State ex rel. Whitlock v. State Board of Equalization

• Decision Date: 25 May 1935
• Docket Number: 7401.
• Citation: 45 P.2d 684,100 Mont. 72
• Parties: STATE ex rel. WHITLOCK v. STATE BOARD OF EQUALIZATION et al.
• Court: Montana Supreme Court

45 P.2d 684

100 Mont. 72

STATE ex rel. WHITLOCK v. STATE BOARD OF EQUALIZATION et al.

No. 7401.

Supreme Court of Montana

May 25, 1935

Appeal from District Court, Missoula County; Theodore Lentz, Judge.

Certiorari proceeding by the State, on the relation of A. N. Whitlock against the State Board of Equalization and others, to review the action of the State Board in denying A. N. Whitlock's application for revision of his state income tax. From a judgment affirming the action of the board, the plaintiff appeals.

Judgment affirmed.

Murphy & Whitlock, of Missoula, for appellant.

Raymond T. Nagle, Atty. Gen., and Jeremiah J. Lynch, Asst. Atty Gen., for respondents.

ANDERSON Justice.

This proceeding is one in certiorari, brought for the purpose of reviewing the action of the state board of equalization in denying the application made to it by the relator, a taxpayer, for the revision of his Montana state income tax for the year 1933, under the provisions of chapter 181, Laws 1933. The trial court entered a judgment affirming the action of the board in all respects and awarding the board its costs. The appeal is from this judgment.

There was no dispute as to the facts. The taxpayer made his return for the year 1933 upon the form prescribed by the board. There was no question as to his having listed properly all of his taxable income for that year; however, in preparing his return for the purpose of establishing his net taxable income he deducted from his gross income the sum of $7,844.64, which sum represents the loss sustained by him from the purchase and sale of certain corporate bonds. These bonds were all purchased prior to the year 1933; they were all sold during that year.

There were seventeen items involved, each item containing one or more bonds. In each instance the price for which the bonds were sold in 1933 was less than the cost price at the time they were purchased, and the total difference between purchase price and selling price is the sum of $7,844.64 which amount was claimed as a deduction by relator under section 8, subdivision 5, of the above chapter, and was actually deducted in making his return. The disposition of the bonds was by actual sale. These transactions were entered into for profit though not connected with trade or business and no part of the claimed loss was compensated for by insurance or otherwise. Although all of the bonds were sold for less than their cost to the taxpayer, six of the seventeen items only were sold for less than the market value of these various bonds on January 1, 1933.

The loss on these six items computed by deducting the selling price from the market price on January 1, 1933, was $920.98. In all other instances the January 1, 1933, value was as low or lower than the selling price.

The board in re-examining the taxpayer's return decided that he could deduct as a loss only the amount of $920.98, instead of the total loss claimed by him and representing the difference between the sale price and the purchase price. The tax computed in accordance with the board's computation amounts to $378.84, or $271.67 more than the tax as computed by the taxpayer. The latter paid the entire tax as computed by him in his return, and paid the additional tax computed by the board under protest, and within the time allowed, upon notice as required by the statute, and the filing of the required bond, applied to the district court for a writ of review. The writ was granted and return was made by the board. The matter was submitted to the court, and judgment was entered as noted supra.

The taxpayer in his brief says: "The sole question involved is whether or not the taxpayer was entitled to deduct his entire loss sustained from the sale of bonds or whether he could only deduct the loss, as to items where there was a loss, represented by the difference between the value on January 1, 1933, and the sale price."

Section 8 of chapter 181, supra, provides that "in computing net income, there shall be allowed as deductions: *** (5) 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 trade or business. ***"

The taxpayer contends that under this quoted portion of the section, a loss is not "sustained" until there is a completed sale or final disposition of the property; that a reading of the entire section discloses that there is no limitation upon the deduction made, except in the one case, and that is subdivision 7, which relates to worthless debts. In that case, but in no other, the law fixes a basic date of January 1, 1933, and provides that no more than the fair market value of the debt on that date shall be deducted. In all other cases the only limitation set forth is that the loss must be sustained during the taxable year, and if a loss is sustained under the law as written, the taxpayer is entitled to deduct the entire loss and no limitation is placed thereon by the act itself. The pertinent portion of subdivision 7 of section 8, alluded to supra, reads as follows: "(7) Debts ascertained to be worthless and charged off within the taxable year. In the case of a debt existing on January first, Nineteen Hundred and Thirty-three, no more than its fair market value on that date shall be deducted."

The taxpayer argues further that, since the Legislature incorporated the basic date of January 1, 1933, in subdivision 7, supra, it thereby impliedly excluded the use of such date from the other subdivisions of section 8; otherwise stated, it is contended that applying the familiar rule of statutory construction "expressio unius est exclusio alterius" results in attributing that meaning to only subdivision 7.

The Federal Income Tax Law (26 USCA § 955, (a) (5), as now written, contains a provision identical with the quoted portion of subdivision 5, section 8, of our act. However, under the federal law (26 USCA § 935), the basic date for determining the value of the property is March 1, 1913, where the property was acquired before that date, being the date when the first Federal Income Tax Law became operative. As already indicated, the portion of our statute under consideration contains no such specific basic date.

The federal courts have uniformly held that losses may be deducted only when they result from or are evidenced by closed transactions. Howard v. Commissioner (C. C. A.) 56 F. (2d) 781; Dresser v. United States (Ct. Cl.) 55 F. (2d) 499; Burnett v. Huff, 288 U.S. 156, 53 S.Ct. 330, 77 L.Ed. 670. The effect of these and many other decisions under the federal law is that a taxpayer may not claim a deduction for loss on an investment in property until such time as he has finally disposed of it, until then no loss is sustained. We find ourselves in accord with that rule.

The question having been determined as to when the taxpayer has sustained a loss, there remains the matter of determining the extent of the loss. We are unable to understand wherein the decisions cited, supra, and others of like character, are helpful in the solution of this remaining question. All of the Federal Income Tax Laws enacted since the adoption of the Sixteenth Amendment to the Constitution have contained the basic date of March 1, 1913, for determining the value of property acquired before that date for the purpose of arriving at the gain or loss resulting from a transaction, commencing with the act of 1916 (chapter 463, 39 Stat. 756, § 2, subsec. (c), with the exception of the act of 1913 (chapter 16, 38 Stat. 114). There no basic date was provided as is found in all the subsequent acts.

In the case of Lynch v. Turrish (C. C. A.) 236 F. 653 arising under the Federal Income Act of 1913, the following facts were involved: Turrish was a stockholder in a corporation owning as its sole asset certain timber lands in Idaho, purchased by the corporation in 1903. These lands gradually appreciated in value from the date of purchase to March 1, 1913, to the extent that their value had doubled. In 1914 the corporation sold all these lands for twice the purchase price, and distributed to the taxpayer, as a liquidating dividend, double the amount which he had invested in the stock of the corporation at or near the time of the purchase of the timber lands. It was sought to impose a tax upon one-half of the amount received as the liquidating dividend, or the excess of the dividend over the cost price of the stock. It was there held that this increase in value which had accrued entirely before the operative date of the law could not be subjected to the imposition of an income tax. The court based its conclusion in part upon the proposition that, in order to sustain the tax, it was...