Feely v. Commissioner of Internal Revenue United States v. First Nat Bank of Boston Helvering v. Lee Rand v. Helvering Dibblee v. Commissioner of Internal Revenue 494

• Decision Date: 11 November 1935
• Docket Number: 439,Nos. 24,110,111,s. 24
• Citation: 101 A.L.R. 304,296 U.S. 102,56 S.Ct. 54,80 L.Ed. 83
• Parties: McFEELY v. COMMISSIONER OF INTERNAL REVENUE. * UNITED STATES v. FIRST NAT. BANK OF BOSTON et al. HELVERING, Com'r of Internal Revenue, v. LEE. RAND v. HELVERING, Com'r of Internal Revenue. DIBBLEE v. COMMISSIONER OF INTERNAL REVENUE. , and 494
• Court: U.S. Supreme Court

296 U.S. 102

56 S.Ct. 54

80 L.Ed. 83

McFEELY

v COMMISSIONER OF INTERNAL REVENUE.^* UNITED STATES v. FIRST NAT. BANK OF BOSTON et al. HELVERING, Com'r of Internal Revenue, v. LEE. RAND v. HELVERING, Com'r of Internal Revenue. DIBBLEE v. COMMISSIONER OF INTERNAL REVENUE.

Nos. 24, 110, 111, 439, and 494.

Argued Oct. 24, 1935.

Decided Nov. 11, 1935.

[Syllabus from pages 102-104 intentionally omitted] Messrs. H. B. Wassell, of Pittsburgh, Pa., and G. F. Snyder, of Washington, D.C., for petitioner in No. 24.

Messrs. Robert Driscoll, J. B. Faegre, Clark R. Fletcher, and Hayner N. Larson, all of Minneapolis, Minn., for petitioners in Nos. 439 and 494.

Mr. George S. Fuller, of Boston, Mass., for respondent in 110.

Mr. Hugh W. McCulloch, of Chicago, Ill., for respondent in 111.

The Attorney General and Mr. Frank J. Wideman, Asst. Atty. Gen., for the United States and Helvering, Commissioner of Internal Revenue.

Mr. Justice ROBERTS delivered the opinion of the Court.

These cases were brought here on writs of certiorari to resolve a conflict between Circuits with respect to the application of section 101 of the Revenue Act of 1928,¹ which permits taxpayers, at their option, to pay at the rate of 12 1/2 per cent. on capital net gains. Subsection (c)(8), 26 USCA § 101 note, so far as material, is: "Capital assets' means property held by the taxpayer for more than two years.' Whether property acquired from a decedent through intestacy, or a general bequest, is, within the meaning of the clause, held by the taxpayer from the date of the decedent's death or from the date of distribution, is the matter in dispute.

The taxpayers are: In Nos. 110, 111, and 494, residuary legatees, in No. 24 the donee of a widow who elected to take against her husband's will, and in No. 439 one of those entitled under the intestate laws. In each case the taxpayer sold the asset more than two years after the death of the decedent from whom title was derived but less than two years after distribution by the estate's representatives. In each a return was made of the profit on the sale as capital net gain taxable at twelve and one-half per cent, but the Commissioner refused to recognize the correctness of the returns and calculated the tax at the normal and surtax rates payable on ordinary income.

The Board of Tax Appeals sustained the Commissioner in four of the cases.² In No. 110 the tax was paid and judgment recovered in a suit for refund.³ The Circuit Courts of Appeals of the Third, Eighth, and Ninth Circuits affirmed the action of the Board; that of the First Circuit reversed the Board in No. 111 and affirmed the judgment of the District Court in No. 110.⁴

The Commissioner contends that until actual distribution property cannot be said to be held by one having an interest in a decedent's estate, and, even if this be not true, section 113(a)(5), 26 USCA § 113 note, making value at the date of distribution the basis for calculating gain in such cases, requires that the word 'held' in section 101(c)(8), 26 USCA § 101 note, be construed to set the same date as the time at which the holding shall begin.

The taxpayers on the other hand assert that property is, in contemplation of law, held from the date of acquisition and one deriving property from a decedent's estate through devise, bequest or intestacy acquires the property at the date of death and holds it from that date; that so all prior acts using similar phraseology have been interpreted by the Treasury; that the re-enactment of these without significant change constitutes a legislative confirmation of the administrative interpretation; and that section 113, having to do with the basis for the calculation of the tax, cannot alter the plain meaning of section 101 which prescribes the length of time property must be held to constitute it a capital asset. We conclude that the date of the decedent's death is that from which the period of holding should be computed.

In the Revenue Act of 1921, the first which granted a special rate of tax on capital net gain, section 206(a)(6) defined 'capital assets' as 'property acquired and held by the taxpayer * * * for more than two years.'⁵ From the corresponding sections of the Revenue Acts of 1924, 1926 (section 208(a)(8), 26 USCA § 101 note), and Revenue Act 1928 (section 101(c)(8), 26 USCA § 101 note), the word 'acquired' was omitted. 'Acquired' in the phrase 'acquired and held' was mere surplusage and doubtless was elided from the later acts for that reason.⁶ As indicated in Helvering v. New York Trust Company, 292 U.S. 455, 469, 54 S.Ct. 806, 808, 78 L.Ed. 1361, the omission did not change the meaning of capital assets as defined in the earlier act.

In common understanding to hold property is to own it. In order to own or hold one must acquire. The date of acquisition is, then, that from which to compute the duration of ownership or the length of holding. Whether under local law title to personal property passes from a decedent to the legatee or next of kin at death subject to a withholding of possession for purposes of administration,⁷ or passes to the personal representative for the purposes of administration,—the title of the beneficiary, though derived through the executor, relating back to the date of death,⁸—is for present purposes immaterial. In either case, the date of acquisition within the intent of the Revenue Act is the date of death.⁹

The Commissioner has heretofore administered the section upon this theory. As respects the Revenue Act of 1921, he so ruled in 1923,¹⁰ and again in a very full memorandum in 1924.¹¹ It was stated in briefs and at the bar that these rulings have never been cancelled or revoked, and the statement was not challenged. The repetition of the definition without material change in the subsequent acts, including that of 1928, amounts to a confirmation of the administrative interpretation.¹² There is nothing in the section, its history, or the administrative practice, to enlarge or alter the connotation commonly ascribed to the word 'held.'

The Commissioner says, however, that Congress has undoubted power to set the date of distribution as the terminus a quo and that an examination of the whole statute discloses that the purpose was to alter the pre-existing rule to that end.

In support of this argument it is pointed out that section 113 which prescribes the basis for determining capital gain or loss, radically altered pre-existing law on the subject in such a way as to show an intent to change the normal meaning of the word 'held' in section 101(c)(8). In the Revenue Acts of 1924 and 1926 the sections dealing with the basis for calculating capital gain or loss provided that in the case of property acquired by bequest, devise, or inheritance, the basis shall be the fair market price or value of such property at the time of such acquisition.¹³ As we have seen, in common understanding, with which the administrative interpretation was in accord, the time of acquisition in such cases is the time of the decedent's death. The date for ascertaining the basic value, and the date of commencement of the two year holding period were, therefore, under these acts, identical. Committee Reports indicate that by reason of doubt as to what is in fact the moment of acquisition by persons having various relations to a decedent's estate, Congress resolved arbitrarily to fix the basis for the calculation of capital gain or loss.

In consequence the Act of 1928, for the language used in the earlier acts, substituted this: 'Property Transmitted at Death. If personal property was acquired by specific bequest, or if real property was acquired by general or specific devise or by intestacy, the basis shall be the fair market value of the property at the time of the death of the decedent. If the property was acquired by the decedent's estate from the decedent, the basis in the hands of the estate shall be the fair market value of the property at the time of the death of the decedent. In all other cases if the property was acquired either by will or by intestacy, the basis shall be the fair market value of the property at the time of the distribution to the taxpayer.' Section 113(a)(5), 26 USCA § 113 note.

No change was made in the phraseology of section 101(c)(8) from that used in prior acts defining capital assets as 'property * * * held by the taxpayer * * * for more than two years.' The argument for the Commissioner is that the alteration of the basis date necessarily implies an intent to make a similar alteration in the origin date of the holding period. We think the argument cannot prevail. The Committee Reports disclose no purpose to alter the rule laid down in the earlier statutes and re-enacted in section 101(c)(8). Congress must be taken to have been familiar with the existing administrative interpretation. The fact that the two sections deal with the same general subject—capital gains—is cited in support of the Commissioner's position that they ought to be consistently applied. There is, however, nothing novel in the naming of arbitrary 'basis' dates differing from the admitted dates of acquisition. The outstanding example is the use of March 1, 1913, value in certain cases for property theretofore acquired. Indeed subparagraphs (A), (B), and (C) of section 101(c)(8), 26 USCA § 101 note, fix arbitrary dates for calculation of the period of holding of capital assets which differ from the time of actual acquisition, showing that Congress, had it desired to change the connotation of the word 'held,' as used in section 101(c)(8), could readily have done so.

Counsel urge that Helvering v. New York Trust Company, supra, requires us to construe section 101(c)(8) as fixing the same date for the beginning of the holding period as section 113(a)(5) sets for determining the basis. We think, however, that the case is not authority here. The Act of 1921 exhibited an inconsistency in that while a donee was not permitted to...