Court Opinion

ID: 6869276
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:58:49.037083+00
Date Added: 2024-06-11T16:05:22.576117
License: Public Domain

L. HAND, Circuit Judge
(dissenting).
There cannot be any fair doubt that Congress exempted stock dividends only because it supposed that Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570, compelled it to do so. At that time those distinctions had not been suggested, which have now limited that ruling to shares of substantially the same kind. If Koshland v. Helvering, 298 U.S. 441, 56 S.Ct. 767, 80 L.Ed. 1268, 105 A.L.R. 756, had followed immediately upon the enactment of section 201 (d) of the Act of 1921 (41 Stat. 228), I should have had little doubt of the propriety — as there could have been none whatever of the desirability — of limiting its scope to such stock dividends as were not income; especially as we are dealing with a tax exemption and doubts go against the taxpayer. Preferred shares issued as a dividend upon common, are as much income, as common upon preferred, for the question is always whether a substantially new right has been created, just as it is in reorganization. Weiss v. Stearn, 265 U.S. 242, 44 S.Ct. 490, 68 L.Ed. 1001, 33 A.L.R. 520; Marr v. United States, 268 U.S. 536, 45 S.Ct. 575, 69 L.Ed. 1079. Of course, it is always possible to stick to the literal words, and to insist that “stock dividends” meant every dividend of stock; but that is never a good way to find out what words really mean; whether in a statute, a will, a deed, a contract, or when spoken. There is no way but to reinstate the circumstances in which they were uttered, and discover how much a reasonable person would have understood them to include. If that be done, I should think the result is reasonably clear.
Since 1921 there has, however, been administrative and legislative history with which we must reckon. The first regulation after section 115 (f) was enacted (Article 1548, Regulations 62), declared that “stock issued by a corporation as a dividend does not constitute taxable income * * * but gain may be derived * * * from the sale of such stock.” Since 1925 the form has been: “The issuance of its own stock,” but the change is not important. Alongside of this there has always beeif somewhere in the regulations a ' provision, implementing as it were, the language I have quoted, and expressly prescribing that the basis must be reduced by the dividend. There has therefore never been any administrative interpretation of section 115 (f), so far as I can find, which did not immediately connect it with this method of calculating the “basis”; unless perhaps Article 115-10 (1) of Regulations 86, and its predecessors may be counted. I do not know how far I should have thought these provisions as a whole conclusive; and it is of no consequence, for Koshland v. Helvering, supra, 298 U.S. 441, 56 S.Ct. 767, 80 L.Ed. 1268, 105 A.L.R. 756, has settled it that so far as they affect the “basis,” they have been invalid from the beginning. Thus, the only question now is whether though invalid as to that, they may still be authoritative in interpreting section 115 (f), taken alone. I cannot think that we should blow hot and cold; if the effort indirectly to charge the taxpayer with the new shares under the guise of diminishing his “basis” must break down, any concomitant interpretation as to exemption of the shares, qua income, ought to fall with it. Therefore Koshland v. Helvering, supra, seems to me in substance to have limited the relevant evidence of the intent of Congress to the bare words themselves, stripped of administrative gloss; and the bare words will not serve. I think the Board was right and I can find no convincing evidence that in Horrmann v. Commissioner, 34 B.T.A. 1178, 1180, a majority of its members have changed their minds.