Source: https://www.legalcrystal.com/case/96061/morrissey-vs-commissioner
Timestamp: 2018-05-24 02:32:38
Document Index: 26289305

Matched Legal Cases: ['Art. 1504', '§ 219', '§ 2', '§ 2', '§ 200', '§ 1', '§ 2', '§ 701', '§ 1111', '§ 801', '§ 407', '§ 1000', 'Art. 1314', 'Art. 801', '§ 704', '§ 704', 'Art. 1504']

Morrissey Vs Commissioner - Citation 96061 - Court Judgment | LegalCrystal
Morrissey Vs. Commissioner - Court Judgment
LegalCrystal Citation legalcrystal.com/96061
Case Number 296 U.S. 344
Appellant Morrissey
morrissey v. commissioner - 296 u.s. 344 (1935) u.s. supreme court morrissey v. commissioner, 296 u.s. 344 (1935) morrissey v. commissioner of internal revenue no. 17 argued october 18, 1935 decided december 16, 1935 296 u.s. 344 certiorari to the circuit court of appeals for the ninth circuit syllabus 1. under revenue acts declaring that the term "corporation" shall include "associations," the treasury department was authorized to define the latter term by regulation, and thereafter to clarify or enlarge the definition in order to meet administrative exigencies and conform with judicial decision. pp. 296 u. s. 349 , 296 u. s. 354 . 2. enactment of the revenue act of 1924, providing, as in.....
Morrissey v. Commissioner - 296 U.S. 344 (1935)
U.S. Supreme Court Morrissey v. Commissioner, 296 U.S. 344 (1935)
1. Under Revenue Acts declaring that the term "corporation" shall include "associations," the Treasury Department was authorized to define the latter term by regulation, and thereafter to clarify or enlarge the definition in order to meet administrative exigencies and conform with judicial decision. Pp. 296 U. S. 349 , 296 U. S. 354 .
2. Enactment of the Revenue Act of 1924, providing, as in previous Acts, that the term corporation shall include associations, did not fix the definition of the term "association" then in the regulations so that the Department could not further adapt it to the administration of the Act. P. 296 U. S. 355 .
3. The view expressed by this Court in Hecht v. Malley, 265 U. S. 144 , that the degree of control by the beneficiaries was not a decisive test of whether a trust is an "association" and therefore subject to the special excise imposed on corporations (defined as including "associations") by the Revenue Act of 1918, is applicable also to general income taxes laid by the Revenue Acts upon corporations, and thus upon associations. P. 296 U. S. 355 .
4. Regulations of the Treasury Department adopting this view, under the Revenue Act of 1924, held not in excess of its authority. P. 296 U. S. 355 .
5. Revision of the Treasury Regulations defining the term "associations" in the Revenue Act of 1924, was in effect approved by Congress in subsequent Revenue Acts through the reenactment, without substantial change, of the provision so construed by the Department. P. 296 U. S. 355 .
6. Congress has power to tax as a corporation an unincorporated association in the form of a trust which transacts its business as if it were incorporated. P. 296 U. S. 356 .
functions performed in corporations by officers and directors, and provisions of the trust instrument may take the place of bylaws. P. 296 U. S. 357 .
8. To constitute a trust an "association" within the meaning of these Acts, it is not essential that the beneficiaries should have such control as is commonly exercised by stockholders or that they should hold meetings to elect representatives. P. 296 U. S. 358 .
9. While the faculty of transferring the interests of members without affecting the continuity of the enterprise may be deemed to be characteristic, the test of such an "association" is not to be found in the formal evidence of interests or in a particular method of transfer. P. 296 U. S. 358 .
10. A trust designed not for the purpose of holding and conserving particular property with incidental powers in the trustees, as in the traditional type of trusts, but as a medium for the conduct of a joint business enterprise and a sharing of the gains is to be classed as an "association" within the meaning of the Revenue Acts, supra, when the following attributes, analogous to those of corporate organizations, are present: (1) title to property embarked in the enterprise held by trustees, as a continuing body, during the existence of trust; (2) centralized management by trustees, as representatives of beneficial owners, whether selected by or with the advice of beneficiaries or designated in the trust instrument with power to select successors; (3) continuity uninterrupted by deaths among beneficial owners; (4) means for transfer of beneficial interests and introducing new participants without affecting continuity; (5) limitation of personal liability of participants to property embarked in the undertaking. P. 296 U. S. 359 .
(1) That the trust constituted an "association." P. 296 U. S. 360 .
(2) That sale of part of the property before the beginning of the tax years in question and conveyance of the remainder to a corporation in exchange for its shares did not alter its character, since it remained an organization for profit with profits still coming in, and the powers of the trustees continued. P. 296 U. S. 360 .
(3) The character of the trust is revealed by the terms of the trust instrument. P. 296 U. S. 361 .
12. Section 704(a), Revenue Act, 1928, providing that a taxpayer filing a return as a trust for a taxable year prior to 1925 shall be taxable as a trust, and not as a corporation if, under regulations or departmental rulings in force at time of filing, the return it was considered to be so taxable, held inapplicable to a return for the year 1924 filed after the adoption of Treasury Regulations No. 65, Art. 1504, amending prior regulations so as to provide that operating trusts in which the trustees were not restricted to the mere collection of funds and their payment to beneficiaries, but were associated together in much he same manner as directors in a corporation, for the purpose of carrying on a business enterprise, should be deemed to be associations, regardless of the control exercised by the beneficiaries. P. 296 U. S. 361 .
F.2d 803. We granted certiorari because of a conflict of decisions as to the distinction between an "association" and a "pure trust," the decisions being described in one of the cases as "seemingly in a hopeless state of confusion." Coleman-Gilbert Associates v. Commissioner, 76 F.2d 191, 193. [ Footnote 1 ]
Petitioners contend that they are trustees "of property held in trust," within § 219 of the Revenue Acts of 1924 and 1926, [ Footnote 2 ] and are taxable accordingly, and not as an "association." They urge that, to constitute an association, the applicable test requires "a quasi -corporate organization in which the beneficiaries, whether or not certificate holders, have some voice in the management and some control over the trustees, and have an opportunity
1. The Revenue Acts of 1924 and 1926 provided: "The term "corporation" includes associations, joint-stock companies, and insurance companies." Revenue Act 1924, § 2(a)(2); Revenue Act 1926, § 2(a)(2). [ Footnote 3 ]
A similar definition is found in the earlier Revenue Acts of 1917, § 200, 1918, § 1, and 1921, § 2(2), [ Footnote 4 ] and also in the later Revenue Acts of 1928, § 701(a)(2), 1932, § 1111(a)(2), and 1934, § 801(a)(2). [ Footnote 5 ]
The Corporation Tax Act of 1909, [ Footnote 6 ] which imposed an excise tax upon the privilege of doing business in a corporate capacity, embraced associations having a capital stock represented by shares and "organized under the laws of the United States or of any state or territory." Flint v. Stone Tracy Co., 220 U. S. 107 , 108 [argument of counsel -- omitted}, 220 U. S. 144 ; Eliot v. Freeman, 220 U. S. 178 , 220 U. S. 186 . The Income Tax Act of 1913 [ Footnote 7 ] taxed the net income of
The case of Crocker v. Malley, 249 U. S. 223 , arose under the latter Act. The Court found that the declaration of trust in that case, relating to mill property, was on its face "an ordinarily real estate trust of the kind familiar in Massachusetts," and that the function of the trustees was
The Court thought that, if it were assumed that the words "no matter how created or organized" applied to "association," still it would be "a wide departure from normal usage" to call the beneficiaries a joint-stock association when they were not partners and had "no joint action or interest and no control over the fund." Nor could the trustees "by themselves" be treated as a joint-stock association within the meaning of the act "unless all trustees with discretionary powers are such." Id., pp. 249 U. S. 232 -234.
This ruling continued until our decision in May, 1924, in Hecht v. Malley, 265 U. S. 144 , and furnished the test which the Board of Tax Appeals applied in its determinations for earlier years. [ Footnote 8 ] Accordingly, the Board in the case now before us, holding that, under the trust instrument the shareholders "had no control over the trustees or the management of the business," determined that the trust was taxable as such, and not as an association, for the years 1921, 1922, and 1923.
The case of Hecht v. Malley related to the excise taxes imposed upon "associations" by the Revenue Acts of 1916, § 407, and 1918, § 1000(a). [ Footnote 9 ] The provision of the Act of 1916 retained the qualifying words of the Corporation Tax Act of 1909 -- "organized under the laws of the United States, or any State or Territory" -- and the Court followed the construction placed upon those words in Eliot v. Freeman, supra. But the act of 1918 omitted this qualification, and the excise tax as laid upon corporations applied to "associations" under the general definition. The Court thus found the terms of the act of 1918 to be in significant contrast to the provisions of the acts of 1909 and 1916. The omission of the qualification showed the intention of Congress
265 U.S. p. 265 U. S. 155 . Shorn of the restriction, the word "association" appeared to be used in its
ordinary meaning, and we referred to several definitions found in standard dictionaries, as, e.g., "a body of persons united without a charter, but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise;" "a body of persons organized, for the prosecution of some purpose, without a charter, but having the general form and mode of procedure of a corporation;" "an organized but unchartered body analogous to but distinguished from a corporation." Id., p. 265 U. S. 157 . We expressed the view that the word "association," as used in the excise tax provision of the Revenue Act of 1918, clearly included "Massachusetts trusts," of the sort there involved, "having quasi -corporate organizations under which they are engaged in carrying on business enterprises." We were careful to say that it was then unnecessary to determine "what other form of "associations," if any," the Act embraced. Id.
1504, as amended. [ Footnote 10 ] These regulations were continued substantially unchanged under the Revenue Acts of 1926 and 1928. No. 69, Arts. 1502, 1504; No. 74, Arts. 1312, 1314. The corresponding regulations under the Act of 1932 were somewhat modified, No. 77, Art. 1314, and these were considerably expanded by the regulations issued under the Revenue Act of 1934, No. 86, Art. 801-2, 801-3.
permissible bounds of administrative construction. Nor can this authority be deemed to be so restricted that the regulations, once issued, could not later be clarified or enlarged so as to meet administrative exigencies or conform to judicial decision. Compare Murphy Oil Co. v. Burnet, 287 U. S. 299 , 287 U. S. 303 -307. We find no ground for the contention that, by the enactment of the Revenue Act of 1924, the Department was limited to its previous regulations as to associations. And, while the case of Hecht v. Malley was concerned with the special excise tax provision of the Revenue Act of 1918, the ruling of the Court that the degree of the control by beneficiaries was not a decisive test in that relation could, by similar reasoning, be applied to the general income taxes laid by the revenue acts upon corporations, and thus upon associations. These general income taxes covered both those taxes which in their nature were excise taxes on business, and as such could have been laid prior to the Sixteenth Amendment, and those taxes on other income which were permitted by that amendment. Stanton v. Baltic Mining Co., 240 U. S. 103 , 240 U. S. 107 , 240 U. S. 114 . We think that the Department did not exceed its powers in rewriting its regulation, in the light of the decision in Hecht v. Malley, so as to provide with respect to the income taxes, in general, to be paid by associations that the extent or lack of control by the beneficiaries of a trust should not, in itself, determine whether there was an association within the meaning of the statute. That the revised regulation had congressional approval is persuasively evidenced by the fact that the regulation, as amended in 1925, was continued without substantial alteration until 1933, and meanwhile Congress reenacted without change the general provision as to associations in the Revenue Acts of 1926, 1928, and 1932. See Brewster v. Gage, 280 U. S. 327 , 280 U. S. 337 ; McCaughn v. Hershey Chocolate Co., 283 U. S. 488 , 283 U. S. 492 ;
Murphy Oil Co. v. Burnet, supra; Helvering v. Bliss, 293 U. S. 144 , 293 U. S. 151 .
The question is not one of the power of Congress to impose this tax upon petitioners, but is simply one of statutory construction -- whether Congress has imposed it. See Burk-Waggoner Oil Assn. v. Hopkins, 269 U. S. 110 , 269 U. S. 114 . The difficulty with the regulations as an exposition was that they themselves required explication; that they left many questions open with respect both to their application to particular enterprises and to their validity as applied. The so-called "control test" had led to much litigation, and the change in the regulations after the decision in Hecht v. Malley caused increased uncertainty. That situation is put in a strong light by the action of Congress, in order to afford relief to taxpayers, in enacting § 704 of the Revenue Act of 1928 as a "retroactive" provision applicable, as stated, to trust returns which had been filed for a taxable year prior to 1925 under previous regulations and rulings, and also by giving an option to a trustee, in specified circumstances, in relation to the Revenue Act of 1926 and prior acts. [ Footnote 11 ] While it is impossible in the nature of things to translate the statutory concept of "association" into a particularity of detail that would fix the status of every sort of enterprise or organization which ingenuity may create, the recurring disputes emphasize the need of a further examination of the congressional intent.
6. Petitioners contend that the trust was not taxable as an association, by reason of the retroactive provisions of § 704(a) of the Revenue Act of 1928. [ Footnote 12 ] The contention is plainly unavailing, and does not require an extended discussion. Section 704(a) of the Act of 1928 provides, in substance, that where a taxpayer filed a return as a trust for a taxable year prior to 1925, the taxpayer shall be taxable as a trust, and not as a corporation, if the taxpayer was considered to be so taxable either (1) under the regulations in force at the time the return was made, or (2) under a departmental ruling then applicable and in force. Prior to the time for filing petitioners' return for the year 1924, the regulations had been amended, following the decision in Hecht v. Malley, supra, so as to provide that operating trusts in which the trustees were not restricted to the mere collection of funds and their payment to beneficiaries, but were associated together in much the same manner as directors in a corporation for the purpose of carrying on a business enterprise, should be deemed to be associations, regardless of the control exercised by the beneficiaries. Treasury Regulations No. 65, Art. 1504, October, 1924. It does not appear that there
Post, p. 296 U. S. 369 , Nos. 78-79. See also post, pp. 296 U. S. 362 , 296 U. S. 365 , No. 108, Swanson v. Commissioner, and No. 238, Helvering v. Combs.