Court Opinion

ID: 5264393
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:53:11.411387+00
Date Added: 2024-06-11T08:28:07.572866
License: Public Domain

Hinman, J. (dissenting in part):
I am convinced that section 353 of the Tax Law has no application to a “ short ” sale, but I disagree with the conclusion as to the so-called first transaction, that the statute requires the deduction to be measured by the difference between the value of similar stocks on January 1, 1919, and that at which they were later purchased to close the transaction. The full loss should be deducted.
The conclusion as to the non-applicability of section 353 is clearly right when the nature of a “ short ” sale is understood. By selling “ short ” a man simply expresses his judgment as to what the price of the stock will be in the future. He sells something he does not own. He sells stocks, borrowed by his broker, which he must replace in the future, and which he hopes to later purchase at a lower price. If his judgment is wrong, he will suffer the penalty of being obliged to go into the market and buy the securities at a higher price.
Section 353 relates only to ascertainment of gain or Joss “ from the sale or other disposition of property.” The words “ other disposition ” mean some way of relinquishing property or an interest therein other than by sale. In the case of a “ short ” sale, the loss is not in the sale but in returning the property borrowed — in *397buying to restore the thing loaned. The sale in this case was completed in 1918 by the use of borrowed securities. The only transaction left was not a sale but a postponed purchase. The loss was in the buying. That was an acquisition, not a “ disposition ” of property. He sustained a loss in the transaction during the taxable year of 1919, but not in a “ sale or other disposition ” of property and thus section 353 does not apply.
As to the third transaction in this case, there was a “ long sale.” The property was bought in 1918 and sold in 1919, and the basis of the loss was the fair market price on January first under the clear terms of section 353 and because of the rule fixed by that section.
When we come to consider the “ short ” sale, we have no guide except the language of section 360, allowing as deductions “ looses sustained during the taxable year.” Mr. Justice Van Kirk says that means “ in the case of a short sale, that loss which accrued during the taxable year by reason of the stocks sold short advancing in price between January 1, 1919, and the date the short sale was ' covered/ ” citing the filauber case. His contention seems to be that only part of the loss was sustained in the taxable year. It seems to me that he supplies a rule not found in the statute to take the place of the natural meaning of the language used and that the reasoning of the Klauber case is against his interpretation, not in support of it.
In the Klauber case, Mr. Justice Cochrane concluded that “ such gain or profit naturally means the difference between the purchase price and selling price.” It was only because section 353 was in the statute that any question arose. He did not rely on section 359, the general taxing provision of the act, to fix an arbitrary basis for his determination but he held, in effect, that in the absence of clear warrant of the statute to the contrary, the natural meaning of the taxing provisions of section 359 should prevail over a meaning not clearly required by section 353.
In the case of a “ short ” sale, the difference between the price for which the sale was made and the price at which the investor “ covered ” is likewise the natural measure of his loss or gain. Section 353 is inapplicable, just as it was found inapplicable in the Klauber case. Falling back upon the general provision of the act whereby “ losses sustained during the taxable year ” are made deductible, we have no fixed guide as to the extent of the deduction allowable. Can the court fix an arbitrary standard such as was found in section 353 for other transactions or must it give to the language used in section 360 its natural meaning? I believe that the Klauber case is authority for the proposition that the natural meaning should be applied rather than to attempt to supply *398an omission of the statute by fixing a judicial rule nowhere authorized by the statute. The relator suffered a loss during the taxable year which actually diminished his income that year. It represented a disbursement equal to his real loss and should not be measured by a fiction unless the statute requires it by clear language. In the absence of such a strict requirement of the statute, the actual losses accruing in 1919 on “ short ” sales should be deducted, whether a paper loss in 1918 can be attributed to that year or not. Certainly there was no actual loss in 1918 as it was impossible to say whether there was any loss or gain on the transaction until it was closed, which determined also the amount of the loss or gain. January first is an arbitrary date fixed by statute for the specific purposes set forth in section 353, which cannot be extended by implication beyond the clear import of the language used. So, too, the words “ losses sustained during the taxable year ” cannot be given a meaning other than their fair ordinary significance simply because section 353 has interpreted them as assuming a certain arbitrary meaning in relation to a special class of cases not in point here. If the ordinary meaning of the phrase can be colored to mean something else and as so colored be extended to cover a loss on a “ short ” sale, then it can be applied to a gain on a “ short ” sale and be made the basis of a tax by words of doubtful import, which cannot be so.
I take it the court would hold in that case, as it did in the Klauber case, that in the absence of a rule requiring it, it would refuse to tax the artificial gain attributable to the taxable year and say that the general meaning of a “ gain ” applied and required the tax to be on the actual gain. I believe that to be the effect of the holding in the Klauber case. A loss should be treated in the same way, as I see it. For that reason, I believe the Comptroller was in error in figuring both the first and the second transactions. The actual loss should be allowed in both items.
Cochrane, P. J., concurs.
Determination of the Comptroller annulled, without costs, and the matter remitted for disposition in accordance with the opinion of Van Kirk, J.