Document: 330 U.S. 709 67 S.Ct. 997 91 L.Ed. 1192 UNITED STATESv.OGILVIE HARDWARE CO., Inc. No. 430. Argued March 5, 1947. Decided April 7, Mr. Lee A. Jackson, of Washington, D.C., for petitioner. Elias Goldstein, Shreveport, La., respondent. [Argument Counsel from page 710 intentionally omitted] Justice BLACK delivered the opinion Court. 1 This is a suit tax refund which District Court allowed. 62 F.Supp. 338. The Circuit Appeals affirmed. 5 Cir., 155 F.2d 577. We granted certiorari because an apparent conflict with Century Electric Co. v. Commissioner, 8 144 983. 2 respondent, Ogilvie Hardware Inc., was incorporated in Louisiana 1907 paid capital $100,000. In 1924 it increased its capitalization to $200,000 by declaration $100,000 stock dividend out past earnings. Depressed business conditions during 1930's brought heavy operating losses so that 1937 company's assets were about $71,000 less than capitalization. company books accordingly showed deficit this amount. By 1938 reduced $61,000. financial posture corporation could not declare dividends without impairing then structure (which included dividend) and law prohibited payment under such circumstances.1 Section 14 governing Revenue Act 1936 imposed surtax on certain corporate net income earned year but distributed as dividends.2 It provided no exemption had accumulated at beginning year, or state payments dividends. 3 Acting law, examination respondent's returns, determined respondent subject undistributed profits tax, despite prohibition against Commissioner's interpretation application accord our holding Helvering Northwest Steel Rolling Mills, 311 46, 61 109, 85 29, Crane-Johnson Helvering, 54, 114, 35. taxpayers those cases claimed surtax, ground they distribute 'without violating provision written contract executed prior May 1, 1936, expressly deals dividends.' (311 48, 111) 26(c)(1) relieved corporations if contracts existed. 49 Stat. 1648, 1664, 26 U.S.C.A. Int.Rev.Acts, 836. question we decide whether constitution, charter, statute, dividends, 'written contract' within meaning § provision. held expand provision's language, relying part upon previous statements 'that provisions granting special exemptions are be strictly construed.' supra, 49, 111, 29. Since here original Act. 4 But determine liability stood taxable years 1938. action 1942 relief amendment specifically designed authorize obtain repayments taxes been forced pay interpreted it. That amendment, enacted, complete partial retroactive immunity following circumstances: 'Deficit corporations. case having earnings close preceding amount deficit, order public regulatory body paying existence profits, effect 1936.' 501(a)(2), 1942, 56 798, 954, 344. 6 grant account where, reason, federal orders either distribution therefore authorized refunds very who lawfully required two cited above. Furthermore, make sure might recover refunds, 501(c) same claims repayment filed one after passage, regard any statute limitations other designated statutory bars. 955, 345. 7 Government's contention should construe word 'deficit' phrase 'accumulated profits' according their established law; construed allotted remained purposes; therefore, there sense, consequently have refunded distribution. may assume Government correct contending Congress intended use words 'earnings did reduce 'earnings,' 'deficit', denied. See 115, 1687 1689, 868; Commissioner Bedford, 325 283, 292, 65 1157, 1161, 89 1611. construction would greatly limit scope amendment. To Cong ess granted, must look whole relationship legislative judicial history intervening between two. novelty field taxation. Its chief novel feature compel current shareholders imposing failed distributions. detailed defining reached tax. application, raised new sometimes wholly unexpected problems. Widespread opposition developed pointed survived. 1938, 52 447. even longer effect, complaints continued reach concern Congress. Representatives these appeared before House Senate Committees responded enacting several 501—the legislation now consideration. 9 One complaint definitions only fraction deductible income. Corporations suffered large given though made profit. reported Committee, met recommending definition income.3 authorization, subsequently, approved Committee,4 clearly shows provide phase definitions, intend restricted terminology. 10 When bill insistent related fact deficits compelled non-distribution although payments. A railroad taxed over objection rendered officers punishment misdemeanor money penalty law. Board Tax overruled objections grounds, decisions cases, Paris & Mt. Pleasant R. Comm'r, 47 B.T.A. 439.5 counsel represented also behalf Committee plea tax.6 He urged 'caught trap,' justly entitled reason. apparently response foregoing befo e us, came Senate,7 introduced Committee.8 think moved relieve considered trap' whereby Federal prosecution penalties states did. 11 Some language used, taxwise only, provides plausible support give more limited scope. us general framework currently revenue measure collected already substantially abandoned. extraordinary circumstances prompted passage convince taxpayers, possible minor exception, choice conflicting compulsions. 12 mechanics require determination rights based consideration something right recovery every depends ultimately bodies, prohibit ultimate Cf. Lyeth Hoey, 305 188, 193, 59 155, 158, 83 119, 119 A.L.R. 410. Before can finally established, courts examine least extent determining (1) what 'deficit'; (2) profits'; (3) questions 1936; (4) Acceptance mean administering first exists unde exists, turn prohibits do administer argument does relies heavily Report. 13 Report, whole, leans toward view taken purpose law.9 six illustrative examples subsequent Treasury Regulations, indicated credit allowed where resulted 'prior surplus course non-taxable reorganization.'10 Aside reorganizations simple quite different things, find example insufficient outweigh considerations governed persuaded when distribution, violation impaired long-existing capitalizations. United States Byron Sash Door Co., 150 44, 46. effected, judgment 15 Affirmed. 16 FRANKFURTER, whom REED joins, dissenting. 17 profits. gave defined restriction State withheld 26(c)(1). reaching conclusion, took into 'has said many times way relaxing Congress, substituted subdivision 26(c) 1936. section nto undo Mills doctrine. allow deduction forbidden 26(c)(1), contract.' 'In * *.'2 18 read sense. disregard illumination authoritative lexicon reading legislation. carries usage, practice, gloss history. All combine condition prohibiting comes play, art condition, namely, 'a accumlated profits.' Here controlling sense term. And nothing warrants attribution non-technical settled technical Nothing, is, except suggestion afford that, matter abstract justice, afforded. merely attempt invoke has called 'equity' statute. I am friend artificial canons construction, strain strictly. On hand, Acts kind loosely exemptions. 19 enactment administrative practice reenforce seems me compelling requirement, render terms used meaning. If suggested Congressional hearing fairness places expressed, time final satisfy desire some proponents. event, taxpayer urging carry ght carrying excludes result, reenforced legislative, led up followed enactment. 983, affirming Court, T.C. 297; S.Rep.No. 1631, 77th Cong.2nd Sess., pp. 244—46; 94 101, Art. 115—11; Regulations 103, 19.115—11; 29.115—11. short forbade deficit. 20 No doubt extent, desired declaring neither enacted nor indicates limiting 115(h) 1936.3 section, embodies analysis Sansome, 60 931, see S.Rep. 2156, 74th Cong., 2d p. 19, requires respect taxes, treated available regardless capitalize H.Rep.No.2894, 76th 3rd 41 Wheeler, 324 542, 546, 799, 802, 1166. specific Report 501 afforded profits.4 majority finds difference reorganization dividend. significant legal concerned capitalizing method. meant 115(h), so. 21 reversed. 'I. shall cash property, (a) aggregate liabilities, plus stock; (b) due arising profit treasury shares resale; unrealized appreciation value revaluation fixed assets; inventories sale; unaccrued portion notes, bonds obligations money, purchased otherwise acquired, unless readily marketable, actual market value; (5) unearned form whatever, bonds, installment sales, credits otherwise, sub-paragraph (4). 'III. corporation, stock.' La.Acts 1928, 250, 26, I, III, La.Gen.Stat. 1106. 1655—1657, 823. Ways Means deduct purposes $2,000 loss gross purposes. Another redemption breadth illustrated making effective date extending Statute Limitations permit all overpayments since date. H.R.Rep. 2333, 170 (1942). Sen.Rep.No.1631, 244, 245 Hearings Finance 2343—2345 another govering railroad's liable double damages anyone harmed. Id. 1422. Statement John E. Hughes: 'Next statement Crane Johnson simplified. point this: impaired, avoid caught trap. rich could. Surely you discriminate poor one. 'Furthermore, impairment organized laws one-third return shareholder given. 'There reason retroactively covered vague ambiguous also. 'The ought soon situation attention unfortunately properly makes phrased enough language.' Hearings, supra 1022. id. 1306—1308. H.R.Rep., note 3, supra. Sen.Rep. 4, outlining proposed stated: '* (A) paragraph added, providing additional subsection added credit. 'Section grants undistributed-profits December 31, 1935, January allowing computing adjusted which, instances, 'Under various rates 27 per cent instances constitute thereof 14(a)(2). Such were, addition (c) cases. 'Also exceed avoided distributions shareholders.' 246. 1664. sections tax— '(1) Prohibition An equal excess amounts provisions, largest allowed, account.' 954. '(3) Deficit 1688, 1689. 115(h): 'Effect Earnings Profits Distributions Stock. (whether date) distributee securities corporation— gain receipt recognized '(2) hands him Sixteenth Amendment Constitution exempt 115(f) 1934 corresponding As term 'stock securities' includes acquire securities.' S.Rep.No.1631, 245, 246: X calendar Assume above $20,000 purposes, corporation's nontaxable $250,000. case, probably $20,000, will undistribut d $180,000 income.'

Category: 11