Court Opinion

ID: 4500657
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:17:02.036918+00
Date Added: 2024-06-11T08:00:39.122713
License: Public Domain

*159OPINION.
Green :
The question involved is whether in determining the gain or loss from the sale of the trust certificates in 1924 the basis provided in section 204(a) of the Eevenue Act of 1924 should be reduced by that portion of the tax-free distributions received in 1923 which was made from an increase in value of property accrued prior to March 1, 1913. In other words, did the respondent err in reducing the basis of $32,143.50 by the amount of $884.61 in addition to the amounts of $1,884.13 and $798.56 ? The petitioner concedes that the basis should be reduced by the amounts of $1,884.13 and $798.56 but not by the amount of $884.61.
It is alleged in the petition and admitted in the answer that “ it is not controverted here that shares of beneficial interest in the trust known as Great Northern Iron Ore Properties are to be treated as shares of capital stock in a corporation and that distributions by the trustees are to be treated as distributions by a domestic corporation.”
At the time the distribution that is in controversy was made, namely, the amount of $884.61 distributed in 1923 from an increase in *160value of property accrued prior to March 1,1913, the Revenue Act of 1921 was in force. Section 201(b) of that act provided as follows:
For tlie purposes of this Act every distribution is made out of earnings or profits, and from the most recently accumulated earnings or profits, to the extent of such earnings or profits accumulated since February 28, 1913; but any earnings or profits accumulated or increase in value of property accrued prior to March 1, 1913, may be distributed exempt from the tax, after the earnings and profits accumulated since February 28, 1913, have been distributed. If any such tax-free distribution has been made the distributee shall not be allowed as a deduction from gross income any loss sustained from the sale or other disposition of his stock or shares unless, and then only to the extent that, the basis provided in section 202 exceeds the sum of (1) the amount realized from the sale or other disposition of such stock or shares, and (2) the aggregate amount of such distributions received by him thereon.
At the time the petitioner sold the certificates in 1924, the Revenue Act of 1924 governed. The pertinent sections of this Act are as follows:
Seo. 202. (a) Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis provided in subdivision (a) or (b) of section 204, and the loss shall be the excess of such basis over the amount realized.
Sec. 204. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that * * *
Sec. 201. (b) For the purposes of this Act every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits. Any earnings or profits accumulated, or increase in value of property accrued, before March 1, 1913, may be distributed exempt from tax, after the earnings and profits accumulated after February 28, 1913, have been distributed, but any such tax-free distribution shall be applied against and reduce the basis of the stoelc provided, in section %01h (Italics ours.)
The petitioner contends that the word “such” contained in the clause set out in italics above, restricted that clause to tax-free distributions made in 1924 or subsequent thereto on the ground that the word “ such ” could only refer to those distributions mentioned immediately before the clause in italics and that such distributions were by the very context and effective date of the 1924 Act restricted to distributions made in 1924 or subsequent thereto and does not cover those made in 1923.
The respondent on the other hand contends that section 201(b) of the 1924 Act did not specifically provide that only tax-free distributions made subsequent to December 31, 1923, were to be applied against and reduce the basis and that, therefore, such basis should be reduced by all tax-free distributions regardless of when made.
Gain is realized and taxable under the Revenue Act of 1924 only to the extent that it is expressly stated therein. That extent and occasions upon which gain is realized are covered by sections 202, *161203 and 204, and particularly section 202(a), which provides that the gain is the difference between the price obtained and the basis provided in section 204. The distribution of dividends, tax-free or otherwise, has no effect upon gain except in so far as expressly covered by section 201. See section 201 (b), swpra.
Title II of the Eevenue Act of 1921 under which section 201(b) fell, was repealed by section 1100 of the Eevenue Act of 1924, to take effect as of January 1, 1924. Title II of the Eevenue Act of 1924, pertaining to the income tax, took effect as of January 1, 1924. See section 283. ■ In our opinion the term “ every distribution ” in section 201(b) of the 1924 Act is, therefore, restricted to distributions made subsequent to December 31, 1923. The second sentence of section 201(b) of the 1924 Act allowing tax-free distributions which would for the same reason, namely, the effective date of the Act, be restricted to. distributions made subsequent to December 31, 1923, is in our opinion so phrased by the words “ may be distributed ” to cover future distributions only. These in our opinion are the only distributions to which the word “ such ” in section 201(b), 1924 Act, can refer and there is no authority in this section for the reduction of the basis as provided in section 204 by the amount of $884.61, distributed in 1923 from an increase in value of property accrued prior to March 1, 1913. Were it intended not to limit the distributions to those in 1924 or subsequent thereto, the word “ such ” is meaningless.
The respondent was in error in reducing the basis by the amount of $884.61, distributions made in 1923 from an increase in value of property accrued prior to March 1,1913. The parties have stipulated that if the Board finds for the petitioner the deficiency for 1924 would be $121.29.
Eeviewed by the Board.
Judgment will be entered on 16 days' notice, under Bule 60.