concurring: I agree with the reasoning and conclusions stated by the majority. The majority concludes that section 83(h) does not allow petitioner to deduct the value of stock that it transferred to 12 of its employees as compensation for services in the year of the transfer. The majority denies the deduction because none of the 12 employees included the value of the stock in income, and because petitioner did not qualify for safe harbors provided in applicable regulations that allow the employer a deduction if it meets certain withholding or reporting requirements. I concur to emphasize some points of agreement with the majority.
Judge Ruwe recognizes that his interpretation of section 83(h) raises questions about “the ‘equity’ of allowing a corporate deduction for compensation paid to its controlling shareholders and principal officers, who failed to report the same items as income.” Judge Ruwe’s dissent p. 267. I agree with the majority that Congress did not intend and the statute does not require the inequitable result that follows from the dissent’s reasoning.
HH
“Included”
Section 83(a) requires that a service provider (e.g., an employee) include the fair market value of property received from the employer in his or her gross income in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture. Section 83(h) allows an employer to deduct an amount equal to the amount “included” under section 83(a).
Judge Ruwe’s substitution of the word “includible”, Judge Ruwe’s dissent pp. 258-259, for the word “included” is at odds with our usual understanding of these and analogous terms. I agree with the majority that the “ed” ending and the “ible” (or “able”) ending have different meanings. The “ed” ending refers to something done in fact, e.g., an expense “deducted”, income “reported”, or an item “recognized” in computing gross income. Majority op. p. 240. The “ible” (or “able”) ending refers to something legally required, such as “reportable” income, or permitted, such as a “deductible” expense. Id. Consistent with those usual meanings, the majority properly reads “included” to require that the amount has in fact been included in income. Majority op. pp. 240-241.
Section 83(a) says that the fair market value of certain property “shall be included” in the gross income of a service provider in the first year the property is not subject to a substantial risk of forfeiture. The majority, majority op. p. 239 and Judge Ruwe’s dissent p. 258, correctly point out that section 83(a) imposes a legal obligation on the recipient of property. Congress could also have imposed that obligation by saying that the fair market value of the property is “includible” in the recipient’s income. See sec. 88 (nuclear decommissioning costs are “includible” in gross income).
Judge Ruwe’s dissent uses the word “included” in section 83(a) to construe the word “included” in section 83(h). Although the choice of “included” or “includible” in section 83(a) would not affect our reading of that subsection, Judge Ruwe’s dissent’s substitution of “includible” for “included” in section 83(h) would dramatically change the meaning of that subsection.
From the fact that Congress might have accomplished its purpose in section 83(a) equally well by saying “includible” instead of “included”, Judge Ruwe reasons that Congress meant “includible” in section 83(h) where it used “included”. Judge Ruwe’s dissent pp. 258-259. The dissent in essence relies on the maxim of statutory construction that if Congress uses the same term in two places in the statute, we should give it the same meaning.
Maxims of construction are useful interpretative tools but are not dispositive. The dissent overlooks the different purpose and context of sections 83(a) and (h). The same word or phrase appearing in different places in the internal revenue laws may have different meanings depending on the context and legislative purpose involved. See Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 86-88 (1934); Helvering v. Morgan’s Inc., 293 U.S. 121, 128 (1934). The context of section 83(a), an income inclusion provision, is different than that of section 83(h), a deduction provision. While the term “includible” is interchangeable with “included” in section 83(a) without affecting the result, it is definitely not interchangeable in section 83(h). The effect of applying the maxim regarding consistent use of terms here would be to override the plain meaning of the term “included” in section 83(h) and to significantly alter the meaning of section 83(h).
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The 1995 Regulations
Judge Ruwe’s dissent does not take into account the 1995 amendments to the section 83(h) regulations or the accompanying preamble, both of which shed important light on the issue in dispute here.
The 1995 regulations under section 83(h) provide a safe harbor under which a service provider is deemed to have included an amount as compensation in gross income if the person for whom the services were performed timely meets Form W-2 or Form 1099 reporting requirements under section 6041 or 6041A. Sec. 1.83-6(a)(2), Income Tax Regs. The preamble accompanying the 1995 amendments to those regulations states that, absent qualification under that special rule, the employer must show that the employee “actually included” the amount in income in order to support its deduction of the amount. T.D. 8599, 1995-2 C.B. 12, 12-13.
The 1995 amendments to the section 83(h) regulations and the preamble accompanying them show that the Commissioner’s interpretation of section 83(h) is the same as that of the majority. This is shown by the preamble to the 1995 regulations, which states in part:
Because of the potential difficulty of demonstrating actual inclusion by the service provider, a special rule provides that, if the service recipient timely complies with applicable Form W — 2 or 1099 reporting requirements under section 6041 (or 6041A), as appropriate, with respect to the amount includible in income by the service provider, the service provider is deemed to have included the amount in gross income for this purpose. * * * [T.D. 8599, supra, 1995-2 C.B. at 13.]
A safe harbor is needed only if the interpretation of the majority is correct. This is so because the purpose of the safe harbor is to ease an employer’s potential difficulty of proving that an employee actually included the fair market value of property in income.
If Judge Ruwe’s reading of the regulations in effect from 1978 to 1995 (i.e., that an employer may deduct the fair market value of property given to an employee whether or not the employee includes that property in income) is correct, then the 1995 regulations are a total reversal in position by the IRS. The preamble to the 1995 regulations indicates that this interpretation is incorrect. The IRS did not reverse its position on this fundamental issue. T.D. 8599, supra, 1995-2 C.B. at 12-13. In describing the regulations in effect from 1978 to 1995, the preamble states:
In light of the difficulty that a service recipient may have in demonstrating that an amount has actually been included in the service provider’s gross income, the general rule in former section 1.83-6(a)(l) permitted the deduction for the amount “includible” in the service provider’s gross income. * * * [T.D. 8599, supra, 1995-2 C.B. at 12.]
After describing a special rule provided in the regulations in effect from 1978 to 1995 (reasonably characterized as a safe harbor by the majority, majority op. p. 244), the preamble continues as follows:
The special rule was designed to ensure that the service recipient’s deduction was in fact offset by a corresponding inclusion in the service provider’s gross income. * * * [T.D. 8599, supra, 1995-2 C.B. at 12.]
The “difficulty’ to which the first of these two quotes refers is the service recipient’s task of proving that a service provider included the fair market value of property in income. The regulations in effect from 1978 to 1995 presented that “difficulty”, prompting the IRS to provide a safe harbor. Thus, the preamble accompanying issuance of the 1995 regulations shows that the meaning of “included” in section 83(h) was the same before and after 1995 and is as the majority holds.
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Judge Ruwe s Dissent’s Concerns About Practicality
Judge Ruwe’s dissent is concerned that the result reached by the majority leads to a rule compliance with which is “impractical, if not impossible” for employers and employees or other service providers. Judge Ruwe’s dissent pp. 262, 264. Maybe it is impractical to expect the employer to have this level of cooperation from its (typically, key) employees to which it has distributed property. But if we are to consider those impracticalities, we should also compare the employer’s difficulties to those faced by the IRS when, as here, employers and their key employees play “hide the ball” with the result that the employer can deduct the fair market value of property under section 83(h) which has not been included or reported in income by the recipient of the property.
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Conclusion
For the foregoing reasons, I agree with the reasoning and conclusions of the majority that petitioner may not deduct the value of stock that it transferred to its employees in 1988 under section 83(h).
Chabot, Swift, Jacobs, Gerber, Parr, Foley, and Vasquez, JJ., agree with this concurring opinion.