OPPER, dissenting: If we state the problem which this case typifies in terms sufficiently broad to describe the species or type of the difficulty common to all such cases, it will appear, I think, that this Board and the courts have laid down inconsistent principles for dealing with it; if this is so, I feel that we are still at liberty to choose from among those principles that which is the most generally satisfactory; and if, as I think, a different formula from that used by the majority will result in a determination fair to the taxpayer and fair to the Government, the consequence should be its adoption in the present case.

The background common to the general problem appears to be that in a previous year now closed by the statute of limitations the taxpayer and the Commissioner have adopted a view as to the taxpayer's liability to tax which now appears to have been erroneous, but a development in the present tax year directly involving that previous treatment is open and requires our present decision. The problem is: Shall we reach that decision leaving out of consideration entirely the earlier approach which the parties have erroneously adopted, because the statute of limitations bars a readjustment for the prior year; or shall we, precisely because that earlier adjustment is now impossible, shape our present view to conform as nearly as may be to the justice and practical consequence of the entire situation, giving such weight to the previous treatment as is necessary to make the whole result one from which neither taxpayer nor Government may take an undue advantage?

This general question has, it seems to me, called for consideration on previous occasions. Where, for instance, a deduction has been taken which appeared at the time to be correct, but later circumstances have developed which place the taxpayer in a position to offset the detriment for which the deduction was allowed, it has been the consistent judicial view that then an adjustment of the tax consequences is appropriate. Typical of these cases are those where a tax originally assumed to be due is refunded because the taxing statute was unconstitutional1 or because there was an overassessment, or, an item such as a bad debt, insurance premium, or loss from embezzlement or fire, which appeared to be properly deductible was later recovered or canceled. The same conclusions have been reached in instances where

1 Charles W. Nash, 34 B. T. A. 675; affd. (C. C. A., 7th Cir.), 88 Fed. (2d) 477; certiorari denied, 301 U. S. 700; Chevy Chase Land Co., 34 B. T. A. 150; Universal, Inc. v. Commissioner (C. C. A., 7th Cir.), 109 Fed. (2d) 616. See Cartex Mills, Inc., 42 B. T. A.

894.

Houbigant, Inc., 31 B. T. A. 954; affd. (C. C. A., 2d Cir.), 80 Fed. (2d) 1012; certiorari denied, 298 U. S. 669; Victoria Paper Mills Co., 32 B. T. A. 666; affd. (C. C. A., 2d Cir.), 83 Fed. (2d) 1022; Walter M. Marston, 41 B. T. A. 847; Elsie S. Eckstein, 41 B. T. A. 746; Dixie Margarine Co., 38 B. T. A. 471.

* Jamaica Water Supply Co., 42 B. T. A. 359; Hartford Hat & Cap Co., 7 B. T. A. 714; Chicago, Rock Island & Pacific Ry. Co. v. Commissioner (C. C. A., 7th Cir.), 47 Fed. (2d) 990; certiorari denied, 284 U. S. 618; South Dakota Concrete Products Co., 26 B. T. A. 1429; Cooper v. United States (C. C. A., 8th Cir.), 9 Fed. (2d) 216. See Burnet V. Sanford & Brooks Co., 282 U. S. 359.

the taxpayer has omitted to include in income an item which it later appears should have been taxed. One and possibly two limitations are imbedded in this view. The taxpayer will not be charged with income in the later year to the extent that he obtained no income tax benefit from the privilege of deduction in the first instance. And perhaps it is only where the statute of limitations has run against the earlier year, precluding adjustment of the original tax liability in accordance with the subsequently discovered actuality, that the rule applies. These results have been reached without resort to strict principles of waiver, estoppel, or election and it seems apparent that only confusion can result from attempting to apply them to such a situation. Beyond the recognition that equitable doctrines similar to unjust enrichment are involved, such technical aspects as whether there was misrepresentation or mutual mistake, error of law or of fact, reliance, detriment, and the like, can advance us little in disposing of a controversy involving elements so "essentially practical.”

It is true that there are authorities, as the prevailing opinion shows, which appear to deny the possibility of the kind of subsequent adjustment which seems to me called for here." But my feeling that there is no tenable distinction in principle among the cases thus reaching divergent results is the justification for the statement made earlier that holdings on the present problem in its larger aspect have been inconsistent. There is as much "right of election" here as there was, for example, in Moran v. Commissioner; as much of an "estoppel" as there was in Stearns Co. v. United States; no more of a "mistake of law" than in Charles W. Nash. And it violates the classic definition, see e. g. Eisner v. Macomber, 252 U. S. 189, 207, at least as much to characterize as income the refund to the taxpayer of his own funds which he should not have paid in the first place, as it does to include as income an amount resulting from reducing an admitted receipt by

• Commissioner v. Farren (C. C. A., 10th Cir.), 82 Fed. (2d) 141; Larkin v. United States (C. C. A., 8th Cir.), 78 Fed. (2d) 951; Moran v. Commissioner (C. C. A., 1st Cir.), 67 Fed. (2d) 601, affirming 26 B. T. A. 1154; Raleigh v. United States (Ct. Cls.), 5 Fed. Supp. 622; Crane v. Commissioner (C. C. A., 1st Cir.), 68 Fed. (2d) 640, affirming 27 B. T. A. 360; Alamo National Bank of San Antonio, Executor, 36 B. T. A. 402; affd. (C. C. A., 5th Cir.), 95 Fed. (2d) 622; certiorari denied, 304 U. S. 577. Contra, Helvering v. Williams (C. C. A., 8th Cir.), 97 Fed. (2d) 810, Salvage v. Commissioner (C. C. A., 2d Cir.), 76 Fed. (2d) 112, the affirmance of which, 297 U. S. 106, is of such ambiguity that "it does not seem that the conflict, if there be one, is resolved." Commissioner v. Farren, supra, 143.

⚫ Central Loan & Investment Co., 39 B. T. A. 981; National Bank of Commerce of Seattle, 40 B. T. A. 72.

See Estate of William H. Block, 39 B. T. A. 338; affd. (C. C. A., 7th Cir.), 111 Fed. (2d) 60.

Tide Water Oil Co., 29 B. T. A. 1208; R. E. Baker, 37 B. T. A. 1135; Salvage v. Commissioner, supra; and cf. Rossin & Sons, Inc. v. Commissioner (C. C. A. 2d Cir.), 113 Fed. (2d) 652, with Maryland Casualty Co. v. United States, 251 U. S. 342.

a basis measured by the cost not of the particular asset but of its predecessor.10

If we were to follow here what I think is the principle of the cases first cited we should say that the taxpayer obtained the benefit in 1928 of the payment of a smaller income tax because of an exclusion from its income which now appears to have been incorrect; that in the present year a further development of that situation has occurred raising for our consideration the total amount of taxable income which this taxpayer has received out of the transaction as a whole; and that, notwithstanding, and in fact because, adjustment of the prior year is now made impossible by the bar of the limitations statute, liability to tax shall be determined with respect to the present year by taking into consideration the prior erroneous treatment to the extent and only to the extent that a benefit was obtained by the taxpayer from underpayment of his income tax in a prior year.

It may be said that the present result is necessary to attribute the maximum possible effect to statutes of repose. To this I think it may be answered that the formula suggested does not require, nor indeed sanction, a violation of any principle that controversies must be definitely and finally set at rest. If there were no occasion, because of the events of the present year, for reopening the entire question, there would be no justification for disregarding the statute of limitations." But, because something new has developed which necessarily calls into question the previous transaction, we should not allow a formal provision of limitation to interfere with a consideration of all the facts which are necessary for a just result. It seems to me statutes of limitation were not enacted for this purpose and it may well be that section 820, Revenue Act of 1938, is a broad pronouncement, not intended to be exclusive, of the legislative policy that they should not be so regarded,12 although, unfortunately, the present case lies outside its specified scope.13

10 Cf. Ilfeld Co. v. Hernandez, 292 U. S. 62.

12

11 See Crane v. Commissioner, supra. Cf. Sugar Creek Coal & Mining Co., 31 B. T. A. 344. under existing law, an unfair benefit would have been obtained by assuming an inconsistent position and then taking shelter behind the protective barrier of the statute of limitations. Such resort to the statute of limitations is a plain misuse of its fundamental purpose. The purpose of the statute of limitations to prevent the litigation of stale claims is fully recognized and approved. But it was never intended to sanction active exploitation, by the beneficiary of the statutory bar, of opportunities only open to him if he assumes a position diametrically opposed to that taken prior to the running of the statute. The Federal courts in many somewhat similar tax cases have sought to prevent inequitable results by applying principles variously designated as estoppel, quasi estoppel, recoupment and set-off. For various reasons, mostly technical, these judicial efforts cannot extend to all problems of this type. Nor can they provide a uniform, systematic solution of these problems. Legislation has long been needed to supplement the equitable principles applied by the courts [Senate Rept. 1567, 75th Cong., 3d sess., p. 49, (Emphasis added.)]

13 Subsection f.

On the other hand, such a rule as is here suggested would, it seems to me, eliminate some of the difficulties and delays which are now necessarily inherent in the administration of tax legislation. Otherwise, the respondent is placed in the position where he must at his peril contest the position assumed by the taxpayer even though at the time and in the apparent state of the law that position may appear to be correct. Changes in judicial interpretation from time to time are necessarily to be reckoned with. If we are now in a period where such changes may be even more frequent and probable, that is an added reason for taking them into account. The case at bar is itself the result of a decision which, it is to be assumed, the parties did not originally foresee, Le Tulle v. Scofield, 308 U. S. 415. A rule which would permit readjustment of situations developing as a result of judicial clarification and reexamination would, it seems to me, add rather than detract from the extent to which tax cases could be promptly and, for the most part, permanently closed.

KANSAS, OKLAHOMA AND GULF RAILWAY COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 93526, 93527. Promulgated November 1, 1940. AFFILIATION-WHAT STOCK IS INCLUDED IN 100 PERCENT FROM WHICH 95 PERCENT IS MEASURED UNDER SEC. 141 (d) or REVENUE ACTS OF 1932 AND 1934.-The 100 percent includes a small number of shares for which stock trust receipts issued in 1919 were never presented in exchange for stock certificates after the trust was terminated in 1931.

William R. Spofford, Esq., Charles S. Jacobs, Esq., and Robert S. Ingersoll, Jr., Esq., for the petitioner.

Brooks Fullerton, Esq., for the respondent.

The Commissioner determined deficiencies in the petitioner's income taxes as follows:

The only issue for decision by the Board is whether a block of about 1,100 shares unclaimed by, but held for, the owners of stock trust receipts was "stock" of the petitioner within the meaning of section 141 (d) of the Revenue Acts of 1932 and 1934 for the purpose of determining whether or not the Muskogee Co. owned at least 95 percent of the stock of the petitioner and was entitled to include the

petitioner in its consolidated returns for the taxable years. The parties have settled by agreement the other issues raised by the pleadings.

FINDINGS OF FACT.

The stipulation of the parties is hereby adopted as a part hereof. C. Jared Ingersoll was appointed a voting trustee under the "Hook Plan" in 1926 and continued as such until the termination of the trust of 1931. He was assistant to the president of the petitioner prior to June 1932, when he was elected chairman of the board and became its chief executive officer. He has held that position ever since. He was elected president of the Muskogee Co. in the latter part of June 1932, prior to which time he was assistant to the president. He has been president and chief executive officer of the Muskogee Co. since June 1932.

The Muskogee Co. became the owner of a majority of the stock of the petitioner in 1925 and 1926. A large number of holders of stock trust receipts under the "Hook Plan" were Europeans.

The decision to issue a certificate for 1,180 shares of the preferred stock of the petitioner in the name of "C. Jared Ingersoll, Agent", on December 28, 1931, was reached by the petitioner and by the two surviving voting trustees, under the "Hook Plan," C. Jared Ingersoll, and his father. C. Jared Ingersoll believed that he was acting as agent for the petitioner in holding that certificate. He became convinced during 1932 that there was little likelihood of any additional voting trust certificates being presented and that the certificate in the name of "C. Jared Ingersoll, Agent", was not entirely proper, so he surrendered the certificate to the petitioner. Thereafter, those shares were carried on the books as "Stock liability for conversion of preferred stock" and were so shown in reports to the I. C. C. and to stockholders and in income tax returns.

No one challenged Ingersoll's right to vote the 1,180 shares at the meeting of June 18, 1932. The voting of those shares was not necessary to insure any action taken at that meeting. Ingersoll voted the stock at that meeting without thinking whether or not it was proper to vote it. Thereafter, the unclaimed shares were never voted and the company did not consider that those shares were entitled to any vote.

C. Jared Ingersoll was ready, at all times while he held as agent a certificate for the unclaimed shares, to surrender shares for which stock trust receipts might be presented, and he thinks that thereafter the petitioner at all times stood ready to make a similar surrender.

The shares represented by undeposited stock trust receipts were authorized and issued stock of the petitioner and that stock has never been retired.