Legal Document

333 U.S. 496 68 Supreme Court Reporter 695 92 L.Ed. 831 COMMISSIONER OF INTERNAL REVENUEv.SOUTH TEXAS LUMBER CO. Number 384. Argued Jan. 14, 1948. Decided March 29, Rehearing Denied May 3, Mr. Lee Atlantic Jackson, of Washington, D.C., for petitioner. Charles C. MacLean, Jr., New York City, respondent. Justice BLACK delivered the opinion Court. 1 This case raises a question as to respondent's liability taxable year 1943 under Excess Profits Tax 1940, amended. 54 Statutes-at-Large 975, 26 United States Code KF62 § 710 et seq., Annotated KF65 U5 Int.Rev.Code, seq. The law was passed tax abnormally high profits due large governmental expenditures about be made from appropriations national defense.1 excess graduated surtax upon portion corporate income, and imposed in addition regular income tax. It applied all gains over above what Congress deemed fair normal return business taxed. 2 Under controlling amount subject this is computed by subtracting net earnings taxpayer's return.2 deductible amount, called credit, one two ways, whichever resulted lesser 712. first, not used here, permits deduction an equal company's average years 1936 1939 inclusive. 713. second, 8 per centum invested capital year.3 714. An includable element 'invested capital' 'accumulated beginning such year.' 718. thus appears that method intended, with minor exceptions here relevant, impose on annual 8% corporation's working capital, including its accumulated profits. controversy claim computing statute allows it include profits' certain installment sales, which tapayer, accordance option conferred him, had elected report part prior years. 3 Beginning 1937 extending four-year period, respondent sold parcels real estate, gave deeds, took notes, were secured mortgages vendors liens. kept books generally calendar accrual basis accounting, obligations company applicable are listed expenditures, whether paid or not, incurred others set up same basis. 41, taxpayer may either basis, cash basis—under latter measured difference between actual received out within year. In any event, must, language 'clearly reflect income.' 4 Respondent did value land notes could have done 41. Instead, 1943, has consistently reported sales third, 'installment' expressly authorized types 44, 44. That section given only 'that proportion payments actually gross profit realized when payment completed, bears total contract price.' Thus been taxes along substantially modified receipts subjected both tax, these reflected unpaid balances them. On contrary, returns during 'Unrealized Profit Installment Sales.' 5 nevertheless Sales' shown at end 1942,4 included capital.' sought deduct theretofore designated 'unrealized profit' Commissioner redetermined after eliminating item sustained Commissioner's redetermination, 7 Reports KF6280 A2 U55 669, relying Kimbrell's Home Furnishings, Inc., versus Commissioner, 339.5 Circuit Appeals, Cir., 162 Federal Reporter, 2nd Series 866, justice dissenting, reversed authority decision Shenandoah Co., 138 792. Government's petition certiorari alleged result reached Appeals counter regulations longstanding practices recognized statutes judicial opinions, normally cannot accounting adjustments another. questions thereby raised importance administration we granted consider 6 A Treasury regulation, below,6 tax,7 specifically prv ides 'a corporation provided 44 shall, respect transactions, compute basis.'8 Since but another accrual, contends regulation invalid because inconsistent governing code provisions. Validity therefore crucial question. many times declared must unless unreasonable plainly revenue they constitute contemporaneous constructions those charged should overruled except weighty reasons. See, e.g., Fawcus Machine States, 282 375, 378, 51 144, 145, 75 397. harmony long-established congressional policy reporting deductions Such practice uniformly held inadmissible results distorted picture makes fail truly income. construction previous laws administrative officials, Board courts.9 9 regulation's reasonableness consistency incomes, also supported legislative history. present patterned similar provision 326(a) Revenue Act 1918, 40 1057, 1088, 1092. 'War-Profits Excess-Profits Tax.' Invested there 'paid earned surplus undivided profits.' Undert hat administration, courts taxpayer, having adopt thereafter distort his true uncollected base.10 chosen plan, spreading number avoiding rates, permitted obtain further reduction shifting plan treating though sale. 10 history adoption optional supports power involved. Prior 1926 right rested regulations.11 1925, without statutory support.12 promptly, 212(d) Act, U.S.C.A.Int.Rev.Acts, page 162, adopted elective Senate committee measure designating 'third basis.'13 new strikingly previously unauthorized Appeals. particularly intended broad rule-making manifested first words taxpayers take advantage 'Under prescribed approval Secretary * *.' clause still contained code. gives added reasons why interpretations clearly contrary will Congress. See Burnet S. & L. Bldg. Corporation, 288 406, 415, 53 428, 430, 77 861. 11 enacted, history, relieve who pay sale based full anticipated fact small price. Another reason difficult time-consuming effort appraising uncertain market obligations.14 There no indication however, passage contemplated taxpayers, their own means denied other whereby could, taxb le transaction, 12 We find nothing here. Wheeler, 324 542, 65 799, 89 1166. 13 argued notwithstanding said, enacting 501 1940 Second 974, 1004, 115(l) U.S.C.A.Int.Rev.Code, 115(l), definition 'earnings includes conflicts 115(l),15 alike taxes. least accept argument. place, neither nor purports alter Commission's promulgate reasonable require use reflects hybrid urged would accomplish result. 14 second interpretation 115(l). He argues derived property defined considered light §§ 111, 112, 113; sections together define gain 'realized' 'recognized' sale; purchasers assumed worth face value; 111(c), consequently, compelled lawfully purposes, even purposes. Finally merely privilege defer tax-'recognized' until collected. 15 reports do provide support idea so long might entered into computations different accounting.16 Furthermore, 113, 'recognition' paper. 111(b) does loss shall 'sum money plus (other than money) received' 111(c) provides extent determined 'under provisions 112.' But 111(d) 111 'shal construed prevent (in providing installments) taxation representing received.' where validly section, 113 prescribes Section 'in Unlike recognize 'market value' deferred obligations. They never purposes paid, part. if transferred before payment. whatever meaning conflict 113. 16 valid. can equity already receipt. 17 Reversed. 18 DOUGLAS BURTON dissent. H.R. 2894, 76th Cong., 3d Sess., 1—2. Other material provided, chief 'aj ustment' noted above. straight figure several respects 1941 subsequent 55 699, 56 911, 58 55. unrealized preceding calculating credit carryover 710(c). Kimbrell subsequently contention urged. 159 608. 29.115—3 Regulations 111: 'Earnings Profits. determining (whether year, 1, 1913) consideration facts, and, while mere bookkeeping entries increasing decreasing conclusive, dependent properly employed For instance, keeping filing 42, 43 disbursements profits; basis; terms subchapter dealing subchapter. 728. 112 provided: '* general, concept purpose tax.' 35.718—2. H.R.No.2894, amendment Reg. 103, 19.115—3, now Law. Decision 5059, July 8, 1941. G.C.M. 2951, VII—I Cum. Bull. 160 (1928); I.T. 3253, 1939—1 Cum.Bull. 178; Appeal Consolidated Asphalt B.T.A. 79, 82; Henry Reubel, Executor, 676, 678—680; baron Todd, 762, 766; Bank Hartsville, 920, 921; Coast Line R. 892, 894, 895; Anderson, 269 422, 440, 46 131, 134, 70 347; Jacob Bros. Com'r, 50 394, 396; Jenkins Bitgood, 22 F.Supp. 16, 17, 18, affirmed, 101 17. Schmoller Mueller Piano 67 Ct.Cl. 428; John M. Brant 126, 69 516; Standard Computing Scale 52 1018, 72 619; 394; Tull Gibbs 48 148; Blum's, 737, 771; England Furniture Carpet 334; Green 508; Davidson Bros., 21 638, 644; Street Pleasant Valley Passenger 24 262, 266. Article 117 33 (Revised) promulgated 2, 42 45, April 1919. 762; Haw. Hawai‘i KFH45 Graves 859; Hoover Bond 929; Six Hundred Fifty West End Avenue 958. S.Rep.No.52, 69th 1st 19, Finance Committee's 1926, 9, 23. Sess. 19; Willcuts Gradwohl, 587, 589, 590. provides: 'The disposition corporation—* '(2) computation period February 28, 1913, using adjusted (under made) gain. 'Gain increase decrease to, beyond, made.' Conference Committee said reference 115(l): House bills, made, retained. As subsection term relates pursuant law, example, see Internal Code. relate lossess disallowed taken account.' Conf.Rep.No.3002, 60.

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