Document: 374 U.S. 65 83 S.Ct. 1663 10 L.Ed.2d 757 Benjamin BRAUNSTEIN et al., Petitioners,v.COMMISSIONER OF INTERNAL REVENUE. No. 476. Argued April 29, 1963. Decided June 10, Louis Eisenstein, Washington, D.C., for petitioners. Wayne G. Barnett, respondent. Mr. Justice HARLAN delivered the opinion of Court. 1 This case involves applicability 'collapsible corporation' provisions federal income tax laws which, during period relevant here, were set forth in s 117(m) Internal Revenue Code 1939.1 These require that under certain circumstances, gain from sale stock which would otherwise be considered as long-term capital gain, and accordingly taxed at a maximum rate 25%, must reported ordinary income. 2 The three taxpayers who are petitioners here became associated 1938 have since participated number construction projects, usually through corporations was equally divided.2 In 1948 received commitment Federal Housing Administration to insure loans multiple-dwelling apartment project Queens County, New York. Two formed carry out this project, each petitioner issued one-third corporation. After costs had been paid, an unused amount mortgage loan funds remaining, 1950 sold their profit, receiving part transaction distributions included funds. excess amounts over bases gains $313,854.17 each.3 3 Commissioner asserted deficiency, treating on ground 'collapsible' within meaning § 117(m). Tax Court sustained Commissioner, 36 T.C. 22, Appeals affirmed Court, 305 F.2d 949, holding (1) requisite 'view' property (see note 1, supra); (2) more than 70% realized by attributable constructed (id.); (3) applies even if buildings produced no formed. last response argument based theory similar adopted Fifth Circuit United States v. Ivey, 294 799. view conflict between decision below Ivey point, we granted certiorari, 371 933, 82 306, 9 270, stating grant limited following question: 4 "Whether Section 1939 (26 U.S.C.A. 117(m)), provides 'from or exchange * collapsible is taxable rather inapplicable circumstances where stockholders entitled capital-gains treatment they conducted enterprise individual capacities without utilizing corporation." 5 Briefly summarized, petitioners' runs follows: As legislative history shows, corporation code designed close loophole some persons able convert into use corporate form. For example, he held primarily customers course his trade business, any asset income;4 but same form construct property, intending sell completion construction, it least arguable prior enactment proceeds ultimate treatment. It devices frustrate, not intended inequitable effect converting what properly its absence Thus, argued, phrase 'gain such property,' used 117(m), apply only profit constituted utilized, cases made serve device avoidance. present case, neither nor business selling buildings, thus inapplicable.5 6 We concluded contentions rejected. Their wholly inconsistent with plain language find nothing purpose statute, indicated history, warrant departure case. I. 7 used, defines embracing one availed principally manufacture, production realization substantial net 'of property.' section then expressly year 'unless 70 per centum so manufactured, constructed, produced.' If meaning, word 'gain' these contexts simply refers cost basis, 'attributable to' merely confines consideration caused generated question. With definitions, makes eminent sense, terms operate limit application profiting soon after given fact property. 8 There structure demand justify reading additional requirement taxpayer using gain. owns asset, shareholders resulting increase value natural regardless desire, lack avoid bite taxes. II. Nor there anything lead us depart statute do. can question was, contend, Congress feared could See H.R.Rep.No.2319, 81st Cong., 2d Sess.; S.Rep.No.2375, Sess., U.S.Code Congressional Service 1950, p. 3053. But crucial point purposes method chosen establish carefully elaborately defined category transactions might treated indication whatever congressional desire courts make determination whether Indeed, drawing arbitrary lines involved—such making shareholder owning 10% less years construction—tends refute indication. our understanding, other words, define believed avoidance leave presence elements case-to-case basis. reinforced conclusion practical difficulties—indeed impossibilities—of considering guidance furnished has 'conversion' particular inquire individually owned, treat taxpaying differently look consider matter shareholders? basis judicial resolution question, indeed when addressed itself problem 1958, approved intricate formulation falling two extremes.6 11 further himself engaged varying ventures before court? Do pierce veils, extent share individual's investment, charge him being corporation? Again, rational answer; judgment essentially 1958 amendments enacted specific provision, deal matter, far too complex summarized here.7 12 examples should suffice demonstrate point: easier state answer, thorny issues may appear surface.8 either concluding enter thicket arrive ad hoc determinations every taxpayer. Accordingly, judgments affirmed. 13 Affirmed. 14 DOUGLAS dissents. added Act 212(a), 64 Stat. 934. amended 1951, 326, 502. reenacted change 341 1954, 68A 107, Technical Amendments 20(a), 72 1615, October 16, 1962, 13(f)(4), 76 1035. originally enacted, provided: '(1) Treatment shareholders. Gain (whether liquidation otherwise) corporation, (but subsection) months, shall, except provided paragraph (3), asset. '(2) Definitions. '(A) subsection, term means of, to— '(i) otherwise), distribution shareholders, manufacturing, constructing, producing derived '(ii) '(3) Limitations subsection. upon corporation— subsection shall unless, time commencement (i) owned (or owning) outstanding (ii) another corporation; '(B) recognized unless produced; '(C) expiration production. *' Petitioners Harry Neisloss builders; Braunstein, architect. wives parties virtue filing joint returns. agreed directly buyers together, entire buyers. Int.Rev.Code, 1939, 117(a)(1)(A). Government assumed does concede, 341(e), 1615. 341(e)(1)(C). emphasized particularly 'blatant' conversion because charging out-of-pocket 'petitioners contributed services create valuable corporation(s) stock.' concludes claim 'what ought (and, arm's-length transaction, been) compensation services.'

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