Court Opinion

ID: 9638423
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:43:38.173172+00
Date Added: 2024-06-11T18:10:05.987372
License: Public Domain

L. HAND, Circuit Judge
(dissenting).
Section 51(b) (2) 26 U.S.C.A. § 51(b) (2), gives spouses the privilege of including “the income of each * * * in a single joint return”, and of computing “the tax * * * on the aggregate income”. The regulations — which I accept as law — add to these words that “deductions * * * to which either spouse is entitled shall be taken from the aggregate income”. To find the deductions to which “either spouse” is “entitled”, one must look to those allowed individuals; in the case at bar to section 23, 26 U.S.C.A. § 23. Subdivision (e) of that section allows' losses like those before us to be deducted, “subject to the limitations of subdivision (r).” The Commissioner argues that that clause imposes a condition upon the privilege, as opposed to a limitation upon its amount, so that in order to learn whether a spouse is “entitled” to any deduction whatever, it is first necessary to find out whether the limitation would extinguish it if he -or she filed a separate return. The taxpayer answers that § 23(e) grants the privilege, and therefore “entitles” the spouse to a deduction, and that subdivision (r) merely limits its amount when the joint net income is being computed. As a mere matter of words I can see nothing to prefer in either construction; it begs the question to say that the extent of the deduction under a separate return must be taken as a condition upon its existence. The underlying theory of the privilege itself is to me conclusive of an opposite result. When § 51(b) (2) requires the tax to be computed on the net aggregate income, it means the balance found by adding together all those items of gross income, which both spouses would be obliged to enter on both their separate, returns, and subtracting all those deductions, which the statute allowed to both upon such returns. The limit fixed by subdivision (r) would normally be the aggregate of “non-capital” gains of both spouses, and .to single out those of the. spouse who has “non-capital” losses is to trace into the account the several sources of the “aggregate income”, which is precisely what the account need not, and *399should not, do. The very privilege is based upon disregarding the source; the spouses exercise it only when they can get some benefit from it; that is, when some loss of one can be set off against some gain of another. On what theory it can be held that “non-capital” gains are to be treated otherwise than other gains I cannot see. That is entirely an anomaly which must be justified and the text is barren of any justification that I can find.
As appears by the citations in my brothers’ opinion, a husband has been allowed to deduct losses realized through sales to his wife, and vice versa; and he has been allowed to deduct losses in securities, though the wife buys similar securities immediately thereafter, and vice versa. It is also true that a spouse may not “carry-over” an individual loss of an earlier year into a joint return. Whether these cases are right or wrong, they do not appear to me to be in point here: they concerned other provisions, different in language from that before us. The fact that in one case there may be good excuse for making an exception to the underlying theory of the privilege, is irrelevant to the validity of another exception, based on other language. For these reasons I dissent.