b'Legal Authority of the Department of the Treasury to\nIssue Regulations Indexing Capital Gains for Inflation\nThe Department of the Treasury does not have legal authority to index capital gains for inflation\nby means of regulation.\n\nSeptember 1, 1992\nM e m o r a n d u m O p in io n f o r t h e G e n e r a l C o u n s e l\nDepartm ent o f th e T r ea su ry\n\nYou have asked for our opinion whether the Department of the Treasury\n(\xe2\x80\x9cTreasury\xe2\x80\x9d) has legal authority to amend its regulations to index capital\ngains for inflation. In connection with that request, you have provided us\nwith your legal opinion concluding that Treasury does not have such author\xc2\xad\nity. O p in io n o f the G eneral C ounsel (A ug. 28, 1992) (\xe2\x80\x9cT reasury\nM emorandum\xe2\x80\x9d) In reaching that conclusion, you consider in detail, and spe\xc2\xad\ncifically reject, arguments presented by the National Chamber Foundation in\nthe form of a legal memorandum prepared by its private counsel, which\nconcludes that Treasury has such legal authority. See Memorandum for Dr.\nLawrence A. Hunter, Executive Vice President, National Chamber Founda\xc2\xad\ntion, by Charles J. Cooper, et al. (Aug. 17, 1992) (\xe2\x80\x9cNCF Memorandum\xe2\x80\x9d).\nWe have carefully reviewed the arguments set forth in the Treasury Memo\xc2\xad\nrandum and the NCF Memorandum. As a result of that review, and of our\nown research and analysis, we are compelled to agree with Treasury\xe2\x80\x99s legal\nconclusion that Treasury does not have legal authority to index capital gains\nfor inflation by means of regulation.1\nI.\nSection 1001(a) of the Internal Revenue Code (\xe2\x80\x9cCode\xe2\x80\x9d) provides that\n\xe2\x80\x9c[t]he gain from the sale or other disposition of property shall be the excess\n1 Were w e to disagree with your conclusion, and were Treasury to adopt a regulation o f the sort pro\xc2\xad\nposed by the N CF M emorandum, we expect that the regulation would be challenged in court. Accord\xc2\xad\ningly, w e have consulted with the Department of Justice\xe2\x80\x99s Tax Division, the litigating division that\nw ould be responsible for defending any such indexing regulation. That division concurs fully in the\nconclusions set forth herein.\n\n136\n\n\x0cof the amount realized therefrom over the adjusted basis provided in section\n1011.\xe2\x80\x9d The general rule of section 1011(a) is that a property\xe2\x80\x99s adjusted\nbasis is its \xe2\x80\x9cbasis (determined under section 1012 . . .), adjusted as provided\nin section 1016.\xe2\x80\x9d Section 1012 defines the basis o f property as generally\n\xe2\x80\x9cthe cost of such property.\xe2\x80\x9d Although the term \xe2\x80\x9ccost\xe2\x80\x9d is not further defined\nin the Code, since the inception of the federal income tax system following\nratification of the Sixteenth Amendment in 1913, Treasury has consistently\ninterpreted the statutory term \xe2\x80\x9ccost\xe2\x80\x9d to mean price paid. Compare, e.g., T.D.\n2090, 16 Treas. Dec. Int. Rev. 259, 273 (1914) (\xe2\x80\x9cThe cost of property ac\xc2\xad\nquired . . . will be the actual price paid for it . . . .\xe2\x80\x9d), with 26 C.F.R. \xc2\xa7\n1.1012-l(a) (1992) (\xe2\x80\x9cThe cost [of property] is the amount paid for such\nproperty in cash or other property\xe2\x80\x9d). The current regulation dates from\n1957. See T.D. 6265, 1957-2, 12 C.B. 463, 470.\nThe sole issue presented by your request is whether Treasury may, by\namending its regulations, reinterpret the statutory term \xe2\x80\x9ccost\xe2\x80\x9d to mean the\nprice paid as adjusted for inflation. The NCF Memorandum argues that\nTreasury may do so. In making that argument, the Memorandum relies\nheavily on analysis of the Supreme Court\xe2\x80\x99s decision in Chevron U.S.A., Inc.\nv. National Resources Defense Council, Inc., 467 U.S. 837 (1984).2 Chevron\nannounced a two-step rule for courts to follow when reviewing an agency\xe2\x80\x99s\nconstruction of a statute that it administers. The court must always first\nexamine \xe2\x80\x9cwhether Congress has directly spoken to the precise question at\nissue. If the intent of Congress is clear, that is the end of the matter; for the\ncourt, as well as the agency, must give effect to the unambiguously ex\xc2\xad\npressed intent o f Congress.\xe2\x80\x9d Id. at 842-43. If, however, \xe2\x80\x9cthe statute is silent\nor ambiguous with respect to the specific issue, the question for the court is\nwhether the agency\xe2\x80\x99s answer is based on a permissible construction o f the\nstatute.\xe2\x80\x9d Id. at 843. As the Court noted in Chevron, \xe2\x80\x9c \xe2\x80\x98[t]he power o f an\nadministrative agency to administer a congressionally created . . . program\nnecessarily requires the formulation of policy and the making of rules to fill\nany gap left, implicitly or explicitly, by Congress.\xe2\x80\x99\xe2\x80\x9d Id. (quoting Morton v.\nRuiz, 415 U.S. 199, 231 (1974)). But any such \xe2\x80\x9cgap\xe2\x80\x9d must be created by\nCongress: \xe2\x80\x9cassertions of ambiguity do not transform a clear statute into an\nambiguous provision.\xe2\x80\x9d United States v. James, 478 U.S. 597, 605 (1986).3\n2 See NCF M emorandum at 1 (\xe2\x80\x9cWe must stress at the outset that our analysis o f this question depends\nheavily on the standard of judicial review that would apply to such a regulation [under Chevron]."); id.\nat 12 (\xe2\x80\x9cThe fram ew ork for analyzing the issue under study is provided by the Supreme Court\xe2\x80\x99s land\xc2\xad\nmark Chevron decision.\xe2\x80\x99\xe2\x80\x99); id. at 21 (\xe2\x80\x9cIn the terms of the Chevron doctrine, the question is w hether\nCongress has . . . delegated authority to the Treasury to interpret the statute.\xe2\x80\x9d ); id. at 23 ("Accordingly,\nthe basic question under Chevron is whether the term \xe2\x80\x98cost\xe2\x80\x99 is amenable to a construction that takes\naccount o f inflation.\xe2\x80\x9d).\n\xe2\x80\x99 Two members of the Supreme Court have suggested that an agency construction should prevail if the\nstatute is merely \xe2\x80\x9carguably ambiguous." See K M art Corp. v. Cartier, Inc., 486 U.S. 281, 293 n.4\n(1988) (opinion of Kennedy, J., joined by White, J.). The N CF Memorandum\'s characterization o f the\n\xe2\x80\x9carguably am biguous\xe2\x80\x9d standard as the view of \xe2\x80\x9cthe Court\xe2\x80\x9d in that case, id. at 22 n i l , however, is\nplainly mistaken. Only two Justices embraced that view, and they expressly took issue with the refusal\no f four other members o f the Court to recognize the alleged ambiguity. See K. M art Corp., 486 U.S. at\n293 n.4.\n\n137\n\n\x0cThe NCF Memorandum\xe2\x80\x99s central argument rests on the proposition that\n\xe2\x80\x9ccost\xe2\x80\x9d is an ambiguous term. In essence, the Memorandum argues that\nCongress, in using that word, left a \xe2\x80\x9cgap\xe2\x80\x9d in the statutory scheme to be\nfilled by Treasury in the exercise of its rulemaking power under the Code.\nSpecifically, the NCF Memorandum asserts that the \xe2\x80\x9cmeaning of \xe2\x80\x98cost\xe2\x80\x99 is\nsufficiently ambiguous to permit the exercise of administrative discretion\xe2\x80\x9d\nto interpret cost in a manner that takes account of inflation, id. at 23, and\nconsequently that in light of Chevron, \xe2\x80\x9ca regulation indexing capital gains\nfor inflation should and would be upheld judicially as a valid exercise of the\nTreasury\xe2\x80\x99s interpretative discretion under the [Code],\xe2\x80\x9d id. at l.4\nChevron is a profound expression of principles that flow from the doc\xc2\xad\ntrine o f separation o f powers. The decision recognizes the appropriate roles\no f each o f the three branches of government. Congress writes laws; the\nexecutive branch interprets and enforces them. Congress may, however,\nleave greater or lesser scope for Executive action. Thus, Congress often\nleaves to the executive branch the task of filling in the gaps in the statutory\nscheme through interpretation, and courts must then defer to the Executive\xe2\x80\x99s\nreasonable interpretations. As the Chevron Court explained:\n4 Although we agree with the conclusion o f the NCF Memorandum that Chevron provides the frame\xc2\xad\nw ork for analyzing this issue, we note that there remains som e confusion in the case law on this point.\nIn C ottage Savings A ss\'n v. Commissioner, 499 U.S. 554 (1991), the Supreme Court considered a\nchallenge to a Treasury regulation interpreting a provision o f the Code. The Court noted that Congress\nhad given Treasury the broad power \xe2\x80\x9cto prom ulgate \xe2\x80\x98all needful rules and regulations for the enforcement\no f [the Internal Revenue C ode].\xe2\x80\x99\xe2\x80\x9d Id. at 560 (quoting I.R.C. \xc2\xa7 7805(a)). Based on that grant of authority,\nthe Court held that it \xe2\x80\x9cmust defer to [Treasury\xe2\x80\x99s] regulatory interpretations of the Code so long as they are\nreasonable.\xe2\x80\x9d Id. at 560-61 (citing Mm\'ona/ M uffler Dealers A ss\'nv. United States, 440 U.S. 472,476-77\n(1979)). T he C ourt made no reference to Chevron or its progeny.\nW hatever the significance o f the Court\xe2\x80\x99s failure in Cottage Savings to cite Chevron, we have found no\ncase that has expressly rejected application o f Chevron to regulations interpreting the Internal Revenue\nC ode. Som e low er court cases apply the National M uffler standard without considering Chevron, see,\ne.g., D avis v. United States, 972 F.2d 869 (1992), while others cite both cases without resolving any\nsupposed inconsistency between them, see, e.g., American Medical A ss\'n v. United States, 887 F.2d\n760, 770 (7th Cir. 1989). Two courts of appeals, however, expressly applied Chevron to interpretative\nregulations under the Internal Revenue Code. See RJR Nabisco, Inc. v. United States, 955 F.2d 1457,\n1464 (1 1th Cir. 1992); Peoples Federal Sav. & Loan Ass\'n v. Commissioner, 948 F.2d 289, 299 (6th Cir.\n1991). A third court of appeals noted the two different standards but declined to choose between them,\nbecause on the facts o f the case, either standard would have compelled the same result. Pacific First\nFed. Sav. B ank v. Commissioner, 961 F.2d 800, 803 (9th Cir.) (noting, however, that much o f the\nreasoning in P eoples F ederal was persuasive), cert, denied, 506 U.S. 873 (1992). Cf. Georgia Fed.\nB ankv. Com m issioner, 98 T.C. 105,107-08,118 (1992) (rejecting Sixth Circuit\xe2\x80\x99s conclusions in Peoples\nFederal, but applying Chevron principles).\nEven if we assum e that application o f the National M uffler test rather than the Chevron test can\nproduce different results in some cases, as applied here National Muffler would not alter our conclu\xc2\xad\nsion. The N ational M uffler standard requires that a regulation \xe2\x80\x9charmoniz[e] with the plain language of\nthe statute, its origin, and its purpose.\xe2\x80\x9d 440 U.S. at 477. T his permits not a plenary review by the court,\nbut rather a determ ination whether the regulation is a \xe2\x80\x9creasonable\xe2\x80\x9d interpretation of the statute. Id. at\n476. Because the interpretation advanced in the NCF M emorandum is contrary to the plain language of\nthe statute, it would fail the National M uffler test as well as the Chevron test.\nIn addition, we note that the Treasury Memorandum cites several decisions in which the courts of\nappeals have continued to apply \xe2\x80\x94 in the wake of Chevron \xe2\x80\x94 the traditional distinction between \xe2\x80\x9cleg\xc2\xad\nislative" and \xe2\x80\x9c interpretive\xe2\x80\x9d regulations in determining how much deference is due Treasury\xe2\x80\x99s interpre\xc2\xad\ntation o f the Code. Treasury Memorandum at 41-42. Under this regime, \xe2\x80\x9clegislative\xe2\x80\x9d regulations\ngenerally are accorded greater deference than are "interpretive\xe2\x80\x9d regulations. We need not address the\nissue o f Chevron\'s impact upon this traditional distinction here, because in either case the plain meaning of\nthe statute will control. We note, however, that the Supreme Court has not conclusively resolved this issue.\n\n138\n\n\x0cWhile agencies are not directly accountable to the people, the\nChief Executive is, and it is entirely appropriate for this po\xc2\xad\nlitical branch of the Government to make such policy choices\n\xe2\x80\x94 resolving the competing interests which Congress itself\neither inadvertently did not resolve, or intentionally left to be\nresolved by the agency charged with the administration o f the\nstatute in light of everyday realities.\n467 U.S. at 865-66.\nChevron is thus a powerful analytical tool for the smooth administration\nof complex statutes and for the defense of agency actions under such stat\xc2\xad\nutes. It is not, however, unlimited. Chevron also teaches that when Congress\nwrites legislation in specific terms, if it does not leave policy choices to be\nresolved by an administrative agency, then Congress\xe2\x80\x99s decision binds both\nthe executive branch and the judiciary. To repeat: \xe2\x80\x9cIf the intent o f Congress\nis clear, that is the end of the matter.\xe2\x80\x9d Id. at 842. In particular, Chevron\ndoes not furnish blanket authority for the regulatory rewriting of statutes\nwhenever a dictionary gives more than a single definition for a statutory\nterm or whenever some arguably relevant discipline assigns a specialized,\ntechnical meaning to such a term. Such a reading of Chevron would evis\xc2\xad\ncerate the well-established rule of construction that statutes must be accorded\ntheir plain and commonly understood meaning.5 Indeed, it would lead to a\nlegal regime in which many statutory terms with widely understood mean\xc2\xad\nings would be deemed \xe2\x80\x9cambiguous.\xe2\x80\x9d In this regard, we fully concur in your\nconclusion that \xe2\x80\x9c [i]f the plain meaning doctrine could be applied only to\nwords that have only one conceivable meaning, it would have precious little\nutility as a principle to resolve conflicting interpretations of statutes.\xe2\x80\x9d Trea\xc2\xad\nsury Memorandum at 7-8.6\n\xe2\x80\x99 This rule of construction, like Chevron itself, sounds in the separation o f powers under the C onstitu\xc2\xad\ntion and thus is an im portant limitation on judicial power. See In re Sinclair, 870 F.2d 1340, 1344 (7th\nCir. 1989) (Easterbrook, J.).\n\xe2\x80\x98 Accordingly, courts have generally been reluctant to treat the meaning o f a single word or a short\nphrase as other than a "pure question o f statutory construction" on which courts will not defer to agen\xc2\xad\ncies. INS v. Cardoza-Fonseca, 480 U.S. 421, 446 (1987). Courts have rejected agency interpretations\no f such words or term s in favor of the courts\' own reading of the statutory language. See, e.g., ConecuhMonroe Com m unity A ction A gency v. Bowen, 852 F.2d 581, 588-89 (D.C. Cir. 1988) (m eaning o f\n\xe2\x80\x9cterm inate\xe2\x80\x9d ); Telecommunications Research & Action Ctr. v. FCC, 836 F.2d 1349, 1357-58 (D.C. Cir.\n1988) (meaning of \xe2\x80\x9csystem of random selection\xe2\x80\x9d); Santa Fe Pac. R.R. v. Secretary o f Interior. 830 F.2d\n1168, 1174-80 & n.91 (D.C. Cir. 1987) (meaning of \xe2\x80\x9clieu selection . . . right\xe2\x80\x9d ).\nSurprisingly, the N C F Memorandum nowhere discusses the plain meaning rule, despite its obvious\nimportance to the legal analysis. The omission is significant, because the methodology adopted by the\nNCF M em orandum would undermine the rule. O f course, the availability o f two clearly inconsistent\nand equally plausible alternative dictionary definitions can in some circumstances \xe2\x80\x9cindicated that the\nstatute is open to interpretation," National R.R. Passenger Corp. v. Boston <\xc2\xa3 Me. Corp., 503 U.S. 407,\n418 (1992), particularly if the overall statutory context of the provision at issue provides evidence that\nthe agency\xe2\x80\x99s proffered interpretation is a reasonable one, id. Clearly, however, the m ere existence of\nContinued\n\n139\n\n\x0cChevron teaches that the inquiry into the meaning of a statutory term \xe2\x80\x94\nincluding whether that meaning is ambiguous \xe2\x80\x94 is to be conducted by \xe2\x80\x9cem\xc2\xad\nploying traditional tools of statutory construction.\xe2\x80\x9d 467 U.S. at 843 n.9. See\nalso IN S v. Cardoza-Fonseca, 480 U.S. at 449 (using \xe2\x80\x9cordinary canons of\nstatutory construction\xe2\x80\x9d to ascertain the meaning of statutory terms). These\ntools and canons include examination of \xe2\x80\x9cthe plain language of the Act, its\nsymmetry with [other relevant legal materials], and its legislative history.\xe2\x80\x9d\nId. Additionally, \xe2\x80\x9c [i]n ascertaining the plain meaning o f the statute, the\ncourt m ust look to . . . the language and design of the statute as a whole.\xe2\x80\x9d K\nM art Corp., 486 U.S. at 291.\nIn reaching its ultimate conclusion that Treasury lacks the legal authority\nto index capital gains for inflation, your opinion considers and rejects the\nNCF M em orandum \xe2\x80\x99s arguments that the term \xe2\x80\x9ccost\xe2\x80\x9d is ambiguous. It con\xc2\xad\ncludes that \xe2\x80\x9c [t]he statute itself has a plain meaning which is clear and\nunambiguous: cost means the \xe2\x80\x98actual price paid\xe2\x80\x99 or \xe2\x80\x98purchase price.\xe2\x80\x99 \xe2\x80\x9d Trea\xc2\xad\nsury M emorandum at 1. See also, e.g., id. at 4-8. As set forth below, we\nalso conclude that \xe2\x80\x9ccost\xe2\x80\x9d is not ambiguous in the context of determining\ngain or loss from the disposition of property.\n\nII.\nA.\nWe must begin with what the Supreme Court has called a \xe2\x80\x9cfundamental\ncanon o f statutory construction\xe2\x80\x9d that \xe2\x80\x9cunless otherwise defined, words will\nbe interpreted as taking their ordinary, contemporary, common meaning.\xe2\x80\x9d\nPerrin v. United States, 444 U.S. 37, 42 (1979). The fundamental canon, of\ncourse, applies with full force to the tax laws. See, e.g., Crane v. Commis\xc2\xad\nsioner, 331 U.S. 1, 6 (1947) (\xe2\x80\x9c [T]he words of statutes \xe2\x80\x94 including revenue\nacts \xe2\x80\x94 should be interpreted where possible in their ordinary, everyday\nsenses.\xe2\x80\x9d); Old Colony Trust Co. v. Commissioner, 301 U.S. 379, 383 (1937)\n(\xe2\x80\x9cThe words of the statute are plain and should be accorded their usual\nsignificance in the absence o f some dominant reason to the contrary.\xe2\x80\x9d);\n\xe2\x80\x98 (....continued)\nalternative dictionary definitions will not establish \xe2\x80\x9cambiguity.\xe2\x80\x9d Were that so, the dictionary would be\xc2\xad\ncom e an irresistible engine for destroying the plain meaning rule. In practice, o f course, the courts rely\non dictionary definitions to establish, rather than obscure, plain meaning. E.g., United States v. Rodgers,\n4 66 U.S. 4 7 5 ,4 7 9 -8 0 (1 9 8 4 ) (rejecting \xe2\x80\x9calternative definition\xe2\x80\x9d of term \xe2\x80\x9cjurisdiction\xe2\x80\x9d provided by dictio\xc2\xad\nnary in favor o f \xe2\x80\x9c [t]he m ost natural, nontechnical reading\xe2\x80\x9d provided by same source). See also M allard v.\nUnited Slates D istrict Court, 490 U S. 296 (1989), discussed infra. As we shall demonstrate, there is no\nam biguity in the term \xe2\x80\x9ccost\xe2\x80\x9d in its statutory context.\nThe courts recognize that an \xe2\x80\x9cambiguity\xe2\x80\x9d can properly be found only if there is a genuinely reason\xc2\xad\nab le and relevant alternative reading of a term , not a merely possible or arguable alternative reading.\nOnly this past Term, for instance, the Suprem e Court found the meaning of the statutory phrase \xe2\x80\x9cperson\nentitled to com pensation\xe2\x80\x9d to be "plain,\xe2\x80\x9d Estate o f Cowart v. Nicklos Drilling Co., 505 U.S. 469, 478\n(1992), despite the dissenting Justices\xe2\x80\x99 argum ent that it could bear two distinct interpretations, id. at\n500-02 (Blackm un, J., dissenting). See also United States v. James, 478 U.S. 597 (1986) (holding that\nthe provision o f the Flood Control Act creating immunity for \xe2\x80\x9cdamage\xe2\x80\x9d was not ambiguous even though\nthat term m ight arguably refer only to dam age to property rather than, as ordinarily understood, to\ndam age to both persons and property).\n\n140\n\n\x0cHelvering v. San Joaquin Fruit & Inv. Co., 297 U.S. 496, 499 (1936) (\xe2\x80\x9cLan\xc2\xad\nguage used in tax statutes should be read in the ordinary and natural sense.\xe2\x80\x9d).7\nTherefore, in order to determine whether \xe2\x80\x9ccost\xe2\x80\x9d is an ambiguous statutory\nterm, we must first attempt to ascertain the \xe2\x80\x9cordinary, contemporary, com\xc2\xad\nmon meaning\xe2\x80\x9d of that term.\n\xe2\x80\x9cCost\xe2\x80\x9d first appears in the federal tax laws in the capital gains context in\nthe Revenue Act of 1918.8 The Supreme Court has explained that statutory\nterms are best understood by reference to meanings common at the time of\ntheir adoption. Shaare Tefila Congregation v. Cobb, 481 U.S. 615, 617\n(1987).9 Dictionaries that are roughly contemporaneous with the enactment\no f that Act define \xe2\x80\x9ccost\xe2\x80\x9d as the price paid for a thing or service. See, e.g.,\nWebster\xe2\x80\x99s New International Dictionary o f the English Language 509 (1917)\n(\xe2\x80\x9cThe amount or equivalent paid, or given, or charged, or engaged to be paid\nor given for anything bought or taken in barter or service rendered . . . .\xe2\x80\x9d)\n(emphasis added); 1 Bouvier Law Dictionary 689 (8th ed. 1914) (\xe2\x80\x9cThe cost\nof an article purchased for exportation is the price paid, with all incidental\ncharges paid at the place of exportation. Cost price is that actually paid for\ngoods.\xe2\x80\x9d) (citations omitted); 2 A New English Dictionary on Historical Prin\xc2\xad\nciples 1034 (James A.H. Murray ed., New York, MacMillan & Co. 1893)\n(\xe2\x80\x9cThat which must be given or surrendered in order to acquire, produce,\naccomplish, or maintain something; the price paid fo r a thing.\xe2\x80\x9d) (emphasis\nadded). More recent dictionaries give the same definition. See, e.g., Am eri\xc2\xad\ncan Heritage Dictionary 301 (1976) (\xe2\x80\x9cAn amount paid or required in payment\nfor a purchase.\xe2\x80\x9d); Black\xe2\x80\x99s Law Dictionary 345 (6th ed. 1990) (\xe2\x80\x9cExpense;\n\n7 In United States v. Leslie Salt Co., 350 U.S. 383 (1956), the Supreme Court unanimously rejected\nTreasury\xe2\x80\x99s \xe2\x80\x9cmore recent ad hoc contention\xe2\x80\x9d as to how the statutory term \xe2\x80\x9cdebenture\xe2\x80\x9d should be con\xc2\xad\nstrued, in favor o f Treasury\xe2\x80\x99s \xe2\x80\x9cprior longstanding and consistent administrative interpretation.\xe2\x80\x9d Id. at\n396. Treasury\xe2\x80\x99s traditional interpretation, the Court held, was more \xe2\x80\x9cin accord with the generally\nunderstood meaning of the term \xe2\x80\x98debentures.\xe2\x80\x99 \xe2\x80\x98The words of the statute [a stamp tax statute] are to be_\ntaken in the sense in which they will be understood by that public in which they are to take effect.\'" Id.\nat 397 (citations omitted; emphases added; brackets in original).\n8The Revenue Act o f 1918 was actually enacted into law early in 1919. It provided in part: \xe2\x80\x9cT hat for\nthe purpose o f ascertaining the gain derived or loss sustained from the sale or other disposition o f\np ro p erty ,. . . the basis shall be . . . the cost thereof.\xe2\x80\x9d Act of Feb. 24, 1919, ch. 18, \xc2\xa7 202(a)(2), 40 Stat.\n1057, 1060.\nSubsequent revenue acts, see infra note 16, adopted the formulation in effect today; in general, the\nbasis of property is \xe2\x80\x9cthe cost of such property.\xe2\x80\x9d In 1939, Congress began the practice of codifying the\ntax laws. The definition o f property\xe2\x80\x99s basis as generally \xe2\x80\x9cthe cost of such property\xe2\x80\x9d appears unchanged\nin all three codifications. See Internal Revenue Code of 1939, ch. 2, \xc2\xa7 113(a), 53 Stat. 1, 40; Internal\nRevenue Code of 1954, ch. 736, \xc2\xa7 1012, 68A Stat. 1, 296 (codified at I.R.C. \xc2\xa7 1012); Internal Revenue\nCode o f 1986, Pub. L. No. 99-514, \xc2\xa7 2, 100 Stat. 2085, 2095 (reenacting in relevant part the Internal\nRevenue Code of 1954).\n*See also M olzo f v. United States, 502 U.S. 301, 307 (1992) (relying upon \xe2\x80\x9c [l]egal dictionaries in\nexistence when the [Federal Tort Claims Act] was drafted and enacted\xe2\x80\x9d to ascertain the m eaning o f a\nterm used in that statute). Thus, although the meaning of the term \xe2\x80\x9ccost" has not changed in the 74\nyears since the enactm ent o f the Revenue Act of 1918, we refer to authority contemporaneous with the\nfirst appearance o f \xe2\x80\x9ccost\xe2\x80\x9d in this context.\nIndeed, the definition of \xe2\x80\x9ccost\xe2\x80\x9d has remained essentially unchanged since the publication o f the first\nm odem English dictionary in 1755. In that year, Dr. Johnson defined \xe2\x80\x9ccost\xe2\x80\x9d principally as \xe2\x80\x9c [t]he price\no f any thing.\xe2\x80\x9d 1 Sam uel Johnson, A D ictionary o f the English Language (1755) (G eorg Olm s\nVerlagsbuchhandlung ed. 1968).\n\n141\n\n\x0cprice. The sum or equivalent expended, paid or charged for something.\xe2\x80\x9d).\nIndeed, the only dictionary cited in the NCF Memorandum also gives as the\nprimary meaning o f cost \xe2\x80\x9cthe price paid to acquire, produce, accomplish, or\nmaintain anything.\xe2\x80\x9d NCF Memorandum at 24 (quoting Random House Dic\xc2\xad\ntionary o f the English Language 457 (2d ed. 1987)).\nThe NCF Memorandum\xe2\x80\x99s analysis of this dictionary meaning is reveal\xc2\xad\ning. The M emorandum first quotes the full definition: \xe2\x80\x9c 1) the price paid to\nacquire, produce, accomplish, or maintain anything . . . , 2) an outlay or\nexpenditure of money, time, labor, trouble, etc.: What will the cost be to\nme?, 3) a sacrifice, loss or penalty: to work at the cost of one\xe2\x80\x99s health.\xe2\x80\x9d\nNFC M emorandum at 24. It then ignores the primary definition of cost \xe2\x80\x94\n\xe2\x80\x9cprice paid\xe2\x80\x9d \xe2\x80\x94 in favor of the third, obviously figurative, definition of cost\nas \xe2\x80\x9closs\xe2\x80\x9d or \xe2\x80\x9csacrifice.\xe2\x80\x9d 10 Id. To this, the Memorandum adds \xe2\x80\x9cexpenditure\xe2\x80\x9d\ngenerally, rather than \xe2\x80\x9cexpenditure of money,\xe2\x80\x9d which is the relevant concept\nwhen one is discussing the acquisition of property. The NCF Memorandum\nthus takes a perfectly clear definition of cost as applied to financial matters\n\xe2\x80\x94 price paid, or outlay or expenditure of money \xe2\x80\x94 and, without any discus\xc2\xad\nsion or further mention of that clear definition, seeks to obfuscate it."\nThe NCF Memorandum attempts to mix the figurative and literal mean\xc2\xad\nings o f \xe2\x80\x9ccost\xe2\x80\x9d by asserting that \xe2\x80\x9c [a]ny such \xe2\x80\x98loss,\xe2\x80\x99 \xe2\x80\x98sacrifice,\xe2\x80\x99 or \xe2\x80\x98expenditure\xe2\x80\x99\nneeds to be ascribed a monetary value in order to determine the [taxable]\ngain realized\xe2\x80\x9d on the sale of an asset. Id. The Memorandum further asserts\nthat the monetary value of a loss, sacrifice, or expenditure could be mea\xc2\xad\nsured at other than the time it is incurred \xe2\x80\x94 at either the time of purchase\nor the time of sale. The Memorandum concludes: \xe2\x80\x9cWe can discern nothing\nin the standard definition of \xe2\x80\x98cost\xe2\x80\x99 . . . suggesting that the historical \xe2\x80\x98pur\xc2\xad\nchase price\xe2\x80\x99 measurement of monetary value must be used in preference to a\nm easurem ent that coincides with the sale of the asset.\xe2\x80\x9d Id. Finally, the\nM emorandum asserts that when cost to the taxpayer is measured at the time\no f sale, it is legally appropriate to state cost in inflation-adjusted dollars to\nreflect the real impact of the purchase and sale on the taxpayer\xe2\x80\x99s buying\npower. Id. at 25.\nWe disagree with this line o f reasoning on several levels. First, as re\xc2\xad\nflected in each of the dictionary definitions of \xe2\x80\x9ccost\xe2\x80\x9d set forth above, the\n10 M oreover, after describing the third alternative dictionary definition of \xe2\x80\x9ccost\xe2\x80\x9d as \xe2\x80\x9ca standard defini\xc2\xad\ntion," the N C F M em orandum suggests later on the same page that it is \xe2\x80\x9cthe" standard definition, imply\xc2\xad\ning that the third definition is the only m eaning o f the term. NCF M emorandum at 24 (emphases\nadded). T hus, the prim ary dictionary definition o f \xe2\x80\x9ccost\xe2\x80\x9d is spirited away.\n" T h e analysis set forth in the NCF Memorandum stands in marked contrast to the analysis employed\nby the Suprem e Court in sim ilar circumstances. In M allard v. United States District Court, the Court\nw as called on to interpret the word \xe2\x80\x9crequest.\xe2\x80\x9d The Court first looked to \xe2\x80\x9cclosest synonym s\xe2\x80\x9d in \xe2\x80\x9cevery\xc2\xad\nday speech,\xe2\x80\x9d namely, \xe2\x80\x9cask,\xe2\x80\x9d \xe2\x80\x9cpetition,\xe2\x80\x9d and \xe2\x80\x9centreat.\xe2\x80\x9d 490 U.S. at 301 (citing Webster\'s New Interna\xc2\xad\ntio n a l D ictionary 1929 (3d ed. 1981) and Black\'s Law D ictionary 1172 (5th ed. 1979)). Although the\nC ourt acknow ledged that the dictionary gave other entries \xe2\x80\x94 \xe2\x80\x9crequire\xe2\x80\x9d and \xe2\x80\x9cdemand\xe2\x80\x9d \xe2\x80\x94 it found \xe2\x80\x9clittle\nreason to think that Congress did not intend \xe2\x80\x98request\xe2\x80\x99 to bear its most common meaning when it used the\nw ord in [the statute]." Id. (emphasis added). Indeed, despite the potential alternate meanings of request,\nthe C ourt chose to give it \xe2\x80\x9cits ordinary and natural signification.\xe2\x80\x9d Id.; accord Perrin, 444 U.S. at 42.\n\n142\n\n\x0cfirst and most common meaning of the term is the price paid. \xe2\x80\x9cPrice paid\xe2\x80\x9d\nobviously does suggest an \xe2\x80\x9chistorical \xe2\x80\x98purchase price\xe2\x80\x99 measurement of mon\xc2\xad\netary value.\xe2\x80\x9d The primacy of this meaning is easily illustrated. If one were\nasked \xe2\x80\x9cHow much did your car cost?\xe2\x80\x9d a response simply that \xe2\x80\x9cthe car cost\n$10,000\xe2\x80\x9d would be considered truthful only if that amount were at least a\nclose approximation of the actual price paid at the time of purchase. In\ncontrast, a response based on some specialized meaning of the term \xe2\x80\x9ccost\xe2\x80\x9d\n(such as cost expressed in inflation-adjusted dollars or net of trade-in value)\nwould be perceived as not responsive to the question. Indeed, such a re\xc2\xad\nsponse would be viewed as truthful only if the respondent were careful to\npoint out that he was using the term in other than its normal and plain\nmeaning. Clearly, then, a specialized use of \xe2\x80\x9ccost\xe2\x80\x9d is appropriate only with\nthe addition of some qualifying words signaling that the speaker is using the\nterm in a manner not contemplated by normal usage.12\nSecond, even assuming that it is appropriate to look to an alternative,\nfigurative definition to establish the ambiguity of a statutory term, the NCF\nMemorandum\xe2\x80\x99s argument on this point cuts sharply against its conclusion.\nWhen monetary values are ascribed to terms such as \xe2\x80\x9csacrifice\xe2\x80\x9d and \xe2\x80\x9closs,\xe2\x80\x9d\nsuch values are normally measured when made or expended. For example,\nstatements such as \xe2\x80\x9cI lost $5,000 on the stock market\xe2\x80\x9d and \xe2\x80\x9cI sacrificed\n$10,000 to help my neighbor\xe2\x80\x9d require the listener to assume that the speaker\nis talking about historical dollar \xe2\x80\x9closs\xe2\x80\x9d or \xe2\x80\x9csacrifice,\xe2\x80\x9d unless the speaker\nmakes clear that those terms are being used in some way other than their\nordinary meaning.13\nFinally, even if the definitions of the term \xe2\x80\x9ccost\xe2\x80\x9d could be read to create\nsome ambiguity with respect to that term, the NCF Memorandum fails to\ndemonstrate the existence of any relevant ambiguity. That a particular term\nhas two plausible definitions does not support an agency determination that\nrests on a third implausible definition. As shown above, none of the dictio\xc2\xad\nnary definitions of \xe2\x80\x9ccost\xe2\x80\x9d refers to \xe2\x80\x9cpurchase price adjusted for inflation.\xe2\x80\x9d 14\nl! An additional analytical flaw in the NCF M emorandum\xe2\x80\x99s treatment o f the definition of the term\n\xe2\x80\x9ccost\xe2\x80\x9d is its focus on the \xe2\x80\x9ccost to the taxpayer\xe2\x80\x9d rather than on the statutory phrase "cost o f such prop\xc2\xad\nerty\xe2\x80\x9d in section 1012 of the Code. The former phrase may be read to include a broader range o f costs\nincurred by the ow ner in the course of ownership. For example, a statement of the \xe2\x80\x9ccost to X of owning\na car\xe2\x80\x9d might include, in addition to the purchase price, costs associated with maintenance o f the car,\ninsurance, taxes, etc. The statute however, refers to "cost o f . . . property." This phrase refers more\nnaturally to the original price paid for the property: \xe2\x80\x9cWhat did the car cost?\xe2\x80\x9d\n1J O ther relevant statutory terms also provide support for our rejection o f the NCF M em orandum \xe2\x80\x99s\nconclusion that \xe2\x80\x9ccost\xe2\x80\x9d as used in section 1012 may be read to refer to something other than \xe2\x80\x9chistorical\ncost.\xe2\x80\x9d In ordinary usage, the term \xe2\x80\x9cgain\xe2\x80\x9d would be thought to describe an increase m easured from one\npoint in time to another. Moreover, the term \xe2\x80\x9cbasis\xe2\x80\x9d suggests that gain is measured from some fixed\nbaseline, rather than from a floating indicator of relative value.\n14 A possible alternative argument not advanced in the NCF Memorandum would be that, although the\nunambiguous meaning of \xe2\x80\x9ccost\xe2\x80\x9d is the original price paid, that definition is itself ambiguous in that it is\nnot specified whether the price is to be stated in nominal or inflation-adjusted dollars. This argum ent\nsuffers from several o f the same defects noted above with respect to the Memorandum\xe2\x80\x99s attem pt to\ndiscover ambiguity in the word \xe2\x80\x9ccost.\xe2\x80\x9d The common meaning of the term \xe2\x80\x9cprice\xe2\x80\x9d requires that it be\nstated in nominal dollars unless it is clear that the word is being used in some specialized sense. For\nexample, in everyday speech the question \xe2\x80\x9cWhat was the price of your home when you bought it?\xe2\x80\x9d calls\nfor an answer expressed in nominal dollars.\n\n143\n\n\x0cIn addition to its argument based on the Random House Dictionary, the\nNCF Memorandum argues that \xe2\x80\x9cstandard economic analysis\xe2\x80\x9d should be taken\ninto account in determining the meaning of the term \xe2\x80\x9ccost.\xe2\x80\x9d Id. at 25. To\nthis end, the Memorandum looks to uses of \xe2\x80\x9ccost\xe2\x80\x9d in economics treatises to\nestablish the term \xe2\x80\x99s ambiguity. Id. For purposes of construing section 1012\no f the Code, however, the meaning to be given \xe2\x80\x9ccost\xe2\x80\x9d must be the \xe2\x80\x9ccommon\nand ordinary\xe2\x80\x9d meaning of that word \xe2\x80\x94 not its purported meaning in the\njargon of economists. For example, the Tax Court has rejected arguments\nthat taxpayers should not be taxed on their nominal capital gain, but on their\n\xe2\x80\x9ceconomic gain,\xe2\x80\x9d quoting Learned Hand\xe2\x80\x99s statement that \xe2\x80\x98\xe2\x80\x9c [the] meaning [of\nincome] is to be gathered from the implicit assumptions of its use in com\xc2\xad\nmon speech.\xe2\x80\x99 Thus, the meaning of income is not to be construed as an\neconomist might, but as a layperson might.\xe2\x80\x9d Hellermann v. Commissioner,\n77 T.C. 1361, 1366 (1981) (quoting United States v. Oregon-Wash. R.R. &\nNav. Co., 251 F. 211, 212 (2d Cir. 1918)). In other words, \xe2\x80\x9c[t]he income tax\nlaws do not profess to embody perfect economic theory.\xe2\x80\x9d Weiss v. Wiener,\n279 U.S. 333, 335 (1929). We must therefore reject the NCF Memorandum\xe2\x80\x99s\nattem pt to ascertain the meaning of cost under \xe2\x80\x9cstandard economic analy\xc2\xad\nsis,\xe2\x80\x9d as well as its repeated invocations of \xe2\x80\x9ceconomic reality\xe2\x80\x9d or \xe2\x80\x9cprinciples\xe2\x80\x9d\nof sophisticated economic analysis more generally, see, e.g., id. at 2, 8, 23-27,\n68, 87, 88 n.47, in favor of the common and ordinary meaning of that term.15\nE.\nThe drafters of the Revenue Act of 1918 had available, in addition to the\ncom m on and ordinary dictionary meanings of cost, Treasury\xe2\x80\x99s contempora\xc2\xad\nneous regulatory definition of cost. This definition, embodied in published\nTreasury Decisions, was \xe2\x80\x9cactual price paid.\xe2\x80\x9d See T.D. 2005, 16 Treas. Dec.\nInt. Rev. I l l , 112 (1914), restated, T.D. 2090, 16 Treas. Dec. Int. Rev. 259,\n272-73 (1914). This definition, adopted by Congress in the 1918 Act, certainly\nalso evidences the "ordinary, contemporary, common meaning\xe2\x80\x9d of cost.16\n15The N C F M em orandum \xe2\x80\x99s contention that income from the sale of a capital asset can be determined\nfor purpose o f the Code only by taking inflation into account is similar to the legion of \xe2\x80\x9ctax protestor\xe2\x80\x9d\nclaim s that has so often been rejected by the courts. For example, in Stelly v. Commissioner, 804 F.2d\n868, 869 (5th Cir. 1986), cert, denied, 48 0 U.S. 907 (1987), the taxpayers asserted that they were\nentitled to a 13 percent downward adjustment in their interest income on the ground that their interest\nincom e had been devalued by inflation T he Fifth Circuit ruled that there was \xe2\x80\x9cno basis in law or fact"\nfor the inflation adjustm ent and concluded that Treasury \xe2\x80\x9cproperly characterized the [taxpayers\xe2\x80\x99] argu\xc2\xad\nm ent as frivolous." Id. at 870.\n\xe2\x80\x9c The assertion in the NCF Memorandum that \xe2\x80\x9cthere is nothing in the legislative history of the 1918\nA ct indicating that these Treasury Decisions were being adopted,\xe2\x80\x9d id. at 36, is incorrect. As discussed\nm ore fully below, the available legislative history from 1918 concerning this issue indicates that Con\xc2\xad\ngress did adopt T reasury\xe2\x80\x99s interpretation w hen it wrote \xe2\x80\x9ccost\xe2\x80\x9d into the Revenue Act of 1918. During the\nfloor debate concerning a proposal to amend the 1918 legislation so as to virtually elim inate the effect\no f inflation on capital gains, it was explained that the capital gains provision of the Act was \xe2\x80\x9c merely\nenacting into law the rules and regulations now in force under the present statute.\xe2\x80\x9d 56 Cong. Rec.\n10,349 (1918) (statem ent of Rep. Gamer) (em phasis added). See also Treasury M emorandum at 8-13.\nT reasu ry \xe2\x80\x99s in terpretation o f \xe2\x80\x9ccost" has not substantially changed since 1914. See 26 C.F.R. \xc2\xa7\nContinued\n\n144\n\n\x0cThat \xe2\x80\x9ccost\xe2\x80\x9d in the Code has this plain meaning has been recognized in\nseveral court cases. For example, the Tax Court has stated that \xe2\x80\x9cthere is no\nstatutory provision which allows for an upward adjustment to basis to reflect\ninflation or loss of the purchasing power of the dollar.\xe2\x80\x9d Ruben v. Commis\xc2\xad\nsioner, 53 T.C.M. (CCH) 992, 994-95 (1987). The court also observed that\n\xe2\x80\x9c [s]ections 1011 and 1012 of the Internal Revenue Code provide the general\nrule that a taxpayer\xe2\x80\x99s basis in property shall be its cost. While it is true that\nsuch [government] reports do provide evidence of inflation, basis in prop\xc2\xad\nerty is not affected by inflation.\xe2\x80\x9d Id. at 994 n.2.17\nSimilarly, in Crossland v. Commissioner, 35 T.C.M. (CCH) 262 (1976),\nthe taxpayers claimed an \xe2\x80\x9cinflation loss deduction\xe2\x80\x9d of ten percent of their\ngross income. The court acknowledged that \xe2\x80\x9c[i]nflation is a fact\xe2\x80\x9d and that it\n\xe2\x80\x9caffects every taxpayer to some extent,\xe2\x80\x9d but it nonetheless disallowed the\ndeduction: \xe2\x80\x9cOur tax structure is not set up to take into account the effects of\ninflation. Tax liability depends on income figures computed in terms of\nnominal dollars, without regard for inflation.\xe2\x80\x9d Id. at 262. In a passage that\nis especially relevant, the court noted: \xe2\x80\x9cThe problem of inflation has caused\nseveral writers to explore the practicality of indexing; i.e., changing the tax\nstructure to adjust for price level changes in computing taxable income.\nAlthough the suggestion might have merit, Congress has not seen fit to\nconsider it . . . .\xe2\x80\x9d Id. at 263 (footnote omitted).18\n\xe2\x80\x9c (....continued)\nI.]0 1 2 -l(a ) (\xe2\x80\x98T h e cost [of property] is the amount paid for such property in cash or other property.\xe2\x80\x9d).\nThis definition was adopted in T.D. 6265, \xc2\xa7 1.1012-1 (a), 1957-2, 12 C.B. 463, 470, and has not been\namended. Congress has repeatedly amended and reenacted the tax laws and has never disturbed T reasury\xe2\x80\x99s\nconsistent interpretation o f cost. See Revenue Act of 1921, ch. 136, \xc2\xa7 202(a), 42 Stat. 227, 229; Rev\xc2\xad\nenue Act of 1924, ch. 234, \xc2\xa7 204(a), 43 Stat. 253, 258; Revenue Act of 1926, ch. 27, \xc2\xa7 204(a), 44 Stat.\n9, 14; Revenue Act o f 1928, ch. 852, \xc2\xa7 113(a), 45 Stat. 791, 818; Revenue Act of 1932, ch. 209, \xc2\xa7\n113(a), 47 Stat. 169, 198; Revenue Act of 1934, ch. 277, \xc2\xa7 113(a) 48 Stat. 680, 706; Revenue Act o f\n1936, ch. 690, \xc2\xa7 113(a), 49 Stat. 1648, 1682; Revenue Act of 1938, ch. 289, \xc2\xa7 113(a), 52 Stat. 4 4 7 ,4 9 0 ;\nInternal Revenue Code of 1939, ch. 2, \xc2\xa7 113(a), 53 Stat. 1, 40; Internal Revenue Code o f 1954, ch. 736,\n\xc2\xa7 1012, 68A Stat. 1, 296 (codified at I.R.C. \xc2\xa7 1012); Internal Revenue Code of 1986, Pub. L. No. 99514, \xc2\xa7 2, 100 Stat. 2085, 2095 (reenacting in relevant part the Internal Revenue Code o f 1954).\nA court would likely deem significant Congress\'s repeated reenactment o f the tax laws without dis\xc2\xad\nturbing Treasury\xe2\x80\x99s interpretation of \xe2\x80\x9ccost.\xe2\x80\x9d Cottage Savings, 499 U.S. at 560-62. Accord United States\nV. Correll, 389 U.S. 299, 305-06 (1967); Helvering v. Winmill. 305 U.S. 79, 83 (1938). A court would\nalso likely attach significance to Congress\'s repeated consideration of and refusal to enact proposals\nexplicitly to index capital gains for inflation. See, e.g.. Bob Jones Univ. v. United States, 461 U.S. 574,\n600-01 & n.25 (1983) (finding in Congress\xe2\x80\x99s failure to enact any one of thirteen bills introduced to\noverturn the Treasury\xe2\x80\x99s interpretation o f section 501(c)(3) o f the Code additional support for the con\xc2\xad\nclusion that Congress acquiesced in that interpretation). For a recounting of these refusals, see infra\nnote 27.\n"T h is key case is discussed by the NCF Memorandum only in a footnote, at the end o f a string cite, and\nthe Tax C ourt\'s quoted conclusion is mischaracterized as the court\xe2\x80\x99s \xe2\x80\x9crefus[al], in the absence o f clear\nstatutory provisions to the contrary, to accept the taxpayer\'s construction of the [Internal Revenue Code]\nover the Treasury\xe2\x80\x99s contrary construction.\xe2\x80\x9d NCF Memorandum at 70n.39. As noted in the text, however,\nthe Ruben court\xe2\x80\x99s conclusion rested expressly on its observation that there is no applicable \xe2\x80\x9cstatutory\nprovision\xe2\x80\x9d perm itting an upward adjustment to basis to reflect inflation. The Ruben court viewed the\ntaxpayers\xe2\x80\x99 argum ent to the contrary as so \xe2\x80\x9cfrivolous" that it upheld the assessment of penalties against the\ntaxpayers in the form o f additional tax. 53 T.C.M. (CCH) at 996.\n11 The same footnote in the NCF Memorandum that mischaracterizes Ruben m ischaracterizes Crossland\nin the same way. The footnote also cites two other Tax Court cases. Neither of these cases turns upon\nC o n tin u ed\n\n145\n\n\x0cOther courts have also interpreted the term \xe2\x80\x9ccost\xe2\x80\x9d as meaning nominal\npurchase price. In Vandenberge v. Commissioner, 147 F.2d 167, 168 (5th\nCir.), cert, denied, 325 U.S. 875 (1945), the court stated: \xe2\x80\x9cSection 113(a) of\nthe Revenue Act o f 1938 provides that the unadjusted basis of property shall\nbe the cost of such property. The solution to the question raised is as simple\nand clear as the language of the pivotal statute. The cost of the property was\nthe price paid to acquire it.\xe2\x80\x9d See also Hawke v. Commissioner, 35 B.T.A.\n784, 789 (1937) (\xe2\x80\x9cWe must assume that Congress used the term \xe2\x80\x98cost\xe2\x80\x99 in its\ncommonly understood meaning as the amount of money which a man pays\nout in the acquisition of property.\xe2\x80\x9d), rev\xe2\x80\x99d on other grounds, 109 F.2d 946\n(9th Cir.), cert, denied, 311 U.S. 657 (1940).\nC.\nAnother of the traditional tools of statutory construction is an examina\xc2\xad\ntion of \xe2\x80\x9cthe language and design of the statute as a whole.\xe2\x80\x9d K Mart Corp.,\n486 U.S. at 291. The NCF Memorandum appears to recognize this rule of\nconstruction, but asserts flatly that there is nothing \xe2\x80\x9cin any other language of\nthe [Code] suggesting that the historical \xe2\x80\x98purchase price\xe2\x80\x99 measurement of\nmonetary value must be used in preference to a measurement that coincides\nwith the sale of the asset.\xe2\x80\x9d Id. at 24. That assertion is mistaken. Many\nprovisions of the Code that grant itemized deductions to individuals and\ncorporations are intelligible only if \xe2\x80\x9ccost\xe2\x80\x9d under section 1012 is measured at\nthe time an asset is purchased or at other times beside the time of sale.\nTo cite an important example, the deduction for depreciation is calculated\nbased on \xe2\x80\x9cthe adjusted basis provided in section 1011, for the purpose of\ndetermining the gain on the sale or other disposition of such property.\xe2\x80\x9d I.R.C.\n\xc2\xa7 167(c). Under section 1011, of course, the adjusted basis of an asset is\ndeterm ined by section 1012, which uses the term \xe2\x80\x9ccost.\xe2\x80\x9d Accordingly, the\ncost o f an asset must be known in every year in which the taxpayer would\ntake a depreciation deduction. If Treasury reinterpreted cost to require that\ncost be measured at the time o f the asset\xe2\x80\x99s sale, as the NCF Memorandum\nsuggests it could, the taxpayer (and Treasury) would have no basis on which\nto calculate the proper deduction. See Treasury Memorandum at 52-53.19\n"(....co n tin u ed )\n\xe2\x80\x9cT reasury\xe2\x80\x99s . . . construction\xe2\x80\x9d o f the Code, as the M emorandum asserts. Gajewski v. Commissioner, 67\nT.C. 181 (1976), a ff\'d , 578 F.2d 1383 (8th Cif. 1978), held that the \xe2\x80\x9c the statutory gold content of the\ndollar is irrelevant for purposes of computing petitioner\xe2\x80\x99s taxable income under the Code.\xe2\x80\x9d Id. at 195\n(footnote om itted; em phasis added) 5/6/a v. Commissioner, 68 T.C. 422 (1977), a ff\'d , 611 F.2d 1260\n(9th Cir. 1980), held that the taxpayer w as \xe2\x80\x9c not entitled to any adjustm ent in the gross incom e he\nreceived because o f any decline in value o f the dollar with respect to gold or silver." Id. at 431. Nothing\nin Sibla suggests that the holding was based on Treasury\'s interpretation of the Code, rather than on the\nc o u rt\xe2\x80\x99s ow n interpretation.\n19M any other deductions and credits are also defined in terms of \xe2\x80\x9cadjusted basis\xe2\x80\x9d and would suffer\nfrom the sam e problem . See I.R.C. \xc2\xa7\xc2\xa7 42(d) (low income housing), 165(b) (losses), 166(b) (bad debts),\n169(f)(1) (pollution control facilities), 171(b)(2) (bond premiums), and 612 (depletion). If cost for\nsom e purposes must be determined at the tim e of acquisition, or at least at the time the deduction or\ncredit is taken each year, while cost for purposes of calculating capital gains is to be determined at the\ntim e that an asset is sold (as proposed by the NCF M emorandum), the Internal Revenue Code would\ncontradict itself. Such a forced contradiction would certainly undercut the reasonableness of any Trea\xc2\xad\nsury regulation indexing capital gains for inflation.\n\n146\n\n\x0cOther structural characteristics of the Code strongly support the conclu\xc2\xad\nsion that cost unambiguously means historical price paid, in nominal dollars\nnot adjusted for inflation. As indicated above, \xe2\x80\x9cadjusted basis\xe2\x80\x9d is important\nin interpreting many provisions of the Code. The term appears in more than\na hundred sections. By reference to section 1012, section 1011 provides that\nadjusted basis is generally the cost of property, \xe2\x80\x9cadjusted as provided in\nsection 1016.\xe2\x80\x9d I.R.C. \xc2\xa7 1011(a). Section 1016 is entitled \xe2\x80\x9cAdjustments to\nbasis,\xe2\x80\x9d and it contains twenty-five separate items of adjustment.20 This list\nof congressionally determined adjustments to cost does not include an infla\xc2\xad\ntion adjustment. Yet one would rationally expect that if Congress intended\nto provide such an adjustment in the Code, the adjustment would appear in\nsection 1016 or in some other section of Part II of Subchapter O, entitled\n\xe2\x80\x9cBasis Rules of General Application.\xe2\x80\x9d It is, at best, unlikely that Congress\nwould so carefully and precisely lay out the many mandatory and allowable\nadjustments to cost and at the same time load (or authorize Treasury to load)\na very significant adjustment \xe2\x80\x94 for inflation \xe2\x80\x94 into the word \xe2\x80\x9ccost\xe2\x80\x9d itself.\nMoreover, under the doctrine of expressio unius est exclusio alterius (\xe2\x80\x9cthe\nexpression of one thing is the exclusion of another\xe2\x80\x9d), omissions in such\ninstances are to be deemed to reflect the intent of the legislature. Thus, in\nTVA v. Hill, 437 U.S. 153 (1978), the Court ruled that TVA\xe2\x80\x99s Tellico Dam\nproject was subject to Endangered Species Act requirements, reasoning that,\nwhile Congress had included several \xe2\x80\x9chardship\xe2\x80\x9d exemptions in the Act, none\nwas provided for federal agencies. The Court concluded that \xe2\x80\x9cunder the\nmaxim expressio unius est exclusio alterius, we must presume that these\nwere the only \xe2\x80\x98hardship cases\xe2\x80\x99 Congress intended to exempt.\xe2\x80\x9d Id. at 188.\nSee also, e.g., United States v. Monsanto, 491 U.S. 600, 611 (1989) (inclu\xc2\xad\nsion o f forfeiture exemption in another chapter of the same legislation\n\xe2\x80\x9cindicates . . . that Congress understood what it was doing in omitting such\nan exemption\xe2\x80\x9d from the chapter at issue); Letter for George U. Cameal,\nGeneral Counsel, Federal Aviation Administration, from William H. Rehnquist,\nAssistant Attorney General, Office of Legal Counsel, at 2 (Oct. 6, 1971); 2A\nNorman J. Singer, Sutherland on Statutory Construction \xc2\xa7 47.23, at 216-17\n(5th ed. 1992). Because Congress has specified other adjustments to basis\nbut has not included an adjustment for inflation in the computation of capi\xc2\xad\ntal gains, it follows that Congress did not intend to permit indexing in the\ncapital gains context.\nThe force of this argument is even greater because Congress has, else\xc2\xad\nwhere in the Code, carefully and precisely set forth a number of adjustments\nfor inflation. Section 1(f), entitled \xe2\x80\x9cAdjustments in tax tables so that infla\xc2\xad\ntion will not result in tax increases,\xe2\x80\x9d requires Treasury every calendar year\nto \xe2\x80\x9cincreas[e] the minimum and maximum dollar amounts for each rate\nbracket . . . by the cost-of-living adjustment for such calendar year,\xe2\x80\x9d which\n\xe2\x80\x9c Twenty-three of these are found in subsection (a)(l)-(9), (ll)-(24), and one each in subsections (c)\nand (d).\n\n147\n\n\x0cadjustment is defined by reference to the Labor Department\xe2\x80\x99s published Con\xc2\xad\nsum er Price Index for all-urban consumers. I.R.C. \xc2\xa7 1(f)(2)(A), (3)-(5). At\nleast eight other dollar amounts specified in the Code are indexed for infla\xc2\xad\ntion by reference to section 1(0(3). Id. \xc2\xa7\xc2\xa7 32(i) (earned income credit),\n41(e)(5)(C) (research activity credit), 42(h)(6)(G) (low income housing credit),\n63(c)(4) (standard deduction), 68(b)(2) (overall limitation on itemized de\xc2\xad\nductions), 135(b)(2)(B) (income from U.S. savings bonds used to pay higher\neducation tuition and fees), 151(d)(4) (personal exemptions), and 513(h)(2)(C)\n(distributions o f low cost articles by tax-exempt organizations). Section\n1012, o f course, contains no comparable provision. Again, we would expect\nthat if Congress intended that asset costs be indexed for the calculation of\ncapital gains, it would have done so explicitly and in the same manner as\nthese many other indexing provisions.21\nB.\nIn an attempt to find some basis in the statute to support its proposed\ninterpretation, the NCF Memorandum relies on the writings of certain tax\ntheorists for the proposition that a general purpose o f the tax code is to treat\nsimilarly situated taxpayers alike (the principle of \xe2\x80\x9chorizontal equity\xe2\x80\x9d). Id.\nat 8, 26. From this general purpose, the Memorandum argues that the term\n\xe2\x80\x9ccost\xe2\x80\x9d should be read to mean inflation-adjusted cost in order to avoid the\ninequity inherent in taxing real and inflationary gains at the same rate.\nAlthough the principle of horizontal equity may be embodied as a general\npurpose of the Code, that general purpose cannot be taken to provide a\nstatutory basis for indexing of capital gains. The Supreme Court has noted\nthe dangers of attempting to argue from a general statutory purpose to a\ncontext-specific interpretation o f a particular statutory provision:\n\n21 We note that the N CF Memorandum nowhere discusses the significance of section 1(0 of the Code\nand the provisions that refer to it, even though it is clearly of legal significance that Congress has\nprovided for inflation-related indexation in some instances, but not in the case o f capital gains. The\nN C F M em orandum attempts to explain away congressional failure to index asset costs in the same\nm anner as tax brackets and other concepts in part because \xe2\x80\x9cthe adverse effect o f inflation was am elio\xc2\xad\nrated by the general capital gains tax preference\xe2\x80\x9d (a lower effective tax rate on capital gains), which\n\xe2\x80\x9cobviated the need and impetus, from 1921 until 1986, to establish a more accurate counter for infla\xc2\xad\ntion, such as indexation.\xe2\x80\x9d Id. at S3.\nThe argum ent, in fact, cuts against the N C F M em orandum \'s conclusions. Accepting the argument on\nits face, it is obvious that to the extent C ongress established a preference for capital gains in order to\nreduce taxation o f gains that resulted m erely from inflation. Congress assumed that its tax laws other\xc2\xad\nw ise treated cost as nominal purchase price with no adjustment for inflation. Moreover, as your opinion\npoints out, Congress has consistently recognized that inflation introduces distortions into the calcula\xc2\xad\ntion o f capita] gains. Treasury Memorandum at 13-15. It appears, then, that Congress has consistently\nm ade a deliberate policy choice not to index asset basis for inflation. As for the decision to repeal the\ncapital gains preference in 1986, it was not taken in ignorance of the special character o f investment in\ncapital assets, but with a conscious belief that the reduction in individual income tax rates would elim i\xc2\xad\nnate any need to accord preferential treatm ent to capital gains. Id. at IS. In any event, long-term\ncapital gains now enjoy a slightly preferential rate. See Omnibus Budget Reconciliation Act o f 1990,\nPub. L. No. 101-508, \xc2\xa7 11101(c), 104 Stat. 1388, 1388-404 to 1388-405 (amending I.R.C. \xc2\xa7 l(j)).\n\n148\n\n\x0c[N]o legislation pursues its purposes at all costs. Deciding\nwhat competing values will or will not be sacrificed to the\nachievement of a particular objective is the very essence of\nlegislative choice \xe2\x80\x94 and it frustrates rather than effectuates\nlegislative intent simplistically to assume that whatever fur\xc2\xad\nthers the statute\xe2\x80\x99s primary objective must be the law.\nRodriguez v. United States, 480 U.S. 522, 525-26 (1987). See also Board o f\nGovernors v. Dimension Financial Corp., 474 U.S. 361, 373-74 (1986) (re\xc2\xad\njecting agency\xe2\x80\x99s use of the \xe2\x80\x9cplain purpose\xe2\x80\x9d of legislation to support regulatory\ndefinitions not supported by the plain language of the statute).\nEven more generally, the NCF Memorandum suggests that the Court has\ndeferred to agency interpretations of other terms that are \xe2\x80\x9cno more ambigu\xc2\xad\nous than the terms at issue here.\xe2\x80\x9d Id. at 22 n.l 1. This approach to statutory\ninterpretation suffers from a glaring flaw: as the Supreme Court has recog\xc2\xad\nnized in determining whether deference is owed, the court \xe2\x80\x9cmust look to the\nparticular statutory language at issue, as well as the language and design of\nthe statute as a whole.\xe2\x80\x9d K Mart Corp., 486 U.S. at 291. Accordingly, even\nan identical term may be ambiguous in one context and not in another. For\nexample, in Helvering v. Reynolds, 313 U.S. 428 (1941) \xe2\x80\x94 relied upon in\nthe NCF Memorandum for the proposition that \xe2\x80\x9cacquisition\xe2\x80\x9d was found to\nbe ambiguous, see id. at 22 n.l 1 \xe2\x80\x94 the Court found the term ambiguous\nonly in the context presented. The Court noted that although the same term\nmight be \xe2\x80\x9cunambiguous . . . as respects other transactions,\xe2\x80\x9d 313 U.S. at 433\n(citing Helvering v. San Joaquin Fruit & Inv. Co., 297 U.S. 496 (1936)), it\nwas in fact ambiguous in the context of remainder interests passing by be\xc2\xad\nquest, devise, or inheritance, id. In San Joaquin, on the other hand, the\nCourt, addressing real property acquired by lease with an option to buy,\nrelied on the \xe2\x80\x9cplain import\xe2\x80\x9d of the word \xe2\x80\x9cacquired,\xe2\x80\x9d because \xe2\x80\x9cacquired\xe2\x80\x9d was\nnot a term of art and \xe2\x80\x9c[l]anguage used in tax statutes should be read in the\nordinary and natural sense.\xe2\x80\x9d 297 U.S. at 499.\nMoreover, the cases relied upon by the NCF Memorandum for this sug\xc2\xad\ngestion themselves rely on factors that, when applied to the present case,\nundercut the Memorandum\xe2\x80\x99s ultimate conclusions. The Memorandum\xe2\x80\x99s re\xc2\xad\nliance in Cottage Savings, for example, appears to ignore the fact that the\nCourt, addressing the reasonableness of the agency\xe2\x80\x99s interpretation, discussed\nat length the fact that the long-standing agency interpretation had been left\nundisturbed by Congress for many years, and stated that \xe2\x80\x9cTreasury regula\xc2\xad\ntions and interpretations long continued without substantial change, applying\nto unamended or substantially reenacted statutes, are deemed to have re\xc2\xad\nceived congressional approval and have the effect of law.\xe2\x80\x9d Cottage Savings,\n499 U.S. at 561. Here, as the NCF Memorandum recognizes, \xe2\x80\x9cTreasury\xe2\x80\x99s\nconsistent and long-standing interpretation of cost\xe2\x80\x9d has been \xe2\x80\x9coriginal cost.\xe2\x80\x9d\n149\n\n\x0cId. at 77. See also INS v. Cardoza-Fonseca, 480 U.S. at 446 n.30 (\xe2\x80\x9cAn\nagency interpretation of a relevant provision which conflicts with the agency\xe2\x80\x99s\nearlier interpretation is \xe2\x80\x98entitled to considerably less deference\xe2\x80\x99 than a consis\xc2\xad\ntently held agency view.\xe2\x80\x9d) (quoting Watt v. Alaska, 451 U.S. 259, 273 (1981)).22\nFinally, the NCF Memorandum cites two cases as support for the propo\xc2\xad\nsition that \xe2\x80\x9c \xe2\x80\x98cost\xe2\x80\x99 or similar terms in other statutes have been construed to\npermit, or even require, taking account of inflationary effects." Id. at 27\n(emphasis added). That proposition is, o f course, largely irrelevant to under\xc2\xad\nstanding the intent o f Congress in enacting the Internal Revenue Code. See,\ne.g., Prussner v. United States, 896 F.2d 218, 228 (7th Cir. 1990) (en banc)\n(pointing out that \xe2\x80\x9c [different statutes passed by different Congresses often\ndo use the same words to mean different things\xe2\x80\x9d). In any event, at least one\no f the two cited cases simply offers no support for the Memorandum\xe2\x80\x99s propo\xc2\xad\nsition. Amusement & Music Operators Ass\'n v. Copyright Royalty Tribunal,\n676 F.2d 1144 (7th Cir.), cert, denied, 459 U.S. 907 (1982), concerned a\nstatute that required the Copyright Royalty Tribunal to determine \xe2\x80\x9creason\xc2\xad\nable copyright royalty rates.\xe2\x80\x9d 17 U.S.C. \xc2\xa7 801(b)(1). The court noted that\nthe Tribunal had rejected an \xe2\x80\x9cindividualized cost-based approach\xe2\x80\x9d and in\xc2\xad\nstead relied on factors \xe2\x80\x9cnot related to cost.\xe2\x80\x9d 676 F.2d at 1148.23\nAccordingly, we agree with your conclusion that the Internal Revenue\nCode\xe2\x80\x99s plain language and structure demonstrate that \xe2\x80\x9ccost\xe2\x80\x9d cannot be inter\xc2\xad\npreted to allow an adjustment for inflation.\n\nIII.\nUnder the Supreme Court\xe2\x80\x99s jurisprudence, the plain meaning of the word\n\xe2\x80\x9ccost\xe2\x80\x9d ends the inquiry:\nThe task o f resolving the dispute over the meaning of [the\nstatute] begins where all such inquiries must begin: with the\nlanguage of the statute itself. In this case it is also where the\ninquiry should end, for where, as here, the statute\xe2\x80\x99s language\nis plain, \xe2\x80\x9cthe sole function of the courts is to enforce it ac\xc2\xad\ncording to its terms.\xe2\x80\x9d The language before us expresses\nC ongress\xe2\x80\x99 intent . . . with sufficient precision so that reference\nto legislative history . . . is hardly necessary.\n22The C ourt\'s recent decision in Rust V\xe2\x80\x99. Sullivan, 500 U.S. 173 (1991), which noted that an agency\ninterpretation is entitled to som e deference even if it represents a break with prior interpretations, id. at\n186-88, did not alter this rule. Subsequent to Rust, the Court again stated the general rule that \xe2\x80\x9cthe case\nfor judicial deference is less compelling with respect to agency positions that are inconsistent with\npreviously held view s.\xe2\x80\x9d P auley v. BethEnergy Mines, Inc., 501 U.S. 680, 698 (1991).\n23 Indeed, the statute specifically authorized the Tribunal \xe2\x80\x9cto make determinations concerning the ad\xc2\xad\nju stm e n t of reasonable copyright royalty rates.\xe2\x80\x9d 17 U.S.C. \xc2\xa7 801(b)(1) (emphasis added). Pursuant to\nthat authority the Tribunal allowed an inflation adjustment in 1987. In Chevron terms, the adjustm ent\nw as \xe2\x80\x9caffirm atively supported by the language of the Act.\xe2\x80\x9d 676 F.2d at 1155. By contrast, in the case of\nsection 1012 o f the Internal Revenue C ode, Congress has provided only the definition of \xe2\x80\x9cbasis" in\nterm s o f \xe2\x80\x9cco st,\xe2\x80\x9d while om itting any general grant of authority to make inflation-linked adjustm ents to\nco st basis.\n\n150\n\n\x0cUnited States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989) (citations\nomitted). Once it is determined as a textual matter that cost means \xe2\x80\x9cactual price\npaid\xe2\x80\x9d in nominal dollars, resort to the legislative history is unnecessary.\nAs noted above, however, Chevron requires that the search for the m ean\xc2\xad\ning of a statutory provision be conducted by \xe2\x80\x9cemploying traditional tools of\nstatutory construction.\xe2\x80\x9d 467 U.S. at 843 n.9. These tools include the legis\xc2\xad\nlative history of the provision. See also Cardoza-Fonseca, 480 U.S. at 449.\nThus, even if we were to conclude that the plain language and the structure\nof the Code did not provide a clear meaning for the term \xe2\x80\x9ccost\xe2\x80\x9d in section\n1012, we would be compelled to search the legislative record of the Revenue\nAct of 1918 to determine if that record could provide such meaning.24 Based\non our review of that record, we agree with your conclusion that \xe2\x80\x9cthe con\xc2\xad\ntemporaneous legislative history of the [Act] indicates that Congress intended\nthe word \xe2\x80\x98cost\xe2\x80\x99 to mean the price paid in nominal dollars not adjusted for\ninflation.\xe2\x80\x9d Treasury Memorandum at 8 (capitalization omitted).\nAs we have noted above, Treasury\xe2\x80\x99s pre-1918 regulatory definition of\ncost was \xe2\x80\x9cactual price paid.\xe2\x80\x9d T.D. 2005, 16 Treas. Dec. Int. Rev. I l l , 112\n(1914), restated, T.D. 2090, 16 Treas. Dec. Int. Rev. 259, 272-73 (1914).\nContrary to the assertion in the NCF Memorandum that \xe2\x80\x9cthere is nothing in\nthe legislative history of the 1918 Act indicating that these Treasury D eci\xc2\xad\nsions were being adopted,\xe2\x80\x9d id. at 36, the legislative history concerning this\nissue clearly indicates that Congress adopted Treasury\xe2\x80\x99s interpretation when\nit wrote \xe2\x80\x9ccost\xe2\x80\x9d into the Revenue Act of 1918. Indeed, it was explained\nduring floor debate concerning an amendment proposed by Representative\nHardy, intended in part to eliminate the effects of inflation on capital gains,\nthat the capital gains provision of the Act was \xe2\x80\x9cmerely enacting into law the\nrules and regulations now in force under the present statute.\xe2\x80\x9d 56 Cong. Rec.\n10,349 (1918) (statement of Rep. Gamer) (emphasis added).\nThe NCF Memorandum, after extensively quoting from the debate sur\xc2\xad\nrounding Representative Hardy\xe2\x80\x99s proposed amendment to the capital gains\nprovision of the Act, concedes that the legislative history \xe2\x80\x9cdemonstrates that\nat least certain members of Congress were aware of the effects o f inflation\non capital gains. It also can be argued to reflect an understanding o f Con\xc2\xad\ngress that a property\xe2\x80\x99s basis referred to the acquisition cost o f the property.\xe2\x80\x9d\nId. at 44 (emphasis added).\n\n" T h e NCF M emorandum suggests that the proper scope and significance o f legislative history is un\xc2\xad\nclear under Chevron. Id. at 31 n .l 5. To the contrary, we believe its relevance is quite clear. A court\nundertakes a Chevron inquiry employing traditional tools of statutory construction, of which legislative\nhistory is generally one See, e.g.. Chevron, 467 U.S. at 851-53, 862-64 (analyzing the legislative\nhistory of the Clean Air Act); NLRB v. United Food & Commercial Workers Union, Local 23, 484 U.S.\n112, 124-25 (1987) (analyzing the history of the Labor Management Relations Act). See also W agner\nSeed Co. v. Bush, 946 F.2d 918, 920 (D.C. Cir. 1991) ( Chevron requires deference \xe2\x80\x9cwhen the statute,\nviewed in light o f its legislative history and the traditional tools of statutory construction, is am bigu\xc2\xad\nous.\xe2\x80\x9d ), cert, denied, 503 U.S. 970 (1992).\n\n151\n\n\x0cIndeed, Congress must have been extremely well aware of the problems of\ninflation when it adopted the Act. In 1918, the year prior to the first statu\xc2\xad\ntory use of \xe2\x80\x9ccost\xe2\x80\x9d to define basis in the capital gains context, consumer\nprices for all urban consumers increased by 18.0%. Economic Indicators\nHandbook 224 (Damey ed. 1992).25 In the previous year, inflation was\nnearly as high, at 17.4%, a dramatic rise from the 1% inflation rates in 1914\nand 1915. Id.\nIn view o f this World War I-related inflation, it is not surprising that a\nproposal intended to eliminate most of the effects of inflation on capital\ngains was debated at the time. In moving to strike the basis provision out of\nthe Revenue Act entirely, Representative Hardy argued that the tax on gains\nwould be unfair because \xe2\x80\x9ca piece of property bought in 1913, if its exchange\nvalue today is to be equal to its exchange value when it was bought, must\nbring in dollars and cents something like two times what it cost.\xe2\x80\x9d 56 Cong.\nRec. at 10,349.26 See also id. (\xe2\x80\x9c [If a] man today makes a sale of a tract of\nland which he bought in 1913 at the prices then prevailing, and if he sold it\ntoday at 100% apparent profit and reinvested the money he could not obtain\nany more property now than he could have obtained in 1913 with the money\nthen paid for the same land.\xe2\x80\x9d).\nWhile noting that \xe2\x80\x9cthe reasoning of [Representative Hardy] would apply\nto every conceivable source o f income,\xe2\x80\x9d not simply capital gains, id. at\n10,350 (statement of Rep. Kitchin), opponents of the proposed amendment\nemphasized that the section dealing with capital gains did not change cur\xc2\xad\nrent law. See id. (\xe2\x80\x9cThis provision makes absolutely no change in existing\nlaw \xe2\x80\x9d) (statement of Rep. Kitchin). The opponents also explained how\ncurrent law operated. Representative Fordney thus stated that if a taxpayer\npurchased property ten years ago and then sold it, the appropriate measure\nof the gain would be \xe2\x80\x9c [t]he difference between the price paid fo r it 10 years\nago and the price you sell it for today.\xe2\x80\x9d Id. at 10,351 (emphasis added).\nRepresentative Kitchin, the Chairman of the House Ways and Means Com\xc2\xad\nmittee, further explained that \xe2\x80\x9c [i]f you bought a ship in 1916 for $100,000\nand sell it in 1918 at $200,000, or if you bought Bethlehem stock or United\nStates Steel Corporation stock in 1915, your income is the difference be\xc2\xad\ntween the purchase and selling price, and that is the only rule under which\nyou can administer the law.\xe2\x80\x9d Id. at 10,350-51. The hypotheticals posed by\nRepresentatives Fordney and Kitchin are particularly revealing since the gains\ndescribed would, to a large degree, have been attributable to the dramatic\nwartime inflation described above. No one at the time disputed these char\xc2\xad\nacterizations of current law, and the statements were consistent with the\nearlier Treasury Decisions quoted above. Ultimately, Representative Hardy\nwithdrew his proposal to strike the basis provision and proposed an amendment\n\n15 The 1918 Act was adopted in 1919. S ee supra note 8.\n:s Representative Hardy was half right. Consumer prices had increased slightly more than 50% from\n1913 to 1918, from an index o f 9.9 to an index of 15.1. Economic Indicators Handbook at 224.\n\n152\n\n\x0cthat would measure capital gain only from the beginning of the year in which\nthe capital asset was sold. Id. at 10,351, 10,354. Congress was apparently\nnot persuaded to remedy the effects of inflation on income derived from\ncapital gains in this way, and the proposal was rejected. Id.\nThe NCF Memorandum attempts to deny the force of its own reading of\nthe legislative history by asserting that the 1918 Act\xe2\x80\x99s legislative history\n\xe2\x80\x9csimply does not speak directly and clearly to the \xe2\x80\x98precise question at is\xc2\xad\nsue.\xe2\x80\x99\xe2\x80\x9d Id. at 46-47 (quoting Chevron, 467 U.S. at 843 n.9). For the reasons\nset forth above and in the Treasury Memorandum, we disagree. In any\nevent, as the NCF Memorandum recognizes, the legislative history is consis\xc2\xad\ntent with the ordinary meaning of the term \xe2\x80\x9ccost\xe2\x80\x9d as meaning historical\nprice paid, id. at 44, and clearly demonstrates that Congress legislated with\nfull knowledge of the effect of current law and of the impact of inflation on\ncapital gains.\nFor these reasons, we concur in your conclusion that the legislative record\nevidences a clear congressional intent that \xe2\x80\x9ccost\xe2\x80\x9d be given its common and\nordinary meaning, that is, price paid in nominal dollars not adjusted for\ninflation. Treasury Memorandum at 8-13.\n\nIV.\nThe NCF Memorandum argues that Treasury\xe2\x80\x99s adoption of a capital gains\nindexing regulation is not foreclosed by Congress\xe2\x80\x99s repeated reenactments\nof the Internal Revenue Code with knowledge of Treasury\xe2\x80\x99s interpretation of\n\xe2\x80\x9ccost\xe2\x80\x9d to mean the actual price paid (the \xe2\x80\x9creenactment\xe2\x80\x9d doctrine), or by\nCongress\xe2\x80\x99s rejection of statutory indexing proposals (the \xe2\x80\x9cacquiescence\xe2\x80\x9d doc\xc2\xad\ntrine). See NCF Memorandum at 75-87. We have discussed these doctrines\nonly briefly, see supra note 16, because they have application only if Trea\xc2\xad\nsury has discretion under the statute to reinterpret \xe2\x80\x9ccost\xe2\x80\x9d \xe2\x80\x94 that is, only if\n\xe2\x80\x9ccost\xe2\x80\x9d is ambiguous. In Parts II and III, we have demonstrated that it is not.\nIn places, however, the NCF Memorandum appears to make an affirma\xc2\xad\ntive argument in support of regulatory indexing of capital gains based on\nrecent votes of either the Senate or the House on legislative proposals to\nindex capital gains:\n[W ]hile C ongress has not actually enacted a capital gains\nindexing proposal, the legislative history o f C ongress\xe2\x80\x99 con\xc2\xad\nsid eratio n o f such proposals reveals, if anything, that\nC ongress fa vo rs the concept o f indexing capital gains.\nIndeed, . . . indexation measures have passed in recent ses\xc2\xad\nsions of both the Senate and the House . . . .\nCongress\xe2\x80\x99 deliberations on the issue to date suggest that a ma\xc2\xad\njority of both Houses would welcome a Treasury reinterpretation\nof \xe2\x80\x9ccost\xe2\x80\x9d to take account of inflation.\n153\n\n\x0cNCF Memorandum at 84. See also id. at 3 (\xe2\x80\x9c[T]he legislative history of\nC ongress\xe2\x80\x99 consideration of such proposals reveals, if anything, that Congress\nfa vo rs the concept of indexing capital gains.\xe2\x80\x9d). This reasoning is substan\xc2\xad\ntially flawed for several reasons.\nFirst, as the Treasury Memorandum points out, although Congress has\nrepeatedly considered proposals explicitly to index capital gains for infla\xc2\xad\ntion, it has never enacted them. Id. at 15-18.27 It is a strange twist of logic\nto conclude that because Congress has rejected a proposal many times, Con\xc2\xad\ngress therefore favors that proposal. Second, even assuming that a majority\no f both Houses would in fact be willing to enact such legislation, it by no\nmeans follows that they would welcome an administrative agency\xe2\x80\x99s decision\nto bring about a similar outcome by regulatory action alone.\nM ore fundamentally, the attitude of a majority of the members of the\ncurrent Congress is completely irrelevant to the question whether an agency\xe2\x80\x99s\ninterpretation of existing law is or is not correct. Like the courts, the execu\xc2\xad\ntive branch must interpret the law as it finds it, not base its interpretations\non conjecture as to how Congress might act. Thus, although agencies must\nfollow the \xe2\x80\x9cwill of Congress\xe2\x80\x9d in interpreting statutes, \xe2\x80\x9c[t]he \xe2\x80\x98will of Con\xc2\xad\ngress\xe2\x80\x99 we look to is not a will evolving from Session to Session, but a will\nexpressed and fixed in a particular enactment.\xe2\x80\x9d West Virginia Univ. Hosps.,\nInc. v. Casey, 499 U.S. 83, 101 n.7 (1991). Furthermore, it is an elementary\nprinciple o f constitutional law that the policy preferences of individual mem\xc2\xad\nbers of Congress, even if they happen to comprise majorities of both Houses,\nare legally meaningless until they crystallize into \xe2\x80\x9cbicameral passage fol\xc2\xad\nlowed by presentment to the President.\xe2\x80\x9d INS v. Chadha, 462 U.S. 919, 954-55\n(1983). See also NCF Memorandum at 80 n.43.\nThe history of capital gains taxation also shows that Congress was aware\no f the effects o f inflation but chose to deal with them in a manner other than\nindexation. The Revenue Act of 1918 did not distinguish between capital\nand ordinary income for purposes of tax rates. In 1921, however, Congress\nenacted the first preference for capital gains income. Compare Revenue Act\no f 1921, ch. 136, \xc2\xa7 206(b), 42 Stat. 227, 233 (taxing capital gains at a\nm aximum o f 12.5%) with id., \xc2\xa7 211(a)(1), 42 Stat. at 233-35 (taxing ordi\xc2\xad\nnary income at rates as high as 65%). Your opinion concludes that \xe2\x80\x9c[o]ne of\nthe policy reasons most often cited for this preferential treatment was the\n\n21 On at least four occasions since 1978, indexation legislation has been approved by either the Senate\nor the H ouse, only to be rejected in conference. See Revenue Act of 1978, H.R. 13511, 95th Cong., 2d\nSess. \xc2\xa7 404 (1978) (approved by House), rejected by H.R. Conf. Rep. No. 1800, 95th Cong., 2d Sess.\n258 (1978); Tax Equity and Fiscal Responsibility Act of 1982, H.R. 4961, 97th Cong., 2d Sess. \xc2\xa7 310A\n(1982) (approved by Senate), rejected by H.R. Conf. Rep. No. 760, 97th Cong., 2d Sess. 478 (1982);\nO m nibus Budget Reconciliation Act of 1989, H.R. 3299, 101st Cong., 1st Sess. \xc2\xa7 11961 (1989) (ap\xc2\xad\nproved by House), rejected by H.R. Conf. Rep. No. 386, 101st Cong., 1st Sess. 664 (1989); Tax Fairness\nand Econom ic G rowth Act o f 1992, H.R. 4210, 102d Cong., 2d Sess. \xc2\xa7 2101 (1992) (approved by\nH ouse), rejected by H R. Conf. Rep. No. 461, 102d Cong., 2d Sess. 356, 364 (1992).\n\n154\n\n\x0cdesire to mitigate the impact of inflation on the taxation of capital gains.\xe2\x80\x9d\nTreasury Memorandum at 13. See also id. n. l 6 (citing committee hearings\non the 1921 Act); NCF Memorandum at 48-49 & n.25 (same).\nIt is apparent that the draftsmen of the 1921 Act did not intend that\n\xe2\x80\x9ccost\xe2\x80\x9d reflect an adjustment for inflation. In reenacting the tax laws, they\nchose to mitigate the effects of inflation on capital assets by granting prefer\xc2\xad\nential treatment to capital gains \xe2\x80\x94 not by indexing cost. This choice reflects\ntheir understanding that without some special treatment, capital gains would\nbe peculiarly subject to the effects of inflation under the tax laws. Congress\xe2\x80\x99s\ndecision to provide preferential treatment for capital gains assumed that the\nTreasury\xe2\x80\x99s regulatory interpretation of \xe2\x80\x9ccost\xe2\x80\x9d as \xe2\x80\x9cactual price paid\xe2\x80\x9d was valid\nand would remain in effect.28\nAs recently as 1978, Congress was again faced with a choice in dealing\nwith the impact of inflation on the values of capital assets. In the course of\nenacting the Revenue Act of 1978, the House adopted a provision expressly\nindexing the basis of such assets. The Senate, on the other hand, rejected\nthis approach, choosing instead to increase the capital gains exclusion from\n50% to 60%. The Finance Committee\xe2\x80\x99s explanation for this choice is in\xc2\xad\nstructive:\n[A]n increased capital gains deduction will tend to offset the\neffect of inflation by reducing the amount of gain which is\nsubject to tax. Thus, by increasing the deduction, taxable\ngain should be reconciled more closely with real, rather than\nmerely inflationary gain. However, since the deduction is con\xc2\xad\nstant, unlike the automatic adjustments generally provided for\nin various indexation proposals, it should not tend to exacer\xc2\xad\nbate inflationary increases.\nS. Rep. No. 1263, 95th Cong., 2d Sess. 192 (1978). The bill as finally\nenacted into law adopted the Senate\xe2\x80\x99s version. Pub. L. No. 95-600, \xc2\xa7 402(a),\n92 Stat. 2763, 2867 (1978).\nWhenever Congress has been faced with a choice of different methods for\ndealing with the impact of inflation on capital gains, it has chosen some\nmeans other than indexation. Indeed, it has specifically rejected indexation\nin favor of the capital gains preference. This fact reflects both the under\xc2\xad\nstanding that indexation was not allowed under the Code in the first place\nand the intent o f Congress to keep it that way. We believe that Congress\xe2\x80\x99s\n\xe2\x80\x9c The capital gains preference continued to be a major feature of the tax laws until 1986. Since the\nenactm ent of the 19S4 Code, this preference was accomplished in part by allowing individual taxpayers\nto exclude from gross income a substantial percentage of their capital gain income. See, e.g., 26 U.S.C.\n\xc2\xa7 1202 (1982) (allowing individuals to dfduct 60% of their net capital gain from gross income). Sec\xc2\xad\ntion 1202 was repealed in 1986. Pub. L. No. 99-514, \xc2\xa7 301(a), 100 Stat. 2085, 2216 (1986).\n\n155\n\n\x0ccontinued affirmation of an inflation-mitigating mechanism other than index\xc2\xad\nation \xe2\x80\x94 specifically, preferential treatment \xe2\x80\x94 together with Treasury\xe2\x80\x99s\nconsistent interpretation of \xe2\x80\x9cco st\xe2\x80\x9d as not allowing indexation, makes this a\nparticularly com pelling case for concluding that Congress has ratified\nTreasury\xe2\x80\x99s interpretation of the Code.29\n\nV.\nThe NCF Memorandum advances two other arguments, both of which are\nunavailing. First, the Memorandum attempts to show that \xe2\x80\x9cthe Treasury has\nhistorically taken a flexible view toward its own interpretation of basis and\ncost.\xe2\x80\x9d Id. at 29. Yet the supposed instances of this \xe2\x80\x9cflexible\xe2\x80\x9d view are\nmischaracterized.\nThe NCF Memorandum claims that because the 1918 Treasury regula\xc2\xad\ntions addressing the capital gains treatment of property acquired by gift\nequated \xe2\x80\x9ccost\xe2\x80\x9d with fair market value of the property at the time of the gift,\ncost \xe2\x80\x9cwas completely divorced from concepts of historical or original cost.\xe2\x80\x9d\nId. at 38. This is mistaken; cost was clearly tied to the fair market value at\nthe time the asset was acquired by gift or bequest. Rather than altering the\ntime at which cost is calculated, as the Memorandum argues, the regulations\nmerely substituted an appropriate measure of value where the taxpayer in\nquestion had not paid anything for the asset. See Hartley v. Commissioner,\n295 U.S. 216, 219 (1935) (\xe2\x80\x9cT he use of the word cost does not preclude the\ncomputation and assessment o f the taxable gains on the basis of the value of\nproperty [at the time of acquisition] rather than its cost, where there is no\npurchase by the taxpayer, and thus no cost at the controlling date.\xe2\x80\x9d).30 Simi\xc2\xad\nlarly, although Congress subsequently rejected fair market value at the time\no f the gift in favor o f the donor\xe2\x80\x99s original cosf, see Revenue Act of 1921, ch.\n136, \xc2\xa7 202(a)(2), 42 Stat. 227, 229, Congress never deviated from tying the\nbasis to original cost \xe2\x80\x94 the only question was whose original cost was\nappropriate.\nThe NCF Memorandum also cites the treatment of depreciation and deple\xc2\xad\ntion in the 1918 regulations as an example o f Treasury\xe2\x80\x99s flexibility in defining\ncost. Id. at 40. Those regulations, however, reflected flexibility not in\ndefining \xe2\x80\x9ccost\xe2\x80\x9d but in determining what \xe2\x80\x9cproperty\xe2\x80\x9d the taxpayer owned. When\nthose regulations were challenged in United States v. Ludey, 274 U.S. 295\n\xe2\x80\x9d There is evidence that when Congress eliminated the capita! gains preference in 1986, its decision not\nto replace the preference w ith indexation was deliberate. As the NCF M emorandum points out, both the\nT reasury\xe2\x80\x99s public tax proposals in 1984 and the President\xe2\x80\x99s proposals to the Congress in 1985 recom\xc2\xad\nm ended som e form o f indexation Id. at 57-58. Moreover, the problem o f inflation and the need to index\ncapital gains in the absence o f preferential treatment were the subject o f congressional hearings. See,\ne.g.. Tax R eform A ct o f 1986, Part IV: H earings Before the Senate Comm, on Finance, 99th Cong., 2d\nSess. 61 (1986).\n\xe2\x80\x9c In any event, to reason from the treatm ent of gifts in 1918 that the indexation o f capital gains is\nappropriate, the N CF Memorandum w ould have to demonstrate the legal propriety o f indexing the\nvalue o f a gift from the date its cost is determined. T here i$, no suggestion that such an adjustm ent\nw ould have been perm issible.\n\n156\n\n\x0c(1927), the Supreme Court observed that the depreciation allowance was\nbased on the theory that \xe2\x80\x9cby using up the [property], a gradual sale is made\nof it,\xe2\x80\x9d and. thus \xe2\x80\x9c[t]he depreciation charged is the measure of the cost o f the\npart which has been sold.\xe2\x80\x9d Id. at 301. See also id. at 302 (depletion charge\n\xe2\x80\x9crepresents the reduction in the mineral contents of the reserves from which\nthe product is taken\xe2\x80\x9d). The Court never deviated from its treatment o f cost\nas a bearing on the price paid: \xe2\x80\x9c[t]he amount of the depreciation must be\ndeducted from the original cost of the whole [property] in order to deter\xc2\xad\nmine the cost of that disposed of in the final sale of properties.\xe2\x80\x9d Id. at 301\n(emphasis added). See also Treasury Memorandum at 30 n.30. The NCF\nMemorandum concedes as much: \xe2\x80\x9cthe regulations provided that the origi\xc2\xad\nnal cost of property had to be adjusted downward for any depreciation or\ndepletion taken on the property by the taxpayer prior to its sale.\xe2\x80\x9d Id. at 40\n(emphasis added). Nothing in the regulations suggested that the starting\npoint for this calculation was not original cost in nominal dollars.\nSecond, the NCF Memorandum reads Ludey as upholding \xe2\x80\x9cthe Treasury\xe2\x80\x99s\ndiscretion to fill in gaps left by Congress in the [Code\xe2\x80\x99s] capital gains provi\xc2\xad\nsions, specifically in the concept of \xe2\x80\x98cost.\xe2\x80\x99\xe2\x80\x9d NCF Memorandum at 66. That\nreading is flawed in several respects. First, the Ludey Court did not rely on\nthe Commissioner\xe2\x80\x99s regulatory interpretation; it instead held that \xe2\x80\x9cthe rev\xc2\xad\nenue acts should be construed as requiring deductions for both depreciation\nand depletion when determining the original cost of oil properties sold.\xe2\x80\x9d\n274 U.S. at 300 (emphasis added). By its own terms, therefore, Ludey is hot\na decision that upholds agency discretion, but a decision in which the Court\nconstrued the statute for itself. See also id. at 303-04 (rejecting the\nCommissioner\xe2\x80\x99s method for determining the appropriate deduction).\nThe Treasury regulations in question in Ludey did not fill in \xe2\x80\x9cgaps\xe2\x80\x9d in the\nstatutory term \xe2\x80\x9ccost;\xe2\x80\x9d rather, they reconciled two potentially contradictory\nstatutory provisions. Treasury\xe2\x80\x99s interpretation of \xe2\x80\x9ccost\xe2\x80\x9d as requiring adjust\xc2\xad\nments for depreciation was necessary to harmonize the statutory provision\ntaxing capital gains with the statutory provision granting annual deductions\nfor depreciation \xe2\x80\x94 that is, to prevent taxpayers from receiving tax benefits\ntwice. See id. at 301 (\xe2\x80\x9cAny other construction would permit a double deduc\xc2\xad\ntion for the loss of the same capital assets.\xe2\x80\x9d). The Court avoided this double\ndeduction based on indications in the statute that no such deduction was\nintended.31 For example, the Court noted that Congress intended the allow\xc2\xad\nance for depreciation to reflect a \xe2\x80\x9cgradual sale\xe2\x80\x9d of the property. Thus, the\n\xe2\x80\x9cdepreciation charged is the measure of the cost o f the part which has been\nsold.\xe2\x80\x9d Id. at 301 (emphasis added). Similarly, the Court determined that\nbecause depletion allowances were limited by statute to the amount of the\n\n31 C f United States v. Skelly Oil Co., 394 U.S. 678, 695 (1969) (Stewart, J., dissenting) (\xe2\x80\x9cIn prior\ndecisions [including Ludey) disallowing what truly were \'double deductions,\' the Court has relied on\nevident statutory indications, not just its own view of the equities, that Congress intended to preclude\nthe second deduction/\xe2\x80\x99)-\n\n157\n\n\x0ccapital invested, the deduction was meant \xe2\x80\x9cto be regarded as a return of\ncapital, not as a special bonus for enterprise and willingness to assume\nrisks.\xe2\x80\x9d Id. at 303.\nIn the case of indexing for purposes of determining capital gain, there is\nno conflict in statutory provisions that indexing would resolve. Indeed, as\nexplained above, any interpretation that measures cost at the time of sale\nrather than purchase would create a positive conflict with provisions allow\xc2\xad\ning deductions for depreciation and other items.\n\nVI.\nFor all the reasons set forth above, we conclude, as did the Treasury\nDepartment, that the term \xe2\x80\x9ccost\xe2\x80\x9d as used in section 1012 is not ambiguous.32\nTIMOTHY E. FLANIGAN\nAssistant Attorney General\nOffice o f Legal Counsel\n\n32 Because we conclude that in using the term "cost,\xe2\x80\x9d Congress has left no \xe2\x80\x9cgap\xe2\x80\x9d for Treasury to fill, no\nfurther inquiry is appropriate. We need not address under step two of Chevron whether a proposed\nTreasury regulation indexing capital gains for inflation would be a \xe2\x80\x9creasonable\xe2\x80\x9d interpretation of sec\xc2\xad\ntion 1012 o f the Code. 467 U.S. at 844.\n\n158\n\n\x0c'


b'Censorship of Transmission of\nTrotzky Speech From Mexico\nThe Federal Communications Commission does not have statutory authority to censor the telephone\ntransmission from Mexico into the United States of a speech by Leon Trotzky.\n\nFebruary 8, 1937\n\nMEMORANDUM OPINION FOR THE ATTORNEY GENERAL\nReference is made to your request of this date that I investigate the possible\nstatutes relative to the proposed speech to be made tomorrow night in Mexico by\nLeon Trotzky and transmitted from that place to New York City by telephone.\nThere do not seem to be any statutes applicable to the situation. Sections 137\nand 155 of title 8, U.S. Code, relate to certain seditious utterances, but these\nsections apply only to aliens. They provide for the exclusion of aliens known to\nentertain certain views on political questions and for the arrest and deportation of\naliens who utter seditious statements after admission. They also provide for fine or\nimprisonment of such aliens if, after such arrest and deportation or after exclusion,\nthey again attempt to enter the United States.\nThe Federal Communications Act gives no authority to the Federal Communications Commission to censor telephone communications. Section 326 of that Act,\nwhich relates to censorship of radio communications, is significant. That section\nreads:\nNothing in this chapter shall be understood or construed to give the\nCommission the power of censorship over the radio communications\nor signals transmitted by any radio station, and no regulation or condition shall be promulgated or fixed by the Commission which shall\ninterfere with the right of free speech by means of radio communication. No person within the jurisdiction of the United States shall utter\nany obscene, indecent, or profane language by means of radio communication.\n47 U.S.C. \xe0\xb8\xa2\xe0\xb8\x87 326.\nSection 33 of title 50, U.S. Code, makes it unlawful willfully to cause or attempt to cause insubordination, disloyalty, mutiny, or refusal of duty in the\nmilitary or naval forces of the United States, or to obstruct the recruiting or\nenlistment service of the United States to the injury of the service of the United\nStates, and section 34 of said title makes a conspiracy to violate the provisions of\nsection 33 unlawful; but these sections apply only when the United States is at\nwar.\n\n47\n\n\x0cSupplemental Opinions of the Office of Legal Counsel in Volume 1\n\nThe nearest approach to the subject of any statute that I have been able to find\nis that of section 4 of title 18, U.S. Code, which provides:\nWhoever incites, sets on foot, assists, or engages in any rebellion or\ninsurrection against the authority of the United States or the laws\nthereof, or gives aid or comfort thereto, shall be imprisoned not more\nthan ten years or fined not more than $10,000, or both . . . .\n(Emphasis supplied.)\nIf this section is applicable, those who assist in the transmission and delivery of\nthe speech in New York City would probably be guilty of violating it. I am of the\nopinion, however, that it is not applicable to the present situation, as it is not\nprobable that the speech will incite to rebellion or insurrection.\nThere would seem to be a field here in which the privilege of free speech may\nbe abused, but apparently there is no present statute prohibiting such abuse. Until\nsuch time as Congress shall see fit to enact legislation on the subject, it would\nseem that the only remedy available is through diplomatic relations with the\ncountry from which the abuse emanates.\nGOLDEN W. BELL\nAssistant Solicitor General\n\n48\n\n\x0c'


b'June 14, 1979\n\n79-41\n\nMEMORANDUM OPINION FOR THE\nCOUNSEL TO THE PRESIDENT\nChairman of the Federal Home Loan Bank\nBoard\xe2\x80\x94Reorganization Plan No. 3 of 1977 (5\nU .S.C . App.)\xe2\x80\x94Resignations\xe2\x80\x94The President\xe2\x80\x99s\nAuthority to Redesignate a Member as Chairman\n\nThis responds to the oral request of your Office for our views on the Pres\xc2\xad\nident\xe2\x80\x99s power to redesignate a member of the Federal Home Loan Bank\nBoard. The Board, established by Reorganization Plan No. 3 of 1947 (5\nU.S.C. App.; see also 12 U.S.C. \xc2\xa7 1437), consists of three members ap\xc2\xad\npointed by the President by and with the advice and consent of the Senate.\nOn April 20, 1979, the Chairman tendered his resignation effective June\n1, 1979. On May 1, 1979, the President accepted the resignation as Chair\xc2\xad\nman and as a member of the Board. In a letter dated June 1, 1979, he\nnotified the President that he had submitted his resignation only as Chair\xc2\xad\nman, but not as a member. However, he expressed his willingness to con\xc2\xad\ntinue to serve as Chairman until June 29, 1979, or until such earlier date as\nhis resignation as a member and Chairman would be tendered. By letter\ndated June 6, 1979, the President noted that the letter of resignation of\nApril 20 had applied only to the position of Chairman and not to member\xc2\xad\nship on the Board. The President thereupon redesignated the member as\nChairman of the Board until such time as his resignation as a member and\nChairman was tendered.\nIt is our opinion that the President was authorized to redesignate the\nmember as Chairman because he still was a member of the Board at that\ntime.\nIt is true that the President\xe2\x80\x99s letter of May 1, 1979 stated that he ac\xc2\xad\ncepted the resignation as Chairman and member. But the resignation was\nonly as Chairman and not as a member. The President, of course, has the\npower to remove a purely executive officer in the absence of a resignation.\nMyers v. United States, 272 U.S. 52 (1926). However, in view of the bipar\xc2\xad\ntisan nature and the regulatory functions of the Board, it is questionable\n248\n\n\x0cwhether the President has the same unrestricted power with respect to the\nmembers of the Board. Humphrey\xe2\x80\x99s Executor v. United States, 295 U.S.\n602 (1935); Wiener v. United States, 357 U.S. 349 (1958). In any event, an\nintent to remove the Chairman as a member of the Board would be incon\xc2\xad\nsistent with the highly complimentary and appreciative nature of the Presi\xc2\xad\ndent\xe2\x80\x99s letter of May 1, 1979. The \xe2\x80\x9c acceptance\xe2\x80\x9d of the resignation as a\nmember, therefore, was at most in the nature of a misunderstanding\nwithout any legal effect and did not terminate membership on the Board.\nAccordingly, the member was eligible to be redesignated as Chairman.\nL arry A . H am m ond\n\nDeputy Assistant Attorney General\nOffice o f Legal Counsel\n\n249\n\n\x0c'