Stewart v. United States, 20379-S

Decision Date21 August 1938
Docket Number20380-S.,No. 20379-S,20379-S
Citation24 F. Supp. 145
PartiesSTEWART v. UNITED STATES (two cases).
CourtU.S. District Court — Northern District of California

W. G. Harmon, of San Francisco, Cal., Ernest L. Wilkinson and Walter G. Moyle, both of Washington, D. C., and J. Edward Johnson, of San Francisco, Cal., for petitioners.

Frank J. Hennessy, U. S. Atty., of San Francisco, Cal.

LINDLEY, District Judge.

Petitioners, husband and wife, sue under the provisions of paragraphs 5 and 20 of § 41, Title 28 USC, 28 U.S.C.A. § 41(5, 20), to recover income taxes paid for the year 1931, claimed to have been erroneously assessed and collected.

During the year 1930 petitioners purchased farm loan bonds issued under the Federal Farm Loan Act of 1916, 39 Stat. 360, by two joint stock land banks, a part of which, in the following year, 1931, they surrendered to the receiver of the issuing bank for liquidation, in an amount in excess of what they had paid therefor, and the remainder of which they sold for an amount in excess of the purchase price. The gains derived from these two transactions, aggregating over $84,000, were held by the Commissioner to constitute taxable income.

The bonds were issued under the Federal Farm Loan Act of 1916, 12 USC § 931, 12 U.S.C.A. § 931, which, among other matters, provides that bonds issued by such banks "shall be deemed and held to be instrumentalities of the Government of the United States, and as such they and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation." The Revenue Act of 1928, 26 U.S.C.A. § 22, provides that there shall be levied a tax upon all income, including "gains, profits, and income derived from salaries * * * or sales, or dealings in property, whether real or personal * * *." It further directs that interest upon securities issued under the provisions of the Federal Farm Loan Act shall be exempt. In 1938 Congress provided in the Revenue Act of that year, § 817, 12 U.S.C. A. § 931a, that notwithstanding the provisions of § 26 of the Federal Farm Loan Act, as amended, as to obligations issued after the date of the act, all income from such bonds, except interest, shall be included in gross income.

Prior to the purchase of the bonds in question, the Commissioners of Internal Revenue had apparently uniformly held that gains from sales of such obligations was exempt income. The expressions of some of the members of Congress in discussing the bill while its passage was being considered, indicated a like belief upon their part. The evidence is that Mr. Stewart, who acted also for his wife, relied upon these opinions and the language of the Act, and believed that he was purchasing securities the profit upon which, in case of sale, would result in exempt income.

In Willcuts v. Bunn, 282 U.S. 216, 51 S.Ct. 125, 75 L.Ed. 304, 71 A.L.R. 1260, the court held that profit derived by an investor in municipal bonds from their sale by him at a higher price than the purchase price, is taxable as income, even though such municipal bonds and the interest therefrom are exempt. The Government relies upon this opinion as decisive of the issue presented in the present case, but it is apparent that the scope of the opinion is not broad enough to constitute an adjudication upon the question immediately confronting us. There the statute made the bond and the "interest therefrom" exempt. Here the statute makes the bond and the "income therefrom" exempt, and petitioners insist that under the express words of the statute a profit realized from the sale of such securities is income derived from the property itself and therefore exempt. Thus the immediate question is whether the profit derived from the sale of such bonds is income derived from the bonds....

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4 cases
  • Stewart v. United States
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • August 30, 1939
    ...and (20)); judgment was entered in favor of defendant, from which this appeal is taken. The opinion of the court below is reported in 24 F.Supp. 145. The question presented by this appeal is whether the gain realized upon the surrender and sale of the bonds involved herein is exempt from fe......
  • United States v. Stewart
    • United States
    • U.S. Supreme Court
    • November 12, 1940
    ...of that claim, this suit for refund was instituted. The District Court determined that the gains so realized were income and taxable. 24 F.Supp. 145. The Circuit Court of Appeals Sec. 22(a) of the Revenue Act of 1928, 45 Stat. 791, 26 U.S.C.A. Int.Rev.Acts page 354, includes in gross income......
  • Stern Bros. & Co. v. Commissioner of Internal Revenue
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • January 5, 1940
    ...39 B.T.A. 1103, has ruled that Section 26, 12 U.S.C.A. § 931, did not exempt profits derived from the sale of such bonds. Stewart v. United States, D.C., 24 F.Supp. 145, which was to the same effect, was reversed by the United States Circuit Court of Appeals of the Ninth Circuit in Stewart ......
  • Stewart v. United States, 9101.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • January 3, 1941

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