Court Opinion

ID: 4491035
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:40.047166+00
Date Added: 2024-06-11T07:59:12.210081
License: Public Domain

Seawell,
dissenting; I am not persuaded that the correct interpretation has been placed on subparagraph (a) (1) of section 208 of the Revenue Act under discussion. The decision is based upon the definition of one word in the section, the word “ consummated ”; and the section is discussed as if this word were removed and the italicized words which I here supply in its stead were placed in the section, and the section written as follows: “ The term ‘ capital gain ’ means taxable gain from sale or exchange of capital assets ” derived from contracts executed “ after' December 31, 1921.” The words “ consummated ” and “ executed ” are not synonymous. “ Consummated ” is a more inclusive word, and itself has a wider and a more significant meaning in a taxing statute than it has in a brokerage contract or in ordinary and usual speech. For instance, in an old but important tax case in the Court of Claims it was said: “An act is not consummated where anything in relation to it remains to be done ”; and it was there held that although handing money to an officer of the United States Government would ordinarily consummaté payment to the Government, yet in the light of the statute then under discussion, it was held necessary to do more, i. e., to cover the payment into the treasury by a “ covering-in warrant ” before the payment was “ consummated.” By this unusual enlargement of the meaning of the word “ payment ” effect was given to the statute enacted for the protection of depositors in national banks. (Johnston v. United States, 17 Ct. Cls. 173.)
A “ consummated ” sale or exchange of capital assets under the statute, in this case, must include the payment of the sale price or receipt of the property taken in exchange if there is to be “ taxable gain ” — in reference to which the law was enacted and without which there was no purpose in its enactment. A contract without payment *187of the consideration might be consummated to the extent necessary to support an action for damages for its breach; or to support an action for specific performance if it related to the sale of land; but we are not dealing with a tax on contracts, but rather with “ taxable gain ” growing out of contracts under a taxing statute which must be construed liberally in favor of the taxpayer, and in the construction of which it is most necessary first to consider the context. Mr. Justice Story said: “ The legislature must be presumed to use words in their known and ordinary signification, unless that sense is repelled by the context.” (Levy v. McCartee, 6 Pet. 110.) In remedial statutes, such as we have under consideration, it is said to be proper to extend the construction of words beyond their natural import and effect in order to afford the relief indicated in the context. (Beley v. Naphtaly, 13 Fed. 125; Logan v. Davis, 283 U. S. 613.) Professor Williston’s definition of a contract, given in the opinion, has reference to ordinary commercial sales, an entirely different proposition from that here involved. It does not appear necessary, however, to place any very strained construction or definition on the words of this statute, if we will keep in mind the fact that this is a taxing statute, having reference to the Sixteenth Amendment and intended to relieve a former burdensome provision of the law. No tax liability can attach to a mere contract of sale or of exchange, executory or executed, but only to the taxable gain received by the contracting party under the contract. Incomes are taxable only in the year in which they come in. “ Taxable gain ” is not consummated whether it grows out of a sale or of an exchange of capital assets under a contract made before or after December 31, 1921, until it is received by the seller or bargainer. A sale or exchange is not “ complete, finished, raised or carried to the highest or utmost point or degree,” — consummated, for tax purposes, until the consideration is paid.
Further, the construction of the statute as made in the Board’s opinion and decision, it occurs'to me, might lend itself to inequalities of taxation which Congress did not intend. By way of illustration: A and B are each the owner of $100,000 par value of stock in the same corporation, for which they respectively paid at the same time, at a date since March 1, 1913, the sum of $50,000. On December 31, 1921, A sells his stock to C for $100,000, payable $50,000 on July 1, 1922, and $50,000 on July 1, 1923, and delivers the stock to C; and on January 1, 1922, B sells his stock to C for $100,000, payable $50,000 on July 1,1922, and $50,000 on July 1, 1923, and delivers his stock to C. A and B are each paid by C at the time and in the amounts contracted; and by the several transactions A and B each receive a taxable gain of $25,000 on July 1, 1922, and $25,000 on July *1881, 1923. Did Congress, under the given circumstances, intend to tax A at one rate and B at another rate upon their respective incomes, identical in amount, received at the same time from the same person for like consideration? This would seem a consummation devoutly not to be wished.