Taft v. Bowers Greenway v. Same
| Decision Date | 18 February 1929 |
| Docket Number | Nos. 16 and 17,s. 16 and 17 |
| Parties | TAFT v. BOWERS, Collector of Internal Revenue. GREENWAY v. SAME. Re |
| Court | U.S. Supreme Court |
Messrs. Henry W. Taft and Clarence Castimore, both of New York City, for petitioners in No. 16.
[Argument of Counsel from pages 471-475 intentionally omitted] Messrs. Hiram C. Todd, and Roger S. Baldwin, both of New York City, for petitioners in No. 17.
The Attorney General and Mr. E. G. Davis, Sp. Asst. Atty. Gen., for respondent.
[Argument of Counsel from page 477 intentionally omitted] Mr. Justice McREYNOLDS delivered the opinion of the Court.
Petitioners, who are donees of stocks, seek to recover income taxes exacted because of advancement in the market value of those stocks while owned by the donors. The facts are not in dispute. Both causes must turn upon the effect of paragraph (2), § 202, Revenue Act 1921 (chapter 136, 42 Stat. 227, 229), which prescribes the basis for estimating taxable gain when one disposes of property which came to him by gift. The records do not differ essentially and a statement of the material circumstances disclosed by No. 16 will suffice.
During the calendar years 1921 and 1922 the father of petitioner, Elizabeth C. Taft, gave her certain shares of Nash Motors Company stock, then more valuable than when acquired by him. She sold them during 1923 for more than their market value when the gift was made.
The United States demanded an income tax reckoned upon the difference between cost to the donor and price received by the donee. She paid accordingly and sued to recover the portion imposed because of the advance in value while the donor owned the stock. The right to tax the increase in value after the gift is not denied.
Abstractly stated, this is the problem:
In 1916 A purchased 100 shares of stock for $1,000, which he held until 1923 when their fair market value had become $2,000. He then gave them to B who sold them during the year 1923 for $5,000. The United States claim that under the Revenue Act of 1921 B must pay income tax upon $4,000, as realized profits. B maintains that only $3,000-the appreciation during her ownership-can be regarded as income; that the increase during the donor's ownership is not income assessable against her within intendment of the Sixteenth Amendment.
The District Court ruled against the United States; the Circuit Court of Appeals held with them.
Act of Congress approved November 23, 1921 (chapter 136, 42 Stat. 227, 229, 237)—
'Sec. 202. (a) That the basis for ascertaining the gain derived or loss sustained from a sale or other disposition of property, real, personal, or mixed, acquired after February 28, 1913, shall be the cost of such property; except that—
'(1) * * *
'Sec. 213. That for the purposes of this title (except as otherwise provided in section 233) the term 'gross income'—
'(b) Does not include the following items, which shall be exempt from taxation under this title:
'(1) * * * (2) * * * (3) The value of property acquired by gift, bequest, devise, or descent (but the income from such property shall be included in gross income). * * *' We think the manifest purpose of Congress expressed in paragraph (2), § 202, supra, was to require the petitioner to pay the enacted tax.
The only question subject to serious controversy is whether Congress had power to authorize the exaction.
It is said that the gift became a capital asset of the donee to the extent of its value when received and, therefore, when disposed of by her no part of that value could be treated as taxable income in her hands.
The Sixteenth Amendment provides:
'The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.'
Income is the thing which may be taxed-income from any source. The amendment does not attempt to define income or to designate how taxes may be laid thereon, or how they may be enforced.
Under former decisions here the settled doctrine is that the Sixteenth Amendment confers no power upon Congress to define and tax as income without apportionment something which theretofore could not have been properly regarded as income.
Also, this court has...
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