of the concerns of the publishing industry as to whether Revenue Ruling 73-395, as described above, correctly interpreted the law under section 174 as it applies to the publishing industry. The Congress understood that historically tax accounting practices in the publishing industry have varied greatly and no standard procedures have been developed. Industry members apparently have followed their own interpretations, particularly with regard to the treatment of publishers’ prepublication expenditures. The Congress further was informed that in the case of these expenses, some publishers deducted them currently while other publishers capitalized them. The Congress believed that in view of the uncertainty with respect to the treatment of prepublication expenditures, the Internal Revenue Service should review this treatment and issue regulations to establish a uniform treatment of such expenditures for the entire publishing industry. This would allow interested taxpayers an opportunity to advise the Service about the practices and problems within the industry with respect to this matter. Since the Congress was concerned about the retroactive application of Revenue Ruling 73-395 which would affect practices consistently followed by many taxpayers for years, the Congress believed that any new rules applicable under regulations promulgated after the enactment of this Act should only have prospective application.

Explanation of provision

The provision generally allows publishers to continue their customary treatment of prepublication expenditures without regard to Revenue Ruling 73-395. The prepublication expenditures affected by the provision are those paid or incurred in connection with the taxpayer’s trade or business of publishing for the writing, editing, compiling, illustrating, designing or other development or improvement of a book, teaching aid, or similar product.

[Emphasis added.]

¶19What is clear, then, from the legislative history in the Conference Committee? Firstly, the conferees were aware of the Finance Committee’s text and of the Finance Committee’s conclusion that the House-passed bill did not include writers. Secondly, the conferees, by staying with the House-passed bill as to this point, similarly intended not to include writers.1 Thirdly, the Congress never intended an across-the-board suspension of Rev. Rul. 73-395, but was responding to a particularized set of objections by a particular specified industry — “the publishing industry.”

¶20The majority have embarked upon a wholly unnecessary (1) analysis of the legislative history of section 2119, TRA76; (2) comprehensive definition of “trade or business of publishing”2: and (3) examination of the meaning of section 280 (majority opinion at pp. 860-861 supra). All of these aspects of the majority opinion are dicta; the legislative history analysis, especially, appears to be erroneous in this case and, I fear, is apt to furnish unwanted precedents for future analyses of legislative history. From this excursion of the majority, most respectfully, I dissent.