*1 agree. Appel- pursue this action. We Wynne proper- that Dr. failed to lant’s claim MINNESOTA, BANK SECURITY ly diagnose heart attack is not the kind of his Appellee, alleged negligence “speaks case where v. expert opinion. for itself’ without medical COMMISSIONER OF INTERNAL Hospital, Eitel 306 Minn. See Todd v. SERVICE, REVENUE (distinguishing- N.W.2d Appellant. properly diagnose malignancy, failure to require expert testimony, which would No. 92-2247. sponge body following having a inside sur- not). gery, which would We hold the district Appeals, United States Court of appellant’s in dismissing court did not err Eighth Circuit. malpractice prejudice. claim with medical Submitted Dec. May Decided
V.
Appellant argues that also the federal Wynne Dr.
appellees and violated the re 144.651,
quirements of the state Minn.Stat. rights.” argues summary
medical “bill of He appropriate genu
judgment was because
ine issues of material fact existed. The dis summary judgment
trict court found that because, beyond general warranted
was appellees and Dr.
allegation that federal statute,
Wynne appellant violated this had provision stated which of the statute
neither provided specific nor facts
was violated Bellecourt,
supporting allegations. his agree appellant
F.Supp. at 636. We did genu facts to raise a
not establish sufficient trial, the district court
ine issue for and hold summary judgment in granting err in Wynne. appellees and Dr.
favor of the federal the order of the
Accordingly, we affirm dismissing appellant’s FTCA court
district
claims, summary judgment on granting disposi- Given our
appellant’s other claims. (No. 92-1818), we do not appeal
tion of self-styled Wynne’s of Dr.
reach the merits (No. 92-2002) and dismiss cross-appeal
appeal as moot. *2 year
taxable 1986. The case arises on facts stipulated before the tax court. Security Bank (Security) Minnesota is a Lea, small commercial in bank Albert Minne- sota, rural, agricultural community. It is a corporation Minnesota principal its place of business in Minnesota. Much of Security’s agricultural business consists of operating loan’s to farmers. times,
At all Security material was a bank as defined in During Security duration, made varying loans of in- cluding year, year, loans of less than one one and more than one These loan trans- Bricken, Dept, Justice, actions by one-page prom- Charles were documented Wash- DC, Allen, (Gary issory ington, argued signed by *3 debt instruments. of bonds and other ment Y The Commissioner’s Category Loans. court, tax “the common According to the Security’s income for increase to proposed (i.e., in Part V $48,- thread of the sections included deficiency alleged in an of resulted 1986 1271-1288) that amounts defined sections tax. Security’s 1986 income Securi- in 437.80 account as are to be taken into as discount tax timely petition a with the ty filed then appropriate ordinary in some man- court, § that 1281 did which held I.R.C. court con- Op. Tax at 14. The ner.” Court un- interest on require the accrual of stated to read the cluded it would have in the bank loans made discounted it turned to provisions in that context. When appeal followed. This course of business. statute,'the tax court noted the text provides: § I.R.C. 1281 defining in the short-term (a) any rule. —In the case of General rules, Congress spoke by the accrual covered this section to which short-term issued, but in that are terms title— applies, purposes for of this According to the tax mention loans. did not in the there shall be included court, Congress intends to cover loans when an gross income of the holder amount “loan” purposes, tax it uses the terms for daily portions the equal to the sum of in Failure use those terms “made.” discount[3] day acquisition for each the § § convinced the tax court 1283 1283 during year which such the taxable clearly extend to bank loans made in did not obligation, and holder held such the course of business. (2) any payable on the obli- court then turned to the The tax (other taken into gation than interest enacting history. It determined determining the amount of account in 1283, Congress intended to through discount) acquisition shall be includ- taking prevent taxpayers from advan- certain gross it accrues. ed in income as deferral of dis- tage of the rules for applies to short-term Section 1281 purchased obligations, and that such count on by taxpayers, includ- held certain classes of to loans such as purpose a did ... ing “any obligation which Security’s, purchased which are not and car- (as by a bank defined held ry discount. no 1281(b)(1)(C). 581)....” Finally, a I.R.C. obligation, purposes for II. DISCUSSION bond, debenture, note, “any is defined as certificate, pre In the issue other of indebtedness order to understand evidence here, necessary. maturity background is a fixed date not more sented some which has 1281(a)today requires the accrual of year than 1 from the date of issue.” I.R.C. While 1283(a)(1)(A). origi as stated interest well ac enacted in 1984 nal version B. The Tax Court Decision issue crual 1281(a)(2), requiring the The tax court held that did not discount. Section interest, as a of stated was enacted require banks accrual intend to rate, unconditionally payable at fixed Acquisition discount is defined as the excess of fixed (as during price maturity periodic or less redemption de- intervals of the "stated at instrument).” 1273), taxpayer's term of the debt fined in section over the basis entire essence, 1283(a)(2). 1273(a)(2). obligation.” discounted Sec- for turn, pays gation purchaser than its redemption is one that the less defines "stated tion acquire. maturity" redemption For price value to at as "the amount fixed $800 may purchase dollars purchase agreement and investor a bond modification of the last upon $1000 two payable pay will him includes interest and other amounts (other years. that time than interest based on mandatory ac- by the are not covered Act of loans in the Tax Reform correction technical Security, According to when crual rules. Pub.L. (1986). the tax treat- wishes to deal with Both Stat. loans, the terms “loan” uses agree that addition ment the Commissioner of obli- expand the kinds “made.” mandatory accrual subject gations language reads 21-22; Appel- Br. at Appellant’s rules. See ini- differently. claims quite It question deci- Br. at 7. lee’s obligations, see tially covered all short-term ultimately whether as becomes sion bank, 1283(a)(1)(A), by a held obligations covered enacted 1281(b)(1)(C). or not. See ordi- made in the included bank (notes question are short-term nary course of business. *4 not more than one a date with fixed issue),4 Security year from the date The Parties’ Contentions A. Therefore, the rea- a bank. Commissioner inter- vastly differing provide parties sons, Security accrue the interest on must statutory language, pretations of these loans. clearly sup- language that the contend both disputes con- The Commissioner position. ports their “acquisition of the term tention that use drafted, Security that as claims 1281(a) § limits the in discount” obligations purchased only to applied § 1281 obligations. § 1281 to discounted Security parties at a discount. third § limit- is not notes that 1281 Commissioner acquisition dis- to the references points to specific in a obligations “acquired” ed to and ar- §§ in count speaks obligations manner. The statute only to applies § investors gues that bank; distinguish by be- held it does i.e., “acquire” short-term obli- purchase, who regard with to how tween to tax- acquisition discount and gations them, but possess to holder came “acquire” purchase or payers who possess in fact them. quires the holder obligations in- nongovernmental 1281(b)(1)(C). Second, the Commis- § See In further discount. volving original issue 1281(a) nothing in can claims that sioner points to argument, support of this scope of the covered limit the in Part V sections other the use various 1281(a) purport does not § 1281because of terms (e.g., §§ scope of 1281. define the Section price, and issue. Secu- agreement, purchase, subject to designates which the effective date rity also notes 1281(a) rules; simply tells one the accrual always been stated terms 1281 has covered. if the what to do date, after a certain “acquired” instruments contends that further Mis- 1985. Technical and December now being “issued” the reference Act of Pub.L. Revenue cellaneous 1283(a)(1)(A) ambiguity whatso- creates no (1988); 100-647, 1018(c)(1), 102 Stat. argues, with cita- Commissioner ever. The Act of also Deficit Reduction see the Uniform Com- law and tions to common (“ob- 98-369, 44(d), 98 Stat. 560 Pub.L. No. Code, merely refers that “issue” mercial the date of enact- acquired after ligations delivery of the note or 18,1984), Act of ment,” Tax Reform July sense, the obligor. In that by the holder 1803(a)(8)(A), Pub.L. No. contends, Security’s borrow- (amendments “[ejffec- 2085, 2794 Stat. they signed them notes when ers “issued” acquired after respect tive with proceeds. loan exchange for the 1985”). September plays down the Finally, the Commissioner the use also claims court found history that the tax definition of “short-term term “issue” claims that dispositive. The Commissioner bank demonstrates that obligation” in obligations, we reach these do not question are crual rules Security disputes loans in that the question. not reach ac- need we As determine Background might expressed to enactment though Congress have even only with discounted an intention to deal statutory interpretation, in all cases of As using initially, Congress drafted with the text of the statute. we must start enough to language that is broad §§ simply But we cannot focus as these. undiscounted loans such they through 1283 because do not exist Rather,
vacuum.
we must consider the con-
general statutory
provided
text
the more
Statutory Context
B. The
§§
part.
are a
scheme of which
1281 and 1283
argument has
The Commissioner’s
These sections are included within Part V of
force,
solely
if
considerable
one focuses
P, Capital
Subchapter
Gains and Losses.
§§
language
and 1283 and di
(titled
§§
Special
1271-1288
See I.R.C.
statutory con
from the broader
vorces them
Treatment of Bonds and Other Debt Instru-
Supreme ments).
But we cannot do that. The
text.
The common thread of these sec-
meaning
true
of a
tions,
noted,
Court has noted
“the
they
the tax court
is that
all
setting
in a
single section of a statute
the inclusion of discount in income.
concern
acts,
complex
See,
(ti-
however
A,
as that of the revenue
e.g., Subpart
§§
1271-1275
precise
language,
Discount);
B,
cannot be ascertained if
its
Original
Subpart
tled
Issue
sections,
(titled
apart
from related
be considered
1276-1278
Market Discount
*5
history
Bonds);
C,
if
Subpart
§§
the mind be isolated from the
I.R.C.
1281-1283
(titled
legislation of which it is an
Obligations).
the income tax
Discount
Short-Term
Inc.,
added,-
integral part.” Helvering Morgan’s,
entirety,
part
v.
Part
as
V was
its
121, 126,
60, 62,
1984,
293
55 S.Ct.
79 L.Ed.
the Deficit Reduction Act of
which
U.S.
(1934).
Court,
especially
According
important
the con makes it
to treat it as a
232
“
struing
duty
interpre whole.
In order to further
court’s
‘to find that
understand the
1283,
statutory
§§
fairly
through
context of
1281
can most
be
to
tation which
said
be
statute,
we must understand how Part V evolved.
being
imbedded in the
the sense of
most harmonious with its scheme and with
V,
Prior to the
of Part
enactment
general purposes
mani
holder of a debt instrument issued at a dis-
”
Engle,
fested.’ Commissioner v.
464 U.S.
(subject
exceptions)
count was
to
to
206, 216,
597, 604,
104
ly discount, covered loans without as the 1283(a)(2). § gation.” I.R.C. Section contends, provide it would lan- 1273(a)(2), turn, redemp- defines “stated guage clearly stating such an intention. We price maturity” tion at as “the amount fixed statutory next examine the text to see if it purchase the last modification of the contains such clear statement. agreement.” parlance, In common bank having “price” loans are not referred to as statutory 2. The text being “purchase agree- or in a memorialized statutory We conclude that the text does “origi- ment.” Thé same is true of the term clearly obligations containing only not cover Original nal issue discount.” issue discount First, nothing stated interest. in either the obligation’s is defined as the excess of an sections at issue or in the broader maturity” redemption price “stated over specifically bearing scheme refers to loans price.” its “issue Section defines “is- only stated interest made in the price” offering price sue as the “initial to the course of a bank’s business. public”- publicly in the case of offered debt Second, “price paid by we conclude that the actual text of instruments or the the first provisions ambiguous buyer” regard Again, is to for other debt instruments. price” “buyer” whether such are covered. terms such as “issue On hand, everyday the one points generally as the Commissioner associated with bank Security’s. obligation depend upon believe that the is covered cannot loans such as We ambiguity According to it contains discount. to use of terms adds as whether Commissioner, 1281(a)(2) § initially requires § 1281 as drafted covered any in the accrual of on “the bank loans made course stated interest gation,” obligation” and that “the can business. refer to the first sentence of which , Finally, the definition “short-term obli- provides that accrual “[i]n is 1283(a)(1)(A) ambigu- gation” found in case of to which The definition of short-term ous. ” Thus, applies.... according this section to maturing specifically refers 1281(a)(2) Commissioner, § bypasses year “from the date of issue.” It within one operate and must not, however, specifically refer to loans. does without discount. Commissioner, above, provides as noted plausible reading one of the term “issue.” language We are not convinced that the provides specific no evi- as clear as the Commissioner contends. suggest Congress noted, dence used the as we have enacted, term in that sense in howev- “issue” limiting can scope be read as alternative, Security provides Again, er. “obligations to which applies” [§ 1281] code, plausible reading. Throughout the tax case, obligations containing discount. In that lending when wants to refer to the referent obligation” for the term “the transactions, 1281(a)(2) “loan” it uses the terms is limited to discounted obli- example, § “made.”7 For com- Second, defines gations. the internal structure of mercial banks such as “a entities suggests that it is limited to part substantial of the business of which excepts The section receiving deposits making consists of from its interest taken into account in loans_” added). determining the amount 279(c) Similarly, lending fi- defines any acquisition discount. Use “a making nance business as business of suggests the definite article “the” to us purchasing discounting loans or accounts any obligation subject receivable, notes, obligations.” or installment would be an containing discount. 279(c)(5) Given We thus cannot conclude when initial- Congress generally refers loans when ly drafting § language used *7 loans, considering the tax treatment of and unambiguously that included Congress specifically distinguishes that be- containing acquisition original issue dis- notes, making tween purchasing loans and ambiguity, count. Because of this we must Congress’ failure use terms such as “loan” history consult legislative surrounding the 1283(a)(1)(A) §in and “made” at least cre- passage the of 1281. ambiguity as to whether the ates definition of purposes short-term for of the Legislative history discount accrual rules includes loans such as legislative history An examination of the these. of 1281 convinces us that intended contends, however, The Commissioner that obligations, to deal with discounted and not the structure of demonstrates undiscounted loans made in the Congress initially that intended to cover business, of course when it enacted Security’s. loans such as argues operates indepen- that The first reference to what became 1281(a) dently of February and thus is found 593(d)(1)(D), 675(2), 856(c)(2)(G), 7. A review of the code demonstrates that Con- gress consistently employed 857(b)(6)(D)(v), has 904(d)(5)(A), 954(c)(1)(E), the terms "loan” lending and "made” to describe transactions. 993(b)(8), 1250(a)(l)(B)(iv), 1272(a)(2)(E), 42(i)(2)(C), 25(g), 72(p)(2)(A); See I.R.C. 4975(d)(1), 6047(e)(2), 1382(g)(1)(B), 2503(g)(1), 108(f)(2)(D), 133(b)(2), 141(c)(1), 143(a)(2)(D), - 6103(1 )(3)(C)(i), 7507(a), 7701(a)(19)(C)(v), and 144(b)(1), 147(b)(4)(B), 148(c)(2), 149(b)(2)(B), 7872(b)(1). 267(f)(3)(C), 279(c), 312(i), 503(c), 542(d)(1), interest on by the of deductions indebtedness pamphlet prepared Staff hearing purchase carry Taxation. Staff of on used to short-term dis- the Joint Committee Taxation, Proposals Re- on Joint Committee counts Tax-Moti- lating Tax and Other Shelters Summary of Committee Amendment to H.R. (J.Comm.Print 1984).
vated Transactions
(Tax
1984), Adopted
Reform Act of
proposed
interest
hearing pamphlet
that
The
Means,
Ways
on
and
98th
the Committee
carry
dis-
purchase or
incurred to
(Mar.
1,
Cong.,
2d Sess.
not be deductible
obligations should
count
added). This statement
illustrates that the
on
was
paid
until the interest
primary scope
purpose
legislation
of the
or,
alterna-
in the investor’s
included
the discount accrual rules to
was
purposes
accrued for
tively, the discount was
purchased
taxpayers
cash basis
short-
The
reporting income.
Id.
93-94.
obligations pursuant
term discount
tax-motivated
pamphlet described certain
leveraged purchase arrangement.
defer
in which investors could
transactions
The final bill was enacted after conference
a subse-
a discount
income on
describing
report
on June
1984. The
deducting
in-
year while
quent tax
bill demonstrates that the concerns raised
in a cur-
purchase
curred to
Ways
report
and Means Committee
were
rent tax
Id.
passed.
carried into the final bill as
In ex-
continued in the various
concerns
Such
plaining
the Joint Committee on Tax-
after the statute
reports prepared before and
ation
was intended to limit
stated
describing
adopted. For
was
scope
special
permitting
“the
of the
mies
law,
changing
reasons
original
deferral of
issue dis-
Ways
stat-
House
and Means Committee
leveraged pur-
ability
count” and “the
to use
permit
deferral
special
ed: “The
mies
chases of short-term discount
on ...
dis-
acquisition discount
tax on ordi-
special
within the
rules to defer
commonly
used to defer
count
Taxation,
nary
income.” Joint Committee
income,”
liability
“[t]he
tax
Explanation
Revenue Provi-
General
also is concerned
committee
Act
of the Deficit Reduction
sions
making leveraged purchases of
have been
(1984) (emphasis
Cong.,
98th
2d Sess.
special
rule at
obligations eligible for
added).
H.R.Rep.
year-end to achieve tax deferral.”
Cong.,
98th
2d Sess.
history
legislative
1281 as
pp.
printed in 1984 U.S.C.C.A.N.
initially enacted demonstrates
The committee
de-
reducing abuses sur-
was concerned with
committee as
passed
the bill as
scribed
allowing
special rules
deferral
rounding the
follows:
Nothing
in the
histo-
of discount.
limits the
bill
problems
ry
an intention to deal with
shows
acquisition dis-
permitting deferral of
ndes
obligations carrying
stated
surrounding
on short-
issue discount
count
interest.
*8
taxpayers
obligations.
term
Accrual basis
contends, however, that
taxpayers who ac-
and those cash basis
surrounding
history
the addi-
legislative
the
origi-
quire Treasury
and short-term
bills
re-
that it
demonstrates
tion of
of a
nal
the course
discount
obli-
of interest on short-term
quires accrual
required to ac-
or business will be
trade
In describ-
are not discounted.
gations that
original issue
acquisition or
count for the
stated:
change,
House Committee
ing the
the
Taxpayers
basis.
discount on the accrual
subject
taxpayers
The bill clarifies
change
change of ac-
as a
will treat
this
mandatory accrual are
to the rule
space
payment of
counting method and
the
in income for a taxable
quired to include
liability
years.
In
any
tax
over 10
net
allocable to
of interest
year all amounts
ability to use
the
addition the bill limits
obli-
respect to short-term
with
leveraged purchases
of
the inter-
irrespective whether
gations,
of
special rules to
gations within the
defer
acquisition
in the form of
or is
deferring the
est is stated
on
tax
history
legislative
in a tax statute’s
OID,
of when
included
irrespective
discount or
amendments made
the title
“[a]ll
because
paid. For
any
interest
stated
Congress
carry
out the intent
designated in
are meant
calendar-year
taxpayer
a
of
legislation.’’
enacting
the
obligation from in
holds
H.R.Rep.
Cong.
99th
1st Sess. 877
No.
on
issued
October
time it is
the
added);
S.Rep.
99th
1986. Un-
October
until its
the
Cong., 2d
893. We must balance
bill,
required to
Sess.
taxpayer is
the
der the
concerning
the
equivalent
statement
1985 the
in income
include
obligation,
after the addition of
interest on
three months
not to make
expressed intention
the interest income
regardless
change in
law.
We believe
substantive
is in the
form
interest,
only way to balance these state-
OID,
any
combination
stated
is to conclude that
the addition of
ments
thereof.
1281(a)(2) merely
taxpayers
al-
99^126,
Cong., 1st
H.R.Rep. No.
99th
Sess.
ready subject
mandatory accrual rules
According to
(those
purchased
who
discounted short-term
bank,
Commissioner, Security, as a
is a
obligations) to accrue
stated interest on
must,
subject
It thus
to accrual.
taxpayer
obligations.
those
history, accrue
according
legislative
this
obligations whether
interest on short-term
history
legislative
An
examination
interest.
in the form of discount
stated
that loans such as
thus demonstrates
Securi-
ty’s
problem
1281 was
do not create
passage
are not convinced.
We
cited,
parties
fix. The
have not
enacted to
taxpayers
it is limited to
itself states
found, any provision in
have we
nor
mandatory accrual.”
“subject
the rule for
(except for
Internal Revenue Code
prior to the
We believe that
enactment
requiring
cash basis
such as Secu-
cannot be read to
the statute
they
rity
accrue the stated interest
receive
loans made in the
cover undiscounted bank
they
hold. Because there is
Thus, taxpay-
ordinary course of business.
general
requiring accrual of
no
rule
stated
holding
generated from those loans
*9
(statement
Rostenkowski) (em- Security
the same tax deferral
Rep.
could receive
added). Further,
by making
which matures
phasis
no “Rea-
a short-term loan
there are
year.8 Congress
ac-
Change”
usually
longer
than one
has
sons for
sections which are
Security
fight
parties' fight
be no
unless
is
8. The
over
certain of Secu-
There would
(those
rity’s
quired
on its short-term
to accrue interest
which mature on
first
But,
above,
date)
Security
not
anniversary
as noted
if
does
mature "not more than one
loans.
maturing
point.
proves
interest on loans
from the date
issue”
this
have to accrue stated
manifested,”
quiesced
allowing
Congress
deferral
banks
see
v.
Security
report
Engle, supra,
their- income on
such as
is one which excludes short-
case,
if
Security’s
the cash basis. But
is the
term loans such as
scope
Moreoyer,
requiring Security to accrue the stated inter-
of the accrual rules.
because the
application
on their short-term loans makes little
est
of 1281.to
ambig
these-loans is
Security
penalized simply uous,
sense.
would be
we follow the venerable rule that “[i]n
choosing
interpretation
to document its loans with notes
levying
of statutes
taxes
year,-which
maturing
less than one
all
...
enlarge
opera
[courts must
their
not]
good
practice.
agree is
business
We cannot
tions
specifical
so as to embrace matters not
Congress
ly pointed
believe this is what
intended.
they
out.
case
doubt
strongly against
construed most
the Govern
We also note that
the same time Con-
ment, and in favor of the citizen.” Gould v.
passed
passed
gress
.also
Gould,
151, 153,
53, 53,
245 U.S.
38 S.Ct.
448,
which allowed banks such as
(1917).
L.Ed. 211
We thus hold that
to continue to
their income on the
mandatory
accrual
rules
do
1986,
cash
Tax Reform Act of
basis. See
to bank loans
made
VIII,
801(a),
Title
Pub.L.
,
course of business.
(1986).
2085, 2345
We find it difficult to
Stat.
Congress
believe that
would take back with
BEAM,
Judge, dissenting.
Circuit
large
such a
amount what it
gave in
448.
respectfully
I
[statutory]
dissent. “If the
clear,
intent of
that is the end of
Finally,
we note that members of
USA,
NRDC,
the matter.” Chevron
Inc. v.
exempt
attempting
have introduced bills
2778, 2781,
467 U.S.
104 S.Ct.
small banks from the
of the accrual
(1984).
agree
L.Ed.2d 694
I
with the Com-
subsequent legislative history
rules. Such
unambiguously
missioner that
IRC
any.
weight,
entitled to little
if
South
Cf.
requires Security
accrued interest
17,
Regan,
Carolina v.
378 n.
U.S.
income on
litigation.
the loans at issue
this
n.
104 S.Ct.
bills. bills,
proposition, stated those that banks
such as were covered. theOn other hand, Congress might that' have believed America, Appellee, so, UNITED STATES covered, such loans never were such a bill superfluous. many would be There are rea v. why might passed. sons such a bill be MILLER, Appellant. Patrick why rely That is we do not on such See, Price, history. e.g., United States v. No. 92-3223. 304, 310-12, 326, 330-31, 4
U.S. 80 S.Ct . Appeals, Court of United States (1960). L.Ed.2d 334 Eighth Circuit.
III. CONCLUSION Submitted Feb. context, An examination of the May Decided provisions, text of the relevant and the
legislative history convinces us that the con- with its
struction is “most harmonious general purposes
scheme and with the year, achieving in more than- one it is no unde- in less than one by making served tax windfall loans that mature R. A. notes James borrower and S, Cohen, brief), payable Security. Security Bruton and Jonathan on the had various , appellant. using business reasons for a note with a term less;1 year of one it is uncontr’overted Hansen, MN, Gary Minneapolis, argued that the loans were not made for tax-motivat- (Sue Costello, Ann Nelson and Terrance A. ed considerations. brief), appellee. on the During Security made certain loans MAGILL, Judge, Before Circuit that were documented notes with a stated HEANEY, Judge, Senior Circuit and anniversary date of the first BEAM, Judge. Circuit parties note. The refer to these loans as “Category X During Security Loans.” MAGILL, Judge. Circuit $24,552.09 had interest income of that had accrued, received, yet presents impres- This case an issue of but was not first its Category X sion: whether 1281 of the Internal Loans. Reve- Code, requires nue which certain During Security also made loans to accrue discount and interest income on period year, were for a of less than one which obligations, certain requires parties “Category refer to Y Loans.” bank, commercial reporting otherwise its in- Security respecting had interest income basis, report come on the cash interest $80,746.42 Category these Y Loans of income on short-term loans made to borrow- accrued, received, but was not in 1986. ers course of business as it 1986, Security, reported For in- interest accrues. The tax court held that did Category Category come from its X Y and to such loans. agree, We received, pursuant Loans as it was affirm. accounting.2 Security cash method of accrued, as income 1986the but not I. BACKGROUND received, yet Category on its X interest Category Y Loans. Background A. Factual This case deficiency Subsequently, involves asserted Internal Revenue Ser- Security Bank’s federal income tax for the vice income tax audited preference Security greater 1. These business reasons included the terms allowed control over un- regulatory Jt,App. of state and federal authorities for collectible debts. 8-9. agricultural operating loans with terms one less, year or the fact that such loans allowed Security was allowed to use the cash method of' opportunity to meet with accounting gross borrowers because it had 446(a), and review the $5 borrower's financial status at less of less than (c)(1); million. See I.R.C. intervals, 448(b)(3). than one and the fact that such interest on their accrue the stated that I.R.C. turn and determined course business. made depart from its normal initially noted that The court and to reporting income cash basis of Subchap- Subpart Y of $105,299 are contained for 1986 the taxable income Code, concerning treat- P of the ter Category X from its accrued
Notes
ers notes (like interest there is for discounted obli- subject mandatory are not to the rules for gations), simply “special no rule” there is Second, accrual. there is clear allowing deferral of stated interest like the enacting history providing rule for discounted short-term 1281(a)(2), Congress intend to Applying the accrual rules to change in the statute. make a substantive “plug gap” in short-term loans would not introducing the technical corrections mea- rules, special but would create a the accrual sure, Rostenkowski, Rep. Chairman of the accrual rule where none otherwise existed. Means, Ways House Committee on stat- Congress in We find no indication that ed that: to create such a accrual rule. intended The bill is intended to correct errors properly these enacted bills order responds that banks carry out the intent of in enact- Security can tax such as receive same ing legislation ... [and] the earlier this bill holding as those discounted obli- deferral simply intends to correct technical errors gations by making a loan on bor- reflect the Policies of Con- and to better collecting until rowed funds and not gress enacting original legislation. following argument This tax taxpayer, much. a cash basis Cong.Rec. (daily proves ed. Mar. too As H1630