Dobson v. Commissioner - 320 U.S. 489, 64 S. Ct. 239 (1943)

Rule:

Congress has invested the Tax Court with primary authority for redetermining deficiencies, which constitutes the greater part of tax litigation. This requires it to consider both law and facts. Whatever latitude exists in resolving questions such as those of proper accounting, treating a series of transactions as one for tax purposes, or treating apparently separate ones as single in their tax consequences, exists in the Tax Court and not in the regular courts; when a reviewing court cannot separate the elements of a decision so as to identify a clear-cut mistake of law, the decision of the Tax Court must stand. In view of the division of functions between the Tax Court and reviewing courts it is of course the duty of the Tax Court to distinguish with clarity between what it finds as fact and what conclusion it reaches on the law. In deciding law questions, reviewing courts may properly attach weight to the decision of points of law by an administrative body having special competence to deal with the subject matter.

Facts:

Respondent Commissioner adjusted petitioners’ gross income by including recovery of certain previously claimed losses. Petitioners sought redetermination by the Board of Tax Appeals, contending that the recovery was in the nature of capital from which no gain or income was realized. In the alternative, it was argued that if the recovery could be called income at all it was taxable as capital gain. The Commissioner insisted that the entire recovery was taxable as ordinary gain and that it was immaterial whether the taxpayer had obtained any tax benefits from the loss deduction reported in prior years. The Tax Court awarded judgments based on the pertinent facts of the transactions as a whole, and determined that taxable gain was realized only where the deductions in prior years had offset gross income for those years. Certiorari was granted. 

Issue:

Under the circumstances, could the reviewing court overturn the Tax Court’s decision? 

Answer:

No.

Conclusion:

The reviewing court held that the Tax Court's decisions improperly relied on reasoning not embodied in any statutory or regulatory precept, and thus were not in accordance with the law. The reviewing court, however, was not empowered to revise the Tax Court's decisions because of a difference of opinion on the existence of deficiencies. The Tax Court's decision settled matters of proper accounting, rather than questions of law, where no statute or regulation directed its method of deficiency determination. Since there was a rational basis for the Tax Court's factual determinations of petitioners' economic gain and tax benefit, the reviewing court possessed no compelling reason to substitute its judgment.