Document: 55 L.Ed.2d 1 98 S.Ct. 841 434 U.S. 528 Arthur FULMAN et al., Trustees, Petitioners,v.UNITED STATES. No. 76-1137. Argued Nov. 29, 1977. Decided Feb. 22, 1978. Syllabus The provision of Treas.Reg. § 1.562-1(a) that a personal holding company's distribution appreciated property to its shareholders results, under §§ 561 and 562 the Internal Revenue Code 1954, in dividends-paid deduction limited an amount is adjusted tax basis hands company at time held valid as having reasonable basis, against contention such should be equal fair market value distributed. Given fact 27(d) 1939 expressly provided "adjusted basis" measure for valuation dividends paid rather than money, ambiguity surrounding legislative history 1954 Code, which sets forth rules applicable determining eligible but contains no counterpart "weighty reason" justifying setting aside regulation question can identified. Pp. 530-539. 545 F.2d 268, affirmed. by Daniel D. Levenson, Boston, Mass., petitioners. Michael L. Paup, Washington, C., respondent. Mr. Justice BRENNAN delivered opinion Court. presented this case validity 1.562-1(a), 26 CFR (1977), U.S.C. 562, "the distributing corporation distribution."1 Court Appeals First Circuit sustained case, 268 (1976), disagreeing with Sixth H. Wetter Mfg. Co. v. United States, 458 1033 (1972), had concluded limitation on invalid entitled distributed.2 We granted certiorari resolve conflict. 431 928, 97 2630, 53 243 (1977). agree regulations valid, therefore affirm judgment. 2 * maximum income rate applied corporations has many years been substantially below marginal rates high-income individuals. As early 1913, Congress recognized disparity incentive individuals create solely avoid taxes. In response imposed any "formed or fraudulently availed of" purpose avoiding Tariff Act II-A, Subdivision 2, 38 Stat. 166; see Ivan Allen 422 617, 624-625, n. 8, 95 2501, 2505-2506 45 435 (1975). Section 220 1921, 42 247, shifted incidence itself, where it remained day. See supra, 625 S.Ct., 2505 8. 3 Early statutes designed combat abuse corporate form were not notably successful, however, 1934 "incorporated pocketbook"—a closely formed receive passive investment accumulate accruing respect property—had become major vehicle avoidance.3 Congress' was tax, enacted 1934, now codified 541-547 561-565 1954,4 (1970 ed. Supp.V). 4 object force are "personal companies"5 pay each year least corporation's undistributed income—i. e., taxable less corporation, 545—thus ensuring taxpayers cannot escape taxes accumulating level. This effectuated imposing both ordinary operation penalty 70% income. 541, 545, 561. Since equals exceeds highest individual taxpayers, Supp.V), will generally interest those controlling distribute all income, thereby level reducing zero base applied.6 II 5 Petitioners successors Pierce Investment Corp. 1966 Commissioner audited determined 1959, 1960, 1962, 1963. Deficiencies $26,571.30 assessed Pierce. audit, entered agreement pursuant 547 provides Pierce's position may enter agreement, acknowledging deficiency status, within 90 days thereafter make "deficiency dividend" payments reduce deficiency. Shares stock other companies promptly distributed dividends. agreed have $32,535; $18,725.11. 6 then filed claim deficiency-dividend deduction, required 547(e), indicating $32,535. Commissioner, relying allowed only extent stock, he new after allowed. denied refund. 7 brought refund suit States District Massachusetts, arguing valued their value. cross-motions summary judgment relief, 407 F.Supp. 1039 Each court found Treasury Regulation interpretation statute, refused follow contrary supra.7 Accordingly denied. III 8 "[I]t fundamental . 'contemporaneous constructions charged administration of' [Treasury] Regulations 'must unless unreasonable plainly inconsistent revenue statutes,' 'should overruled except weighty reasons.' " Bingler Johnson, 394 741, 749-750, 89 1439, 1445, 22 695 (1969), quoting South Texas Lumber Co., 333 496, 501, 68 695, 698, 92 L.Ed. 831 (1948); accord, Correll, 389 299, 306-307, 88 445, 449-450, 19 537 (1967). rule deference particularly appropriate here,8 since, while obviously some must applied, Congress, we shall see, failed provide one. supra; 7805(a). 9 547(a) requires taxpayer who like pays determination liability "shall allowed" "a (as defined subsection (d)) tax." Subsection 547(d) turn 10 term 'deficiency dividends' means ., would includible computation section exists, if during year." 11 Continuing chain definitions, 561(a) sum of," inter alia, year; 561(b)(1) points source valuing exceptions basic said 316 316. But when 316, trail definitions finally turns cold, states dividend "distribution made shareholders" out current accumulated earnings or, companies, Inexplicably, moreover, draftsmen refer us back "[r]ules credit deduction." Cross References following 12 suggest way circularity adopt distributions 301 301. agree, deals problem establishes governing distributees. deny logical petitioners' argument that, since include returns, distributor get generated shareholder 301, is, case.9 301(b) (1)(A).deed,S YH. Gulf Inland 75-2 USTC ¶ 9620 (WD La.), appeal docketed, 75-3767 (CA5 1975), taken view urged petitioners, Regulation, might well prevail.10 But, indicated, issue before how statutory first instance, whether there resolution embodied Commissioner's Regulation. conclude is. 13 1936, surtax profits intended supplement enactment tax. 27(c) 1936 Act, 49 1665, later 1939, 20, money: 14 "If money thereto payment, whichever lower." 15 Although primarily mind,11 351(b)(2)(C) Act12 nonetheless governed 27(c). At same time, contrast, distributees 115(j), 1689. 16 relevant provisions carried over without material change into 1939. 27(d), 115(j) 48. Thus, symmetry between gain re ognized level, petitioners argue touchstone our decision, part scheme from 1954. 17 Nor failure re-enact read unambiguously indicate abandoned favor "fair value" measure. describing 562(a), defines purposes, Senate Finance Committee explained: 18 "Subsection (a) 'dividend' purposes include, otherwise section, described requirements sections (e), (f), (i) existing law [Internal amended] contained definition 312, accordingly restated 562." S.Rep.No.1622, 83d Cong., 2d Sess., 325 (1954); U.S.Code Cong. & Admin.News p. 4965. Report House Ways Means haec verba, says what Code.13 H.R.Rep.No.1337, A181 4025. discrepancy Reports material, explained, reach result path through language Code.14 light 27(c), statement could meant incorporate so much 27 actually enacted—that none it. meaning compelled, say evince intention, albeit erroneously execution, retain 20 least, assumed carry forward prior valuation. Ryder, 110 729, 740, 196, 201, 28 308 (1884): "It inferred legislature, revising consolidating laws, policy, intention clearly expressed." Accord, Aberdeen Rockfish R. SCRAP, 9, 309 12, 2336, 2350 191 (1975); Muniz Hoffman, 454, 467-472, 2178, 2185-2188, 319 Fourco Glass Transmirra Corp., 353 222, 227, 77 787, 790, 786 (1957). If legislation abandon previously prevailing when, here, recodification incomplete departs explanation law, similar rationale drafting his rule.15 given impossible identify reasons" justify 21 Affirmed. BLACKMUN took consideration decision case. 23 STEVENS, concurring 24 portion Court's I am unable join quoted POWELL dissent. do ineluctable need equate received distributee distributor. my recipient's debit books. 25 POWELL, dissenting. opinion, commendable candor, recognizes logic supports position: "[We do] 301(b)(1)(A)." Ante, 534-535. also "circularity," ante, 534, "ambiguity," 536, absence clarification thereof history. simply resolves jumble 29 It virtually conceded squared acknowledged Where exists history, statute accord manifest purpose. A defies logic, purpose, merits little weight. 30 find answer arguments advanced Professor Drake. Drake, Distributions Kind Dividends Paid Deduction—Conflict Circuits, 1977 B.Y.U.L.Rev. 45. (CA6 1972).* 31 respectfully "§ Definition paid. "(a) General rule.— "The of— "(1) year, "(b) Special applicable.— paid, applicable." 562. Rules deduction. rule. "For part, shall, prov ded ." 1.562-1 allowable. (other money) distribution. 1975). C. Blake McDowell, Inc. 67 T.C. 1043 H.R.Rep.No.704, 73d pt. 1, pp. 11-12 (1934); Subcommittee Means, Preliminary Prevention Tax Avoidance 6-8 (Comm.Print 1934). For Libin, Personal Holding Companies 1964, 63 Mich.L.Rev. 421, 421-429 (1965). Sections define used 531-537 60% whose gross 50% owned five fewer persons. 542(a). inve tment dividends, rents, royalties. 543. Such would, course, noncorporate 301(b)(1)(A). Wetter, Circuit, adopting "plain meaning" rule, establishing anything plain. strictly construed, 627, 2506, Acker, 361 87, 91, 80 144, 147, 127 (1959), construction does apply easily avoided following—as pr decessor did—the guidelines set 547. standard adopted distributee-shareholder. H.R. 8300, Sess. (1954), forerunner 562(a) referred 312 stated: subtitle DISTRIBUTION (AS DETERMINED IN SECTION 301(A) ) (emphasis added.) 301(a) "distribution" securities received" distributee. This, conclude, shows use distribut ng italicized above deleted Senate, appear corresponds supra. Moreover, explained infra, 536-538, incorporated Code. indeed embody shareholders. Instead, 301(a), mandates regard shareholder, whereas mandated lower 8300 distributees, target There therefore, unambiguous inference drawn linkage bill. nn. 13-14, infra. Finally, abundantly clear Allen, liquid assets figures calculating "earnings [have been] permitted beyond needs business." 533(a). Unrealized appreciation figure applies. U.S., 633, 2509. thus holds base, justification reasoning subtracted base. added general revision S.Rep.No.2156, 74th 12-13, 16-18 (1936). discussion reason applying companies. 1732. theorized due typographical error Report. bill passed House, 312. renumbered bill, essentially verbatim, possibly failing correct instances numbers changed. F.2d, 270 2. one assumes stating re-enacted 13, upheld because 312(a)(3) identical face addressed narrow effect profits, unrelated Therefore more likely locus re-enactment even did intend remains put anywhere, not, correspond depreciated property. property; used. 536. However, occasion pass circumstance, help today, Government "wins" petitioners) "lose." me end increase Government's- "take." device number sophisticate taxpayers. Under them able schedule advantageous manner. Cf. Securities B.T.A. 754 (1940), aff'd, 123 192 (CA10 1941). preferred provisions, e. g., 311, compatible plain

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