Source: https://caselaw.findlaw.com/us-supreme-court/306/110.html
Timestamp: 2019-04-20 17:28:13+00:00

Document:
[306 U.S. 110, 111] Mr. Paul A. Freund, of Washington, D.C., for petitioner.
Mr. J. G. Korner, Jr., of Washington, D.C., for respondent.
The respondent, a New Jersey corporation, on occasions between 1921 and 1929, purchased its own Class B common stock for reasons of policy, such as the elimination of a very large single holding, the broadening of the ownership of the stock, and the support of the market to protect the investments of employee shareholders. This stock was resold from time to time. While held it was treated as treasury stock and the cost of it was entered in the accounts as 'Investments in Non-competitive Companies'. The books showed no increase or reduction of capital stock on account of purchases or sales. During 1929 the company sold shares acquired in that and prior years for a sum which exceeded cost by $286,581.21, which amount was entered in the books as a cash item and added to surplus. In its income tax return for 1929 the company listed this gain under the caption 'Other Items of Non-Taxable Income', as 'Profit R.J.R. Stock'.
The Board, after finding the facts in detail, sustained the Commissioner. 3 The Circuit Court of Appeals reversed the Board's ruling. 4 Because of asserted conflict we granted the writ of certiorari,5 305 U.S. 587 , 59 S.Ct. 101, 83 L.Ed. --.
The administrative construction embodied in the regulation has, since at least 1920, been uniform with respect to each of the revenue acts from that of 1913 to that of 1932, as evidenced by Treasury rulings and regulations, and decisions of the Board of Tax Appeals. 9 In the [306 U.S. 110, 115] meantime successive revenue acts have reenacted, without alteration, the definition of gross income as it stood in the Acts of 1913, 1916, and 1918. 10 Under the established rule Congress must be taken to have approved the administrative construction and thereby to have given it the force of law.
Petitoner urges that the amendment operates retroactively and governs the ascertainment of gross income for taxable periods prior to the date of its promulgation, and, further, since Congress has reenacted Section 22(a) in the Revenue Acts of 1936 and 1938, 26 U.S.C.A. 22(a) it has approved the regu- [306 U.S. 110, 116] lation as amended. We hold that the respondent's tax liability for the year 1929 is to be determined in conformity to the regulation then in force.
Section 605 of the Revenue Act of 1928 provides that 'In case a regulation or Treasury decision relating to the internalrevenue laws is amended by a subsequent regulation or Treasury decision, made by the Secretary or by the Commissioner with the approval of the Secretary, such subsequent regulation or Treasury decision may, with the approval of the Secretary, be applied without retroactive effect.' 11 It is clear from this provision that Congress intended to give to the Treasury power to correct misinterpretations, inaccuracies, or omissions in the regulations and thereby to affect cases in which the taxpayer's liability had not been finally determined, unless, in the judgment of the Treasury, some good reason required that such alterations operate only prospectively. The question is whether the granted power may be exercised in an instance where, by repeated reenactment of the statute, Congress has given its sanction to the existing regulation.
[ Footnote 1 ] c. 852, 45 Stat. 791, 797, 26 U.S.C.A. 22(a).
[ Footnote 2 ] Treasury decision 4430, XIII-1 Cumulative Bulletin 36.
[ Footnote 3 ] R. J. Reynolds Tobacco Co. v. Commissioner of Int. Rev., 35 B.T.A. 949.
[ Footnote 4 ] R. J. Reynolds Tobacco Co. v. Commissioner of Internal Revenue, 4 Cir., 97 F.2d 302.
[ Footnote 5 ] See First Chrold Corp. v. Commissioner, 306 U.S. 117 , 59 S.Ct. 427, 83 L.Ed. --.
[ Footnote 6 ] See e.g. Dickinson, 'Accounting Practice and Procedure', 130, 132; Sunley and Pinkerton, 'Corporation Accounting', 121; Streightoff, 'Advanced Accounting', 134-5.
[ Footnote 7 ] Johnson v. Commissioner, 5 Cir., 56 F.2d 58; E. R. Squibb & Sons v. Helvering, 2 Cir., 98 F.2d 69; compare, Borg v. International Silver Co., D.C., 11 F.2d 143, 147; Commissioner v. Inland Finance Co., 9 Cir., 63 F. 2d 886; Carter Hotel Co. v. Commissioner, 4 Cir., 67 F.2d 642.
[ Footnote 8 ] Morrissey v. Commissioner, 296 U.S. 344, 354 , 56 S.Ct. 289, 293.
[ Footnote 9 ] See L.O. 1035, 2 C.B. 132, 3 C.B. 160; L.O. 296, 5 C.B. 210; L.O. 426, 5 C.B. 210; A.A.R. 693, 5 C.B. 207; I.T. 1198, C.B. I-1, 275; A.A.R. 799, C.B. I-1, 374; I.T. 1802, C.B. II-2, 267. Reg. 45, Arts. 542 and 563; Reg. 62, Arts. 543 and 563; Reg. 65, Arts. 543 and 563; Reg. 69, Arts. 543 and 563; Reg. 74, Arts. 66 and 176; Reg. 77, Arts. 66 and 176. Simmons & Hammond Mfg. Co., 1 B.T.A. 803; Cooperative Furniture Co., 2 B.T.A. 165; Atlantic Carton Corp., 2 B.T.A. 380; Hutchins Lumber & Storage Co., 4 B.T. A. 705; Farmers Deposit Nat. Bank, 5 B.T.A. 520; H. S. Crocker Co., 5 B.T. A. 537, 541; Interurban Const. Co., 5 B.T.A. 529; Liberty Agency Co., 5 B. T.A. 778; Union Trust Co. v. Commissioner of Internal Rev., 12 B.T.A. 688, 690; 105 West 55th Street, Inc. v. Commissioner of Int. Rev., 15 B.T.A. 210, 213; American Cigar Co. v. Commissioner of Int. Rev., 21 B.T.A. 464, 495; Carter Hotel Co. v. Commissioner of Int. Rev., 25 B.T.A. 933.
[ Footnote 10 ] See Revenue Act 1913, 2, B, 38 Stat. 167; Revenue Act 1916, 2( a), 39 Stat. 757; Revenue Act 1918, 213(a), 40 Stat. 1065; Revenue Act 1921, 213(a), 42 Stat. 238; Revenue Act 1924, 213(a), 43 Stat. 267; Revenue Act 1926, 213(a), 44 Stat. 23; Revenue Act 1928, 22(a), 45 Stat. 797, 26 U.S.C.A. 22(a); Revenue Act 1932, 22(a), 47 Stat. 178, 26 U.S.C.A. 22(a).
[ Footnote 11 ] 45 Stat. 874, 26 U.S.C.A. 1691(b). Somewhat similar provisions were contained in earlier acts. See Revenue Act of 1921, Section 1314, 42 Stat. 314; Revenue Act of 1926, Section 1108(a), 44 Stat. 114.
[ Footnote 12 ] E. R. Squibb & Sons v. Helvering, 2 Cir., 98 F.2d 69, 70.

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