Document: 394 U.S. 678 89 S.Ct. 1379 22 L.Ed.2d 642 UNITED § ATES, Petitioner,v.SKELLY OIL COMPANY. No. 280. Argued Jan. 15, 1969. Decided April 21, Rehearing Denied June 2, See 395 941, 1992. Sol. Gen. Erwin N. Griswold, for petitioner. Robert J. Casey, New York City, respondent. Mr. Justice MARSHALL delivered the opinion of Court. 1 During its tax year ending December 31, 1958, respondent refunded $505,536.54 to two customers over charges during six preceding years. Respondent, an Oklahoma producer natural gas, had set prices earlier years in accordance with a minimum price order Corporation Commission. After that was vacated as result decision this Court, Michigan Wisconsin Pipe Line Co. v. Comm. Oklahoma, 355 425, 78 409, 2 412 (1958), found it necessary settle number claims filed by customers; repayments question represent settlements those claims. Since claimed unrestricted right sales receipts 1952 through 1957, included gross income The amount also respondent's 'gross from property' defined 613 Internal Revenue Code 1954, section which allows taxpayers deduct fixed percentage certain compensate depletion resources they derive income. Allowable recipts oil and gas wells is at 27 1/2% property.' Commissioner allowed deductions these years, added allowances would otherwise have been entitled. Accordingly, actual increase taxable attributable not $505,536.54, but only $366,513.99. Yet, when made refunds attempted full $505,536.54. objected assessed deficiency. Respondent paid and, after claim refund disallowed, began present suit. Government won District 255 F.Supp. 228 (D.C.N.D.Okl.1966), Court Appeals Tenth Circuit reversed, 392 F.2d 128 (1968). Upon petition Government, we granted certiorari, 393 820, 121, 21 92 (1968), consider whether 'the practical equivalent double deduction,' Charles Ilfeld Hernandez, 292 62, 68, 54 596, 598, L.Ed. 1127 (1934), conflict past decisions sound principles law. We reverse. I. problem out-growth so-called 'claim-of-right' doctrine. Brandeis, speaking unanimous North American Oil Consolidated Burnet, 286 417, 424, 52 613, 615, 76 1197 (1932), gave doctrine classic formulation. 'If taxpayer receives earnings under without restriction disposition, he has received required return, even though may still be entitled retain money, adjudged liable restore equivalent.' Should later appear keep Brandeis explained, deduction repayment; taxes due receipt affected. This approach dictated Congress' adoption annual accounting system integral part code. Burnet Sanford & Brooks Co., 282 359, 365—366, 51 150, 152, 75 383 (1931). Of course, benefit repayment might differ receipt; example, rates ight changed, or different 'bracket.' Healy Revenue, 345 278, 284—285, 73 671, 675, 97 1007 (1953). But originally formulated, discrepancies were accepted unavoidable consequence system. 3 Section 1341 1954 enacted alleviate some inequities Congress felt existed area.1 H.R.Rep. 1337, 83d Cong., 2d Sess., 86—87 (1954); S.Rep. 1622, 118—119 (1954), U.S.Code Cong. Admin.News, p. 4629. As alternative repayment2 prior law allowed, 1341(a)(5) permits recompute their receipt. When ever applies, current are reduced increased because disputed items Nevertheless, clear did intend tamper underlying claim-of-right doctrine; provided cases new favored taxpayer. advantageous taxpayer, old apply 1341(a)(4). 4 In case, parties stipulated does apply. courts below recognized, must computed 1341(a)(4) thus, effect, regard special relief enactment 1341. argues, seems held, language used requires customers. think no such significance. 5 describing situations 1341(a)(2) talks 'a allowable established close (the receipt) item * *.' 'item' referred first mentioned 1341(a)(1); imply any way 'deduction' necessarily equal amount. fact, use words deduction' placement subchapter Q—the dealing largely side effects system—make refer other portions discover how much allowable. regulations promulgated make necessity cross-reference clear. Treas.Reg. on Income Tax (1954 Code) 1.1341—1 (26 CFR 1.1341—1). Therefore, 1341(a)(4)—the subsection applicable here—speaks referring 1341(a)(2); determined, mechanical equation income, reference sections case developed sections. II. 6 There dispute between about deductible losses 165 business expenses 162.3 Although distinction relevance, cf. Equitable Life Ins. Iowa United States, 340 9 (C.A.8th Cir. 1965), do makes difference here. either should interpreted allow absent declaration intent Congress. States Ludey, 274 295, 47 608, 71 1054 (1927). avoid allowance inclusion later-refunded Any total $1.27 1/2 every $1 7 Under Code, each year's definitively calculable end year. 'It essence taxation produce revenue ascertainable, payable government, regular intervals.' supra, 365, 152. arising doctrine, emphasis period normally consequences determine size repayment. requirement save exact supra. 8 concept require us our eyes what happened For instance, well settled examined gives rise loss capital loss. Arrowsmith 344 6, 71, (1952). rationale rule easy see; if money taxed lower rate received, accorded unfair windfall generally higher ordinary unwilling infer intended result. really different.4 essence, producers 72 whenever depletion. remainder reality exempt. cannot believe give refunding received. Cf. O'Meara Commissioner, T.C. 622, 634—635 (1947). teaches cannot, circumstances deduction. 10 violence Here, Arrowsmith, returns being reopened. And attempt savings years.5 addition, here adopted will affect few cases. quite unusual; unlike most portion go untaxed. result, increases amounts right; there corresponding decrease repayments.6 100% time repaid profit refunded. benefits repayment, may, depending circumstances, beneficiary. always wins loses. inequitable 11 judgment $20,932.64 plus statutory interest unrelated matter controversy here; entered reversed remanded court instructions returned re-entry original judgment. 12 Reversed remanded. 13 DOUGLAS, dissenting. 14 I share STEWART's views add nly word. 15 If sat chancery reviewing cases, says appeal. sit equity cases; one main concerns. 16 search laws wondrous elusive. Edmond Cahn said: '(T)hose whom elected equalize.' E. Cahn, Sense Injustice (1949). 17 Percentage roots granting reward men who into undeveloped territory gas. today anyone gas; beneficiary need live life wildcatter bear his risks obtain 18 comes gains 'equities' applied? Is fair earned pay heavier tax? 19 A son spends $1,000 destitute father get same pays like sum alma mater. Louis Eisenstein pursues example book Ideologies Taxation (1961). profits sale unbred pigs while once bred gains. Id., 174. true turkeys chickens, chicken turkey similarly situated. Each feathers legs.' Ibid. 20 Treasury recently noted numerous basic resulting preferred treatment people's dollars. Reform Studies Proposals, Dept., Joint Publication House Committee Ways Means Senate Finance, 91st 1st pt. 1, pp. 13, (Comm. Print 1969). Apart aspects long-term exclusion state local government bonds. examples legion. study unusual example: 'An individual $1,284,718 $1,210,426 gains, remaining $74,292 wages, dividends, interest. He excluded one-half law, thereby reducing (adjusted gross) $679,405 (after allowing $100 dividend exclusion). From subtracted all personal deductions, amounted $676,419 $587,693 funds borrowed presumably purpose purchasing securities earned. $1,200 exemptions $1,786 $274. His overall rate, therefore, two-hundredths percent.' 15. 23 possible using taxpayer's against subject tax, ignoring part. 24 indeed arbitrary; lines draw products pressures inside compromises carrying day. 25 held properly income' 1958 'an right' 'portion item,' exceeds $3,000—all 1341.1 Skelly Cir., 128, 131. 26 irregularity face return. Appeals. asked, however, put gloss statute desires. adhere construction given leaving correction scheme. many ago created Taxation, standing committee. U.S.C. §§ 8001—8005, 8021—8023. One mandates '(t)o investigate operation Federal internal taxes.' 8022. connection recent report states: 28 '(T)he staff committee liaison Department working proposals aids committees explaining provisions, writing reports, aiding drafting bills.' 29 reports revision laws. Inequities arise interpretations existing administrative judicial level can quickly corrected agency oversight.2 30 unhappily habit jockeying courts, testing theory another. California, take position Massachusetts opposite position, issue same. hope conflicts litigious important issues develop brought here.3 31 trained art science taxation, serve useful function. specialty sporadic continuous experience. It said 'lightning bolt' 'illuminates very small landscape,' darkness remove. R. Paul, 249—250 (3d series 1940). Our contributions, called, dubious indeed, rewrite frequently. 32 therefore rare case4 consider, except rarer constitutional case. overtones; followed literally, strained find advantage; decision. Solicitor General reached fit neat logic finds group related 33 An account cost, confusion, inequity administration ensues everyone waits among Circuits (which takes least years) Need Appeals, 57 Harv.L.Rev. 1153 (1944). role presently play stated follows: 34 'Our adjudication inevitably leaves nearly uncertain entire dealt with, usually thousands instances, officers. yet just authoritative work smoothly, effectively, speedily, fairly, discrimination. delay discrimination typical inevitable.' 1161. 35 absence unmistakably Circuits, abide opinions Courts leave now tries desirable. 36 STEWART, DOUGLAS HARLAN join, 37 denies fairly discernible reasons than that, written, loses,'1 cases.' Ante, 686. free, abandon merely thinks 'inequitable result.'2 38 general equitable considerations control measure cuts both ways. strict lavish benefits. formula writes arbitrary harsh applications. where within sought harmony organic whole, withheld unexpected windfall.' Lewyt Corp. 349 237, 240, 736, 738, 99 1029. 39 reading 1341, apparent believed described 1341(a)(1). understanding manifest o legislative history,3 inference pre-1954 concedes codify. area previously decided considered exactly item. sharply congressional focus conceded hesitation 'entitled 284, 1007. Lewis, 590, 591, 522, 523, 95 560. That express since 1936,4 cited single instance deviation understanding. 40 alone controlling 'it allowable.' 683. agree context 'organic whole.' provisions manner bolster Court's argument. assumes, correctly, 162 permit refund. not, suggest sections—or provision—limits undeniable Instead assumes broad authority weed out calls 'double deductions'—a characterization wholly inapposite facts 41 disallowing truly deductions,' relied evident indications, own view equities, preclude second enefit twice deduction.5 contrast, taken distinct purposes. 1957 deducted proper depletion—a 'on extraction minerals gradually exhausts investment mineral deposit,' 'designed recoupment owner's so exhausted, unimpaired.' Southwest Exploration 350 308, 312, 395, 397, 100 347. entirely reason reported constituted loss, expense. effect unrelated, sustainable merits. Certainly fact exhaust assets suffer 42 sole nexus transactions constructs property. distinguish cost perhaps less 1/2%, more—which Whether manner, reduces ultimately taxed. whose function With respect standard 10% deduction, 141, charitable 170, medical expenses, 213, doubtless frequent. ruling today, repays took above reduce previous ributable Surely contravenes prevent recomputations tax. 43 'for received.' 685. means nothing seeks year, which, whatever reason, Otherwise precisely kind 44 wrought major transformation heretofore recognized 1341(a) (4). permitted because, 'was year' (emphasis added), answer say 'annual years.' 684. course look ascertain nature bears provision 6.6 adjustments reflect item's 45 'Congress counted up disruptive orderly collection done again events occurring made, violate spirit principle changed simply advantage particular followed.' 675. 46 factors, addition changes brackets, adherence embodied extent subsequent offset inconsistent pare down bracket Because sensibilities empower depart specifically endorsed respectfully dissent. provides: 'If— '(1) (or appeared item; '(2) '(3) $3,000, 'then imposed chapter shall lesser following: '(4) deduction; '(5) to— '(A) minus '(B) laws) solely thereof) years). 'For purposes paragraph (5)(B), 1939 code (other E, relating self-employment income) E code.' 1341(b)(2) contains covering involving stock trade inventory. However, regulated public utilities, inapplicable accordingly, applies. accrual-basis history accrual. 83 A294 451—452 (1954). long G.C.M. 16730, XV—1 Cum. Bull. 179 (1936). analogy more striking utilized 1201 Code. Where 25% used, 50% 1202. situation, prevents deducting treating rather policy behind Here Compare analogous 'tax benefit' rule. Alice Phelan Sullivan 381 399, 180 Ct.Cl. 659 (1967); see 111. keeping analogy, indicated seek directly indirectly Proposed 1.613-2(c)(8), Fed.Reg. 10702 10703 STEWART'S dissent, post, 697, differs adjusted 141; 213. cause assuming character calculating 62. reads (a) If— *which Perhaps egregious error my (one partial blame), Helvering Hallock, 309 106, 60 444, 84 604, written Frankfurther overruled St. Trust 296 39, 56 74, 80 29, Becker Union 48, 78, 35. type left Committee. 449—450 validity Regulations re-enactment them questions. Wilshire 308 90, 18, 101; South Texas Lumber 333 496, 68 695, 831; Stidger, 386 287, 87 1065, 53. designed create situation loses.' Strict before sometimes benefited Government. retains recomputation method greater saving. Judicial assumptions liberal particularly suspect depletion, generous recipients mind drafted bill coverage inventory sales. promptly removed utilities following remarks: 'Your committee's provides pertaining exclude utility regulatory body, Power clear, approved temporarily eligible section.' 118 Reports indication thought They interchangeably. becomes thereof longer use, excess removal item, whichever greater. Lewis (340 522 (95 560) (1951)), 'In cash-basis repaid. accrued never applies accrues although is, repaid.' n. 451. Cum.Bull. 179, 181 (1936): instant disposition. On herein, office eliminated 1928 1929 inclusion), paid, (Emphasis supplied.) Mertens, Law 12.106a, 431 (P. Zimet Stanley rev. ed. 1967). 1127, 1054, involved tried twice. consolidated returns, subsidiaries; subsidiaries' sold companies dissolved, parent subsidiaries. 'The parent) reduction income,' 'nothing Act purports authorize U.S., S.Ct., 598. Ludey mining properties; properties question, computing gain sale, adjust basis property deductions. allowances, depreciation, recognition asset disappearing disposed of, thing then whole acquired. depreciation final properties. decuction assets.' 301, 610. recognizes, ante, 685, 4, hold fell definition 'capital losses' contained authorizing point comparable affecting

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