Dixon v. United States
381 U.S. 68 (1965)

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U.S. Supreme Court

Dixon v. United States, 381 U.S. 68 (1965)

Dixon v. United States

No. 486

Argued March 30-31

Argued March 30-31, 1965

Decided May 3, 1965

381 U.S. 68

Syllabus

A partnership to which petitioners belong, in 1952, bought short-term noninterest-bearing notes at discounts. The purchases were assertedly made in reliance on the published acquiescence of the Commissioner of Internal Revenue in Caulkins v. Commissioner, 1 T.C. 656, aff'd, 144 F.2d 482, where the Tax Court had allowed capital gains treatment of the full amount a taxpayer had received on an "Accumulative Installment Certificate." After holding the notes six months, they disposed of some at a gain before the end of the tax year, and the balance in the next tax year. The partnership reported the gain as a long-term capital gain, and, although on an accrual basis, did not accrue any income for the notes unsold that year. Petitioners' individual returns reflected the same treatment for their distributive shares of the partnership income. The Commissioner subsequently withdrew his acquiescence in Caulkins except with respect to debt securities that were (a) of the specific type involved in Caulkins, and (b) issued by the particular issuer involved in that case. The Commissioner determined that petitioners' gain was taxable as ordinary income, and that a portion of the original issue discount on the unsold notes was reportable as earned in the tax year. Petitioners paid the deficiencies, and sued for a refund. Respondent prevailed in the District Court and the Court of Appeals.

Held:

1. Original issue discount is not entitled to capital gains treatment under the 1939 Internal Revenue Code. United States v. Midland-Ross Corp., ante, p. 381 U. S. 54, followed. P. 381 U. S. 70.

2. The Commissioner's acquiescence in an erroneous decision of the Tax Court cannot, by itself, bar collection of a tax otherwise lawfully due; the Commissioner has discretion under § 7805(b) of the Internal Revenue Code of 1954 retroactively to withdraw an acquiescence, and he may do so even where a taxpayer may have detrimentally relied on the Commissioner's mistake. Pp. 381 U. S. 70-75.

3. The Commissioner did not abuse his discretion in this case by giving retroactive effect to the withdrawal of his acquiescence. Pp. 381 U. S. 75-80.

Page 381 U. S. 69

(a) No notice that he was about to correct his mistake of law was required in the relevant tax year, since the petitioners were not justified in relying on the acquiescence as precluding correction. P. 381 U. S. 76.

(b) Since the Commissioner's acquiescence in Caulkins should not have been read as constituting acceptance of the general proposition that earned original issue discount was entitled to capital gains treatment, the revocation of his acquiescence was not a repudiation of his earlier acceptance of a decision that prescribed capital gains treatment for the original issue discount here involved; consequently, his exception of specific certificates of the type involved in Caulkins from the retroactive application of his nonacquiescence could not constitute an abuse of discretion of which petitioners may complain.

(c) In any event, petitioners did not satisfy their burden of showing that those securities could not rationally be distinguished from other discounted securities. Pp. 381 U. S. 79-80.

333 F.2d affirmed.

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