Court Opinion

ID: 9636434
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:28:45.088842+00
Date Added: 2024-06-11T18:09:45.866528
License: Public Domain

LEE, Circuit Judge
(dissenting).
Delaware acquired' most of the bonds from the subsidiaries upon original issue at a discount from par some time between 192S and 1938, and by July 31, 1940, it owned all the bonds of the subsidiaries, upon which the aggregate discount amounted to $310,918.80. The profit, that is, the difference between the face value and the purchase price, or the discount would be taxable in the year in which the purchase of the specific bond took place, rather than, as decided by the majority, in the year when the final merger of the bonds and their security into one corporation took place.
At all times the subsidiaries were wholly owned by Delaware, and, except for the patently manufactured intricacies of the holding-company scheme, Delaware was, in fact, the hub of a single enterprise, composed of itself and its subsidiaries. The landmark case in this field is United States v. Kirby Lumber Company, 284 U. S. 1, 52 S.Ct. 4, 76 L.Ed. 131. There the Supreme Court held that purchase by a corporation, at discount, of its own bonds issued at par resulted in income taxable in the year the purchase was made.1 *The doctrine of the Kirby case was expanded in Helvering v. American Chicle Company, 291 U.S. 426, 54 S.Ct. 460, 78 L.Ed. 891, wherein a corporation which received the assets of another and assumed the obligation of the other’s bonds was held taxable for income in the amount of the discount at which they later acquired some of the bonds.2
In the recent case Commissioner of Internal Revenue v. Jacobson, 69 S.Ct. 358, this same theory was approved and applied to an individual purchasing his bonds at a discount. This result is reached through application of § 22(a) of the Revenue Act of 1928:3
“ 'Gross income’ includes gains, profits, and income derived from * * * dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from * * securities * *
Upon the foregoing law, it seems to me the decision in this case should rest.

 That the law of the Kirby case has been encroached upon by the Revenue Act of 1942 as it amended Internal Revenue Code § 22(b) (9), 26 U.S.C.A. § 22(b) (9), allowing a corporation to exclude from gross income the amount derived from purchase at a discount of its own securities, is not pertinent in the instant case, as the latest year with which we are dealing is 1940.

 For a more extensive discussion of the authorities applicable to this situation, see Mertens, Law of Federal Income Taxation, voL 2, pp. 89 et seq., § 11.21.

 The same provision has been retained in subsequent revenue acts and now appears at 26 U.S.O.A. § 22(a).