Source: https://supreme.justia.com/cases/federal/us/317/399/
Timestamp: 2019-04-22 18:31:24+00:00

Document:
Title to real property in the City of New York was taken by the City, together with the possession and the right to all after-accruing rents, by a proceeding in condemnation under § 976 of the Greater New York Charter. Several months later, the final decree awarded the former owners, as just compensation, the value of the property on the day of taking, with interest thereon from that date till the date of payment.
Held: that the part of the award designated as "interest," although it was part of the "just compensation" that must be paid the owner to justify the taking, was not a part of the sale price of a capital asset under § 117(a) of the Revenue Act of 1936, and was taxable as income under § 22 of that Act. P. 317 U. S. 403.
Certiorari, post, p. 612, to review a judgment which reversed a decision of the Board of Tax Appeals, 44 B.T.A. 279, overruling a deficiency income tax assessment.
This writ of certiorari was granted limited to a single narrow point in the law of income taxes. 317 U.S. 612. The sum in question was received as part of the compensation in a condemnation proceeding instituted by the City of New York. Payment was made several years after the actual taking. The issue concerns the nature of that portion of the payment which is called "interest" by the Greater New York Charter, and which the owner must receive, in addition to the value of the property fixed as of the time of the taking, to produce, when actually paid, the full equivalent of that value. Was this portion a capital gain or ordinary income?
The writ was granted because of conflict upon the point between this case below, Commissioner v. Kieselbach, 127 F.2d 359, and Seaside Improvement Co. v. Commissioner, 105 F.2d 990.
"Upon the date of the entry of the order granting the application to condemn, or of the filing of the damage map in the proceeding, as the case may be, or upon such subsequent date as may be specified by resolution of said board, the City of New York shall become and be seized in fee of or of the easement, in, over, upon, or under the said real property described in the said order or damage map, as the Board of Estimate and Apportionment may determine, the same to be held, appropriated, converted, and used to and for such purpose accordingly. Interest at the legal rate upon the sum or sums to which the owners are justly entitled upon the date of the vesting of title in the City of New York, as aforesaid, from said date to the date of the final decree, shall be awarded by the court as part of the compensation to which such owners are entitled."
"The amount of said payment was computed by adding to the principal amount of $58,000.00, interest thereon as provided by Section 976 of the Greater New York Charter, in the sum of $15,246.57, computed at the rate of 6% per annum from January 3, 1933, to May 12, 1937, or a total of $73,246.57. [Footnote 1] "
We accept as a fact that the $58,000, principal amount just referred to was, as petitioners allege, an award to them. We assume it was the value on January 3, 1933, of this property then taken by the city.
The taxpayers' basis on the condemned property was around $42,000. In their original return, the difference between the basis and the total sum received was treated as capital gain, and only a percentage was returned as income pursuant to Sec. 117. [Footnote 2] The Commissioner assessed a deficiency on the portion of the award computed as interest on the ground that such portion was ordinary income.
The Board of Tax Appeals, 44 B.T.A. 279, reversed the Commissioner, and the Circuit Court of Appeals, 127 F.2d 359, in turn, held with the Commissioner.
The property was turned over in January, 1933, by the resolution. This was the sale. Title then passed. The subsequent earnings of the property went to the city. The transaction was as though a purchase money lien at legal interest was retained upon the property. Such interest, when paid would, of course, be ordinary income.
the states' borrowing power. In any event, the question here is not whether these sums are interest. They may not be interest, and yet be other than part of the sale price. [Footnote 8] If not interest, they may be compensation for the delay in payment.
of the Revenue Act of 1932 or 1928. These decisions obviously are not in point on the question whether the additional payments in the present case are part of the sale price or other income under Sec. 22. Nor do we find persuasive the cases refusing to allow an installment purchaser an interest deduction because of his deferred payments where the purpose was an arrangement for the payment of the purchase price. [Footnote 11] In the present case, the purchase price was settled as of January 3, 1933, when the property was taken over.
No question is raised involving the accuracy of this computation. While Sec. 976 requires interest only to the date of the decree, Sec. 981, Greater New York Charter, as amended by Laws of 1932, c. 391, § 2, requires interest on the decree. Matter of City of New York (Chrystie St.), 264 N.Y. 319, 190 N.E. 654.
"(a) General rule. -- In the case of a taxpayer other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income:"
"40 percentum if the capital asset has been held for more than 5 years but not for more than 10 years;"
"30 percentum if the capital asset has been held for more than 10 years."
"(b) Definition of capital assets. -- For the purposes of this title, 'capital assets' means property held by the taxpayer (whether or not connected with his trade or business). . . ."
The involuntary character of the transaction is not significant. Helvering v. Hammel, 311 U. S. 504, 311 U. S. 510.
No review is sought of the holding that transfer of property through condemnation proceedings is a sale within the meaning of Sec. 117 of the Revenue Act of 1936. Commissioner v. Kieselbach, 127 F.2d 359, 360.
See also Shoshone Tribe v. United States, 299 U. S. 476, 299 U. S. 496; Phelps v. United States, 274 U. S. 341; Brooks-Scanlon Corp. v. United States, 265 U. S. 106; Liggett & Myers Tobacco Co. v. United States, 274 U. S. 215.
The same principle is applicable to the New York decisions holding that interest is a part of the condemnation award. Just compensation requires satisfaction for the delay by payment of the additional sums. Matter of City of New York (West 151st St.), 222 N.Y. 370, 372, 118 N.E. 807; Minzesheimer v. Prendergast, 144 App.Div. 576, 579, 129 N.Y.S. 779, aff'd, 204 N.Y. 272, 97 N.E. 717; Matter of City of New York, Bronx River Parkway, 284 N.Y. 48, 54, 29 N.E.2d 465. The obligation to pay its value arises when the property is taken. Title then passes. Kablen v. New York, 223 N.Y. 383, 389, 119 N.E. 883. Woodward-Brown Realty Co. v. City of New York, 235 N.Y. 278, 139 N.E. 267, is not to the contrary. It deals with the unity of a right of action on an award with interest, holding only one proceeding is authorized against the condemnor.
"Such additional sums are not considered normal interest, but part of the compensation awarded for the property taken." 105 F.2d at 994.
Holley v. United States, 124 F.2d 909; Posselius v. United States, 90 Ct.Cls. 519, 31 F.Supp. 161; Williams Land Co. v. United States, 90 Ct.Cls. 499, 31 F.Supp. 154; Baltimore & Ohio R. Co. v. Commissioner, 78 F.2d 460; United States Trust Co. of New York v. Anderson, 65 F.2d 575.
"Nor is it quite accurate to say that interest as such is added to value at the time of the taking in order to arrive at just compensation subsequently ascertained and paid."
United States v. Klamath Indians, 304 U. S. 119, 304 U. S. 123.
Helvering v. Drier, 79 F.2d 501; Commissioner v. Speyer, 77 F.2d 824; Drier v. Helvering, 63 App.D.C. 283, 72 F.2d 76; Consorzio Veneziano di Armamento e Navigazione v. Commissioner, 21 B.T.A. 984; N.V. Koninklijke Hollandische Lloyd (Royal Holland Lloyd) v. Commissioner, 34 B.T.A. 830.
This section specifies interest on interest-bearing obligations of residents as one of the items of income from sources within the United States.
Hundahl v. Commissioner, 118 F.2d 349; Henrietta Mills v. Commissioner, 52 F.2d 931; Pratt-Mallory Co. v. United States, 12 F.Supp. 1020; Daniel Brothers Co. v. Commissioner, 28 F.2d 761.

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 § 117
 § 22
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