Shearer v. Burnet Stewart v. Same

• Decision Date: 14 March 1932
• Docket Number: Nos. 469,470,s. 469
• Parties: SHEARER v. BURNET, Com'r of Internal Revenue. STEWART v. SAME
• Court: U.S. Supreme Court

285 U.S. 228

52 S.Ct. 332

76 L.Ed. 724

SHEARER

v BURNET, Com'r of Internal Revenue.

STEWART

v. SAME.

Nos. 469, 470.

Argued Feb. 23, 24, 1932.

Decided March 14, 1932.

Messrs. McCready Sykes, of New York City, and Charles Henry Butler, of Washington, D. C., for petitioners.

The Attorney General and Mr. Whitney North Seymour, of Washington, D. C., for respondent.

Mr. Justice STONE delivered the opinion of the Court.

The petitioners in these cases, members of a law partnership, filed their individual tax returns for the calendar year 1924. The partnership books were kept on the basis of a fiscal year and the partnership information return, filed in 1924, was for the fiscal year ending April 30th of that year. As required by section 218(a) of the Revenue Act of 1924, c. 234, 43 Stat. 253, 275, 26 USCA § 959(a), the petitioners included in their individual returns their respective shares of the partnership profits for the partnership year ending in 1924. They thus returned, as 1924 income, partnership profits attributable to eight months of the previous year.

In assessing the tax, the Commissioner rejected their claim that, under the provisions of title 12 of the Revenue Act of 1924 (43 Stat. 353), they were entitled to a reduction of 25 per cent. of the tax at 1923 rates on that portion of their respective shares of the partnership income attributable to the eight months of the partnership year, which fell in the calendar year 1923, and found deficiencies accordingly. The orders of the Board of Tax Appeals sustaining the action of the Commissioner, 18 B. T. A. 393, were affirmed by the Court of Appeals for the Second Circuit. 52 F.(2d) 17. This Court granted certiorari, 284 U. S. 612, 52 S. Ct. 130, 76 L. Ed. —, to resolve a conflict between the decision below and that of the Court of Appeals for the First Circuit, in White v. Maddison, 45 F.(2d) 335.

The provisions of title 12 of the Revenue Act of 1924 embody a comprehensive scheme for relieving taxpayers from the burdens of the higher rates applicable to 1923 income under the 1921 Act (42 Stat. 227). The 1924 Act reduced the rates, but became a law too late in the year to make them readily applicable to income earned in the previous year. Instead, it adopted the less scientific, but more convenient, plan of a level reduction of 25 per cent. of the tax. In making it, Congress was careful to limit the reduction to taxes on income returned for 1923. The applicable provisions are found in sections 1200(a) and 1201(a) and (b) of the 1924 Act.¹ Section 1200(a) authorized the allowance to tax payers making a return of income for the calendar year 1923. Section 1201(a) and (b) granted it to taxpayers returning income for a fiscal year beginning or ending in 1923, but only with respect to the tax on so much of the income returned as was attributable to income earned in the calendar year 1923.

Petitioners' claims for the allowance plainly are not comprehended by the language of either section. They made their returns on the calendar year basis, and were entitled to, and presumably received, the allowance authorized by section 1200(a) upon the tax on income returned for the calendar year 1923. But this section does not authorize any reduction of the tax upon income returned for the calendar year 1924, as was that of petitioners. Section 1201(a) and (b) applies only to taxpayers returning income for a fiscal year beginning or ending in 1923. The petitioners, who made no such returns, were thus excluded from the benefits of the 25 per cent. reduction of the tax on any part of their income returned for the calendar year 1924 by the unambiguous language of these sections. See Crooks v. Harrelson, 282 U. S. 55, 60, 61, 51 S. Ct. 49, 75 L. Ed. 156. $They argue that the provisions of these sections applicable to income returned for 1923, evidence a general purpose to allow the reduction of tax upon any income attributable to that year. Hence, despite the language of section 1201(b) restricting its benefits to those returning income for taxation for some part of the year 1923, they insist that it should be deemed to extend to taxes on partnership income attributable to 1923, although in fact income in 1924, and returned by the taxpayers as such in their 1924 returns.

Even if there were room for construction of the words of the statute, it is impossible to discern any such general purpose underlying the 1924 Act as would support petitioners' contention. There are two insuperable obstacles to the contruction urged. The first is the necessary effect of section 1200(a) when applied to returns of taxpayers for the calendar year 1923. That section authorizes a reduction of 25 per cent. of the taxes for 1923 upon all income, including that derived from partnerships having a fiscal year beginning in 1922 and ending in 1923. Thus applied, it allows 25 per cent. reduction of petitioners' 1923 tax, including that upon their partnership income, attributable to eight months of 1922. If, as they insist, section 1201(b) is to be construed as permitting a like reduction of the 1924 tax on partnership income attributable to the last eight months of the calendar year 1923, which overlapped the partnership year ending in 1924, petitioners, despite the careful limitation of the reduction to taxes upon income for a single year, would be entitled to a reduction of the tax on partnership income for a period of more than a year, in this case twenty months, eight months of 1922 and the full twelve months of 1923.

A second objection to the suggested construction of section 1201(b) is that if the reduction, for which it provides, were extended to the tax involved here, it would not necessarily result in a return of 25 per cent. of the tax assessed, as is the obvious purpose of the section. Section 1201(a) and (b) allows the 25 per cent. reduction on that proportion of the tax for the entire year, computed at 1923 rates, which the period of the fiscal year falling within the calendar year 1923 bears to the entire taxable year. As this is the same basis on which the tax is computed, under section 207(a) of the 1924 Act, where the taxable year begins in 1923 and ends in 1924, the reduction is exactly 25 per cent. of the tax assessed.

A different method of computing the tax on a distributive share of partnership income for a partnership fiscal year beginning in 1923 and ending in 1924, is prescribed by section 207(b...