Heiner v. Tindle

• Decision Date: 09 April 1928
• Docket Number: No. 341,341
• Citation: 48 S.Ct. 326,72 L.Ed. 714,276 U.S. 582
• Parties: HEINER, Collector of United States Internal Revenue, v. TINDLE et al
• Court: U.S. Supreme Court

276 U.S. 582

48 S.Ct. 326

72 L.Ed. 714

HEINER, Collector of United States Internal Revenue,

v TINDLE et al.

No. 341.

Argued March 7, 1928.

Decided April 9, 1928.

The Attorney General and Mr. Gardner P. Lloyd, of New York City, for petitioner.

Mr. James Walton, of Pittsburgh, pa., for respondents.

Mr. Justice STONE delivered the opinion of the Court.

Before 1892 the late Philander C. Knox built a dwelling house in Pittsburgh, at a total cost for land and buildings of $172,000. He occupied the house as a residence until 1901, when, circumstances requiring his residence elsewhere, he leased the property at a stipulated rental. He continued so to lease it from October 1st in that year until 1920, when it was sold for $73,000. The fair market value of the property on March 1, 1913, was $120,000. Its value in 1901 does not appear. In his income tax return for 1920 he deducted from gross income the difference between the selling price of the property and its March 1, 1913, value, less depreciation from that date to the date of sale. The Commissioner disallowed the deduction and assessed a correspondingly increased tax, which was paid under protest. The present suit was brought in the District Court for Western Pennsylvania to recover the additional tax assessed. The trial was to the court, a jury having been waived by written stipulation. Judgment was given for the collector (Tindle v. Heiner (D. C.) 17 F. (2d) 522), which was reversed by the Circuit Court of Appeals for the Third Circuit (Tindle v. Heiner, 18 F. (2d) 452).

The tax was assessed under the Revenue Act of 1918, c. 18, 40 Stat. 1057. Section 214 (Comp. St. § 6336 1/8 g) specifies deductions which may be made from gross income in computing the tax and subsection (a) 5 permits the deduction of

'losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business.'

Section 215 (Comp. St. § 6336 1/8 gg) provides that:

'In computing net income no deduction shall in any case be allowed in respect of (a) personal, living, or family expenses.'

Treasury Regulations 45, promulgated April 17, 1919, and in force during 1920, provide:

'Art. 141. * * * A loss in the sale of an individual's residence is not deductible.'

This was amended on January 28, 1921, to read:

'* * * A loss in the sale of residential property is not deductible unless the property was purchased or constructed by the taxpayer with a view to its subsequent sale for pecuniary profit.'

This regulation has remained unchanged under the Revenue Acts of 1921, 1924 and 1926. See article 141 of Regulations 62, Regulations 65, and Regulations 69.

That the exchange value of a dwelling house may increase or diminish is a consideration not usually overlooked by one who purchases it for residential purposes, but the quoted regulations appear to assume that the acquisition of such property cannot be a transaction for profit within the meaning of subsection (a) 5 of section 214, if the dominating purpose of it is the use of the property for a home. The correctness of that view is not before us, for there is no finding that the taxpayer built his dwelling with any hope or expectation of profit. See Appeal of D'Oench, 3 B. T. A. 24.

But the findings amply support the view of the Court of Appeals that the purpose to use the property as a residence of the taxpayer came to an end when it was leased in 1901, and that from that date until it was sold 19 years later it was devoted exclusively to the production of a profit in the form of net rentals. It is not questioned that if in 1901 the property had been purchased for that use or inherited and so used the loss might have been deducted, but it is said, as the District Court held, that the only transaction entered into with respect to the property was the purchase of the land and the erection of the house, regardless of the use which might afterwards be made of it, and that these acts did not appear to be a transaction entered into for profit.

But the words 'any transaction' as used in subsection (a) 5, are not a technical phrase, or one of art. They must therefore be taken in their usual sense, and, so taken, they are, we think, broad enough to embrace at least any action or business operation, such as that with which we are now concerned, by which property previously acquired is devoted exclusively to the production of taxable income. We can perceive no reason why they should not be so taken unless that construction is inconsistent with the purpose or with particular provisions of the act. Section 214, read as a whole, discloses plainly a general purpose to permit deductions of capital losses wherever the capital investment is used to produce taxable income, and the inclusion of the present deduction in those described in subsection (a) 5 would seem to be entirely harmonious with that purpose.

But it is pointed out that section 202 of the Revenue Act of 1918 (Comp. St. § 6336 1/8 bb), prescribing the method of computing gain or loss upon the sale of property, makes value as of March 1, 1913, or cost if acquired later, the basis of the computation. It...