Source: https://supreme.justia.com/cases/federal/us/305/79/
Timestamp: 2019-04-21 20:35:22+00:00

Document:
which, in case of loss from sales, is limited by §§ 111 and 23(r) of the Act; T.R. 77, Art. 282. P. 305 U. S. 81.
2. Treasury regulations and interpretations long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received congressional approval, and have the effect of law. P. 305 U. S. 82.
3. The general provision of T.R. 77, Art. 121, that "[a]mong the items included in business expenses are . . . commissions," is limited by the special provision of id., Art. 282, designating security purchase commissions as a "part of the cost price of such securities." P. 305 U. S. 83.
4. The addition of § 23(r) of the Revenue Act of 1932 did not indicate a purpose to alter or repeal the administrative interpretation under which brokers' commissions have uniformly been construed as a part of the cost of the securities purchased, and not as current business expenses. P. 305 U. S. 84.
5. Congress has power to limit or deny deductions from gross income in the computation of income taxes. P. 305 U. S. 84.
Certiorari, 303 U.S. 633, to review a judgment which reversed a decision of the Board of Tax Appeals, 35 B.T.A. 804, sustaining an income tax assessment.
"All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered. . . ."
engaged in the "business" of buying and selling securities, and that the brokerage commissions amounted to "compensation for personal services actually rendered" within the meaning of Section 23(a).
was engaged in the "business" of buying and selling securities, and the brokers' commissions were not a "part of the cost" of the securities purchased, but were ordinary business expenses (as defined in § 23(a)), respondent was justified in deducting the brokers' commissions from his gross income for the taxable year. However, if these commissions represent a part of the cost of the securities, respondent's right to deduct is limited by § 23(r).
Article 282, Treasury Regulation 77, issued under the 1932 Act, provides that "Commissions paid in purchasing securities are a part of the cost price of such securities." If this regulation governs, the respondent's contention cannot be sustained.
substantially retained the original taxing provisions on which these regulations have rested.
"It has long been a settled rule of the Treasury Department that commissions paid in purchasing securities are a capital expenditure as part of the cost price of the securities."
". . . commissions [paid for marketing bonds] do not differ from brokerage commissions paid upon the purchase or sale of property. The regulations have consistently treated such commissions not as items of current expense, but as additions to the cost of the property or deductions from the proceeds of sale in arriving at net capital profit or loss for purposes of computing the tax. [Footnote 8]"
Nor can it be inferred that the addition of § 23(r) to the 1932 Act indicated any congressional purpose to alter or repeal the long-existing administrative interpretation of nondeductible capital expenditures under which brokers' purchase commissions have been uniformly considered as a part of the cost of securities, and not as current business expenses. This new statutory restriction of the allowance for losses from sales of stock bears no such relationship to the definition of cost price of securities as to lead to the conclusion that Congress intended to overthrow and abandon a settled practice of determining the elements of cost.
The brokers' purchase commissions here constituted a part of the acquisition cost of the securities involved, and are not allowable to the taxpayer as a deduction from gross income under § 23(a) of the Revenue Act of 1932. Congress, in the exercise of its power to deny or limit deductions from gross income, [Footnote 10] has -- by § 23(r) -- limited this taxpayer's allowable deduction. He has a right to a deduction "only to the extent of . . . gains from . . . sales or exchanges of stocks and bonds" as therein provided. The fact -- if it be a fact -- that respondent was engaged in the business of buying and selling securities does not entitle him to take a deduction contrary to this provision.
The cause is reversed and remanded to the Circuit Court of Appeals for action in harmony with this opinion.
"Sec. 111. Determination of amount of gain or loss."
"(a) Computation of gain or loss. Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 113(b), and the loss shall be the excess of such basis over the amount realized."
"Sec. 113. Adjusted basis for determining gain or loss."
"(b) Adjusted basis. The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis determined under subsection (a), adjusted as hereinafter provided."
"(1) General rule. Proper adjustment in respect of the property shall in all cases be made --"
"(A) for expenditures, receipts, losses, or other items, properly chargeable to capital account, including taxes and other carrying charges on unimproved and unproductive real property, but no such adjustment shall be made for taxes or other carrying charges for which deductions have been taken by the taxpayer in determining net income for the taxable year or prior taxable years. . . ."
"Sec. 23. Deductions from gross income. In computing net income, there shall be allowed as deductions:"
"(r) Limitation on Stock Losses."
"(1) Losses from sales or exchanges of stocks and bonds (as defined in subsection (t) of this section) which are not capital assets (as defined in section 101) shall be allowed only to the extent of the gains from such sales or exchanges (including gains which may be derived by a taxpayer from the retirement of his own obligations)."
See Art. 8, Paragraph 108, T.R. 33 (Revised 1918).
Art. 293 of T.R. 45 (1918), 62 (1921); Art. 292 of T.R. 65 (1924), 69 (1926); Art. 282 of T.R. 74 (1928), 77 (1932); Art. 24-2 of T.R. 86 (1934), 94 (1936).
United States v. Dakota-Montana Oil Co., 288 U. S. 459, 288 U. S. 466; Old Mission Portland Cement Co. v. Helvering, 293 U. S. 289, 293 U. S. 293-294.
Helvering v. Union Pacific R. Co., 293 U. S. 282, 293 U. S. 286.
Similarly, if the specific provisions of Article 282 are valid and have the present effect of law, respondent's contention that the commissions are uncompensated losses within the meaning of the general provisions of § 23(e)(1) of the 1932 Act is unavailing.
See Helvering v. Independent Life Ins. Co., 292 U. S. 371, 292 U. S. 381.

References: Art. 282
 Art. 121
 Art. 282
 § 23
 § 23
 § 23
 § 23
 § 23
 § 23
 Art. 8

Art. 293
 Art. 292
 Art. 282
 Art. 24
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 § 23
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