Source: https://www.legalcrystal.com/case/95597/mclaughlin-vs-alliance-insurance-co
Timestamp: 2016-12-04 11:59:55
Document Index: 130324369

Matched Legal Cases: ['§ 204', '§ 111', '§ 204', '§ 113', '§ 204', '§ 111', '§ 204', '§ 204', '§ 111', '§ 204', '§ 111', '§ 111', '§ 204', '§ 111', '§ 204', 'art 9']

Mclaughlin Vs Alliance Insurance Co - Citation 95597 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize MclaughlIn Vs. Alliance Insurance Co. - Court Judgment	LegalCrystal Citationlegalcrystal.com/95597CourtUS Supreme CourtDecided OnMay-16-1932Case Number286 U.S. 244AppellantMclaughlinRespondentAlliance Insurance Co.Excerpt:.....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. p.
3. gains realized by stock fire insurance companies from sale or other disposition of property, accruing after march 1, 1913, were taxable as income under the revenue acts of 1913-1918, but not under those of 1921-1926. the act of 1928 taxed their income and by § 204(b) defined their gross income as including "gain during the taxable year from sale or other disposition of property."
that the tax under the 1928 act is on the entire gain realized within the taxable year, to be determined, pursuant to..... Judgment:
McLaughlin v. Alliance Insurance Co. - 286 U.S. 244 (1932)
1. While increase in value of property not realized as gain by it sale or other disposition may, in an economic or bookkeeping sense, be deemed an addition to capital in a later period, it is nevertheless a gain from capital investment which, when realized by conversion into money or other property, constitutes income within the meaning of the Sixteenth Amendment, taxable a such in the period when realized. P.
286 U. S. 249
2. 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. P.
that the tax under the 1928 Act is on the entire gain realized within the taxable year, to be determined, pursuant to §§ 111-113, by deducting from the net selling price the cost of the property sold, or the fair market value on March 1, 1913, if acquired before that date. P.
286 U. S. 251
Questions certified in two cases pending in the court below upon appeals from judgments of the District Court in two suits to recover alleged overpayments of income taxes from the Collector . In both cases, the District Court construed § 204 of the Revenue Act of 1928 as measuring taxable gains from the sale or other disposition of property on its fair market value as of January 1, 1928. In No. 547, it sustained the tax, computed on this
basis, and, in No. 548, it held the tax invalid because computed on the basis of value on March 1, 1913, or other basis as provided by § 113 of the Act, and not on the basis of value as of January 1, 1928.
49 F.2d 361.
Supplement G of the Revenue Act of May 29, 1928, 45 Stat. 791, 844, c. 852, § 204(a)(1), effective as of January 1st of the year, taxed the income of insurance
In No. 547, decided by the same District Court and involving similar facts and the same taxing statutes, the Court of Appeals for the Third Circuit certified the following question:
The tax under this and earlier revenue acts was imposed upon net income for stated accounting periods, here the calendar year 1928,
, 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,
, 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,
Merchants' Loan & Trust Co. v. Smietanka, supra; Eldorado Coal & Mining Co. v. Mager,
255 U. S. 522
Lucas v. Alexander,
279 U. S. 573
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. 22
-23, 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.
compare Taft v. Bowers,
See also Glenn v. Doyal,
285 U.S. 526, 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
, on which the the taxpayers rely, involved the construction, not the constitutionality, of the Corporation Excise Tax Act of 1909, and considerations which, in
, 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.
We think it clear that the Revenue Act of 1928 imposed the tax on the entire gain realized within the taxable year. Section 204(b)(1) of Supplement G, which includes gain from the sale of property in the gross income of insurance companies (other than life or mutual), states no method of computing the gain. But the 1928 Act, like its predecessors, prescribed in other sections, §§ 111-113, that taxable gains from the sale of property should be determined by deducting from the net sales price the cost or the fair market value on March 1, 1913, if acquired before that date. These provisions are general in their terms, without any stated exception, and on their face are applicable alike to all gains from the sale of property taxed by the Act. They either control the computation of the gain referred to in § 204(b)(1) or the word "gain" in that section, construed without their aid, must be taken in its ordinary sense as embracing the difference between net cost and net selling price, and so, upon established principles, would include in the taxable realized gain all which had accrued since the effective date of the Income Tax Act of 1913, the first enactment adopted under the Sixteenth Amendment.
See Eisner v. Macomber,
Merchants' L. & T. Co. v. Smietanka, supra,
255 U. S. 519
-520. For present purposes, the Revenue
The taxpayers insist that the omission from § 204(b)(1) of any reference to §§ 111-113, in contrast to the inclusion in § 204(c), of cross-references to the general provisions of the Act defining deductions, evidences an intention to exclude the method of computing gains prescribed by §§ 111-113, and to adopt a different method with respect to gains taxed by Supplement G. But this argument disregards the function of the general provisions of the Act, including §§ 111-113, as complementing the provisions of Supplement G, and ignores the obvious necessity of defining the deductions authorized by § 204(c), either by cross-references made in that section to the general provisions of the Act or by other appropriate means, which did not obtain with respect to the definition of gains in 204(b)(1). [
The Act, by this section and by operations of its structural arrangement, thus provided that all of the general provisions of Subtitle B, and all the general provisions of Supplements A to D, including Supplement B, in which §§ 111-113 occur were to apply to the special classes of taxpayers referred to in Supplements E to K, unless the provisions relating to a special class restrict the operation of the general provisions or are necessarily inconsistent with them. That such was the purpose to be accomplished by the rearrangement of the taxing provisions in the 1928 Act sufficiently appears from its legislative history. [
Section 204 is not, as the District Court thought, "a scheme or code of taxation, complete in itself, . . . without reference to the general provisions of the Act," unless specifically referred to and included by cross-reference to such general provisions. An inspection of the Act discloses that Supplement G, dealing with insurance companies as a special class of taxpayers, would be unworkable
without resort to the general provisions of the Act not specifically referred to in the Supplement. [
Insurance Company of Pennsylvania v. MacLaughlin, Collector of Internal Revenue.
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 § 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.