Document: 31 L.Ed.2d 217 92 S.Ct. 908 405 U.S. 298 UNITED STATES, Petitioner,v.MISSISSIPPI CHEMICAL CORPORATION et al. No. 70—52. Argued Jan. 10, 1972. Decided March 6, Syllabus Respondent taxpayers are cooperative associations within the meaning of Agricultural Marketing Act, and thus qualify for membership in one Banks Cooperatives established by Farm Credit Act 1933, which provides that members may borrow money from their Banks. Respondents secured New Orleans Bank elected to borrow. They were required 1955 make quarterly purchases $100 par value Class C stock equal not less than 10% nor more 25% amount interest paid on loans. During relevant period rate set was 15%. claimed a.$99 expense deduction tax returns each purchase statute. The deductions disallowed respondents filed this suit refunds. Government contended is a capital asset as defined 26 U.S.C. § 1221, nondeductible, while asserted price part 'the (they) contracted pay use borrowed money,' deductible interest. District Court found Appeals affirmed. Held: It clear legislative scheme having long-term value. Its cost is, therefore, an expense. Pp. 302—312. 5th Cir., 431 F.2d 1320, reversed remanded. Matthew J. Zinn, Washington, D.C., petitioner. John C. Satterfield, Jackson, Miss., respondents. Mr. Justice MARSHALL delivered opinion Court. 1 Mississippi Chemical Corp. Coastal (hereinafter taxpayers) instituted action refund United States Southern Mississippi. Both 'cooperative associations' 15 46 Stat. 18, amended, 12 1141j, 'Banks Cooperatives' Bank(s)) 48 257, 1134 seq. Since principal places business located Mississippi, regional Orleans. 2 1933 and, soon after securing Bank, borrow.1 Thereafter, they 1955, 69 656, 1134d(a)(3), partially amended lawsuit, 15%.2 3 On years question, every statute.3 Commissioner Internal Revenue deductions, assessed deficiencies, arose. 4 has consistently under 1221 Code, its nondeductible. See 263. have persistently urged expended . Old Colony R. Co. v. Commissioner, 284 552, 560, 52 211, 214, 76 L.Ed. 484 (1932), 163(a). 5 taxpayers4 Fifth Circuit affirmed over dissent Judge Godbold. 1320 (1970). We granted certiorari February 22, 1971, review decision Appeals. 401 908, 91 884, 27 805. reverse reasons stated below. 6 * Early century, Congress recognized farmers had tremendous need at low rates. This led enactment Federal Loan 1916, 39 360, 641 immediate purpose bill 'to afford those who (were) engaged farming or desire(d) engage occupation vastly greater volume land credit favorable terms materially lower nearly uniform rates present(ly) available.' H.R.Rep.No.630, 64th Cong., 1st Sess., 2. long-range stimulate foster spirit among who, it hoped, would work together seek agricultural improvements finance themselves. Id., 2—3; S.Rep.No.144, Cong. 5. 7 1916 divided into districts general supervision Board. Each district contained federal bank designed loan Persons desiring organize groups 10 called 'national farm associations.' Sec. 7, 365. 8 In order bank, association establish owner prospective farm, desired member $10,000, aggregate loans $20,000. also subscribe 5% total sought members. association, turn, compel member. Hence, there two separate levels association.5 9 history language itself indicate faced somewhat dilemma structing system. hand, strong congressional desire privately controlled, owned, financed program based upon efforts dedicated farmers. effectuated large measure stock-purchase requirements discussed above. other realized without help, existing plight probably render them unable support system themselves, be doomed failure: 'The greatest difficulty establishment rural-credit system, principle, met connection with inauguration Ample absolutely necessary start whatever sums first borrowers might able contribute no wise suffice get successful operation. must endowed, temporarily least, sources subscriptions borrowers.' H.R.Rep.No. 630, 9. 11 Accord, 4. To resolve dilemma, provided temporary public financing charge supplement periodically increase shares achieve goal private ownership repay financing. 13 remained virtually untouched6 until economic depression 1930's when determined needed aid establishing owned institutions provide ready credit. passed legislation. established, inter alia, Central D.C.7 14 These authorized 'cooperate associations,' 'association(s) act processing, preparing market, handling, and/or marketing products persons so engaged, association(s) purchasing, testing, grading, distributing, furnishing supplies services.' 15, 1141j. new paralleled many ways already same used, eligible both institutions, banks stockholders. own, time made, fair book (not exceed value) per $2,000 loan, 5%, Act. 16 One notable difference between Acts latter did regulate any great degree. For example, own associations, only Banks; minimum amount; owners owners, but could processors, handlers, testers, marketers. sharp contrast stringent Another invested substantially ($110,000,000) ($9,000,000). S.Rep.No.1201, 84th 5, U.S.Code & Admin.News, p. 2947 (1955). 17 As passed, watched develop planned. capitalization solidified inception gradually replaced capital, end 1947, Government's been completely returned. S.Doc.No.7, 4; 7. became totally concerns—owned, operated, assistance. 18 development concerned about lack success attracting keeping investment. By 1950's, still retained 88% 1953, 67 390, 636a, '(i)t declared policy encourage facilitate increased borrower participation management, control, ultimate permanent made available through operating Administration ..' A Board created purpose, making recommendations concerning best way convert predominantly Government-owned institutions. 19 result Board's report 655. effectuate Congress' providing orderly withdrawal continual influx retention substitute S.Doc.No. 6; S.Rep.No. 1201, 1; Hearings before House Committee Agriculture, 30—31. II 20 Under class Cooperatives. three distinct classes stock—A, B, 21 held Governor Association behalf States. Whatever prior converted stock. nonvoting receives dividends. retired year issued during year. 1134d(a)(1). Once States' redeemed, will invest Banks, except additional if emergency makes meet needs borrowers.8 §§ 1134d(a)(1), 1134b, 1135i. 22 B represents approach capitalizing investment public. pays noncumulative dividends certain conditions. all 1134d(a)(2).9 23 farmers' such Bank. obtained four circumstances. share initially then gave rise lawsuit. addition, 1134l(b) expenditures year, patronage refunds allocated form 'All shall proportion earned bears fiscal year.' Ibid.10 Borrowers receive 'allocated surplus' payable out Bank's net savings. Like refunds, surplus credited accordance When account reaches outstanding excess distributed 24 Only treatment disputed here.11 correctly note attributes normal commercial undesirable. dividends;12 transferable cooperatives rare circumstances; do voting power;13 cannot redeemed A, earlier redemption. characteristics market nonexistent. 25 remembered, however, intentionally given these definite goals mind.14 indicates placed much blame inability extended retain provision legislation permitted redeem cash paying off restrictions redemption transferability dividend prohibition obviate stable necessities venture. III deduct initial accept fact represent because valuable taxable But, argue once purchased shares, full rights, fortiori, intended borrowing since indeed valuable. amounts become structure thereby increasing stability insuring continued ability extend opportunity dividends, right redemption, used setoff case default loan. sum, initially. therefore difficult understand why different should radically treatment. If 1,000 100,000 banks, taxpayers' theory nondeductible Simply eased burden spreading requirement rather requiring prerequisite borrowing, entitled important lose sight purposes enacting would, odd 'hidden' 'fully place responsibility operations hands them.' Subcommittee Senate Agriculture Forestry, 60. felt, light experience achieved investments stock, security special ventures. While sui generis, long run. 28 Cf. Lincoln Savings Assn., 403 345, 1893, 29 519 (1971); States, (1932); CFR 1.461—1. reject contention asset, worth $1,15 additional.$99 Were we dealing traditional corporate case, argument strength. pointed previously, essential nature corporations differs. derives primarily marketability. foundation scheme; insures continuity. enables toward common goals. venture concerns reap rewards knowing can themselves assistance Government. perhaps debatable whether properly valued share, merely question valuation. Rather, decide artificial characterize unique payments asset. find not. 30 allege looking substance. At some point, transaction cast considerable impact. Guterman, Substance Form Taxation Personal Business Transactions, N.Y.U. 20th Inst. Fed.Tax. 951 (1962). chose buy stock; share; endowed ends payments, purchases. assures commitment bearing consequences Accordingly, remanded direction judgment entered 32 ordered. 33 BLACKMUN took consideration case. acquired qualifying 1956; 1957. challenges of.$55,113.19 spent 1961 1963; $211,799.68 1958 1963. dollar treated acquiring unreported App. 342 346. Other courts split issue presented. Compare, e.g., M.F.A. Cooperative Bookwalter, 427 1341 (CA8 1970), rev'g 286 F.Supp. 956 (ED Mo.1968), pet. cert. pending (No. 70—22), Penn Yan Agway Cooperative, Inc. 417 1372, 189 Ct.Cl. 434 (1969). statute 'joint banks' formed. corporations, composed persons, subject conditions imposed banks. disturb added various times. Title Credits 1923, 42 1461, 1151 (1958 ed.), obtaining short-term production improve That There evidence record being revolved just anticipated. Administration, Cooperatives—A Quarter Century Progress, excerpted 157, 175. 1332, n. (Godbold, J., dissenting); Brief nominal importance. 1963, amounted surplus, infra, return contributes Bank; distributions earnings, presently convertible cash, eventually redeemed. reported income. disagreed appeal point. not, reviewable here, does urge consider it. formal apparent equivalent dividend. noted above, immediately far worthless. usual ownership. Stock apportioned according borrows. Thus, most (and well). time. event borrower, against receives, he default. vote polls designating nominees appointment Board, 636c, help policy; nomination elections boards 1937, 50 703, 640a; directors irrespective disparity held. Frost Corporation Comm'n, 278 515, 536—537, 49 235, 243, 73 483 (1929) (Brandeis, I. Packel, Law 23—24(a), pp. 136—140 (3d ed. 1956). interesting Capper-Volstead 388, 291, 292, permits immunity Sherman circumstances, vote. operate principles. Whereas separates control essence requires functions integrated. And, whereas depends ease (or marketability), lies durable, Nieman, Revolvinvg Capital Corporations, Contemp.Prob. 393 (1948). means $1 even analysis. failed include computing may, considerably $1, although concedes $100. Because reach occasion final determination what market-value

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