FAIRBANKS
v.
UNITED STATES
AI-generated. These summaries, headnotes, and key points are machine-generated and may contain errors or omissions. Always verify against the full opinion text below. Not legal advice.
The Supreme Court held that gains derived from the redemption of bonds before maturity by the issuing corporation do not constitute "capital gains" under the Revenue Acts of 1921-1932, because redemption is neither a sale nor an exchange within the plain meaning of those terms. The Court affirmed the lower courts' decisions that such gains were therefore subject to normal and surtax rates rather than the preferential capital gains rate, while noting that Congress subsequently clarified the law through the Revenue Act of 1934 by explicitly providing that bond redemptions would be treated as exchanges for capital gains purposes going forward.
© FLexlaw, Inc. — AI-generated enrichments are proprietary. All rights reserved.
Mr. Justice McReynolds delivered the opinion of the Court.
Both courts below ruled that gain derived by the petitioner from redemption of bonds during 1927, 1928 and' 1929 was not “capital gain” within the meaning of the controlling statutes.
No contest now exists concerning the facts. The narrow point as counsel agree is this — Must the redemption of bonds before maturity by the issuing corporation be treated as tantamount to a sale or exchange of capital assets within the meaning of § 208 (a) (1), Revenue Act 1926, and § 101 (c) (1), Revenue Act 1928.1
If redemption amounts to sale or exchange, the petitioner’s gain was subject to taxation at,the twelve and one-half per cent rate; otherwise, under normal and surtax rates.
Payment and discharge of a. bond is neither sale nor exchange within the. commonly accepted meaning of thé words. The courts below found no sufficient reason for disregarding this and rightly applied the statutes under that view.
The Tax Acts of 1921, 1924, 1926, 1928 and 1932 contain like definitions of capital gain. From 1921 to 1929 the Commissioner held that such gain did not arise from redemption. In 1929 the Board of Tax Appeals held otherwise. Werner v. Commissioner, 15 B. T. A. 482. But in 1932 it definitely overruled that determination. Watson v. Commissioner, 27 B. T. A. 463. The Revenue Act 1934 (May 10, 1934, c. 277, 48 Stat. 680, 714N715) provides—
“Sec. 117. Capital Gains and Losses.
(a) General Rule. — In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income: . . .
(f) Retirement of Bonds, Etc. — For the purposes of this title, amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.”
What we regard as the correct meaning of the definition of capital gain in the Revenue Act 1921 and its four successors is accentuated by long-continued executive construction, also the last conclusion of the Board of Tax' Appeals.
The Circuit Court of Appeals below was right in holding that by the Act 1934 Congress did not attempt to construe the prior Acts and purposely made a material addition thereto. In Averill v. Commissioner, 101 F. 2d 644, the Circuit Court of Appeals First Circuit acted upon a different view. This conflict caused us to bring up the present cause notwithstanding the application for cer-tiorari had been denied earlier in the term.
The challenged judgment must be
Affirmed.
Revenue Act 1921 (November 23, 1921, c. 136, 42 Stat. 227, 232) provides—
“See. 206. (a) That for the purpose of this title:
(1) The term 'capital gain’ means taxable gain from the sale or exchange of capital assets consummated after December 31, 1921.”
This provision without material change was reenacted by Revenue Act 1924 (June 2, 1924, c. 234, § 208 (a) (1), 43 Stat. 253, 262); Revenue Act 1926 (February 26, 1926, c. 27, § 208 (a) (1), 44 Stat. 9, 19); Revenue Act 1928 (May 29, 1928, c. 852, § 101 (c) (1), 45 Stat. 791, 811); Revenue Act of 1932 (June 6, 1932, c. 209, § 101 (c) (1), 47 Stat. 169, 191) ,
Cases With Similar Vibessemantic neighbors from the corpus
Citator
Cited By (43 total)
-
Dixon v. United States, 381 U.S. 68 (U.S. 1965)…case of securities in registered form or with coupons attached, that section was added by the Revenue Act of 1934, 48 Stat. 680, 714r-715, to eliminate a difference in treatment between sales and retirements. See, e. g., Fairbanks v. United States, 306 U. S. 436; Watson v. Commissioner, 27 B. T. A. 463. But the opinion in Caulkins appears erroneously to carry forward a distinction and to give more favorable treatment to retirements. See United States v. Midland-Ross Corp., supra, at 63-66. Thus petitioners…
-
Helvering v. William Flaccus Oak Leather Co., 313 U.S. 247 (U.S. 1941)…speaking, the language in the Revenue Act, just as in any statute, is to be given its ordinary meaning, and the words “sale” and “exchange” are not to be read any differently. Compare Helvering v. Hammel, 311 U. S. 504; Fairbanks v. United States, 306 U. S. 436; Burnet v. Harmel, 287 U. S. 103. Neither term is appropriate to characterize the demolition of property and subsequent compensation for its loss by an insurance company. Plainly that pair of events was not a sale. Nor can they be regarded as an exc…
-
United States v. Midland-Ross Corp., 381 U.S. 54 (U.S. 1965)…ent of a bond by the corporation issuing it was held to be but the fulfillment of a contractual obligation to repay money in accordance with the fixed terms of the obligation and not a sale or exchange of a capital asset. Fairbanks v. United States, 306 U. S. 436; Felin v. Kyle, 102 Fed. (2d) 349; John H. Watson, Jr., 27 B. T. A. 463; Arthur E. Braun, Trustee, 29 B. T. A. 1161; Frank J. Cobbs, 39 B. T. A. 642; petition to review dismissed, 111 Fed. (2d) 644. Section 117 (f), supra, appeared for the first…
Previewing 3 of 43 citing cases — full citator treatment, depth of discussion, and citing context are member features.
Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- Averill v. Commissioner of Internal Revenue, 101 F.2d 644 (1st Cir. 1938)