Legal Document

384 U.S. 102 86 Supreme Court Reporter 1311 16 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 398 UNITED STATES, Petitioner,v.John CATTO, Jr. et al. Number 535. Argued March 22, 23, 1966. Decided April 26, Rehearing Denied June 6, See 981, 1857. Jack S. Levin, Washington, D.C., for petitioner. Claiborne baron Gregory and Gordon G. Hawn, San Antonio, Tex., respondents. Mr. Justice STEWART delivered the opinion of Court. 1 The question presented in this case is whether taxpayers engaged livestock business who use an accrual method accounting animals raised sale may employ a cash breeding purposes, order to take advantage federal income tax benefit available cash-method when are sold. 2 respondents ranchers raising sale. As important element their business, maintain herds used purposes. During taxable years question, sold from reported gains sales accord with they had elected overall ranching operations. Subsequently, filed claims Commissioner Internal Revenue partial refunds, on ground that were entitled more advantageous calculating gain livestock. rejected claims, brought suit obtain refunds. Their sustained by District Court,1 judgments affirmed Appeals Fifth Circuit.2 We granted certiorari resolve conflict among Circuits.3 now reverse Appeals. 3 Section 1231 Code 1954, 26 KF62 § 1231, (1964 ed.), provides certain circumstances property taxpayer his trade or be treated purposes as long-term capital gains. 1231(b)(3) makes section specifically applicable held purposes.4 No challenge here classification within meaning provision. Our sole concern measure respondents' gain. 4 Each 'unit-livestock-price' variant over-all operation.5 Under method, classified inventory age kind assigned standard unit price each class. Both lumped together inventories, same prices employed both types By multiplying number class class, opening closing valuations readily calculated year. 5 Treasury Regulations grant current deduction expenses incurred livestock, without regard either purpose which taxpayer.6 For have accounting, course taken against ordinary year expense paid. Since, result, adjusted basis at time zero, entire proceeds 6 Because mechanics respondents, however, deductions offset annual increments values not during year.7 was therefore equal accumulated values, only excess gain.8 Although lower than would reduction achieved cost annulling larger it been respect those animals.9 present required report accordance method.10 think error. 7 principal contention simply type asset properly includible inventory. Just manufacturers do put equipment inventory, so, claim, need place Therefore, say, deferral worked inventory-type assets under Treas. Reg. (hereafter Reg.) 1.61—4(b)11 completely inapplicable such because should never placed first place. result freeing procedure 1.61—4(b) enable benefits since 1.162—12 no longer 8 force, we believe evolution statute regulations demonstrates intended deferred accrual-method taxpayers. That interpretation legislative administrative history fully consonant logic, conclude prevail. 9 general long-standing rule all taxpayers, costs acquisition, production, development assets, other currently deducted, but must until sale, set off sale.12 principles therefore, expected charged account, even though accounting. 10 early 1919, response specific relatively simplified farm then existed, Secretary promulgated expanding authorize farmers crops animals.13 does appear arisen, hardly likely permitted ranchers, whom new designed, selectively apply any part herds. At these issued, two decades thereafter, taxed income.14 Thus, choice affected timing animals, serious distortion introduced livestock.15 Throughout period, distinction appears drawn between inventories maintained using sophisticated Indeed, 1922, contemplated included ranchers.16 11 In 1942, Congress added 117(j) 1939.17 section, progenitor 1954 Code, established treatment 'property business' taxpayer. language 1952 amendment left status doubt, ensuing nine found jockeying position animals.18 resolved controversy 1951 amending make clear accorded purposes.19 Predictably, encouraged attempts transfer Commissioner, refused permit changes where appeared motivation shift reap windfall ranchers.20 12 issue ultimately centers validity 1.471—6(f), requires 'taxpayer elects 'unit-livestock-price method' raised, * purposes.' provision neither arbitrary nor inconsistent revenue statute. unit-livestock-price soundly grounded accepted It has recognized laws valid approach 20 years.21 Moreover, practice indicates, production essentially same, provided convenient efficient estimates expenses. There can thus accurately reflected income. 13 Were concerned, solely applicability unable characterize Commissioner's refusal change seek. broad discretion shepherding methods taxpayers,22 uniform application operation reasonable exercise rested administration laws. 'It province court weigh determine relative merits systems accounting.' Brown versus Helvering, 291 193, 204—205, 54 356, 361, 78 L.Ed. 725; Lucas American Co., 280 445, 449, 50 202, 203, 74 538; Automobile Club Michigan Revenue, 353 180, 189—190, 77 707, 712—713, 746; Hansen, 360 446, 467, 79 1270, 1281, 1360; Schlude 372 128, 133—135, 83 601, 604—605, 633. 14 case, complicated substantial differential favor Department action require cashmethod capitalize livestock.23 contend so long dichotomy maintained, participate method. 15 cases legitimately refuse acquiesce transition not, course, obliged accommodate every fluctuation Helvering Wilshire Oil 308 90, 97, 60 18, 84 101; South Texas Lumber 333 496, 68 695, 92 831. assume arguendo particular mutations foster inequities great similarly situated could reject proposed unless exercised meaningful he selected contemporary inequity here. sought embrace operation. To contrary, ask subject propose retain advantages substantially distort economic picture operations.24 sacrifice accuracy represents historical concession provide unitary expedient bookkeeping system procedure. A concomitant special dispensation made favorable results whenever demonstrated intent accuracies itself thereby enabled avoid difficulties establishing actual desire divorced rationale available. combining attributes methods, seek fashion hybrid defeat goal providing clearly lay error accepting claims. Niles Bement Pond company States, 281 357, 360, 251, 252, 901; 503—504, 699—700; 1281; Little 294 Federal Reporter, 2nd 661, 664 (C.A.9th Cir.); Carter 257 595, 600 (C.A.5th SoRelle 22 Tax KF6280 A2 U55 459, 468—469. 17 reversed remanded Circuit further proceedings consistent opinion. 18 ordered. 19 Judgments remanded. Wardlaw 223 F.Supp. 631 (D.C.W.D.Tex.); Catto 663 (D.C.W.D.Tex.). Wardlaw, 344 225; Catto, 227. authority its prior decision Scofield Lewis, 251 128. But see 600—601 Cir.). Eighth Ninth Circuits contrary Ekberg, 913 (C.A.8th 661 relevant part: 1231. Property involuntary conversions. '(a) General rule. 'If, year, exchanges plus compulsory conversion (as destruction whole part, theft seizure, power requisition condemnation threat imminence thereof) months into money, exceed losses sales, exchanges, conversions, shall considered months. If losses, assets. '(b) Definition business. 'For section— '(3) Livestock. 'Such term also includes regardless age, draft, breeding, dairy him date acquisition. Such include poultry.' described Treas.Reg. 1.471—6, 1.471—6. Inventories raisers farmers. '(c) difficulty ascertaining products value according method.' '(e) valuation different classes animal raiser electing valuing adopt several will reasonably account normal producing classes. if cattle determines approximately $15 produce calf, $7.50 raise calf maturity, classifications follows: Calves, $15; yearlings, $22.50; 2-year olds, $30; mature $37.50. '(f) Once established, consistently applied subsequent inventories. approval Commissioner.' suggested 1.471—6(e) remained unchanged 1944. Decision 5423, 1945 Cum.Bull. 70. Appropriate Service are: $40; $55; $70; $85. Farmer's Guide, Publication 225, Page 33 (1966 ed.). 1.162—12: '* purchase feed connected insofar represent outlay *.' 1.61—4(b), gross measured sum less 1.162—12. computation accomplish subtracting goods effect simultaneously add unsold subtract animals. theory total effect, words, deductible, essence difference lies portion recovery rates gains, whereas offers route transmuted Mertens, Law Income Taxation 22.130, 569; Jamison, Planning Livestock Farming Operations, 1961 So.Calif.Tax Inst. 583, 599—607. extent, actually estimated valuations, themselves able transmute low steps: First, deducting treat sale; second, eliminating remaining achieving zero existing Even noted correction inordinate adjustment made, allocable bunched correction. 227, 229. Court, some that, alternative, yet might accomplished allowing accrued over five-year period. notes 8, supra. §§ 263, 471, 1011—1013, 1016(a)(1); 1.263(a)—2(a), 1.471—1, 1.1016—2. Cf. I.T. 1309, I—1 196 (1922). Doyle Mitchell Brothers 247 179, 183—187, 38 468—469, 62 1054; Spring City Foundry 292 182, 185, 644, 645, 1200; Snyder 295 134, 141, n. 4, 55 737, 740, 1351. Moen, Special Capital Gains Treatment Farmers, Ohio St.L.J. 32—41 (1956). rancher purchasers purchase. 3666, 1944 270; 45, Article 110 (April 17, 1919 ed.) (Revenue Act 1918) feeding live stock 1.162—12, note (Revised), 30, 404—405 1916, amended 1917). 1918 promulgated, Bureau did recognize specialized techniques approximating deferring maturity. Letter Chairman Senate Finance Committee, 27, 1952, 98 Cong.Rec. 8307, Commerce Clearing House Fed.Tax Rep. 6239. least explicitly adapted complexity 62, Arts. 38, 1586(2) (1922 1921). 21, infra. Favorable law 1921, continued Wells, Legislative History Tax, 1913—1948, Nat.Tax.J. (1949). utility escape precise Compare 1.471—6(c), supra, 5. addition, possessed flexibility determining realized. defects produced bunching inaccurate matching hand, involved chosen incremental amounts increased source deducted. 1586(1) chapter 619, 56 Statutes-at-Large 846, 151(b). 3712, 176; Ruling Aug. 1947 (1948 6091) (capital extraordinary herd size, culled disease); Albright 173 339 Cir.) cash-basis routine livestock); Fawn Lake Ranch 1139, appeal dismissed, 180 749 inventory); Bennett, 186 407 (breeding primarily sale); Mim. 6660, breeders full lives). 1951, 521, 65 452, 501, 324. amendment, carried forward extended six holding period before qualify lingering effort impose additional criteria concerning reproductive capacity Second Circuit. McDonald 214 341. hold validly occasion consider failure request permission attempt initiate after returns filed. 1.471—6(a). Release, 1953 Fed. 6191 (May 12, 1953), announcing withhold requests 21 formally 70, 111, 29.22(c)—6 1939 Code. appears, comparable estimating informally ranchers. 5790, 72. 7805; 446(a)—(c), (e); 471; 1.446—1(e)(2), 1.471—6(f). 1.471—6(f) procedure, availability depreciation maturity 1.167(a) 6(b). Also, purchased, rather 1.471—6(g). 23 stated foreclosed Regulation 13. Committee 'gains computed presently Revenue.' S.Rep. 781, 82d Cong., 1st Sess., 42, 1951—2 458, 488; H.R.Rep. 586, 32, 380, U.S.Code Cong. & Admin. 2012. (Emphasis added.) correctness Secretary's history, vulnerability postion Secretary. Similarly, grounds rest our decision, pass upon mandate case. 24 15,

Classification Label: 11