Source: https://www.legalcrystal.com/case/96138/snyder-vs-commissioner
Timestamp: 2017-06-24 16:12:28
Document Index: 316401261

Matched Legal Cases: ['art. 58', '§ 22', '§ 111', '§ 22', '§ 22', '§ 111', 'Art. 55']

Snyder Vs Commissioner - Citation 96138 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Snyder Vs. Commissioner - Court Judgment	LegalCrystal Citationlegalcrystal.com/96138CourtUS Supreme CourtDecided OnApr-29-1935Case Number295 U.S. 134AppellantSnyderRespondentCommissionerExcerpt:
snyder v. commissioner - 295 u.s. 134 (1935)
1. shares traded in on margin are capable of identification for the purposes of the "first-in, first-out" rule of the treasury (reg. no. 74, art. 58) but the mere intention of the trader to sell particular shares, without further designation, does not constitute sufficient identification.
helvering v. rankin, ante,
295 u. s. 123
295 u. s. 137
2. a person who devotes no substantial part of his..... Judgment:
2. A person who devotes no substantial part of his business day to stock transactions, who is not a trader on the exchange making a living in buying and selling securities, but who deals merely with the object of increasing, as far as his margin will permit, his holdings of a particular stock carried for his account by his brokers, is not engaged in market operations as a trade or business within the meaning of § 22 of the Revenue Act of 1928. P.
3. Gain realized from sales of property purchased in previous years, measured, as prescribed by §§ 111-113 of the 1928 Act, by the excess of proceeds of sale over cost, constitute income taxable in the year in which the sales are made. P.
295 U. S. 140
4. Assuming that this rule is applicable only to the sale of capital assets, and not to sales made in the course of a business of trading on the stock exchange, it applies to a taxpayer who has failed to establish that the securities sold were held primarily for sale in the regular course of business. P.
5. The Court rejects the contention in this case that the taxpayer's income realized during the taxable year from his stock transaction should not be measured by the difference between the sale and cost prices of securities sold, but by the result of all his market operations, purchases as well as sale, during the year --
by taking the difference between the purchase price and the sales price of shares bought and sold during the year and deducting expenses, such a commissions, taxes, and interest. P.
295 U. S. 141
This case presents further questions regarding the application to marginal transactions on the stock exchange of Article 58 of regulations No. 74, as well as some of those already considered in
Snyder was the salaried secretary of an insurance company. During 1928, as in previous years, he made on his individual account, at different dates and different prices,
Snyder traded in United Gas Improvement Company stock for profit through brokers on margin, and increased his holdings by the method known as "pyramiding." On January 1, 1928, there stood to his credit 5,300 shares, and his debit balances aggregated $501,865.59. He purchased during the tax year 10,600 shares and sold 7,900. At the close of the year, 8,000 shares stood to his credit, and his debit balances aggregated $932,822.67. Upon rises in the market, paper profits had been used to increase his holdings. Upon declines in the market, when his margin fell below the required percentage, the brokers reduced his debit balances by sufficient sales to make up the deficiency in the margin. The purchases and sales were effected by the brokers transferring so-called "street certificates," each for 100 shares, in the name of some stock exchange concern, endorsed by it in blank. At no time was any stock certificate delivered by the brokers to Snyder, or by him to them, nor was any certificate earmarked for him or his account. The certificates were inextricably
Snyder contends, in the alternative, that his intention to sell the last acquired stock first constituted sufficient identification to make the "first-in, first-out" rule inapplicable; or else that the regulation as applied to marginal transactions on the stock exchange is invalid because there is no possible means, other than the trader's intentions, of identifying the shares sold. What has already been said in
is enough to dispose of both of these contentions. It is there determined that shares traded on margin are capable of identification for the purposes of the regulation, but that the mere intention of the trader to sell particular shares, without further designation, does not constitute sufficient identification.
Snyder contends that the "first-in, first-out" regulation may not, consistently with the provisions of the Revenue Act of 1928, be applied to the facts of this case. The argument is that his market operations constituted a trade or business as those terms are used in § 22(a) of the Act; that, according to that section, and the applicable decisions of this Court,
, gross income from such business, as well as net income
Neither in the findings of the Board of Tax Appeals nor in the facts upon which the case was submitted to it is there any support for the controverted allegation in Snyder's petition that his market operations constituted a "business regularly carried on for profit." [
] It is true that a taxpayer may be engaged in more than one trade or business, as those terms are used in various
provisions of the Revenue Acts, and that, in addition to other business activities, one may be "regularly engaged in the business of buying and selling corporate stocks."
Compare Dalton v. Bowers,
287 U. S. 404
Burnet v. Clark,
287 U. S. 410
Washburn v. Commissioner,
51 F.2d 949. It is also true that the Department has ruled, and the Board has held, that a taxpayer who, for the purpose of making a livelihood, devotes the major portion of his time to speculating on the stock exchange may treat losses thus incurred as having been sustained in the course of a trade or business. [
] Snyder, however, did not allege or attempt to prove that he had devoted the major part, or any substantial part, of his business day to his stock transactions. Nor were there any facts adduced to show that he might properly be characterized as a "trader on an exchange, who makes a living in buying and selling securities."
Bedell v. Commissioner,
30 F.2d 622, 624;
compare Mente v. Eisner,
266 F. 161. Indeed, according to his petition, his intention throughout the year 1928, was, by "taking advantage of the turns of the market," not to draw out cash profits from his operations, but "to increase the holdings of U.G.I. stock carried for his account by [his] brokers to as great an extent as the margin of his account permitted." There is no substantial evidence in the record to sustain a finding by the Board, had there been one, to the effect that Snyder's market operations constituted a trade or business within the meaning of § 22 of the Revenue Act of 1928.
The attack upon the Commissioner's method of computing income falls with the unsupported allegation
But it is now too well settled for argument that gains realized from sales of property purchased in previous years, measured, as prescribed by §§ 111-113 of the 1928 Act, by the excess of proceeds of sale over cost, constitute income taxable in the year in which the sales are made.
Doyle v. Mitchell Bros. Co.,
247 U. S. 184
-185;
Hays v. Gauley Mountain Coal Co.,
247 U. S. 189
247 U. S. 192
MacLaughlin v. Alliance Insurance Co.,
286 U. S. 244
286 U. S. 250
. The contention that the rule is applicable only to the sale of capital assets, and not to sales made in the course of a "business of trading on the stock exchange," need not be disposed of on its merits,
15 Wall. 63,
82 U. S. 66
255 U. S. 520
, since Snyder has failed to establish that the securities sold were held primarily for sale in the regular course of business. [
] And obviously, whether or not the stock transactions constituted a trade or business, the computation of gross income therefrom by deducting from sales of the current year the cost of securities sold, as determined by the purchase prices of previous years, is not comparable to the unsuccessful attempt in
Burnet v. Sanford & Brooks
, to offset gross income of the current year against losses or expenses of previous years. [
Moreover, Snyder suggests no other practicable method of accounting which would reflect income for the year more fairly than the method adopted by the Commissioner. [
] He concedes that he is not a dealer in securities, in the sense of one who buys securities for the purpose of resale to customers, and that consequently he is not entitled to compute income on an inventory basis. [
Compare Lucas v. Kansas City Structural Steel Co.,
281 U. S. 264
United States Cartridge Co. v. United States,
284 U. S. 520
. His suggestion that gross income from trading be computed by deducting purchase prices from sale prices during the year would offer a feasible substitute only if it could be assumed that the number of purchases and sales would be approximately equal
each year and that any differences would be averaged out in the course of a number of years. That assumption is unwarranted, particularly in view of Snyder's professed object "to accumulate as many shares of U.G.I. as he could." [
] His alternative suggestion, that, since purchases in fact exceeded sales during 1928, the "first-in, first-out" rule, if applied at all, should be confined to purchases and sales in the course of the year, adds nothing to the contentions that have already been considered in this case or in
Helvering v. Rankin.
I.T. 1818, II-2 C.B. 39; Schwinn v. Commissioner, 9 B.T.A. 1304; Elliott v. Commissioner, 15 B.T.A. 494; Hodgson v. Commissioner, 24 B.T.A. 256; Schermerhorn v. Commissioner, 26 B.T.A. 1031.
Compare Black v. Bolen,
268 F. 427;
41 F.2d 865; Kunau v. Commissioner, 27 B.T.A. 509; Thiele v. Commissioner, 32 B.T.A. 134.
Compare Hutton v. Commissioner,
39 F.2d 459, where the deduction of brokers' commissions on purchases of securities, as business expenses, was disallowed. The Board found that the taxpayer was "engaged in the business of buying, holding and selling realty securities," etc., but regarded the commissions as "capital expenditures." 12 B.T.A. 265.
Vaughan v. Commissioner, 31 B.T.A. 548; Keeney v. Commissioner, 17 B.T.A. 560.
Proceeds from sales in the regular course of business constitute gross income of the business only to the extent that they exceed the cost of the goods sold.
See Spring City Foundry Co. v. Commissioner,
292 U. S. 185
Washington Land Co. v. Commissioner, 10 B.T.A. 503; Atlantic Coast Realty Co. v. Commissioner, 11 B.T.A. 416; Stern v. Commissioner, 14 B.T.A. 838.
Art. 55, Regulations 74, Revenue Act of 1928.
Article 105 of Regulations No. 74, permits dealers in securities to make returns on inventory basis. A dealer is defined as a "merchant of securities, . . . with an established place of business, regularly engaged in the purchase of securities and their resale to customers."
Compare Harriman National Bank v. Commissioner,
43 F.2d 950; Pan-American Bank & Trust Co. v. Commissioner, 5 B.T.A. 839; Adirondack Securities Corp. v. Commissioner, 23 B.T.A. 61; Northeastern Surety Co. v. Commissioner, 29 B.T.A. 297; Lowell v. Commissioner, 30 B.T.A. 1297; Fried v. Commissioner, 31 B.T.A. 638; Brendle v. Commissioner, 31 B.T.A. 1188.