Source: https://caselaw.findlaw.com/us-supreme-court/286/244.html
Timestamp: 2019-04-20 11:10:23+00:00

Document:
[286 U.S. 244, 245] Mr. Robert T. McCracken, of Philadelphia, Pa., for insurance companies.
[286 U.S. 244, 246] The Attorney General and Mr. Thomas D.Thacher, Sol. Gen., of Washington, D. C., for MacLaughlin.
Appellee in No. 548, a Pennsylvania stock fire and marine insurance corporation, brought the present suit in the District Court of Eastern Pennsylvania, to recover income tax for the year 1928, alleged to have been illegally exacted. Under the Revenue Acts of 1913, 1916, 1917, and 1918, stock fire insurance companies were taxed upon their income, including gains realized from the sale or other disposition of property, accruing subsequent to March 1, 1913; but, by the Revenue Acts of 1921, 1924, and 1926, gains of such companies, from the sale or other disposition of property, were not subject to tax, and losses similarly incurred were not deductible from gross income.
The company contends that so much of the gain as accrued before the effective date of the taxing act was capital, which could not constitutionally be taxed under the Sixteenth Amendment, and that in any case the constitutionality of a tax upon the previously accrued gain is so doubtful as to require the taxing act to be construed as not authorizing such a levy.
The tax under this and earlier revenue acts was imposed upon net income for stated accounting periods, here the calendar year 1928, see Burnet v. Sanford & Brooks Co., 282 U.S. 359, 363 , 51 S. Ct. 150, and it is only gain realized from the sale or other disposition of property, which is included in the taxable income. Realization of the gain is the event which calls into operation the taxing act, although part of the profit realized in one accounting period may have been due to increase of value in an earlier one. While increase in value of property, not realized as gain by its sale or other disposition, may, in an economic or bookkeeping sense, be deemed an addition to capital in a later period, see Merchants' Loan & Trust Co. v. Smietanka, 255 U.S. 509 , 41 S. Ct. 386, 15 A. L. R. 1305, it is nevertheless a gain from capital investment which, when realized, by conversion into money or other property, constitutes profit which has consistently been regarded as income within the meaning of the Sixteenth Amendment and taxable as such in the period when realized, see Lynch v. Hornby, 247 U.S. 339 , 38 S. Ct. 543; Merchants' Loan & Trust Co. v. Smietanka, supra; Eldorado Coal & Mining Co. v. Mager, 255 U.S. 522 , 41 S. Ct. 390; Goodrich v. Edwards, 255 U.S. 527 , 41 S. Ct. 390; Walsh v. Brewster, 255 U.S. 536 , 41 S. Ct. 392; Taft v. Bowers, 278 U.S. 470 , 49 S. Ct. 199, 64 A. L. R. 362; Lucas v. Alexander, 279 U.S. 573 , 49 S. Ct. 426, 61 A. L. R. 906; Willcuts v. Bunn, 282 U.S. 216 , 51 S. Ct. 125. [286 U.S. 244, 250] Here there is no question of a tax on enhancement of value occurring before March 1, 1913, the effective date of the income tax act of that year, for the collector asserts no right to tax such increase in value. The fact that a part of the taxed gain represented increase in value after that date, but before the present taxing act, is without significance. Congress, having constitutional power to tax the gain, and having established a policy of taxing it, see Milliken v. United States, 283 U.S. 15, 22 , 23 S., 51 S. Ct. 324, may choose the moment of its realization and the amount realized, for the incidence and the measurement of the tax. Its failure to impose a tax upon the increase in value in the earlier years, assuming without deciding that it had the power, cannot preclude it from taxing the gain in the year when realized, any more than in any other case, where the tax imposed in upon realized, as distinguished from accrued, gain. If the gain became capital by virtue of the increase in value in the years before 1928, and so could not be taxed as income, the same would be true of the enhancement of value in any one year after the adoption of the taxing act, which was realized and taxed in another. But the constitutionality of a tax so applied has been repeatedly affirmed and never questioned. The tax being upon realized gain, it may constitutionally be imposed upon the entire amount of the gain realized within the taxable period, even though some of it represents enhanced value in an earlier period before the adoption of the taxing act. Cooper v. United States, 280 U.S. 409 , 50 S. Ct. 164; compare Taft v. Bowers, 278 U.S. 470 , 49 S. Ct. 199, 64 A. L. R. 362. See, also, Glenn v. Doyal, 285 U.S. 526 , 52 S. Ct. 404, 76 L. Ed. - (March 21, 1932) dismissing per curiam, for want of a substantial federal question, an appeal from a decision of the Georgia Supreme Court (reported sub nom. Norman v. Bradley, 173 Ga. 482, 160 S. E. 413), that a state income tax on the profits realized from a sale of corporate stocks, after the passage of [286 U.S. 244, 251] the act, was constitutional, though the gains had accrued prior to its enactment.
Doyle v. Mitchell Brothers Co., 247 U.S. 179 , 38 S. Ct. 467, and Hays v. Gauley Mountain Coal Co., 247 U.S. 189 , 38 S. Ct. 470, on which the the constitutionality, of the Corporation Excise kthe constitutionality, of the Corporation Excise Tax Act of 1909 (36 Stat. 112), and considerations which, in Lynch v. Turrish, 247 U.S. 221 , 38 S. Ct. 537, and Southern Pacific Co. v. Lowe, 247 U.S. 330 , 38 S. Ct. 540, led to the construction of the income tax act of 1913 as not embracing gains accrued before the effective date of that act, are not present here.
It would be going very far in the circumstances to say that the mere omission from section 204 of a cross-reference to the definition of gain in sections 111-113, made applicable by the general provisions of the act, not only excluded that definition from section 204, but substituted a different one not specifically mentioned in that or any other section. The gain taxed by section 204(b)(1) is therefore that defined by sections 111- 113, which may constitutionally be taxed.
Both questions as answered, No.
[ Footnote 1 ] It is true that sections 204(c), 205, and 206 (26 USCA 2204(c), 2205, 2206), relating to allowed deductions from gross income, define the deductions by specific cross references to like deductions defined in the general provisions of other sections, but as the listed deductions were intended to be exclusive, and as those allowed to insurance companies differ in many respects from those allowed to other corporations, it was an appropriate, if not necessary precaution, in enumerating them, to describe those which were allowed, either by repeating the appropriate language contained in the general sections or to incorporate it by reference. No such precaution was necessary with respect to 204(b). The 'gain' included in gross income by that section was adequately defined by sections 111-113 (26 USCA 2111-2113), made applicable, by section 4 of subtitle A (26 USCA 2004), to the provisions of Supplement G.
[ Footnote 2 ] See Report of the Joint Committee on Internal Revenue Taxation, December 22, 1927, Document No. 139, 70th Cong., 1st Sess., p. 2, appendix p. 7; Report of the Committee on Ways and Means, December 17, 1927, H. R. No. 2, 70th Cong., 1st Sess., pp. 1, 2, 11, 12; Report of Committee on Finance, Sen. Rep. No. 960, May 1, 1928, 70th Cong., 1st Sess. pp. 17, 18. Although the bill, as originally introduced, did not contain the provision for taxing gains of stock fire insurance companies, the bill was amended by the addition of section 204(b)(1)(B) to Supplement G, for the declared purpose of placing such insurance companies on the same basis as mutual companies, which were already taxed upon gains from the sale or other disposition of property. Cong. Rec., May 21, 1928, vol. 69, part 9, p. 9337; Conference Report No. 1882, p. 18.
[ Footnote 3 ] Neither section 204, which deals with the taxation of insurance companies other than life or mutual, nor the other provisions of Supplement G, contain any directions concerning such essential parts of a system of taxation as the filing of returns, time of payment, or penalties for nonpayment; and no express reference is made to the obviously applicable general provisions touching upon these matters. Sections 52, 56, 146 (26 USCA 2052, 2056, 2146). Other important and necessarily applicable general provisions, not included or referred to in Supplement G, may be found in sections 105, 118, 141, 142, 271-277 (26 USCA 2105, 2118, 2141, 2142, 2271-2277). The provision in section 207 of Supplement G ( 26 USCA 2207) that 'gross income shall not be determined in the manner provided in section 119' is a plain indication that the general provisions contained in section 119 (26 USCA 2119) would apply to insurance companies in the absence of the express exception.

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