Case Name: Chester N. Weaver Company, a Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent; Chester N. Weaver, Petitioner, v. Commissioner of Internal Revenue, Respondent; Elsie S. Weaver, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1937-02-17
Citations: 35 B.T.A. 514
Docket Number: Docket Nos. 82865, 82870, 82871
Parties: Chester N. Weaver Company, a Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent. Chester N. Weaver, Petitioner, v. Commissioner of Internal Revenue, Respondent. Elsie S. Weaver, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: Blace, TysoN, Hill, and HakRON agree with this dissent.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 35
Pages: 514–522

Head Matter:
Chester N. Weaver Company, a Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent. Chester N. Weaver, Petitioner, v. Commissioner of Internal Revenue, Respondent. Elsie S. Weaver, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket Nos. 82865, 82870, 82871.
Promulgated February 17, 1937.
A. E. Graupner, Esq., for the petitioners.
O. W. Swecher, Esq., for the respondent.

Opinion:
OPINION.
TURNER:
The only question for determination is whether or not section 23 (r) (l) of the Revenue Act of 1932 bars the deduction of the losses sustained by the petitioners on liquidation of the Townsend Co. There is no claim by the petitioners that the gross income reported, and against which the deduction is sought, includes gains from the sale of stocks or bonds which were not capital- assets.
It is the contention of the petitioners that the provisions of sections 22 (d), 115 (c), 111, and 112 (a) of the act provide for the deduction in full of losses sustained as the result of a distribution in complete liquidation of a corporation, and that the provisions of section 23, relating to deductions from gross income, are not applicable.
The petitioners' argument that the losses in question are deductible without regard to section 23 starts with section 22 (d), which provides that "distributions by corporations shall be taxable to shareholders as provided in section 115." Referring next to subsection (c) of section 115, they point out that although "amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock" the "gain or loss to a distributee resulting from such exchange" is determined under section 111, and "recognized" to the extent provided in section 112. Our attention is then called to the fact that by the terms of section 112 (a), the entire amount of gain or loss "upon the sale or exchange" of property "shall be recognized" except as thereafter provided in that section. It is then concluded that since the remaining provisions of section 112 contain no limitation or prohibition of the recognition of a loss resulting from complete liquidation of a corporation, the entire .•amount of the loss is recognized, and being recognized in full, its deduction is in no way dependent upon or limited by the provisions of section 23.
The fallacies in this argument are elementary and obvious, and are at once apparent upon examination of the structure and plan of the income tax statute. The tax is imposed on net income and. according to section 21, net income is "gross income computed under section 22, less tlie deductions allowed by section 23." Section 22 provides generally that gross income "includes gains, profits, and income of whatever kind and in whatever form paid, or from any source whatever." It also enumerates certain specific items that are to be included in gross income and others that are to be excluded. Section 23 enumerates and describes the allowable deductions referred to in section 21. It is argued in this connection that sections 112 to 120, inclusive, are relief or distinctive provisions, and to rule that their application is to be made with reference to section 23 would amount to their repeal or nullification. We find nothing in any of these sections to indicate that the so-called relief or distinctive provisions are to be applied without reference to section 22 if they involve items of gain or profit, or without references to section 23 if they involve losses or other charges allowable against gross income. On the other hand, Congress has particularly and specifically brought the application of these so-called relief sections within the provisions of sections 22 and 23. Illustrations are numerous. Subsection (b) (7) of section 22 provides for the exclusion from gross income of the items of gain set foi'th in section 116, while subsections (g), (h), (i), (1), (m), and (n) of section 23 specifically give effect to the provisions of sections 113, 118, 117, 114 (b) (3), and (4), 114, and 120$ respectively. It is thus apparent from the general plan of the statute that, in the absence of specific language to the contrary, deductions from gross income are allowable by and through the provisions of section 23 only. No other method of determining net income is provided-.
The petitioners seek to vary the general plan of the statute by arguing that losses resulting to stockholders from corporate liquidations are to be given effect through section 22 (d). That argument is, in short, a claim that a loss deduction may be taken in the form of a minus or negative item of gross income, under the gross income provisions of the statute and without regard to the provisions of section 23. Obviously the provision in section 22 (d), to the effect that "distributions by corporations shall be taxable to shareholders as provided in section 115", is not susceptible of such strained construction.
The argument made here would also permit the deduction of a loss from the sale of stocks or securities on the market, without regard to section 23, since section 112 (a) provides that such a loss is to be recognized in full, there being no subsequent provision in that section providing otherwise. Such reasoning would completely nullify the provisions of section 23 (e), (f), and (r) (1). The recognition or nonrecognition of gain or loss under section 112 is in no sense a determination that the gain is to be included in gross income or that the loss is to be deducted therefrom. It is merely a determination as to whether or not the gain or loss is to be given such tax significance :as the statute provides in the year in which the transaction giving rise to the gain or loss occurred, or is to be postponed until the happening of a further transaction in a subsequent year. Even though recognized, the tax effect of the gain or loss in computing net income is to be determined through the application of the gross income and deduction provisions of the statute. The result here being a recognized loss, the extent to which that loss is deductible is determined hy the provisions of section 23.
In their reply brief the petitioners make the further contention that the limitation prescribed by section 23 (r) (1), on loss deductions, is not applicable here on the ground that a loss sustained in the disposition of stock in a corporate liquidation is not a loss from the sale or exchange of stock within the meaning of the statute. The reasoning advanced is that Congress, through sections 22 (d) and 115 (c), on the one hand, and sections 22 (e) and 111 (a) and (b) on the other, has carefully drawn a distinction between the disposition of stock in liquidation and an ordinary sale or exchange of stock on the market, :and that the disallowance or limitation under section 23 (r) (1), of ;a loss sustained in the disposition of stock in liquidation requires the. distortion or disregard of other pertinent provisions of the statute. Tt is also claimed that section 23 (r) (1.) is applicable only to losses sustained in a sale or exchange of stocks and bonds on the market, because the Congressional Committees, in stating reasons for the insertion of section 23 (r) (1) in the statute, made specific reference to sales or exchanges on the market and no reference to the disposition of stock in a corporate liquidation.
It is well established that the reports of Congressional Committees may be resorted to as an aid to construction when the terms of the statute are contradictory or ambiguous, or the meaning of the words used is doubtful. Caminetti v. United States, 242 U. S. 470; Penn Mutual Life Insurance Co. v. Lederer, 252 U. S. 523. But it is equally well established that the intent of the lawmaker must be sought in the language of the statute, and where that language is' clear and unambiguous, it must be enforced according to its terms and may not be varied or limited by reference to committee reports. The plain language of the statute may not be cast aside for other language thought by some one to have been in the mind of the legislative body. Congress must be presumed to have meant what it has said. Crooks v. Harrelson, 282 U. S. 55; United States v. Goldenberg, 168 U. S. 95; Helvering v. City Bank Farmers Trust Co., 296 U. S. 85; Edith M. O'Donnell, 35 B. T. A. 251. From a consideration of the cases before us and the provisions of the statute involved, it does not appear here that the aid of the Committee reports is invoked because the language of section 23 (r) (1) is ambiguous, but because the petitioners desire to limit and restrict the application of that language to the situations covered by specific illustrations in those reports. Clearly the cases cited do not permit reference to legislative history for such purposes, and where there is no ambiguity the language of the statute is controlling.
In support of their claim for a narrow and restricted application of section 23 (r) (1), the petitioners have cited numerous court decisions which deal with the interpretation and construction of statutes. It is our opinion that the cases cited generally support the respondent rather than the petitioners. In Helvering v. Stockholm Enskilda Bank, 293 U. S. 84, the Supreme Court stated that the intention of Congress, with reference to a particular provision of a taxing statute, is to be determined not by viewing the provision apart and separate from its setting in the act, but by considering it in connection with the context, general purpose of the statute in which it is found, and the occasion and circumstances of its use. ' In section 115 (c), on which petitioners base their claim for distinction, it is provided that amounts distributed in complete liquidation of a corporation are to be treated "as in full payment in exchange for the stock." It is then provided that the amount of gain or loss is to be "determined under section 111" and recognized "to the extent provided in section 112." These sections deal generally with the "sale or exchange" or "the sale or other disposition" of property. It thus appears by direct reference to other sections of the statute, that the disposition of corporate stock in liquidation is to be treated, for income tax purposes, as a "sale or exchange" and the distinction claimed by the petitioners is refuted by the plain words of the statute. Furthermore, it is interesting to note that if any doubt did exist and there were any basis for a claim of ambiguity, the report of the Committee on Ways and Means of the House of Representatives submitted with the bill which became the Revenue Act of 1924, in which report the language used in section 115 (c) was inserted, definitely indicates that the disposition of stock in a corporate liquidation is, for income tax purposes, a sale. The Committee there said: "The proposed bill, as did the 1918 Act, treats a liquidating dividend as a sale of the stock to the corporation and recognizes the true effect of such a distribution."
The deduction of recognized losses in the case of an individual is governed by the provisions of subsection (e) of section 23, and of a corporation by the provisions of subsection (f). In both of these subsections it is provided that the deductions so allowed are subject to the limitation provided in subsection (r), paragraph (1) of which has been quoted above. The language of that limitation is plain and the deduction of any loss resulting from the sale or exchang'e of stocks or bonds, not capital assets, is limited in amount to gains derived from the sale or exchange of similar assets. In the cases before us the preferred stock of the Townsend Co. was disposed of in liquidation of that company. The stock did not constitute capital assets in the hands of the petitioners and they make no claim that they realized any gains from the sale of similar assets. This disposition of the stock, under the provisions of the statute considered above, was a sale or exchange and the deduction of the losses sustained is barred by the provisions of section 23 (r) (1) of the statute.
Reviewed by the Board.
Decision will he entered wider Rule 50.
Sec. 23. (r) Limitation on Stock Losses. — (1) Losses from sales or exchanges-of stocks and bonds (as defined in subsection (t) of this section) which are not capital assets (as defined in section 101) shall he allowed only to the extent of the gains from such sales or exchanges (including gains which may be derived by a taxpayer from the retirement of his own obligations).
Sec. 22. (d) Distributions by Corporations. — Distributions by corporations shall be taxable to tlie shareholders as provided in section 115.
Seo. 115. (c) Distributions in Liquidation. — 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. In the case of amounts distributed in partial liquidation (other than a distribution within the provisions of section 112 (h) of stock or securities in connection with a reorganization) the part of such distribution which is properly chargeable to capital accounts shall not be considered a distribution of earnings or profits within the meaning of subsection (b) of this section for the purpose of determining the taxability of subsequent distributions by the corporation.
Sec. 111. (a) Computation of Gain or Loss. — Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 113 (b), and the loss shall be the excess of such basis over the amount realized.
*
(c) Recognition of Gain or Loss. — In the case of a sale or exchange, the extent to which the gain or loss determined under this section shall be recognized for the purposes of this title, shall be determined under the provisions of section 112,
Sec. 112. (a) General Rule. — 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.