concurring: The majority’s interpretation of section 6663(a) leads to the conclusion that an executor who, in anticipation of incurring future administration expenses, deducts those expenses on the estate tax return, knowing full well that such expenses are not deductible until incurred, will avoid any section 6663(a) penalty with respect to his action even if the Court finds that he acted with fraudulent intent, so long as the expenses eventually are incurred. Cf. Summerill Tubing Co. v. Commissioner, 36 B.T.A. 347 (1937) (fraud in corporate return on account of fictitious purchases, which masked embezzlement; statutory period of limitations extended on account of fraud; no deficiency on which to base addition to tax for fraud because of offsetting theft-loss deduction). As a matter of policy, I question such result. Nonetheless, I think that it is compelled because of the structure and historical development of the section 6663(a) fraud penalty.
As a matter of arithmetic, section 6663(a) contains an equation, in which the amount of the fraud penalty equals the product of a multiplier (“75 percent”) and a multiplicand (“the portion of the underpayment which is attributable to fraud”). Section 6663(a) is ambiguous, however, as illustrated by the debate between the majority and Judge Ruwe. The issue is whether we are to determine one aspect of the multiplicand (the underpayment) as of the time the return is filed or as ultimately determined. Since the term “underpayment” is defined in section 6664(a) without any temporal qualification, the focus is on the phrase “of tax required to be shown on a return”, which modifies the term “underpayment” in section 6663(a).1 I am persuaded that the majority has reached the right result on the basis of both the history of section 6663 and a textual analysis.
The relevant history concerns the evolution of the 1939 Code into the 1954 Code. An adequate summary of that history is provided in Judge Chabot’s concurring op. pp. 66-68. The important point is that, in 1954, Congress’ purpose was to consolidate and revise many of the 1939 Code fraud provisions. Under the 1939 Code, as described in the report of the Committee on Finance, see Judge Chabot’s concurring op. pp. 67-68, there were two models for imposition of a fraud addition. For all taxes, there was a 50-percent addition in the case of fraud. The base (the multiplicand), however, differed as between the income, estate, and gift taxes, on the one hand, and all other taxes on the other hand. The multiplicand for the former group was the amount of the deficiency in tax. See, e.g., sec. 293(b), I.R.C. 1939. For all other taxes, the multiplicand was the amount of tax due. See sec. 3612(d)(2), I.R.C. 1939. For the 1954 Code, as stated in the report of the Senate Finance Committee, Congress chose the income tax model for all taxes for which returns are due. The 1939 provision, section 293(b), provided as follows:
Fraud. — If any part of any deficiency is due to fraud with intent to evade tax, then 50 per centum of the total amount of the deficiency (in addition to such deficiency) shall be so assessed, collected, and paid, in lieu of the 50 per centum addition to the tax provided in section 3612(d)(2).
The term “deficiency” was defined in section 271 of the 1939 Code much as it is defined both in the 1954 Code and today, and much as the term “underpayment” is defined in section 6664(a). I do not read any temporal qualification into the multiplicand in the 1939 Code income tax fraud equation, and, for that reason, I do not think that Congress intended one to exist today. Such a qualification would have been a significant change, and I think that the lack of any mention of such a change in the legislative history is persuasive that one was not intended.
With respect to the text of section 6663, the object of the adjectival prepositional phrase “of tax required to be shown on a return” is the immediately preceding noun “underpayment”. The phrase does not modify the second use of the noun “underpayment” in subsection (a), which second use is in the actual penalty equation, nor does it modify any use of the noun “underpayment” in subsections (b) and (c). If Congress had intended the phrase to be a temporal qualification on the term “underpayment” for purposes of the penalty equation, then it is unlikely that Congress would have merely implied such qualification in the equation.
Also, Congress used the indefinite article “a”, supporting the majority’s interpretation that the phrase “required to be shown on a return” is a general qualification, rather than the definite article “the”, which would support Judge Ruwe’s interpretation that the phrase is a temporal requirement regarding the return.
Swift, Whalen, Beghe, and Gale, JJ., agree with this concurring opinion.In pertinent part, the term “underpayment”, as defined in sec. 6664(a), is the difference between “the tax imposed by this title” and “the amount shown as the tax by the taxpayer on his return”. Notwithstanding that the majority says that the issue before the Court is whether the underpayment “is determined based solely on expenses which are included on the Federal estate tax return, or based on all deductible expenses including deficiency interest and professional fees which arise after the filing of the return”, majority op. p. 57, the issue is plainly whether sec. 6663(a) specifies a time (the time for filing the return) for determining the minuend (i.e., the “the tax imposed by this title”) in the sec. 6664(a) equation. With respect to the question of statutory interpretation facing us, the subtrahend (i.e., “the amount shown as the tax by the taxpayer on his return”) is invariable. Thus, a taxpayer can reduce the sec. 6663(a) fraud penalty by proving deductions available at the time the return was filed but omitted therefrom. Cf. Summerill Tubing Co. v. Commissioner, 36 B.T.A. 347 (1937) (discussed in the text). The majority’s mischaracterization is of no consequence in calculating the relevant difference.