Opinion ID: 407959
Heading Depth: 1
Heading Rank: 3

Heading: Taxability of Property Held for Capital Gains Through Appreciation

Text: 17 The question remains whether the Foundation's timberland is the type of property subject to the excise tax. Treas.Reg. § 53.4940-1(f)(1) is made applicable to gains on property used for interest, dividends, rents, and royalties. Treas.Reg. § 53.4940-1(f)(1) expands upon the four categories (interest, dividends, rents, and royalties) of taxable property by adding a fifth category effective December 31, 1972: 18 ... if it is property of a type which generally produces interest, dividends, rents, royalties, or capital gains through appreciation (for example, rental real estate, stock, bonds, mineral interests, mortgages, and securities.) 19 (emphasis added). The district court made no finding of fact as to whether the Foundation's timberland was property which generally produces interest, dividends, rents, or royalties. Rather, the district court determined that it was not necessary to decide this issue, since the Foundation had failed to actually use the land for production of income before the sale. 20 Under these circumstances, this cause must be remanded to the district court for findings of fact on whether the timberland was property which generally produces interest, dividends, rents, or royalties. 10 The district court, however, has complicated this course of action by finding that the timberland is the type of property that generally produces capital gains through appreciation. The district court further held that Treas.Reg. § 53.4940-1(f) (1) is invalid to the extent it subjects to the excise tax any property which generally produces capital gains through appreciation. We again hold that the district court erred. 21 Read in isolation, 26 U.S.C. § 4940(c)(4) might appear to extend only to property used for the production of interest, dividends, rents, and royalties. Statutory meaning, however, is to be derived not from reading of a single sentence or section, but from the provisions of the whole law, and its object and policy. Philbrook v. Glodgett, 421 U.S. 707, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975); Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct. 2431, 2436, 41 L.Ed.2d 374 (1974). 22 A narrow reading of the phrase ... if it is property of a type which generally produces interest, dividends, rents, royalties, or capital gains through appreciation (for example, rental real estate, stock, bonds, mineral interests, mortgages, and securities) appears to underscore the interpretation previously made by this Court of the word used. The regulation simply recognizes that property usable for interest, dividends, rents, or royalties may sometimes be held simply for capital gains through appreciation. Growth stocks would be a prime example, see Friedman Foundation, supra, and the regulation lists several others. Interpreted in this manner, this phrase in the regulation is neither unreasonable nor inconsistent with 26 U.S.C. § 4940(c)(4), and, therefore, must be presumed valid. Portland Cement, supra. 23 On remand, the district court should make a factual determination on whether the timberland is the type of property which generally produces interest, dividends, rents, or royalties. 11 Even if the timberland is property held for capital gains through appreciation, the district court should treat it as property used for interest, dividends, rents, or royalties if the property is susceptible for use in this manner. 12 24 The judgment of the district court is reversed and this cause is remanded for further proceedings consistent with this opinion. 25 REVERSED AND REMANDED.