First Nat Bank of Chicago v. United States

• Decision Date: 13 April 1931
• Docket Number: No. 124,124
• Citation: 283 U.S. 142,75 L.Ed. 913,51 S.Ct. 378
• Parties: FIRST NAT. BANK OF CHICAGO v. UNITED STATES
• Court: U.S. Supreme Court

283 U.S. 142

51 S.Ct. 378

75 L.Ed. 913

FIRST NAT. BANK OF CHICAGO

v UNITED STATES.

No. 124.

Argued March 4, 1931.

Decided April 13, 1931.

Mr. Harold V. Amberg, of Chicago, Ill., for petitioner.

The Attorney General and Mr. Charles B. Rugg, Asst. Atty. Gen., for the United States.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

The First National Bank of Chicago made a consolidated corporation income and profits tax return for the year 1922 which, among other things, disclosed results from operations of two affiliated corporations, the First Trust Joint Stock Land Banks of Chicago and Dallas, organized under the Federal Farm Loan Act of 1916. It claimed the right to deduct from total receipts the amounts paid (or accrued) during the year by the land banks for interest upon their outstanding bonds. The Commissioner refused to allow the deductions. Payment as demanded was followed by suit to recover in the Court of Claims. Judgment went against the bank, and the matter is here upon certiorari.

From the findings, based upon a stipulation of facts, it appears:

'The First Trust Joint Stock Land Bank of Chicago and the First Trust Joint Stock Bank of Dallas, which were organized under the Federal farm loan act of July 17, 1916, issued to and/or had outstanding in the hands of the public in the year 1922 their joint-stock land bank bonds, respectively, on which interest was paid and/or accrued in the year 1922, in the aggregate sum of $78,807.80, part of which was the intercompany transaction in the amount of $5,810.25, leaving a balance paid or accrued of $72,997.55. As security for the payment of said joint-stock land bank bonds said joint-stock land banks, as provided in the Federal farm loan act, deposited with the proper farm loan registrars farmers' promissory notes evidencing loans to said farmers, which in turn were secured as to payment by said farmers' first mortgages on their farms.

'The proceeds coming into the hands of said joint-stock land banks from the issuance and sale of said joint-stock land banks bonds were used by said joint-stock land banks to make new additional loans to farmers, which new loans made from the proceeds of said joint-stock land bank bonds issued and/or outstanding in 1922, were made in each instance in consideration of the making and delivery by the borrowing farmers, respectively, of their promissory notes secured as to payment by first mortgages on their farms. All of said loans, respectively, and the farmers' notes and mortgages, respectively, evidencing said loans, were designed to be and were of such a nature as to comply with (1) all the terms, conditions, restrictions, limitations, and requirements specified in the Federal farm loan act, as requisite to qualify said loans, notes, and mortgages, as 'first mortgages' in contemplation of said act, so as to make them available as collateral security against the issue of joint-stock land bank bonds; and (2) all terms, conditions, restrictions, limitations, and requirements, statutory or otherwise, specified in the laws of the State in which the farm which was the subject of the particular loan was located (to wit, the States of Illinois, Iowa, Texas, and Oklahoma, respectively), as requisite to qualify said loans, notes, and mortgages as valid and subsisting first mortgages, in contemplation of such laws. Said notes and mortgages contain an agreement providing for the repayment of the loan on the amortization plan, as provided in section 12, second, of the Federal farm loan act and such agreement in respect of each note and/or mortgage was not extinguished within a period of less than thirty-three years, except, of course, at the option of the borrower.

'The interest received by the plaintiff on such farmers' notes and mortgages was not taxable as income to the plaintiff and was not so taxed in respect of plaintiff's etu rn for the year 1922.'

Decision of the cause must turn upon the construction of pertinent portions, Revenue Act 1921, Title 2, c. 136, 42 Stat. 227, 237, 238, 252, 254.

Section 213 provides that the term 'gross income' does not include interest upon 'securities issued under the provisions of the Federal Farm Loan Act of July 17, 1916.'

Section 230 imposes a tax at specified rates upon the net income of every corporation.

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