Source: https://case-law.vlex.com/vid/336-u-s-28-606500682
Timestamp: 2020-05-30 17:24:05
Document Index: 215481930

Matched Legal Cases: ['§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22']

336 U.S. 28 (1948), Commissioner v. Jacobson - Federal Cases - Case Law - VLEX 606500682
Citation: 336 U.S. 28, 69 S.Ct. 358, 93 L.Ed. 477
Party Name: Commissioner v. Jacobson
336 U.S. 28 (1948)
69 S.Ct. 358, 93 L.Ed. 477
Held: under § 22(a) of the Revenue Act of 1938 and of the Internal Revenue Code, the gain to the taxpayer from each purchase was includible in gross income for the year in which he made the purchase, and was not excludable as a "gift" under § 22(b)(3) of that Act and Code. Pp. 29-52.
1. The taxpayer's gains from such transactions must be included in his gross income under § 22(a). Pp. 38-47.
(a) On the facts of this case, the taxpayer realized an immediate financial gain from his purchase of these bonds at a discount. Pp. 38-41.
(b) The amendments to § 22(b) of the Internal Revenue Code by the Revenue Act of 1939, though relating to corporate taxpayers, are persuasive that a natural person is obliged to include in his gross income under § 22(a) gains of the kind here involved. Pp. 41-47.
2. Gains of this type are not excluded from the taxpayer's gross income by the general exemption of "gifts" from taxation prescribed by § 22(b)(3). Pp. 47-52.
(a) The provision of the Internal Revenue Code for the exclusion of "gifts" from gross income is to be construed with restraint in the light of the purpose of Congress to tax income comprehensively. Pp. 47-49.
(b) On the facts of this case, there is nothing to indicate that the bondholders intended to transfer or did transfer something for nothing. Pp. 50-51.
(c) The decision in this case is not rested on the fact that the sale was made before maturity, or that the seller may have received valid consideration for a total release of his claim because the debtor's payment was made before maturity. P. 51.
(d) Helvering v. American Dental Co., 318 U.S. 322, distinguished. P. 51.
3. The situation in each transaction is a factual one, turning upon whether the transaction is, in fact, a transfer of something for the best price available, or is a transfer or release of only a part of a claim for cash and of the balance "for nothing." Pp. 51-52.
each of those years. Those deficiencies totaled $3,967.97, of which about $2,500 are now before us. This case arose from the Commissioner's addition to the reported gross [69 S.Ct. 360] income of the respondent of the differences between (1) the principal face amounts of certain leasehold bonds executed by the respondent and (2) the lesser amounts paid by him for their purchase. Such purchases were made by or for him substantially as follows:
Held, that, as to the bonds acquired by petitioner [Jacobson, the respondent here] through direct negotiations with the bondholders, he is not taxable on the gain therefrom under the doctrine of Helvering v. American Dental Co., 318 U.S. 322; held, further, that petitioner is taxable on the gain realized
in the purchases from bondholders through the secretary of the bondholders' committee and the security dealers, under the doctrine of the Supreme Court in United States v. Kirby Lumber Co., 284 U.S. 1, he being at all times solvent.
Six of the sixteen judges dissented, and five of those six voted to uphold Commissioner completely on the ground that none of the transactions was gratuitous. 6 T.C. 1048, 1057-1059. The Commissioner petitioned the Court of Appeals for the Seventh Circuit to review that part of the judgment which was unfavorable to him. The respondent did the same as to the remainder of the judgment. That court decided against the Commissioner on both petitions. It held that, because the respective sellers knew that the bonds they sold were being bought by or for the respondent, as the maker of them, any excess of the [69 S.Ct. 361] face values of the bonds over their sales prices should be treated as gifts to the respondent, and as exempt from income tax. 164 F.2d 594. Due to the importance of the issues in the unsettled field of the taxability of gains derived by a debtor from his discharge of his own obligations at a discount, we granted certiorari in both cases. 333 U.S. 866. We have heard and decided them together.
the total principal amount of $90,000, with $2,500 maturing semiannually up to and including November 1, 1931. The balance of the bonds, totalling $57,500, were to mature May 1, 1932. The original proceeds were used by the respondent to retire the existing encumbrance, of an undisclosed amount, on the property, pay for a $16,250 addition made by him to the building on the leasehold and pay the necessary brokerage commission of approximately 10 percent of the loan, plus the cost of printing the bonds and other expenses in connection with the loan. A remaining "small surplus" was paid to the respondent. In 1925, the respondent, for the purposes of computing depreciation, allocated $76,580.56 to the improvements, including the new addition, and $40,000 to the leasehold, out of their total cost to him of...