Commissioner of Internal Revenue v. Wilshire Holding Corporation

On Petition for Rehearing

The petition for rehearing is denied. We have a belief that substantial justice will be done if our amended opinion of December 8, 1960, is followed.

While the cash value of the property was probably about $75,000 in 1929, certainly, with almost nothing down and about 68 years of payments, a sale on such contingencies would call for a much higher price tag than the normal market value, and so speculative a sale would not carry a cheap interest rate. A seller was bound to lose, having consented to subordination of a mortgage to be placed on the property by the “purchaser” of the property — if the market went down.

We regard the interest rate fixed here as having little precedent value, because we would assume the government hereafter will normally cooperate on fixing a reasonable interest rate, if it accepts the principle of allowing interest when it recasts. And, from what we have seen of this case, and we have seen a lot of it, we do not regard the rate as unfair, although normally it would not be our function to fix it.

In Wilshire Holding Corporation v. Commissioner, 9 Cir., 262 F.2d 51 , we indicated that so-called rental payments (which in Oesterreich v. Commissioner, 9 Cir., 226 F.2d 798 , and Commissioner of Internal Revenue v. Wilshire Holding Corp., 9 Cir., 244 F.2d 904 , were determined to be installment payments on purchase) might be apportioned between principal and interest. The case was remanded for consideration of this point.

Back again before the Tax Court, the Commissioner ignored in his proposed computation of taxpayer’s federal income *800 taxes for the years 1945 and 1946 at suit any allowance for interest.

Conversely, the taxpayer, with the opening we gave it, took the selling price as $75,000, being a fair cash value of the property in 1929. Then it set up an amortization on this basis which will result in a fantastic rate of interest in the latter years of the contract. The so-called rental payments total $697,380 over a period of 67 years and eight months.

We hold to our basic proposition heretofore suggested that there should be an apportionment of the payments between principal and interest. Of the justice of this we are sure. At the time the “lease” was entered into…

288 F.2d 799 61-1 USTC P 9149 COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. WILSHIRE HOLDING CORPORATION, Respondent. No. 16678. United States Court of Appeals Ninth Circuit. Dec. 8, 1960, Rehearing Denied April 12, 1961. Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, Harry Baum, David O. Walters, L. W. Post, Louise Foster, Attys., Dept. of Justice, Washington, D.C., for petitioner. Murray M. Chotiner, Beverly Hills, Cal., for respondent. Before CHAMBERS, BARNES and HAMLEY, Circuit Judges. CHAMBERS, Circuit Judge. 1 In Wilshire Holding Corporation v. Commissioner, 9 Cir., 262 F.2d 51 , we indicated that so-called rental payments (which in Oesterreich v. Commissioner, 9 Cir., 226 F.2d 798 , and Commissioner of Internal Revenue v. Wilshire Holding Corp., 9 Cir., 244 F.2d 904 , were determined to be installment payments on purchase) might be apportioned between principal and interest. The case was remanded for consideration of this point. 2 Back again before the Tax Court, the Commissioner ignored in his proposed computation of taxpayer's federal income taxes for the years 1945 and 1946 at suit any allowance for interest. 3 Conversely, the taxpayer, with the opening we gave…