Originally published on Forbes.com.
The underdogs with roots in the metro New York area lost a great advocate with the passing of Jimmy Breslin. In perhaps some sort of balancing of the cosmic scales, the overdogs then lost David Rockefeller, who by most accounts seems to have been an all right guy. My self appointed role as a tax blogger is to memorialize their role in tax history.
I had hopes for Breslin, but came up close to empty. He is mentioned once in passing in a Tax Court decision where the judge writes about an odd fact pattern “”The scenario giving rise to the business and capital losses seems to have been scripted by Jimmy Breslin.” I realized that many of the decisions that I write about, which might otherwise go largely unremarked, have those types of stories underlying them and wonder if some of that rubbed off from my old man bringing home the Herald Tribune every night so I could read about Marvin the Torch.
Breslin’s other mention is probably consistent with his persona. Breslin, Richard Aurelio, and a few others formed a corporation that opened a restaurant in Manhattan named Jimmy’s (after Breslin). Breslin quickly dropped out of the venture, which was likely a smart move. In 1980, there was a decision by the New York State Tax Commission that Richard Aurelio was not personally liable for the restaurant’s unpaid taxes. Restaurants go under with unpaid taxes throughout the nation, but based on an unscientific survey of published tax decisions, the Big Apple has more than its share. Here is a review of the restaurant from 1972.
What Is The Meaning of “to”?
David Rockefeller does not show up in nearly as much tax litigation as I thought he might, but the two cases I did find are kind of interesting. Consistent with the Rockefeller tradition of philanthropy one concerns precise definitions in the area of charitable deductions. The issue was whether out of pocket charitable expenditures were “to” or “for the use of” charities. Of course when you or I have out-of-pocket charitable expenditures it will be stuff like mileage. Well, we’re not Rockefellers . Here is what the Tax Court was looking at for David Rockefeller for 1970 and 1971.
During 1969, John D. Rockefeller III, and during 1970 and 1971, John D., III, and David Rockefeller, and other family members shared in the expenses of operating a pooled service center at the Rockefeller Family Joint Office located at 30 Rockefeller Plaza in New York City. The Rockefeller Family Joint Office provided to family members legal, accounting, clerical, and technical services, as well as investment services, with a staff of approximately 215 persons. Both John D., III and David Rockefeller also maintained personal offices and staffs at the same location in contiguous premises. At such location, John D., III and David Rockefeller, themselves, and through their personal staffs and the staff of the Rockefeller Family Joint Office, conducted their business, financial, philanthropic, and personal affairs. Their philanthropic activities included providing services to various charitable organizations.
The portion of these expenditures that related to charity was $75,636 in 1970 and $79,615 in 1971. Limitation rules were different back in those days so it was important as to whether the expenditures were “to” the charities or “for their use”.
The Tax Court kind of wavered on the question
The only thing that is clear from the above discussion is that there is no certain answer to the issue presented in this case.
They ended up ruling in favor of Rockefeller, but that was not the end of it.
Congressional English
The IRS took it up to the Second Circuit allowing Judge Irving Kaufman to ruminate on the meaning of words.
In divining the meaning of statutory words, courts have long followed the principle that the legislature is the master and that statutory interpretation therefore involves a search for evidence of legislative intent. As Justice Frankfurter aptly phrased it, “he Court’s task is to construe not English but congressional English.” Since words are often empty vessels and legislative history does not always provide specific answers to questions concerning congressional intent, however, courts have recognized that in interpreting statutes they must do more than sift through pages of legislative history for evidence of the technical meaning ascribed to statutory words; judges should interpret statutes in ways that effectuate legislative purpose and avoid unnecessarily harsh and unfair results. Today we must apply these time-honored principles to a novel question of statutory interpretation in determining the meaning of a single word of a statute: “to.” Specifically, we must decide whether unreimbursed expenses incurred in rendering services to charitable organizations may qualify for a special unlimited charitable contribution deduction for contributions “to” these charities.
The Second Circuit upheld the Tax Court, which was the end of it as far as David Rockefeller was concerned, but not for the IRS. They issued an Action on Decision indicating that they thought the Second Circuit had gotten it wrong. They turned around on that in 1984 with Revenue Ruling 84-61.
The Internal Revenue Service will follow the decision of the United States Court of Appeals for the Second Circuit in Rockefeller as precedent in the disposition of similar cases involving either section 170(b)(1)(C) of the Code, now repealed, or section 170(b)(1)(A).
X Equals Negative B and So On
Not long after the IRS acquiesced in the Second Circuit decision David Rockefeller got disappointing news from the New York State Tax Commission. Mr. Rockefeller’s New York return had been audited for the years 1976 and 1977. The issue was the computation of the New York minimum tax. The New York minimum tax had an adjustment for excess itemized deduction. The minimum tax on Rockefeller’s return was computed on the principle that there should be a “tax benefit” rule so that there would not be an add-back of itemized deductions for which no tax benefit had been received – such as the deduction for New York state income taxes. What intrigued me was how the adjustment was computed on his return, which is explained in a footnote.
Petitioner utilized a quadratic equation which was solved mathematically to determine the amount of the modification for allocable expenses attributable to items of tax preference which he subtracted from the items of tax preference subject to minimum tax.
I often remark that you learn all the math you need to do tax work by the fourth grade. Here was a possible exception. Tax preparers with New York clients would have to dust off their high school math. I actually had a client who got hit with the New York minimum tax, so this was not just a Rockefeller level problem. (David Rockefeller had federal AGI of $7.7 million in 1976. In 1976, if I had eight dollars in my wallet, I thought I was ready for anything.
Math challenged tax preparers were spared relearning the quadratic formula by the Commission’s ruling that noted there was no authority in the statute for using New York AGI rather than federal AGI in computing the preference and no “tax benefit” rule. Another illustration of Reilly’s First Law of Tax Planning – “It is what it is. Deal with it.”
Intimations Of Mortality
Breslin’s death had a much stronger impact on me than David Rockefeller’s. I’m becoming more certain that I actually read the famous grave digger column when it first ran in the Herald Tribune and it evokes some fondness for my slightly quirky father, whose memory I am sometimes too hard on. He told me Wall Street jokes about specialists and short sales that I didn’t get until I was thirty or so. Sadly I never got to say “I get it” as he like the Herald Tribune, died right before I started high school. Breslin’s death makes me realize that everybody I looked up to when I was a kid who is not already dead will be before very long.