Legal Document

331 U.S. 694 67 Supreme Court Reporter 1477 91 L.Ed. 1750 McWILLIAMSv.COMMISSIONER OF INTERNAL REVENUE. McWILLIAMS' ESTATE et al. versus SAME. McWILLIAMS Nos. 945 to 947. Argued May 8, 1947. Decided June 16, Mr. John Atlantic Hadden, of Cleveland, Ohio, for petitioners. Arnold Raum, Washington, D.C., respondent. Chief Justice VINSON delivered the opinion Court. 1 The facts these cases are not in dispute. Pacific KF135 P2 McWilliams, petitioner Number 945, had a number years managed large independent estate his wife, 947, as well own. On several occasins 1940 and 1941 he ordered broker sell certain stock account one two, buy same shares other, at nearly price possible. He told that purpose was establish tax losses. each occasion sale purchase were promptly negotiated through Stock Exchange, identity persons buying from selling spouse never known. Invariably, however, received certificates different those which other sold. Petitioners filed separate income returns years, claimed losses or she sustained on sales deductions gross income. 2 Commissioner disallowed authority § 24(b) Internal Revenue Code, 26 United States Code Annotated KF65 U5 Int.Rev.Code, 24(b),1 prohibits 'sales exchanges property, directly indirectly * between members family,' closely related individuals corporations. 3 taxpayers' applications Tax Court, it held inapplicable, following its own decision Ickelheimer Commissioner,2 expunged Commissioner's deficiency assessments.3 Circuit Appeals reversed Court4 we granted certiorari5 because conflict circuits6 importance question involved. 4 contend Congress could have intended disallow transactions like described aove, , having been made public market, undoubtedly bona fide sales, both sense title property actually transferred, also fair consideration paid exchange. They disallowance such would amount, pro tanto, treating husband wife single individual purposes. 5 In support this contention, they call our attention pre-1934 rule, applied all regardless relationship seller buyer, deductibility resultant loss turn 'good faith' sale, i.e., whether parted with control.7 point out case usual intra-family evidence material issue peculiarly within knowledge even control taxpayer amenable wishes, inaccessible Government.8 maintain only provisions 1934 1937 Acts—the forerunners 24(b)9—was overcome evidentiary difficulties by disallowing irrespective good faith. It seems be petitioners' belief so contemplated relating proof parties' observance formalities fairness price, consequently legislative remedy immediately member family another, mediately controlled intermediary. 6 We persuaded limited an appreciation type avoidance problem. Even assuming problem thought arise solely taxpayer's inherent advantage contest concerning bad faith deception obviously practiced spouse's agreement tacit readiness hold sold disposal spouse, rather more easily than pretense where none occurred, unfair price. difficulty determining finality intrafamily transfer courts wrestled under law,10 meant enacting 24(b).11 7 is clear, arises close parties, met whenever, prearrangement, sells another buys common mechanics transaction. Indeed, if fungible, possibility may rendered nugatory benefit proving fact against taxpayer, equally great when units identical sells. 8 Securities most vehicle creation should accept prmise meet problem, agree did mean reach completely indifferent effectuality solution. 9 Moreover, think meet. Section states absolute prohibition—not presumption—against allowance any designated groups. characteristic groups their members, although distinct legal entities, generally nearidentity economic interest.12 inference legally genuine intra-group transfers result, usually, economically realizations loss, accordingly deem them appropriate occasions deductions. 10 pertinent history lends inference. Congressional Committees, reporting enacted 1934, merely stated 'the practice creating corporations has frequently utilized avoiding tax,' proposed 'deny taken (such) sales' 'to loophole avoidance.'13 Similar language used provisions.14 Chairman Doughton Ways Means Committee, explaining House, spoke artificial taking establishment shuffled black forth various entities owned person,' 'these seem occur moments remarkably opportune real party interest reducing liability but, time allowing him keep substantial assets being traded exchanged.'15 11 conclude 24[b] put end right taxpayers choose, devices, realizing investments which, practical purposes, continued uninterrupted. 12 clear purpose, too, effectuation manner accomplished. Congress, mind, include scope simple dummy, exclude securities effected medium unless wanted leave almost set close. 13 suggest truly probably done amendment wash provisions,16 making applicable buyer family, individual. This extension provisions, bar particular means accomplishing evil aimed, necessity comprehensive remained. 14 Nor can Congress' omission prescribed interval, comparable function indicates apply Exchange. Petitioners' argument predicated elapse periods other's Exchange enough itself break continuity investment make inapplicable. 15 Precisely arise, intermediatry, who, pre-arrangement, market short later prevailing sale. interval negates applicability former no does latter. But negated both, converted section into mere trap unwary.17 16 urge that, whatever intent, designation 'between' adequate comprehend case, consisted petitioners unknown stranger, petitioner, presumably stranger. 17 understand how phraseology, construed literally context, might direct transfers. concede express statutory reference 'directly indirectly' precludes construction. discover implication whatsoever indirect fungibles outside statute bought identical. accepted petit ioners' construction statute, reading crippling exception there. 18 Finally, must reject assertion Dobson rule18 controls case. found them, then overruled determination application purchaser, what circumstances accompanied decide otherwise, conceded facts, reached result contrary own.19 19 Affirmed. 20 BURTON took part cases. parts follows: '(b) Losses property. '(1) disallowed. computing net deduction shall allowed respect indirectly— '(A) Between defined paragraph (2)(D); '(B) Except distributions liquidation, corporation 50 per centum value outstanding owned, indirectly, individual; '(C) two individual, either corporations, taxable year preceding date exchange was, law year, personal holding company foreign company; '(D) grantor fiduciary trust; '(E) trust trust, person '(F) beneficiary trust.' 24(b)(2)(D) defines 'only brothers sisters (whether whole half blood), ancestors, lineal descendants; *.' 45 B.T.A. 478, affirmed, Cir., 132 Federal Reporter, 2nd Series 660, 145 American Law Reports 556. KF6280 A2 U55 623. 158 637. 330 814, 868, 869. 946, petition certiorari Estate Susan deceased mother petitions three consolidated As present raise precisely issues, further will separately. Second Ickelheimer, supra, note 2, Sixth Fourth Kohn, 32. Hale, 561; Zimmerman Commissioner, 36 279, grounds, 100 1023; Uihlein 30 399, affirmed 82 944. See H.Rep.No.1546, 75th Cong., 1st Sess., Page (1939—1 Cum.Bull. (Part 2) 704, 722—723). cited 7, supra. 24(b)(1)(A) (B) originated 24(a)(6) Act 48 Statutes-at-Large 680, 691. These reenacted without change 1936, 49 1648, 1662, 24(b)(1)(C), (D), (E), (F) added 301 Act, 813, 827. Cf. Shoenberg 77 446; Cole Helburn, F.Supp. 230; 7. 26, 8. text 24(b)(1), quoted 1. H.Rep.No.704, 73d 2d 23 554, 571); S.Rep.No.558, 27 (1939 586, 607). situations 'in due relationships friendly control, created purposes.' 28 724). 81 Cong.Rec. 9019. Representative Hill, chairman House subcommittee income-tax laws, explained Committee 'provided bill purposes offset ordinary recognized 78 2662. Sec. 118 118, first appeared form 1932, 47 169, 208, provides 118. Loss '(a) disposition appears period beginning days before ending after date, acquired (by upon entire amount gain law), entered contract option acquire, substantially securities, 23(e)(2); nor 23(f) claim corporation, dealer stocks transaction course business.' noted suggestion assured, deduct incurred though himself similar thirty-one later; certainly precluded claiming instead makes circumstances. do feel impelled comment propositions, practically simultaneous differed brokers' commissions excise taxes. 320 489, 64 239, 88 248. Trust Bingham 325 365, 65 1232, 89 1670.

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