Document: 485 U.S. 212 108 S.Ct. 971 99 L.Ed.2d 183 ARKANSAS BEST CORPORATION, Petitionerv.COMMISSIONER OF INTERNAL REVENUE. No. 86-751. Argued Dec. 9, 1987. Decided March 7, 1988. Syllabus Under § 1221 of the Internal Revenue Code, term "capital asset" means "property held by taxpayer (whether or not connected with his trade business), but does include" five specified classes property. Between 1968 and 1974, petitioner, a diversified holding company, acquired approximately 65% bank's stock. The bank was apparently prosperous until 1972, when federal examiners classified it as problem bank. In 1975, petitioner sold bulk stock at loss, which claimed an ordinary-loss deduction on its income tax return for that year. Commissioner disallowed deduction, finding loss capital rather than ordinary loss. Tax Court, relying cases interpreting Corn Products Refining Co. v. Commissioner, 350 46, 76 20, 100 L.Ed. 29, that, since through 1972 purchased substantial investment purpose, asset under therefore gave rise to sold; however, realized after subject treatment had been bought exclusively business purpose protecting petitioner's reputation fending off failure. Court Appeals reversed latter determination, ruling all in 1975 capital-loss treatment. Held: A taxpayer's motivation purchasing is irrelevant question whether falls within broad definition 1221. Petitioner's reading authorizing ordinary-asset any purposes too expansive. That finds no support 1221's language, mention business-motive test, direct conflict asset. Similarly, contention listed exceptions are merely illustrative exhaustive refuted statute's "does phrase, legislative history applicable Treasury regulation. Moreover, would make surplusage three statutory exceptions, whose excluded property undoubtedly satisfy test. must instead be interpreted standing narrow proposition "hedging" transactions integral part business' inventory-purchase system fall first exception . properly included [taxpayer's] inventory." Since dealer securities, has never suggested inventory exclusion, application present context. Because outside property, arising from sale Pp. 216-223. 800 F.2d 215 (CA 8 1986), affirmed. MARSHALL, J., delivered opinion other Members joined, except KENNEDY, who took consideration decision case. Vester T. Hughes, Jr., Dallas, Tex., petitioner. Alan I. Horowitz, Washington, D.C., respondent. Justice MARSHALL Court. 1 issue presented this case Arkansas Best Corporation (Arkansas Best) defined Code regardless purpose. 2 * company. National Bank Commerce (Bank) Texas. 1969 more tripled number shares owned Bank, although percentage interest remained relatively stable. These acquisitions were prompted principally Bank's need added capital. Until appeared growing, necessary accommodate growth. As Dallas real estate market declined, so did financial health heavy concentration loans local industry. infusion loan portfolio problems 3 Petitioner June 30, leaving only 14.7% stake Bank. On $9,995,688 resulting limitations Code.1 4 challenged Commissioner's determination United States 29 (1955), which, sold, gives gain whereas without motive, gains losses. See 83 T.C. 640, 653-654 (1984). court characterized Best's occurring during " 'growth' phase," found these "were motivated primarily incidentally some purpose." Id., 654. period constituted asset, 1975. determined, occurred 'problem' ibid., and, certain minor made subsequently same reasons." 656. acquisitions, found, designed preserve reputation, because probably have failed. 656-657. thus 5 Eighth Circuit Court's treatment, (1986). reasoned clearly fell general 1221, specific definition. concluded acquiring We granted certiorari, 480 930, 107 1564, 94 757, now affirm. II 6 Section defines broadly business)," then excludes capital-asset status. form,2 exempted (1) kind taxpayer"; (2) depreciable used business; (3) "a copyright, literary, musical, artistic composition," similar property; (4) "accounts notes receivable course services rendered" inventory; (5) publications Federal Government. acknowledges literal exclusions. It asserts, end inquiry. argues supra, rejected assets should given much academic literature3 courts.4 Unfortunately language 7 essence, business)" include view asset's status "property" turns behind acquisition. This motive nowhere mentioned also parenthetical phrase "whether business." explicitly makes property's connection business, rule factor dispositive.5 related argument, contends kinds illustrative, exhaustive, courts free fashion additional order further provisions. statute refutes construction. provides taxpayer[,] exceptions. believe locution signifies exclusive. body establishes asset," takes out specifically mentioned. supports interpretation, see H.R.Rep. 704, 73d Cong., 2d Sess., 31 (1934) ("[T]he includes excluded"); 1337, 83d A273 (1954), U.S.Code Cong. & Admin.News 1954, pp. 4017, 4415 ("[A] exceptions"), regulation, 26 CFR 1.1221-1(a) (1987) ("The 'capital assets' section 1221"). 9 tension exclusions largely superfluous if assets. Inventory, accounts such Yet created Congress separate enactments spanning 30 years.6 Without express direction Congress, we unwilling read manner 10 end, places reliance (1955)—a Products, considered dealings corn futures entitled capital-gains company converted into starches, sugars, products. After droughts 1930's caused sharp increases prices, began program buying assure itself adequate supply protect against price increases. id., 48, S.Ct., 22. "would take delivery contracts manufacturing operations sell remainder early summer shortage imminent. If shortages appeared, spot grinding." 48-49, 22-23. company's dealing "hedging." 51, 24. explained "[h]edging method commodity whereby person protects fluctuations time product sells buys." 513, 515 (CA2 1954). evaluating claim sales resulted losses, stated: 11 "Nor can find hedging [§ 1221]. Admittedly, do come set section. They trade, actual inventory, customers business. But provision 1221] applied defeat Congress. intended profits losses everyday operation y(3)27 normal requirements narrowly broadly." U.S., 51-52, 23-24 (citations omitted). 12 went note consistently give 52-53, 24-25. 13 proffered oft-quoted construction broadly, state based taxpayer," exclusion light stark involving exception. Such consistent both reasoning stated "an increase principal raw material ready future requirements." 50, 23. bought, required needs. Professor Bittker notes, circumstances, "easily viewed surrogates itself." B. Bittker, Taxation Income, Estates Gifts ¶ 51.10.3, p. 51-62 (1981). Second approach. "utilized solely stabilizing cost[,] [they] cannot reasonably separated items," comes 1221]." F.2d, 516. indicated acceptance Circuit's central paragraph opinion: following paragraph, argued form insurance stabilize cost cited value manufacturer's raw-material adjusted account contracts. 24-25 (citing G.C.M. 17322, XV-2 Cum.Bull. 151 (1936)). discussion, plain convinces us "actual inventory," their use led treat them substitutes they came taxpayer" 14 focusing attention operations, create exemption purposes. misunderstands relevance connection, initial item relevant determining applicability including close between crucial could stored corn. For system, amounted simply speculation futures, even exclusion. conclude 1221.7 Best, 15 important test advocated abuse condemned Products. unless taxpayers engaged "transmute will." 53-54, hedger garner selling market, taking contract. vein, significant influence over receive most naturally Service hard pressed challenge investment, gain. Indeed, unaware single require report may able emphasizing stock's potential evidenced fact late still hoped profit, expected T.C., 647-648. III 16 asset." status, interpret Accordingly, judgment 17 ordered. 18 KENNEDY Title U.S.C. 1211(a) states "[i]n corporation, exchanges shall allowed extent exchanges." 1212(a) rules governing carrybacks carryovers permitting offset earlier later years. stock, contained different (5), debt obligations. 1221(5) (1970 ed.). repealed Economic Recovery Act 1981, Pub.L. 97-34, 505(a), 95 Stat. 331. Reform 1976, 94-455, 2132(a), 90 1925. changes bearing See, e.g., (1981); Chirelstein, Capital Gain Sale Business Opportunity: Income Treatment Contract Termination Payments, 49 Minn.L.Rev. 1, 41 (1964); Troxell Noall, Judicial Erosion Concept Securities Assets, 19 L.Rev. 185, 187 Note, Doctrine Its Application Partnership Interests, 79 Colum.L.Rev. 341, n. (1979). Campbell Taggart, Inc. States, 744 442, 456-458 (CA5 1984); Steadman 424 (CA6), cert. denied, 400 869, 91 103, 27 109 (1970); Booth Newspapers, 157 Ct.Cl. 886, 893-896, 303 916, 920-921 (1962); W.W. Windle 65 694, 707-713 (1976). mistakenly relies applying "construed asset' exclude representing items accretions themselves attributable income," though sense word. Midland-Ross Corp., 381 54, 57, 85 1308, 1310, 214 (1965). Gillette Motor Co., 364 130, 80 1497, 1617 (1960) ("capital compensation awarded represented fair rental facilities); P.G. Lake, Inc., 356 260, 78 691, 243 (1958) proceeds oil payment rights); Hort 313 28, 61 1168 (1941) lessor cancellation unexpired portion lease). line cases, premise claims rights income, income. original enactment 1924. 1924, ch. 234, 208(a)(8), 43 263. Depreciable 1938, 289, 117(a)(1), 52 500, 1942, 619, 151(a), 56 846. 1954. 1221(4), 68A 322. Although congressional inaction generally poor measure intent, pause 25 years passed initially excluding 916 (1962), sign disfavor ignore unambiguous matter how reticent been. purposes, action, silence.

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