Court Opinion

ID: 6858481
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:45:18.892171+00
Date Added: 2024-06-11T16:05:12.229356
License: Public Domain

MORTON, Circuit Judge
(dissenting).
I regret that I am unable to agree. The Revenue Act of 1921 (42 Stat. 237) made a rather basic change in individual income taxes. It introduced a distinction, not theretofore recognized in our income taxation, between a profit or a loss on capital assets, which is really not income in the usual sense of the word, and ordinary income. As to capital losses, it seems clear that, under the new provisions, they are, in effect, an additional deduction, subtracted from the ordinary income after it has been computed without including, capital transactions; the reasoning on this point of the opinion in the Elkins Case, 24 B. T. A. 572, 576, seems to me unanswerable. It follows that the authorized deduction for charitable contributions is computed without regard to capital losses. “Ordinary net income” in section 101 (b) of 1928 (26 USCA § 2101 (b) can hardly have any other meaning. It cannot be that capital losses are to be taken as a deduction in computing ordinary net income, and again deducted to the extent of 12% per cent, from the income so found. Moreover, under the contrary view, the result of a capital loss might be that a taxpayer, who had ordinary income and made contributions up to 15 per cent, of it, would not be permitted to deduct them for purposes of taxation; a conclusion which seems at variance with the evident intent of the statute.
Capital gains are treated by the statute in a somewhat different manner. The taxpayer is given an election whether to carry them into his ordinary income and have them taxed in the old way, or to segregate them and pay a separate tax of 12% per cent, on that item alone. Where the latter course is followed, as was done in this case, I think the intention was that capital gains should be treated, mu-tatis mutandis, in the same way as capital losses, i. e., that the ordinary net income should be computed without regard to them, and that, after it had been so computed, and after all deductions, including charitable contributions, had been made, and after the tax on that basis had been stated, the amount thereof should be increased by 12% per cent, of the capital gains. As was said by the Board of Tax Appeals, “The taxpayer can not exclude capital gain from gross income for the purpose of getting the benefit of the lower rate of tax thereon, and at the same time include capital gain in gross income for the sole purpose of computing the maximum deduction for contributions.” Bliss v. Com’r, 27 B.'T. A. 205, at page 208.
The statute seems to me so clear when read without a magnifying glass, that I am not convinced to the contrary by the refinement of analysis to which it has' been subjected. There is authority for the broader approach to such questions. Heydenfeldt v. Daney Gold, etc., Mining Co., 93 U. S. 634, 638, 23 L. Ed. 995; Johnson v. Southern Pac. Co., 196 U. S. 1, 14, 25 S. Ct. 158, 49 L. Ed. 363; Pirie v. Chicago, etc., Co., 182 U. S. 438, 451, 21 S. Ct. 966, 45 L. Ed. 1171.