Source: http://www.law.cornell.edu/supremecourt/text/305/281
Timestamp: 2013-12-21 16:51:58
Document Index: 379663771

Matched Legal Cases: ['§ 101', '§ 23', '§ 115', '§ 115', '§ 111', '§ 23', '§ 113', '§ 112', '§ 112', '§ 115', '§ 111', '§ 111', '§ 101', '§ 101', '§ 101', '§ 12', '§ 101', '§ 21', '§ 22', '§ 23', '§ 23', '§ 101', '§ 101', '§ 101', '§ 22', '§ 111', '§ 115', '§ 101', '§ 115', '§ 111', '§ 201', '§ 201', '§ 115', '§ 111', '§ 112', '§ 115', '§ 201', '§ 201', '§ 115', '§ 101', '§ 111', '§ 111', '§ 22', '§ 22', '§ 115', '§ 22', '§ 22', '§ 22', '§ 101', '§ 23']

WHITE et al. v. UNITED STATES. WHITE v. SAME. | Supreme Court | LII / Legal Information Institute
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305 U.S. 281 (59 S.Ct. 179, 83 L.Ed. 172)
WHITE et al. v. UNITED STATES. WHITE v. SAME.
Argued: Nov. 16, 17, 1938.
[HTML] Mr. John P. Ohl, of New York City, for petitioners.
In the present suits, brought by petitioners in the Court of Claims to recover the payments of the deficiencies as overpayments of 1929 tax, recovery was denied. 21 F.Supp. 361. We granted certiorari, 305 U.S. 581, 59 S.Ct. 69, 83 L.Ed. -, to resolve a conflict between the decision below and that of the Circuit Court of Appeals for the Ninth Circuit in Chester N. Weaver Co. v. Commissioner, 97 F.2d 31, certiorari granted, 305 U.S. 585, 59 S.Ct. 95, 83 L.Ed. -, which arose under related sections of the 1932 Revenue Act.
The losses here sustained are concededly losses on investments of capital, entitled to recognition in the computation of taxable net income, but petitioners' contention is that as the losses did not result from a sale or exchange of the stock they are not capital losses within the meaning of § 101, which limits the deduction of such losses, and that in consequence they fall into the category of ordinary losses, deductible in full under § 23. The answer to this contention turns upon the meaning and effect of § 115(c), 26 U.S.C.A. § 115, which relates to distributions by corporations and appears in Supplement B of the 1928 Act. The section provides in part: 'Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. * * *' Section 111, 26 U.S.C.A. § 111, contains the provisions for computation of gain or loss from the sale or other disposition of property and refers, as does § 23(g), to § 113 as affording the basis for determining gain or loss upon sales or exchanges of property. By § 112(a), 26 U.S.C.A. § 112(a), it is provided that 'Upon the sale or exchange of property the entire amount of the gain or loss determined under section 111, shall be recognized, except as hereinafter provided in this section.'
Petitioners concede that the command of § 115(c) that amounts distributed in complete liquidation of a corporation 'shall be treated as in full payment in exchange for the stock' and that the 'gain or loss * * * shall be determined under section 111,' requires the gain or loss upon liquidation to be determined as are gains or losses upon sale of the stock under §§ 111, 113, 26 U.S.C.A. §§ 111, 113. The same method is adopted by 101 for determining gains or losses from sales of capital assets.
But they insist that the qualification that gain or loss 'shall be recognized only to the extent provided in section 112' and the fact that the provisions of § 101 apply only to cases of sales or exchanges exclude the stockholders' gain or loss upon liquidation, which is not a sale or exchange, from the operation of the provisions of § 101 governing the computation of the tax.
Sections 12, 21, 22 and 23, found in subtitle B, General Provisions, to which §§ 101 and 115 are supplementary, govern computation of net income and of the tax. Subsection (c) of § 12, 45 Stat. 797, which fixes the rates of surtax, refers specifically to § 101 for the rate and computation of tax on capital net gains and losses.
Section 21, 26 U.S.C.A. § 21, declares that net income means gross income computed under § 22, less the deductions allowed by § 23. As already noted, § 23(e), (g), providing for deductions of losses on sales or exchanges of property, is restricted in its operation by the provisions of § 101. Otherwise, § 101 would have no application to deductible losses. These general provisions thus incorporate by reference those of § 101 and give to them controlling effect in the computation of the tax in cases of capital gains or losses upon the sale or exchange of capital assets. In addition, § 22(d) provides that 'Distributions by corporations shall be taxable to the shareholders as provided in section 115,' which in turn, as already noted, provides in paragraph (c) that liquidating dividends 'shall be treated as in full payment in exchange for the stock,' and that resulting gains or losses determined, as in the case of sales or exchanges of property, under § 111, are to be 'recognized only to the extent provided in section 112,' which also deals with sales and exchanges.
If this conclusion were doubtful, doubts would be put at rest by the judicial construction of § 115(c) as it appeared in the 1918 Act and by the legislative history of §§ 101 and 115. The substance of the first sentence of § 115(c) of the 1928 Act appeared, but without the reference to §§ 111 and 112, in § 201(c) of the 1918 Act, 40 Stat. 1059, which provided that 'Amounts distributed in the liquidation of a corporation shall be treated as payments in exchange for stock or shares, * * *.'
In Hellmich v. Hellman, 276 U.S. 233, 48 S.Ct. 244, 72 L.Ed. 544, 56 A.L.R. 379, it was held that this clause required a stockholder's gains upon liquidation to be treated as gains from the sale of property and therefore subject to the normal tax, although they were distributions from corporate earnings, and, under §§ 201(a), (b) and 216(a), 40 Stat. 1059, 1069, dividends paid from such earnings were free from normal tax. The provisions of § 115(c) prescribing the treatment of liquidating dividends were thus, from the beginning, taken to refer to the computation of the tax as well as to the determination of the gain or loss.
The addition to the section in the 1924 and later Acts of the direction that gain or loss should be determined under the section corresponding to § 111 of the 1928 Act and recognized only to the extent provided in the section corresponding to § 112 of that Act requires no different result. For reasons already given it supports the conclusion that § 115(c), like its precursor, § 201(c) of the 1918 Act, as construed in Hellmich v. Hellman, supra, placed shareholders' gains and losses from liquidations upon the same basis, for computation of the tax, as gains and losses upon the sale or exchange of property. The reports of the Congressional Committees discussing § 201(c) of the 1924 Act make it plain that that section, the relevant portion of which is identical with § 115(c) of the 1928 Act, was intended to require gains upon corporate liquidations to be brought into the computation of the tax in the same manner as corresponding gains from sales.
The method of computing capital gains under § 101 is in substance that of §§ 111, 112 and 113, 26 U.S.C.A. §§ 111113, which is identified by §§ 22 and 23, 26 U.S.C.A. §§ 22, 23, with that prescribed for ascertaining the gain to a stockholder upon corporate liquidation by § 115. By § 22(d), 26 U.S.C.A. § 22(d), it is provided: 'Distributions by corporations shall be taxable to the shareholders as provided in section 115'; and '(e) In the case of a sale or other disposition of property, the gain or loss shall be computed as provided in sections 111, 112, and 113.' 26 U.S.C.A. § 22. Section 101, 26 U.S.C.A. § 101, in terms provides that "Capital deductions' means such deductions as are allowed by section 23 for the purpose of computing net income, and are properly allocable to or chargeable against capital assets sold or exchanged during the taxable year.' And § 23(g), 45 Stat. 800, provides: 'The basis for determining the amount of deduction for losses sustained * * * shall be the same as is provided in section 113 for determining the gain or loss from the sale or other disposition of property.'