Court Opinion

ID: 6884808
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:25:26.191096+00
Date Added: 2024-06-11T16:05:41.170020
License: Public Domain

BTGGS, Circuit Judge
(dissenting).
The taxpayer has either a gain or a loss in the taxable years in question. She has a loss if the Commissioner must use as the tax base for the bonds their cost as represented by the fair market value of the debentures at the time of the exchange of debentures for bonds in 1922. She has a gain if the tax base for the bonds is the same as it would have been for the debentures.
Section 112(b) (1) of the Revenue Act of 1928 provides that gain or loss should be recognized if bonds held for investment were exchanged for bonds to be held *130for investment as in the case at bar. Obviously such recognition was intended to take place on final disposition of the bonds. The taxpayer’s bonds therefore were acquired upon an exchange “described” in 112(b) (1) for a double negative must he treated as an affirmative and the pertinent words of Section 112(b) (1) must therefore be read as if they were “Gain or loss shall -be recognized if property, including bonds held for investment, are exchanged for bonds held for investment.”
If the conclusions stated in the foregoing paragraph are correct, it follows that Section 113(a) (6) of the Revenue Act of 1928 fixed the tax base for the bonds. No gain or loss was recognizable upon the exchange of the bonds for the debentures in 1922 when the exchange was made for Section 202(c) (1) of the Revenue Act of 1921 governed that exchange. The basis for taxing the bonds therefore is the basis which would be applicable had the taxpayer retained the debentures until 1929 and 1930 and had not exchanged them for the bonds.
This view is confirmed by the last clause of the first sentence of Section 113(a) (6) which looks back to the “gain-freezing” provisions of the Revenue Act of 1921, It is strengthened also by the legislative history of Section 203 1 of the Revenue Act of 1924 which is comparable to Section 112 of the 1928 Act. The “gain-freezing” provisions of Section 202(c) (1) of the 1921 Act were carried forward into the Revenue Acts of 1924, 1926 and 1928.2 See Whitney v. United States, Ct.Cl.1936, 15 F.Supp. 76, certiorari denied 299 U.S. 576, 57 S.Ct. 40, 81 L.Ed. 425. This case was decided correctly.
I think that the fallacy, if it be such, in the majority opinion, lies in the fact that the majority hold that the status created by the “gain-freezing” provisions of Section 202(c) (1) of the Revenue Act of 1921 may not be carried forward into the 1928 Act to be used as a factor in determining the tax basis of the securities disposed of by the taxpayer in 1929 and 1930. These were final dispositions taxable under the Revenue Act of 1928. I do not see why the time element has importance if the status of the securities was one which was created prior to their disposition under the terms of the 1928 Act. It seems to me that the creation of this status for the property disposed of was one well within the power of Congress, that Congress intended to effect this result and did in fact accomplish it.
There is no hole in the statutes through which the appellee may pass untaxed. The judgment should be reversed.

 See H.Rep. 179, 68th Cong.; 1st Sess. pp. 16, 17.

 See Section 204(a) (6) of the 1924 and 1926 Acts, 43 Stat. 253 and 44 Stat. 9, and note the provisions of Section 113(a) (6) of the 1928 Act.