Document: 381 U.S. 54 85 S.Ct. 1308 14 L.Ed.2d 214 UNITED STATES, Petitioner,v.MIDLAND-ROSS CORPORATION. No. 628. Argued March 31, 1965. Decided May 3, Frank I. Goodman for petitioner. Theodore R. Colborn, Cleveland, Ohio, respondent. Mr. Justice BRENNAN delivered the opinion of Court. 1 The question decision is whether, under Internal Revenue Code 1939, certain gains realized by taxpayer are taxable as capital or ordinary income. bought noninterest-bearing promissory notes from issuers at prices discounted below face amounts. With one exception, each was held more than six months, and, before maturity and in year purchase, sold less its amount but issue price.1 It conceded that gain case economic equivalent interest use money to date sale reported gains. Commissioner determined attributable original discount were another form therefore Respondent paid resulting deficiencies this suit refund prevailed District Court Northern F.Supp. 631, Appeals Sixth Circuit, 335 F.2d 561. Because treatment conflicts with result reached other courts appeals,2 we granted certiorari. 379 944, 441, 13 542. We reverse. 2 favorable applied only on 'the exchange a asset.' § 117(a)(4). Although becomes property when obligation falls due liquidated prior 117(a)(1) defined asset 'property taxpayer,'3 have 3 'not everything which can be called sense outside statutory exclusions qualifies asset. This has long term 'capital asset' construed narrowly accordance purpose Congress afford capitalgains situations typically involving realization appreciation value accrued over substantial period time, thus ameliorate hardship taxation entire year.' v. Gillette Motor Transport, Inc., 364 130, 134, 80 1497, 1500, 4 1617. See also Corn Products Co. Commissioner, 350 46, 52, 76 20, 24, 100 L.Ed. 29. In applying principle, consistently exclude representing income items accretions themselves properly Thus does not include compensation awarded fair rental facilities during their operation government control, supra; proceeds an orange grove unmatured annual crop, Watson 345 544, 73 848, 97 1232; unexpired lease, Hort 313 28, 61 757, 1168; oil payment rights, P. G. Lake, 356 260, 78 691, 743. Similarly, earned cannot regarded 'typically time * (given treatment) 5 Earned serves same function stated interest, concededly asset; it simply 'compensation forbearance money.' Deputy du Pont, 308 488, 498, 60 363, 368, 84 416; cf. Lubin 209 (C.A.2d Cir.). Unlike typical appreciation, earning predictable measurable, 'essentially substitute payments 22(a) expressly characterizes gross (; thus) must income, immaterial some purposes contract creating right such may treated 'property' 'capital'.' supra, U.S., S.Ct., 758. $6 one-year note $106 issued $100 precisely like loan 6% interest. application general principles would indicate, therefore, discount, should taxed income.4 6 argues, however, administrative practice congressional 1939 establish accounted realized. Section 1232(a) (2)(A) 19545 provides 'upon evidences indebtedness after December 1954, any (up prorated discount) shall considered asset,' is, rates. From infer understood legislative history extending discount. If 1954 did fact ignore reality treat differently tax purposes, prevail. Hanover Bank 369 672, 82 1080, 8 187; Helvering J. Reynolds Tobacco Co., 306 110, 59 423, 83 536. But persuade us clearly case, see 551, 852, done so. 7 refers various provisions treating specific situations, arguing these understanding covered provisions, entitled treatment. Even if merely limited applications principle 1232(a)(2), they demonstrate, rule contrary, unclear, Brandis, Effect Discount Premium Bondholder's North Carolina Income Tax, 19 N.C.L.Rev. 1, (1940), wished avoid doubt particular situations. Cf. S.Rep.No. 1622, 83d Cong., 2d Sess., p. 112 (1954). First referred §§ 42(b) 42(c) Code.6 applied, inter alia, obligations periodically redeemable specified increasing amounts, permitted cash-basis taxpayers election accrue increase. anything, language supports Government's position, implies accrual-basis no election, increases; seems indicate increases postpones recognition short-term until sale. That provision, own history. Earlier law, requiring proration according held, 'impose duty making burdensome computations.' S.Rep.No.673, Part 77th 1st 30 (1941). had turn succeeded statute enacted, make exception insure then-existing exemption could claimed holder. H.R.Conf.Rep.No.17, 71st (1929). Since Treasury paper eliminated 1941, there longer important reason distinguish exempt nonexempt market enacted simplify administration eliminating necessity allocation between loss, all realization.7 inferences drawn respondent correct, rendered superfluous enactment been carried forward 454(a) (b) Code. 9 argued 201(e) 207(d) Code8 manifested view opposed These sections required accrual bond premium life mutual casualty insurance companies. again, somewhat 42(b), provided taxpayers. Massachusetts Mutual Life Ins. United States, 288 269, 53 337, 77 739. Moreover, interpreted him discounts premiums, well agreed upon borrower guise items.9 10 Thus, demonstrated that, specifying evinced otherwise Therefore whether decisional law preclude 11 premises part his argument primarily Caulkins T.C. 656, acq., 1944 Cum.Bull. 5, aff'd, 144 482 (C.A.6th Cir.), acq. withdrawn, 1955—1 7.10 purchased 'Accumulative Installment Certificate' providing $1,500 return $20,000 end years. certificate gradually cash surrender values. received relying long-term Act 1938, c. 289, 52 Stat. 447, half profit Acting theory registered 117(f), sought increment arising out transaction entered into profit. Tax upheld taxpayer, finding within meaning 117(f) provision identical Code,11 discussion best opaque.12 acknowledged presents true aspect gain' 'Congress might made differentiation urged since difficult perceive practical taxing type involved here (as) consideration amounts in. *' F.2d, 484. Nevertheless words 'amounts holder retirement' unsusceptible partition, including which, principal amount, gain. 12 unambiguously itself 'amount' retirement broken down component parts. inconsistent expressed Williams McGowan, 152 570, 162 A.L.R. 1036 approved 552, 853, plainly mean comminute elements business; regard whole assets." 572. having erroneously read sources redemption. Paine 23 391, 401, reversed grounds, 236 398 (C.A.8th Cir.); Stanton 34 1; 3B Mertens, Law Federal Taxation 184—186, 378—381 (Zimet rev.). addition withdrawing acquiescence Caulkins, rejected interpretation subject apportionment principles. Rev.Rul. 119, 1953—2 95; 55—136, 213; 56—299, 1956—1 603. To extent Court's rested, indicates, reading require redemption sale, odds purpose, alike redemptions sales exchanges securities coupons attached, extend class assets. supra. Such interpretation, benefit transactions involved, underlie justification logic history, even reject meaning, however supported acquiescense. Finally, notwithstanding acquiescence, what little contrary Caulkins. I.T. 1684, II—1 (1923). concept altering effective rate 'esoteric derived subtle theoretic analysis.' Old Colony 284 561, 211, 214, For, despite expressions indicating view,13 often recognized Mission Portland Cement Helvering, 293 290, 55 158, 159, 79 367, example, 'no open amortized deducted separate single taxpayer.'14 radical changes accumulated consistent this. For bonds dates seller bonds. 3175, 1938—1 200. 'flat' defaulted excess attribution arrearages price, requirement portion 1954. Fisher 513 Jaglom 303 847, propriety present evident; unlike suggestion full will maturity. reasons hold 15 Reversed. plaintiff, Industrial Rayon Corporation, merged Midland-Ross Corporation 1961. During 1952, 1953, Industrial's idle funds used purchase notes, varying $500,000 $2,000,000, General Motors Acceptance Commercial Investment Trust Company Credit Company. most instances calculated yield 2% 1/2% basis maturity, approximated date. contended fluctuations passage time. Real Estate America 334 986 (C.A.1st petition writ certiorari pending, 620; Dixon 333 1016 affirmed, 68, 1301; Rosen 658 (C.A.3d States Harrison, 304 835 (C.A.5th Morgan, 272 936 (C.A.9th Pattiz Sttates, 311 947, 160 Ct.8cl. 121; Schwartz 40 191; Leavin 37 766; Gibbons 569. 'Sec. 117. Capital Gains Losses. '(a) Definitions.—As chapter— '(1) assets.—The assets' means *.' Our disposition makes unnecessary decide questions raised argument, intimate view: (1) do reach report final obligation; (2) varied significantly holding period, 'market discount' post-issue purchases price plus ratable distinguished anticipated increase mere 'Sale exchange.— '(A) (As amended 50(a), Technical Amendments 1958, Pub.L. 85—866, 72 1606) rule.—Except subparagraph (B), exceed— '(ii) bears ratio (as subsection (b)) number complete months evidence 'shall Gain months.' 1232(b) defines 'original difference construction statute. particular, imply Commissioner's implicit contention acquired 42. Period Which Items Gross Included. '(b) Noninterest-bearing Obligations Issued Discount.—If, owning fixed intervals described paragraph (d), occurring (under method accounting computing net income) constitute year, may, beginning 1940, year. owned first applies, acquisition day '(c) Short-Term Basis.—In possessions, State Territory, political subdivision thereof, Columbia, payable without exceeding issue, originally sold, disposed of.' less, simplification recognizing outweighed possible shifting years At excluded definition 117(a)(1)(D) Code, avoiding separating rather exclusion 1221(5) 201. Insurance Companies. '(e) Amortization Accrual Discount.—The deduction section 201(c)(7)(A) credit allowed against 26(a) decreased appropriate amortization increased bonds, debentures company. regularly employed company, reasonable, cases regulations prescribed approval Secretary. 207. Companies Marine. '(d) (b)(4)(A), company imposed section. cases, Secretary.' 1964, 228, 19, 98—99, amending 818(b), 822(d) S.Rep. 830, 88th pp. 122—124 Congressional Administrative News, 122-124, detailed explanation. consider decisions earlier law. respect claim he relied detriment 1301. 'Retirement Bonds, Etc.—For chapter, debentures, certificates corporation (including those thereof), form, therefor.' follows: 'Prior 1934, issuing fulfillment contractual repay terms Fairbanks 436 (59 607, 855); Felin Kyle (3 102 Fed.(2d) 349; John H. Watson, Jr., 27 B.T.A. 463; Arthur E. Braun, Trustee, 29 1161; Cobbs, 39 642; review dismissed, 111 644. appeared 1934. McClain 527 (61 373, 319), Supreme said: 'It plain intended new sub-section (f) take bad debt place them category losses.' tribunal parity reasoning revenue act connection obligations. William Noll, 43 496.' T.C., 660—661. unclear related essentially uncontested question, meant apply beyond narrow confines 117(f). 76—79, 1306—1308. See, e.g., New York Edwards, 271 109, 116, 46 436, 437, 70 859; Though said taken here, equally borrower. Union Pacific 282, 285, 288, 165, 166, 168, 363; Western Maryland 33 695, 696 (C.A.4th Longview Hilton Hotel 180, 182.

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