Source: https://www.legalcrystal.com/case/95932/helvering-vs-new-york-trust-co
Timestamp: 2017-02-24 11:47:09
Document Index: 498348371

Matched Legal Cases: ['§ 202', '§ 206', '§ 206', '§ 202', '§ 206', '§ 202', '§ 2', '§ 206', '§ 208', '§ 208', '§ 208', '§ 202', '§ 206', '§ 208', 'art. 1654', '§ 208']

Helvering Vs New York Trust Co - Citation 95932 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Helvering Vs. New York Trust Co. - Court Judgment	LegalCrystal Citationlegalcrystal.com/95932CourtUS Supreme CourtDecided OnMay-28-1934Case Number292 U.S. 455AppellantHelveringRespondentNew York Trust Co.Excerpt:
helvering v. new york trust co. - 292 u.s. 455 (1934)
(1) that the shares were "acquired by gift," by the trustee,..... Judgment:
(1) That the shares were "acquired by gift," by the trustee, within the meaning of § 202(a)(2) of the Revenue Act of 1921, and, under that Act, the basis for ascertaining the gain derived from the sale was "the same as that which it would have been in the hands of the donor" --
the cost of the shares to the trustor. P.
292 U. S. 462
(2) The shares were "capital assets," defined by § 206(a)(6) of the Act as "property acquired and held by the taxpayer for profit or investment for more than two years," and the gain was therefore taxable under that section at 12 1/2%, and not at the normal and surtax rates. In applying the definition, the tenures of donor and trustee must be treated as continuous. P.
292 U. S. 463
(3) The purpose of this provision of § 206 was to lessen the discouragement of sales of capital assets caused by high normal and surtaxes, in which respect there is no distinction between gains derived from a sale made by an owner who has held the property for more than two years and those resulting from one by a donee whose tenure plus that of the donor exceeds that period. P.
292 U. S. 466
(4) No valid ground has been suggested for requiring tenures of capital assets to be added to get the base under § 202(a)(2) and forbidding their combination for finding the rate under § 206(a)(6). P.
2. The rule requiring that an unambiguous statute shall be given effect according to its language is not to be put aside to avoid hardships that may result from carrying out the legislative purpose. P.
292 U. S. 464
3. But adherence to the letter of a statutory provision without regard to other parts of the Act and to the legislative history will often defeat its object. P.
4. Generally, questions as to the meaning intended do not arise until the language used is compared with the facts or transactions in respect of which the intent and purpose are to be ascertained. P.
292 U. S. 465
5. Mere change of language in a reenactment does not necessarily indicate an intention to change the law. The purpose may be to prevent misapprehension of the existing law by clarifying what was doubtful. P.
292 U. S. 468
This controversy arises out of the calculation of an income tax on the gain realized on the sale of property by a trustee in 1922. April 27, 1906, one Matthiessen acquired 6,000 shares of stock at a cost of $141,375. Its value on March 1, 1913, was less than cost. December 4, 1921, desiring to make provision for his son, Erard, he transferred the stock to the New York Trust Company in trust for him with remainder over in case of his death. When the trust was created, the market value of the stock was $577,500. The trustee sold it in 1922 for $603,385. In the tax return for that year, the trustee included $87,385 as the gain resulting from the sale. That figure was reached by subtracting the cost of the shares to the trustor, then claimed to be $516,000, from the amount the trustee received for them. But the trustee then, as it always has, insisted that the gain should be calculated on the basis of the value at the time of the creation of the trust. And it applied the rate of 12 1/2 percent applicable to capital gains. The Commissioner ascertained gain on the principle adopted in the return, but found the cost to trustor to be $141,375. He applied the normal and surtax rates that ordinarily are laid upon the incomes of individuals, and, by the use of these factors, arrived at an additional assessment of $238,275.95. [
] The Board of Tax Appeals sustained the determination. 27 B.T.A.
The trustor irrevocably disposed of the shares. He did not sell, but made a gift.
. He gave the trustee legal title temporarily, to be held to enable it to conserve, administer, and transfer the property for the use and benefit of his son, to whom he gave the beneficial interest. It may rightly be said that the trustee and beneficiary "acquired by gift" as meant by § 202(a). [
] If the broad definition in § 2(9) stood alone, either might be regarded as the taxpayer, but it is qualified by the rule that the trustee must pay the tax. It follows that the trustee properly may be regarded as the taxpayer, and, for the purpose of calculating the gain, as having assumed the place of the trustor. Section 202(a)(2) was enacted to prevent evasion of taxes on capital gains.
278 U. S. 479
And see Cooper v. United States,
. Transfers to trustees for the benefit of others are clearly within the reason for the enactment.
We come to the question whether the gain derived from the trustee's sale is taxable at 12 1/2 percent. That rate is not applicable unless the shares were "capital assets" defined by § 206(a)(6) to be "property acquired and held by the taxpayer for profit or investment for more than two years." The time between the creation of the trust and the sale was less than the specified period, and, if the words alone are to be looked to, the shares were not by the taxpayer "held . . . for more than two years." Soon after the passage of the Act, the Income Tax Unit of the Bureau of Internal Revenue ruled that property transferred to a trustee, for purposes and upon terms and conditions analogous to those expressed in the indenture before us, which remained in his hands less than two years, was not "capital assets," and that the resulting gain was not taxable at the 12 1/2 percent rate. That construction was followed by the Board of Tax Appeals, the Circuit Court of Appeals for the Third Circuit, and the Court of Appeals of the District of Columbia. [
] The Commissioner says that the words of the definition are free from ambiguity, and that the statute contains no exception. From an opinion of this Court, he
invokes these statements: "If the language be clear, it is conclusive. There can be no construction where there is nothing to construe."
. He suggests that his construction was approved by the Revenue Act of 1924, § 208(a)(8), 43 Stat. 263,, which retained the definition, and that the provision in the Revenue Act of 1926, § 208(a)(8), 44 Stat. 19, which conforms to the construction for which the trustee here contends, operated to make a change in the law.
The rule that, where the statute contains no ambiguity, it must be taken literally and given effect according to its language, is a sound one not to be put aside to avoid hardships that may sometimes result from giving effect to the legislative purpose.
Commissioner of Immigration v. Gottlieb,
265 U. S. 310
265 U. S. 313
157 U. S. 37
. But the expounding of a statutory provision strictly according to the letter, without regard to other parts of the Act and legislative history, would often defeat the object intended to be accomplished. Speaking through Chief Justice Taney in
19 How. 183, this Court said (p.
Quite recently, in
, we said (p.
, we applied the rule laid down in
People v. Utica Ins. Co.,
15 Johns. 358, 381, that
Construed strictly according to the letter, the provision would not include shares received as a dividend less than two years before the sale or property taken in exchange within that period. The need of this regulation illustrates how ambiguities requiring construction often exist where, upon first reading, the words seem clear. Generally, questions as to the meaning intended do not arise until the language used is compared with the facts or transactions in respect of which the intent and purpose are to be ascertained.
Bradley v. Washington,
A. & G. Steam Packet Co.,
13 Pet. 89,
38 U. S. 97
77 U. S. 270
Patch v. White,
117 U. S. 210
117 U. S. 217
Gilmer v. Stone,
120 U. S. 586
120 U. S. 590
141 U. S. 474
67th Congress, 1st Session, House Report No. 350, p. 10.
Senate Report No. 275, p. 12. In respect of the legislative purpose to lessen hindrance caused by high normal and surtaxes, there is no distinction between gains derived from a sale made by an owner who has held the property for more than two years and those resulting from one by a donee whose tenure plus that of the donor exceeds that period.
Here, the taxable gain was ascertained by putting together the periods in which the shares were held by trustor and trustee, respectively. The taxable gain was the same as if the former held continuously from the time of purchase in 1906 until the sale in 1922. But, to ascertain the applicable rate, the Commissioner broke the continuity. If the trustor had held until the sale, the 12 1/2 percent rate would have been applicable, and the tax would have been substantially less than one-fourth of the amount assessed against the trustee, who, for the purpose of calculating the gain, was substituted for the trustor. [
definition had not been construed in any Treasury Decision, by the Board of Tax Appeals or by any court prior to that enactment. The dates of all constructions of the definition to which our attention has been called are shown in the margin. [
] The regulation above referred to was approved February 15, 1922. In respect of the question here involved, it puts no construction upon the definition. The rulings, I.T. 1379, 1660, and 1889, cited by the Commissioner were made before the passage of the 1924 act, but they "have none of the force or effect of Treasury Decisions and do not commit the Department to any interpretation of the law."
cautionary notice published in the bulletins containing these rulings. It does not appear that the attention of Congress had been called to any such construction. There is no ground on which to infer that, by the 1924 Act, Congress intended to approve it.
The Revenue Act of 1926, § 208(a)(8) [
] contains substantially the same language as that used in the 1921 Act to define capital assets. That part of the subdivision is followed by rules for determining the period for which the taxpayer has held the property. Among them is one applicable to facts such as those presented in the case before us. It is substantially the same as the construction for which the trustee contends. Mere change of language does not necessarily indicate intention to change the law. The purpose of the variation may be to clarify what was doubtful, and so to safeguard against misapprehension as
to existing law. In view of the inclusion of the same definition in the acts of 1921, 1924, and 1926 and the legislative purpose underlying it, the contention that the new words were added to change the meaning of "capital assets," as defined in the earlier acts, is without force. The definition, so clarified, was not new law, but "a more explicit expression of the purpose of the prior law."
Jordan v. Roche,
228 U. S. 436
228 U. S. 445
Merle-Smith v. Commissioner,
42 F.2d 837, 842.
McCauley v. Commissioner,
44 F.2d 919, 920.
* Together with No. 899,
New York Trust Co., Trustee v. Helvering, Commissioner,
McDonogh's Executors v. Murdoch,
15 How. 367,
56 U. S. 400
56 U. S. 404
Maguire v. Trefry,
253 U. S. 12
253 U. S. 16
53 U. S. 106
,-107,
5 Wall. 268,
72 U. S. 281
6 Wall. 458,
73 U. S. 471
Bowen v. Chase,
94 U. S. 812
94 U. S. 817
94 U. S. 818
Young v. Bradley,
101 U. S. 782
101 U. S. 787
Anderson v. Wilson,
289 U. S. 20
289 U. S. 24
L.T. 1379, 1-2 C.B. (July December, 1922) 41. I.T. 1660, II-1 C.B. (January-June, 1923) 36. I.T. 1889, III-1 C.B. (January-June, 1924) 70. McKinney v. Commissioner, 16 B.T.A. 804, 808; Johnson v. Commissioner, 17 B.T.A. 611, 614,
52 F.2d 727; Shoenberg v. Commissioner, 19 B.T.A. 399, 400,
60 App.D.C. 381, 55 F.2d 543; Stegall v. Commissioner, 24 B.T.A. 1231, 1235; McCrory, Trustee v. Commissioner, 25 B.T.A. 994, 1011.
Within the meaning of § 202(a) of the Revenue Act of 1921, the trustee acquired the trust
by gift. But reference must be had to §§ 206 and 219 to ascertain the rate of tax to be applied to the gain on the sale. These are distinct sections, found not in juxtaposition with 202, but in portions of the Act dealing with unrelated topics, the one with "capital Gains" and the other with "Estates and Trusts." Confessedly the first grants an exemption from the normal rate of tax and allows payment at a lower rate only to a "taxpayer" who realizes gain from the sale of a capital asset which he (the "taxpayer") has held for profit or investment for over two years. The second, in words too plain to be misunderstood, designates the trustee of a trust such as the one here in question as the taxpayer. The unambiguous mandate of the act should be enforced.
1. Under the recognized rules of construction, we should give the words of the statute their ordinary and common meaning.
. If the language be plain, there is nothing to construe.
246 U. S. 547
246 U. S. 551
. We cannot enact a law under the pretense of construing one.
285 U. S. 331
Nor can we avoid the plain meaning of a statute by construction, so-called, because we think, as written, it begets "hard and objectionable or absurd consequences, which probably were not within the contemplation" of its framers.
. Where, as in the present case, the provision is one granting an exemption from the full rate of taxation, doubts must be resolved against the taxpayer.
Heiner v. Colonial Trust Co.,
2. For twelve years after the passage of the Act, the administrative rulings uniformly denied the benefit of the capital gains sections of the Act of 1921 to a donee who had not himself held the property over two years. These are entitled to respectful consideration, and will not be disregarded except for weighty reasons.
. Two Courts of Appeals have decided against the trustee's contention. In the face of this unbroken agreement of the executive and judicial departments, we should be show to announce a contrary view.
The Act omitted to impose any limitation of 12 1/2 percent on capital net losses. If, therefore, a taxpayer had no capital gains during the year, he could deduct his entire capital losses from his ordinary income. [
] This omission was cured by the Revenue Act of 1926, which reduced the permissible deduction from the tax on net income to 12 1/2 percent of capital net loss. [
] The amendment
of 1926, in turn, leaves a glaring inconsistency, for, though the taxpayer may have no actual income, yet, as a result of the application of the mandatory 12 1/2 percent rate to capital net losses, he may have to pay a tax. [
Under the Act of 1921, capital assets were so defined as to exclude property held for personal use or consumption of the taxpayer or his family. [
] By the Revenue Act of 1924 and later Acts, the exception was omitted. [
] It results that, whereas the taxpayer may now include such property as the residence occupied by him, his automobiles, his jewels, and similar items, in respect to gains, he may not include them with respect to losses, for no deduction whatever for losses is permitted in the case of property held for personal use or consumption. [
as respects the Act of 1921, it is curious that the same inadvertence occurred in the enactment of the 1924 Act, despite the fact that the rulings of the department had been against the trustee's present contention. The section was amended by the Act of 1926 so as to allow the donee to tack his donor's tenure to make up the required two years. [
] In reporting it, the committees of the Senate and House both referred to this as an amendment of the law. The change was recommended in connection with two other alterations of language, both intended to confirm rulings of the department. In referring to this particular alteration, the committees said:
"The same question arises in the case of property received by gift after December 31, 1920. The amendment provides that the period in which the property was held by the donor shall be added to the period in which the property was held by the donee in determining whether or not the property so received falls within the capital gain or loss section. [
§ 208(c), 44 Stat. 20. As stated in Regulations 69, art. 1654, by § 208(b), if the taxpayer has a capital net gain, he has an election whether to return it under the capital gains and losses provision, but the limitation with respect to a capital net loss provided in 208(c) will be applied irrespective of the taxpayer's election.