311 U.S. 504 (1941), 49, Helvering v. Hammel

Docket Nº:No. 49
Citation:311 U.S. 504, 61 S.Ct. 368, 85 L.Ed. 303
Party Name:Helvering v. Hammel
Case Date:January 06, 1941
Court:United States Supreme Court

Page 504

311 U.S. 504 (1941)

61 S.Ct. 368, 85 L.Ed. 303




No. 49

United States Supreme Court

Jan. 6, 1941

Argued December 11, 1940




1. A loss sustained by an individual taxpayer upon the foreclosure sale of an interest in real estate which he had acquired for profit held, in computing taxable income under the Revenue Act of 1934, deductible only to the limited extent allowed by §§ 23(j) and 117(d) for losses from "sales" or exchanges of capital assets, and not in full under § 23(e)(2). Pp. 505, 510.

2. The language, the purpose, and the legislative history of the provisions of the Revenue Act of 1934 relating to capital gains and losses support the view that no distinction was intended between losses from forced sales and losses from voluntary sales of capital assets. P. 510.

3. Courts are not free to reject the literal or usual meaning of the words of a statute when adoption of that meaning will not lead to absurd results nor thwart the obvious purpose of the statute. P. 510.

4. In this case, the foreclosure sale, and not the decree of foreclosure, was the definitive event which established the loss within the meaning and for the purpose of the Revenue Act. P. 512.

5. The view that the loss in this case may not be treated as a loss from a sale because, by the state law, the vendor in a land contract may declare a forfeiture upon default cannot be sustained, since it does not appear from the record that the contract in this case contained a forfeiture clause, nor that there was in fact a forfeiture apart from the foreclosure sale. P. 512.

108 F.2d 753 reversed.

Certiorari, 310 U.S. 619, to review the affirmance of a decision of the Board of Tax Appeals redetermining a deficiency in income tax.

Page 505

STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

We are asked to say whether a loss sustained by an individual taxpayer upon the foreclosure sale of his interest in real estate, acquired for profit, is a loss which, under § 23(e)(2) of the 1934 Revenue Act, 48 Stat. 680, may be deducted in full from gross income for the purpose of arriving at taxable income, or is a capital loss deductible [61 S.Ct. 369] only to the limited extent provided in §§ 23(e)(2), (j), and 117.

In the computation of taxable income, § 23(e)(2) of the 1934 Revenue Act permits the individual taxpayer to deduct losses sustained during the year incurred in any transaction for profit. Subsection (j) provides that "losses from sales or exchanges of capital assets" shall be allowed only to the extent of $2,000 plus gains from such sales or exchanges as provided by § 117(d). By § 117(b), it is declared that "capital assets"

means property held by the taxpayer . . . , but does not include stock in trade of the taxpayer . . . or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.

Respondent taxpayers, with other members of a syndicate, purchased "on land contract" a plot of land in Oakland County, Michigan, for the sum of $96,0000, upon a downpayment of $20,000. The precise nature of the contract does not appear beyond the fact that payments for the land were to be made in installments, and the vendor retained an interest in the land as security for payment of the balance of the purchase price. Before the purchase price was paid in full, the syndicate defaulted on its payments. The vendor instituted foreclosure proceedings by suit in equity in a state court which resulted in a judicial sale of the property, the vendor becoming the purchaser, and in a deficiency judgment against the members of the syndicate. Respondents'

Page 506

contribution to the purchase money, some $4,000, was lost.

The commissioner, in computing respondents' taxable income for 1934, treated the taxpayers' interest in the land as a capital asset and allowed deduction of the loss from gross income only to the extent of $2,000 as provided by §§ 23(j) and 117(d), in the case of losses from sales of capital assets. The Board of Tax Appeals ruled that the...

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