(dissenting).
The majority of this court adopts an arbitrary rule of exclusion to be applied in tax cases. Both the Commissioner and the majority admit that it is a new rule. To achieve its result, the majority has had to overrule not only a long line of decisions of this court, but, in my view, has disregarded a long line of decisions of the United States Supreme Court holding to the contrary. It admits, as it must, that there is no judicial precedent for its decision.
Since Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, the United States Supreme Court has consistently held “In order, therefore, that the clauses cited from article 1 of the Constitution may have proper force and effect, save only as modified by the amendment, and that the latter also may have proper effect, it becomes essential to distinguish between what is and what is not ‘income,’ as the term is there used; and to apply the distinction, as cases arise, according to truth and substance, without regard to form.” Id. at 206, 40 S.Ct. at 193. (Emphasis added.) That case was decided in 1919. This was reiterated in Weiss v. Stearn, 265 U.S. 242, 253, 44 S.Ct. 490, 68 L.Ed. 1001 (1924), and the Court stated that “Questions of taxation must be determined by viewing what was actually done, rather than the declared purpose of the participants; and when applying the provisions of the Sixteenth Amendment and income laws en*780acted thereunder we must regard matters of substance and not mere form.” 265 U.S. at 254, 44 S.Ct. at 492.
Again in Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935), the Court went behind a formal compliance with the tax-free reorganization provisions, stating that “To hold otherwise would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose.” Id. at 470, 55 S.Ct. at 268. The very next year in Helvering v. Tex-Penn Oil Co., 300 U.S. 481, 57 S.Ct. 569, the Supreme Court affirmed the judgment of this circuit, 83 F.2d 518 (C.A.3, 1936), that the recitals of a written contract could be rebutted by extraneous evidence if necessary to show the real agreement; indeed “ * * * in determining tax liability, taxing authorities must look through form to fact and substance.” 300 U.S. at 492-493, 57 S.Ct. at 574, quoting 83 F.2d at 522.
Later in Helvering v. F. & R. Lazarus & Co., 308 U.S. 252, 60 S.Ct. 209 (1939), the Court said “In the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities, and formal written documents are not rigidly binding.” Id. at 255, 60 S.Ct. at 210. The rule of these cases has been applied in hundreds of other cases and by all courts of appeal.1
Although citing no authority, the majority asserts that the obligation to ascertain the substance of a transaction does not apply in this case because here it is one of the parties rather than the Commissioner who seeks to show that the substance of the transaction differed from its form. This proposition does not follow from the cases; in both Helvering v. F. & R. Lazarus, supra, and Helvering v. Tex-Penn Oil Co., supra, the victorious taxpayers had attacked the form in which the transactions were cast, and the Commissioner had relied on the formal arrangement.2
Indeed the very question presented here was directly passed upon by the Supreme Court in Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547 (1947). There the Court of Appeals for the Eighth Circuit had held that although “ * * * such a contract was not binding on the Government, they thought it was binding on the parties and would control liability for employment taxes if the Bureau of Internal Revenue chose to accept the arrangement as valid.” 332 U.S. at 129, 67 S.Ct. at 1549. The Court went on to say
“ * * * The argument of respondents [the Commissioner] to support the administrative interpretation of the regulations is that the Government may accept the voluntary contractual arrangements of the amusement operators and entertainers to shift the tax burden from the band leaders to the operators. Cases are cited to support this position. All of these cases, however, involve the problem of corporate or association entity. They are not pertinent upon the question of contracts to shift tax liability from one taxpayer to another wholly distinct and disconnected corporation or individual. We do not think that such a contractual shift authorizes the Commissioner to collect taxes from one not covered by the taxing statute." 332 U.S. at 131-132, 67 S.Ct. at 1550.
(Emphasis added.)
*781That the rule for which the Commissioner sought the Supreme Court’s approval in Bartels is precisely the rule which the majority has adopted today is clearly pointed up by the dissent in Bartels, where it was contended that “If the Government chooses to accept the contract on its face, the parties should be Larred from showing that it conceals the real arrangement.” 332 U.S. at 133, 67 ■S.Ct. at 1551. The majority would distinguish Bartels on the ground that it involved social security taxes, but the •entire basis of the decision, as pointed out above, was the long-established rule of looking to substance rather than form, which is applicable to all tax cases and •certainly to income tax cases. See cases supra.
Section 7453 of the Internal Revenue Code of 1954, 26 U.S.C. § 7453 (1955) provides in part: “The proceedings of the Tax Court and its divisions shall be conducted * * * in accordance with the rules of evidence applicable in trials "without a jury in the United States District Court of the District of Columbia.” This section is the successor to § 907 (a) of the Act of 1926, 44 Stat. at 107, incorporated in the United States Code at Section 611, and re-enacted in the 1939 Code as Section 1111. After 1926, and as enacted in 1939, this section provided that the proceedings before the Board of Tax Appeals should be conducted “ * * in accordance with the rules of evidence applicable in the courts [of equity] of the District of Columbia.” The omission of the reference to equity rules in the 1954 version of the section was merely to modernize the rule, especially to bring it into conformity with the procedural merger of law and equity accomplished under the Federal Rules of Civil Procedure.
I think that this court is bound by this section of the statute and must look to the District of Columbia for its laws as to the admissibility of the evidence offered by the taxpayers in this case. The purpose of Section 7453 and its predecessors was to avoid exactly what has occurred in this case by reason of the majority opinion; that is that the several circuits were to be precluded from adopting their own rules for tax cases and thus create conflicting rules. The majority attempts to avoid the thrust of the statute by holding that the parol evidence rule is a rule of substantive law and not a rule of evidence. We need not go into the semantical problem, compare McCormick, Evidence § 210 (1954) with Corbin, Contracts § 573 (1960) and Restatement, Contracts § 237 (1932), because whether it be one or the other, the statute covers it. As the Supreme Court held in Helvering v. F. & R. Lazarus & Co., “ * * * Congress has specifically emphasized the equitable nature of proceedings before the Board of Tax Appeals by requiring the Board to act ‘in accordance with the rules of evidence applicable in courts of equity of the District of Columbia.’ 26 U.S.C. § 611.” 308 U.S. at 255, 60 S.Ct. at 210.
We have taken cognizance of this provision of the Code in the past and have even gone so far as to apply an Erie R.fí.-type extrapolation as to how the District of Columbia courts would decide a particular issue. Masters v. C. I. R., 243 F.2d 335, 338-339 (C.A.3, 1957). The District of Columbia rule to be applied here is clear. In Landa v. C. I. R., supra, where the court held that the taxpayer could introduce extraneous evidence to attack the written documents, it stated:
“ * * * Generally, ‘[i]n the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities, and formal written documents are not rigidly binding.’ The taxpayer as well as the Commissioner of Internal Revenue is entitled to the benefit of this rule.” 206 F.2d at 432. (Emphasis added.)
Thus, the cardinal maxim of equity that equity looks to substance, not to form, has been imported into tax jurisprudence by the United States Supreme Gourt in numerous cases, supra, and forms part of the body of equitable rules of admissibility of the District of Co*782lumbia, Landa, supra, which we are obligated to apply in the tax cases under § 7453. By finding that the taxpayers extraneous evidence has no independent legal significance, the majority not only disregards law as settled by the Supreme Court, but also an explicit command of Congress.3
The policy basis of the majority seems to be that allowance of the attack on the consideration allocated to the covenant may cause the promisee to “ * * * lose a tax advantage it had paid the selling-taxpayers to acquire.” However, as I read this, it opens the door wide for individuals to avoid tax consequences by artifices such as we have in this case. This result is an invitation to tax evasion. As was said of contracts to shift the tax liability from one taxpayer to another in the Bartels case, “We do not think that such a contractual shift authorizes the Commissioner to collect taxes from one not covered by the taxing statute.” 332 U.S. at 132, 67 S.Ct. at 1550. As was stated in the second Landa opinion, “Whenever taxation is allowed to depend upon form, rather than substance, the door is opened wide to distortions of the tax laws which, after all, represent the legislative judgment for an equitable distribution of the tax burden generally.” 93 U.S.App.D.C. 265, 211 F.2d 46, 50 (1954).
The danger of distortion of the tax laws is particularly acute in this area. As noted by the majority, since the “amount allocable to a covenant not to compete is amortizable by the buyer and ordinary income to the seller, it generally does not matter what amount is allocated.” (Emphasis added.) The majority would have the Commissioner attack such an allocation only where the Government would suffer a net loss in revenue, apparently disregarding in all other cases the question whether the allocation was an artifice without “ [arguable] independent basis in fact or arguable relationship with business reality,” the test heretofore applied by the various circuits and the Tax Court and the Supreme Court. The difficult burden of showing fraud, etc. placed upon the parties by the majority virtually insures that knowledgeable buyers will engage in questionable and sharp dealing to secure the advantages of such covenants, and the majority’s rule will shield their agreements. I cannot condone this invitation given by the majority.
The unfairness of the application of the new doctrine to this particular case can best be indicated by reciting the argument advanced by the taxpayers. “Although the Court has not asked to be *783briefed on the point, attention must be directed to the inherent unfairness of permitting the Commissioner to cast doubt on the admissibility of parol evidence in his post-hearing brief, where he has failed to object to its admissibility when offered. Not only is time wasted by this procedural irregularity, but Respondents are prejudiced in that the evidence which they offered without objection of the Commissioner supported their basic theory of the case. Had Respondents been put on notice of the Commissioner’s position, they could well have devoted their efforts to proving fraud, mistake, or undue influence, which are recognized by the Commissioner as exceptions to the parol evidence rule.”
The taxpayers, at the hearing in the Tax Court, relied upon the rule that has prevailed since Eisner v. Macomber, and the Tax Court itself relied upon the rule. As pointed out by the Tax Court, the rule it applied in these cases was that that court would not restrict itself to the written documents but would give great weight to them, so that the burden was upon the taxpayers to adduce “strong proof” to establish that the allocations of purchase price to the covenants did not reflect the substance of the agreement entered into by the parties. 44 T.C. 549, 555-56 (1965). It is notable that most of the cases relied upon by the Tax Court and cited by the majority purport to apply this same rule.
Even a casual reading of the record in this case indicates that a strong case can be made out for the taxpayers based upon fraud. The majority has stated that if it were not for this new rule, the factual findings of the Tax Court would compel this court to affirm the judgment in the taxpayer’s favor.
I would affirm the Tax Court.
KALODNER and WILLIAM F. SMITH, Circuit Judges, join in this dissent. '. See e.g., Palmer v. C.I.R., 354 F.2d 974, 975 (C.A.1, 1965); Lubin v. C.I.R., 335 F.2d 209, 213 (C.A.2, 1964); Ruoff v. C.I.R., 277 F.2d 222, 229 (C.A.3, 1960); Meiselman v. C.I.R., 300 F.2d 666, 668 (C.A.4, 1962); Cotnam v. C.I.R., 263 F. 2d 119, 122, 124, 70 A.L.R.2d 1035 (C.A. 5, 1959); Broughton v. C.I.R., 333 F.2d 492, 495 (C.A.6, 1964) ; Sherwood Memorial Gardens v. C.I.R., 350 F.2d 225, 228 (C.A.7, 1965); Schoenberg v. C.I.R., 302 F.2d 416, 418-419 (C.A.8, 1962); Shaw Constr. Co. v. C.I.R., 323 F.2d 316, 319-320 (C.A.9, 1963); Lacy v. C.I.R., 341 F.2d 54, 56-57 (C.A.10, 1965); Lauda v. C.I.R., 92 U.S.App.D.C. 196, 206 F.2d 431, 432 (1953); Sheppard v. United States, 361 F.2d 972, 977-979 (Ct.Cl., 1966).
. See e.g., Frelbro Corp. v. C.I.R., 315 F.2d 784, 786 (C.A.2, 1963); Landa v. C. I. R., supra, discussed infra.
. Although I do not ground my dissent on these bases, it should be noted that even were the parol evidence rule applicable in these cases, it should not be applied here because it is always open to the parties to show that the true consideration for the agreement was other than that recited in the written contract. The Tax Court, this court and others have recognized this exception. In Haverty Realty & Inv. Co., 3 T.C. 161, 167 (1944), it was said that:
“ * * the recitals of a written instrument as to the consideration received are not conclusive, and it is always competent to inquire into the consideration and show by parol or other extrinsic evidence what the real consideration was.’ Deutser v. Marlboro Shirt Co. (C.C.A., 4th Cir.), 81 Fed. (2d) 139, 142, citing many authorities.” See also, Richards v. Boyd, 344 F.2d 754 (C.A.3, 1965); Diesel Heat & Power, Inc. v. Dixon Marine Indus. Power Transmission, Inc., 232 F.2d 217 (C.A.5, 1956); Patterson v. Texas Co., 131 F.2d 998, 1000-1001 (C.A.5, 1942), cert. denied, 319 U.S. 761, 63 S.Ct. 1318, 87 L.Ed. 1712 (1943). It is also generally well settled that a third party cannot assert the parol evidence rule. E.g. Bardwell v. C.I.R., 318 F.2d 786, 790 (C.A.10, 1963), aff’g 38 T.C. 84, 90 at n. 2 (1962); Thorsness v. United States, 260 F.2d 341, 345 (C.A.7, 1958); Landa v. C.I.R., supra; Scofield v. Greer, 185 F.2d 551, 552 (C.A.5, 1950); Haverty Realty & Inv. Co., 3 T.C. 161, 167 (1944) and cases cited therein.