1. Losses sustained by holders of corporate and municipal bonds
upon their surrender for cash to the obligors
held
deductible, in computing taxable income under the Revenue Act of
1934, only to the limited extent provided by § 117(d), relating to
losses from sales or exchanges of capital assets, and not in full
as bad debts under § 23(k). The amounts received in such
transactions are amounts received upon the "retirement" of the
bonds within the meaning of § 117(f). P.
311 U. S.
529.
2. In common understanding and according to dictionary
definition, the word "retirement" is broader in meaning than the
word "redemption." P.
311 U. S.
530.
3. The correction of inconsistencies and inequalities in the
operation of a statute of the United States is for Congress, and
not the courts. P.
311 U. S.
530.
110 F.2d 878 affirmed.
108 F.2d 642, reversed.
Certiorari, 310 U.S. 620, to review judgments which, in No. 55
affirmed, and in No. 58 reversed, orders of the Board of Tax
Appeals sustaining the Commissioner's disallowance of deductions in
income tax returns.
See 40 B.T.A. 60.
Page 311 U. S. 528
MR. JUSTICE ROBERTS delivered the opinion of the Court.
These cases present the question whether, upon the surrender of
bonds or debentures in exchange for a money payment less than cost,
a taxpayer may deduct the loss from his gross income as a bad debt
under § 23(k), [
Footnote 1] or
must treat it as a capital loss under § 117(f) [
Footnote 2] of the Revenue Act of 1934.
In number 55, it appears that the taxpayer owned $15,000 par
value of bonds of a water district, acquired by gift. The district,
being in financial difficulties, offered to pay $7,476.75 for them.
The offer was accepted, and the bonds delivered. In his tax return,
the taxpayer claimed a deduction of $7,523.25 as for a bad debt
charged off. The Commissioner disallowed the deduction, and the
Board of Tax Appeals and the Circuit Court of Appeals [
Footnote 3] sustained his ruling.
In number 58, the facts are that the taxpayer bought $25,000 par
value of debentures for $24,750. The issuer's affairs were placed
in the hands of a receiver. A plan of reorganization provided that
the receiver should pay $5 for each $1,000 debenture surrendered
for cancellation. The taxpayer availed himself of this provision,
and, in his tax return, claimed a deduction of $24,625 as for a bad
debt. The Commissioner disallowed the claim,
Page 311 U. S. 529
and the Board of Tax Appeals affirmed his decision. The Circuit
Court of Appeals reversed. [
Footnote 4]
By reason of the conflict of decision, we granted certiorari in
both cases. 310 U.S. 620.
The earlier revenue acts contained sections similar to 23(k) of
the Act of 1934. They also embodied provisions for calculation of
taxes on capital net gains. None of them included any section like
117(f). Prior to the adoption of the 1934 Act, it had been held
that the phrase "sale or exchange" of capital assets, employed in
those acts, was not descriptive of the redemption or call for
repayment of corporate securities, and hence gain thereby
occasioned was to be treated as ordinary income, [
Footnote 5] and loss so arising was to be
deducted from gross income as a bad debt. [
Footnote 6]
The Revenue Act of 1934, by subsection (f) of § 117, provided
that, for the purposes of the title dealing with capital gains and
losses, "amounts received by the holder upon the retirement" of
such securities as are here involved "shall be considered as
amounts received in exchange therefor."
It is plain that Congress intended, by the new subsection (f),
to take out of the bad debt provision certain transactions, and to
place them in the category of capital gains and losses. The
question is whether, by employing the word "retirement," the
transactions here involved were so transferred. We hold that they
were.
Page 311 U. S. 530
"Retirement" aptly describes what occurred in the instant cases.
The statute does not use the word in an unusual or artificial
sense. In common understanding and according to dictionary
definition, the word "retirement" is broader in scope than
"redemption;" is not, as contended, synonymous with the latter, but
includes it. Nothing in the legislative history of the provision
requires us to attribute to the term used a meaning narrower than
its accepted meaning in common speech.
The taxpayer in number 58 urges that to hold subsection (f)
applicable in his case would give the provision an unjust effect,
since, if he had refused to surrender his debentures for the
trifling consideration offered, he could have charged off their
whole cost as a bad debt under § 23(k). The answer is that we must
apply the statute as we find it, leaving to Congress the correction
of asserted inconsistencies and inequalities in its operation.
The court below held in number 58 that the phrase "retirement"
could properly be applied only to voluntary action on the debtor's
part in fulfillment of his promise to pay. This is but to say that
retirement means no more than call and redemption pursuant to the
terms of the obligation. But, as we have said, the two are not, in
common understanding, the same.
The judgment in number 55 is affirmed, and that in number 58 is
reversed.
No 55 affirmed.
No. 58 reversed.
* Together with No. 58,
Helvering, Commissioner of Internal
Revenue v. Thomson, Executrix, on writ of certiorari, 310 U.S.
620, to the Circuit Court of Appeals for the Second Circuit.
[
Footnote 1]
48 Stat. 689, 26 U.S.C. § 23(k).
[
Footnote 2]
48 Stat. 715, 26 U.S.C. § 117(f).
[
Footnote 3]
110 F.2d 878.
[
Footnote 4]
108 F.2d 642.
[
Footnote 5]
Watson v. Commissioner, 27 B.T.A. 463; Braun v. Commissioner, 29
B.T.A. 1161. This view was adopted by this court as respects the
Revenue Act of 1928 subsequent to the adoption of the Act of 1934.
Fairbanks v. United States, 306 U.
S. 436.
[
Footnote 6]
Commonwealth Bank v. Lucas, 317, 41 F.2d 111;
Lebanon Nat. Bank v. Commissioner, 76 F.2d 792;
Pacific Nat. Bank v. Commissioner, 91 F.2d 103.