1979 U.S. Tax Ct. LEXIS 90">*90 The Tax Reform Act of 1976, enacted on Oct. 4, 1976, amended the minimum tax provisions, effective for all "taxable years beginning after December 31, 1975." Prior to this amendment, the tax imposed was generally equal to 10 percent of the amount by which the sum of the items of tax preference exceeded $ 30,000. After the amendment, the tax imposed is 15 percent of the amount by which the sum of the items of tax preference exceed the greater of $ 10,000 or the "regular tax deductions."
72 T.C. 677">*677 OPINION
This motion for judgment on the pleadings was assigned to and heard by Special Trial Judge Lehman C. Aarons, pursuant to the provisions of
OPINION OF SPECIAL TRIAL JUDGE
Aarons,
72 T.C. 677">*678 Petitioners resided in Enderlin, N. Dak., at the time of filing 1979 U.S. Tax Ct. LEXIS 90">*93 their petition herein.
Respondent determined a deficiency in petitioners' Federal income tax for 1976 in the amount of $ 11,606.55. The issue presented by the pleadings is a purely legal one. In March 1976, petitioners sold a piece of real estate for cash and reported long-term capital gain thereon in the amount of $ 174,760. Petitioners failed, on their 1976 return, to treat 50 percent of that gain ($ 87,380) as subject to the minimum tax.
The minimum tax for tax preferences (originally
Petitioners raise several arguments in their memorandum in opposition to respondent's motion for judgment on the pleadings. They contend that the minimum tax provisions for 1976 were invalid because the Tax Reform Act of 1976 imposed a retroactive tax on them, with harsh and oppressive results. However, it has long been settled that an income tax can be retroactive without violating the Constitution. In
The right of Congress to have imposed this tax by a new statute, although the measure of it was governed by the income of the past year, cannot be doubted; much less can it be doubted that it could impose such a tax on the income of the current year, though part of that year had elapsed when the statute was passed.
In determining whether a retroactive tax violates1979 U.S. Tax Ct. LEXIS 90">*95 the
In each case it is necessary to consider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation.
Petitioners allege that the capital gain subject to the minimum tax here was a once-in-a-lifetime gain from the sale of a farm, that they are persons of modest means, and that under these circumstances the tax is harsh and oppressive. While we are sympathetic with petitioners' plight, in light of the cases in which retroactive taxes have been upheld, we cannot find the application of this tax "so harsh and oppressive as to transgress the constitutional limitation." For example, in
When petitioners made the real estate sale and recognized a capital gain in 1976, the minimum tax had been in effect for over 5 years. Although petitioners may not have been aware of it, 2 the tax was a part of the Internal Revenue Code even in 1975, when, petitioners allege, the contract of sale was negotiated and signed. The changes made by the Tax Reform Act of 1976 merely increased the rate of the tax and reduced the amount of tax preferences which were exempt from it. As the court wrote in
72 T.C. 677">*680 Such a one [as petitioners herein] may indeed complain that, 1979 U.S. Tax Ct. LEXIS 90">*97 could he have foreseen the increase, he would have kept the transaction unliquidated, but it will not avail him; he must be prepared for such possibilities, the system being already in operation. His is a different case from that of one who, when he takes action, has no reason to suppose that any transactions of the sort will be taxed at all.
Petitioners here were aware at least that they had to pay income tax and that proceeds from the real estate sale were taxable, and they should have been aware that gain from such sales was subject to the minimum tax.
The only revenue statutes held void for retroactivity by the Supreme Court involved1979 U.S. Tax Ct. LEXIS 90">*98 wholly new types of taxes.
Petitioners contend that Congress was in error in taxing capital gains as a tax preference in 1976, and that this error is evident from Congress' subsequent removal of an individual's capital gain as a tax preference, its creation of the alternative minimum tax, and its effective reduction of the tax rate on capital gains. 3 This contention is without merit. Although 72 T.C. 677">*681 Congress may have reconsidered its position on the issue, it simply did not make these changes effective for 1976.
We reject petitioners' challenges to the minimum tax, and although we agree that1979 U.S. Tax Ct. LEXIS 90">*100 it is unfortunate that petitioners' sale was not completed in 1975, we must grant respondent's motion for judgment on the pleadings. 4
1. Since this is a motion for judgment on the pleadings, the Court has concluded that the post-trial procedures of
2. Petitioners argue that they should be excused from paying the minimum tax because the Internal Revenue Service did not give the public sufficient notice of its enactment -- through tax forms and instructions or other means. However, petitioners, just as everyone else, are charged with knowledge of the U.S. Statutes at Large, including the provisions of the Internal Revenue Code.↩
3. See secs. 421 and 402, Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2871 and 2867.↩
4. On brief, respondent mentions an unpublished memorandum and order in the case