Document: 369 U.S. 672 82 S.Ct. 1080 8 L.Ed.2d 187 The HANOVER BANK, Executor, et al., Petitioner,v.COMMISSIONER OF INTERNAL REVENUE. No. 224. Argued Feb. 27, 1962. Decided May 21, Theodore Tannenwald, Jr., New York City, for petitioners. Stephen J. Pollak, Washington, D.C., respondent. Mr. CHIEF JUSTICE WARREN delivered the opinion of Court. 1 Despite seemingly complex factual composition two cases consolidated herein,1 this deals with a relatively simple question taxation: extent to which taxpayer may deduct, through amortization under Internal Revenue Code 1939, premium he has paid in purchasing corporate bonds. In 1953, prior December 1, petitioners purchased fully taxable utility bonds at above maturity value.2 were callable option issuer either general or special call price, and price they upon 30 days' notice. term 'general price' is used designate freely unconditionally redeem all any portion outstanding from its funds. lower, 'special price,' amount would pay if redeemed cash certain specially designated funds.3 2 computing net income, 1939 permits amortization, bonds.4 Section 125 Code, set forth pertinent part margin,5 provides that bond be amortized 'shall determined * reference payable on earlier date.' Pursuant Section, elected claim their 1953 income tax returns deduction computed redemption 30-day period appearing indentures. respondent did not petitioners' use period, but disallowed computation based recomputed using higher, price.6 Court Appeals Second Circuit affirmed Tax Court's orders sustaining Commissioner's deficiency determination. 289 F.2d 69. However, presenting identical legal issue, Courts Third (Evans v. Dudley, 295 713) Sixth (United States Parnell, 272 943, affirming F.Supp. 576) Circuits allowed taken prices.7 To resolve conflict, we granted certiorari. 368 812, 53, 7 21. 3 Bond purchaser pays buying exceeds face value bond.8 When sells premium, it generally because interest bears rate return similar securities current market. For right receive higher when making investment. recipient, been actual received true reflection bond's yield, represents paid. It was give effect principle Congress 1972 enacted Code,9 first time provided purposes. 4 By providing could 'amount date' (emphasis added), recognized are subject by maturity. electing allow might actually outstanding, Congress, words have lent emphasis, bondholder amortize date named indenture called.10 5 A contain number possible dates, need only concerned case issuer's notice price. Unquestionably, both provisions legitimate, though distinct, business purpose, widespread well before enactment 125. employed finds marketable substantially lower than what paying an issue. then and, following redemption, refinance obligation prevailing interest. contrast, provision funds serves entirely different purpose. indentures normally require protect underlying security maintaining mortgaged property insuring impaired. This done, first, maintenance sinking fund, obligated make periodic payments, secondly, other funds, added proceeds sale destruction property, loss taking eminent domain.11 Although reserves alternative these cash, circumstances dictate attractive standpoint payment prevent accumulation idle money, evident just as market conditions render unlikely given time, same also cause equally unlikely,12 particularly expanding industry such utilities. During held bonds, none called risk incurred present equal force provisions. reflects risk, asked interpret takes cognizance reality. 6 Turning specific problem instant case, determine whether limited fund account made available occurrence contingent events (see note 3, supra) within meaning reasons stated below, answer affirmatively hold there no basis statute, legislative history, respondent's own interpretations distinction between amortizable premiums Code. First, Government important concessions lighten considerably task us. does nor price.13 addition, requesting rule will apply 'generality cases,'14 professes abandoned argument below became rationale holding against taxpayers, statute calls analysis into 'likelihood redemption' permitted.15 Moreover, contend transactions entered sham without purpose except gain advantage.16 Rather, Government's position 'earlier established must show 'there ascertainable become entitled (a particular) option.' asserts enough some '(i)t particular claimed, otherwise date." primary reason urging interpretation created loophole major dimension should closed short allowing sought case. While assertion persuasive securing amendments subsequent involved here took place discussion, infra), not, course, impact our review. We bound light history. neither do find support interpretation. construe 1950 Commissioner Korell, 339 619, 70 905, 94 L.Ed. 1108. had reflected large yield interest, but, rather, attractiveness convertible feature accordingly. contesting thus taken, contended 125, establishing 'amortizable premium,' include conversion privilege. rejecting contention, clear solely enable 'true 'the precise avenue expression adopted Congress' (339 U.S., 625, 908), legislation 'no distinctions inducements premium.' (Id., 628, 910). 9 decision Korell led congressional re-examination 217(a) Act (64 Stat. 906), eliminated attributable feature. response specifically situation; further change reflect us.17 10 1954, enacting successor 171 1954 (26 U.S.C., 1958 ed., 26 U.S.C.A.), again benefit question, eliminate abuses inherent permitting periods. Thus narrowed nearest more three years original issue securities. With relevance worthy understood operation taxpayer's advantage, correction elimination quick write-off. House Report accompanying H.R. 8300, (H.R.Rep. 1337, 83d Cong., 2d Sess. 26), U.S.Code Cong. Adm. News p. 4051: 11 'Under existing law, date, election taxpayer. very feature, those notice, entire deducted year purchase. 12 'This rise tax-avoidance opportunities. Substantial issues call, take immediate ordinary income. Where nominal inoperative unreal loss, since ordinarily remains fairly stable over considerable resold after months longterm capital treatment. writeoff affords gratuitous saving, equivalent corresponding gain. process repeated indefinitely. 13 'To curb type abuse, your committee's bill issued January 22, acquired 1954.' (Emphasis added.) 14 Not fail urged respondent, expressly deductions 'nominal inoperative.' remotely imply showing necessary statute. Furthermore, adopt operate prospectively only. 15 Finally, 1958, adoption Technical Amendments 72 1610, maturity.18 Again, prospective respect dates 16 Persuasive evidence correct bolstered history amendments, found construction As language itself, regulations contained slightest hint us here. defined Treas.Reg. 118, § 39.125(b)—2 10, maturity, specified bond. contention unconditional permitted. although rely unpublished private rulings them,19 reveal put agency charged responsibility administering revenue laws. And, ruled, letters addressed taxpayers them, proper statute,20 allowable compelled statute.21 17 firmly statutory statutes—including acts—should interpreted where ordinary, everyday senses.' Crane Commissioner, 331 6, 67 1047, 1051, 91 1301.22 here, plain language, evidences intent indenture. Under liberty, notwithstanding apparent tax-saving windfall bestowed add alter appear too, appeared refused taxpayers. Simply stated, informed full realization existence provisions, chose them rights. Neither Commissioner. Nevertheless, now urges branch failed do. This, province.23 18 judgment reversed. 19 Justice FRANKFURTER 20 WHITE consideration originated Court: Estate Gourielli 33 T.C. 357, Goldfarb 568. appeal Circuit, one filed court. Petitioner Hanover Bank executor estate Gourielli, who passed away commencement action. Appalachian Electric Power Company, 1981 series, decedent his wife $117.50 per $100 value, later sold $115.50. Arkansas & Light 30-year, Eighth Series, average 110.50 amount, $105.40. total purchases $540,000 (Gourielli) $500,000 (Goldfarb) amount; purchase prices cases. addition 'sinking fund' required deposit during each annual (in additions equipment amount) cent were: (1) release insurance deposits casualty properties bonds; (2) expend percentage revenues improvements. up contributions above, plus domain company proceedings. 1952 25 U.S.C.A.): 'Sec. 23. Deductions gross 'In shall deductions: '(v) (as 126(a), 1942, c. 56 798) deduction.—In bondholder, section 125.' supra, 4, 126(b). Entitled 'Amortizable Premium,' reads follows: '(a) General rule.—In bond, subsection (d), rules (determined (b)) beginning 31, 1941: '(b) Amortizable premium.— '(1) Amount premium. purposes paragraph (2), holder (for determining exchange) adjustments unamortized (a) becomes applicable '(2) amortizable. year. '(3) Method determinations paragraphs made— '(A) accordance method amortizing regularly reasonable; '(B) cases, prescribing reasonable methods prescribed approval Secretary.' At schedule 105 3/8 102 3/8. 2) therefore result $64,831.07 $83,056.07, respectively. difference amounts, $18,225.00, recomputation (105.36 compared 101.36), reduced $27,175.00. less ($14,200.92 $14,708.16, respectively), disallowance larger resulted increase adjusted pursuant 113(b)(1)(H) amortized. smaller short-term (the six months) reported returns. decrease due offset arrive deficiencies Circuits' First Seventh prices. Circuit: Fabreeka Products Co. 294 876, vacating remanding 34 290; Sherman 303; Friedman 456. Gallun 297 455, reversing 1960 P—H Memo. Dec. 60,104; Maysteel Products, Inc. Cir., 287 429, 1021. thereafter distribution entailed double (e.g., gift charity). deduction. presented decided latter fact choose challenge allowance impliedly places accord Circuits. See authorities collected 627, n. involving pp. 682—683, S.Ct., 1086—1087, concluded 909): 'We view 'bond premium' means extra payment, regardless therefor *.' 621, Hearings Committee Ways Means Revision 77th 90 (1942). noted recommendation hearings treated 2333, 47): sustained owner disposition periodical payments coupon want recognition sound accounting practice leads incorrect results many instances so serious avoidance.' intended confine higher-than-market rate, 626—627, 'At most, Commissioner's) presentation materials suggests seeking primarily mind; establish legislated him exclusively. (Citation omitted.) Treasury advising best manner affording relief correcting inequitable treatment boundholders whose receipts taxable, define scope amendment types rather causes payment.' regard 39.125(b)—2: 'Callable application earliest day certain, par, selected *' Evans 713, 715; 69, 73; Parnell United States, 576, 577, aff'd, 943. Badger, Investment Principles Practices (5th ed. 1961), 46—47, 114—115, 129; I Dewing, Financial Policy Corporations 1953), 186—188, 247—249. Hence, dependent events—the fluctuation market; another events—deposits years, takings governmental agencies domain, etc. happen. fact, point out brief recent 716. Allowing where, argued Government, incenture. states: '* (W)e concede too late unlimited consistent administrative practice, culminating published ruling, narrowing prohibiting 1957, acknowledge law permitted Accordingly, courts notice.' Int.Rev.Rul. 56—398, 1956—2 Cum.Bull. 984, acquiesced concession conforms pronouncement 908): 'Congress legislating generality cases.' 716; 579, (289 74): think (Congress) meant 'special' real possibility being claimed.' And F.2d, 72): (T)he hazard significant (the) infinitesimal.' holding, accepted '(t)he compute realistic states here: (O)ur probabilities exercised *. agree finding 'likelihood' exercised.' futility attempting standard, see 12, supra. Cf. Knetsch 364 361, 81 132, 128; Gregory Helvering, 293 465, 55 266, 79 596. simply provided: features bond.' Where, us, lying outside Amendment, retains vitality. Thus, worth noting 'right call' approach advocated bar sub silentio overruling exercise expiration defeated completely 'right' even single however, party disputes least choice turn forfeit them. Amendment literally which, practical purposes, effectively eliminates privilege calling date. See, e.g., P. G. Lake, Inc., 356 260, 265—266, 5, 78 691, 696, 743; Automobile Club Mich. 353 180, 77 707, 746; Helvering Trust Co., 292 467 468, 54 806, 809, 1361. example, record contains copy letter office (we quote relevant portion): 'Gentlemen: 'The Company 3/4% whole 5/8. They derived thirty days You request advised above-mentioned ruling July 30, 1952, down can 5/8 1953. 'Upon information file office, regular 'Very truly yours, (etc.) 21 1956, Commissioner—reversing previously uniformly adhered series announced excess 984. 22 627—628, 909, 1108; Lang 109, 111, 53 534, 1066; Old Colony R. 284 552, 560, 52 211, 213, 76 484. 23 believe said 879: 'Granting government's proposition hole dike, Congressional thumb, court's.' 715, quotes Judge Aldrich's Products.

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