1. A finding of the Board of Tax Appeals that certain sale of
stock by the taxpayer in this case were ordinary sale, and not
"short" sales, was supported by substantial evidence, and was
therefore conclusive. P. 316 U. S.
2. The criteria which the Board employed in determining whether
the sales of stock in this case were "short" sales complied with
the legal principles announced in Provost v. United
States, 269 U. S. 443
316 U. S. 168
3. The Circuit Court of Appeals is authorized by statute to
modify or reverse a decision of the Board of Tax Appeals only if it
is "not in accordance with law." P. 316 U. S. 168
124 F.2d 156 reversed.
Certiorari, 315 U.S. 789, to review the reversal of a decision
of the Board of Tax Appeals, 42 B.T.A. 173, redetermining a
deficiency in income tax.
Page 316 U. S. 165
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The sole question presented by this case is whether certain
sales of shares of stock made by the taxpayer, petitioner's
decedent, were "short" sales or sales of "long" stock. If they were
not "short" sales, then the taxpayer was justified in deducting
from dividends credited to the "long" shares the amount of
dividends charged to the shares sold.
The taxpayer maintained several accounts with a brokerage house
-- "regular," "special," and "short." The "regular" and "special"
accounts were "long" accounts. During the years 1934 and 1935, the
taxpayer's "long" accounts were credited with dividends on certain
shares. During the same years, her "short" account was charged with
dividends on shares of the same stock issues. The taxpayer did not
include in her income tax returns for 1934 and 1935 the dividends
credited to her "long" accounts on the theory that the amount of
stock which she owned was not the number of shares credited to her
in the "long" accounts, but only the number of shares by which her
"long" position exceeded her "short" position in each of the stock
issues held in the several accounts. The Commissioner assessed
deficiencies on the theory that the sales made through the "short"
account were in fact "short" sales, and that the dividends charged
to the "short" account represented additional cost of the shares,
and could not be offset against the dividends credited to the
"long" accounts. Accordingly, he ruled that the taxpayer was
taxable on all of the dividends credited to her "long" accounts. On
a petition for review, the Board of Tax Appeals found that the
sales made through the "short" account were sales of shares held in
the taxpayer's "long" accounts. It therefore held that the
dividends charged to the "short" account should be offset against
the dividend credits. Ortiz v. Commissioner,
Page 316 U. S. 166
42 B.T.A. 173. The Circuit Court of Appeals reversed. 124 F.2d
156. We granted the petition for certiorari, 315 U.S. 789, limited
to the question whether the sales in the "short" account were in
fact "short" sales, because the action of the Circuit Court of
Appeals in setting aside the findings of the Board on that issue
was seemingly erroneous under the rule of such cases as
Helvering v. Lazarus & Co., 308 U.
The findings of the Board were substantially as follows: the
sales in question were sales of shares of which the taxpayer held
an equal or greater number of the same kind in her "long" accounts.
In every such instance, the broker, acting under authority from the
taxpayer to consider all her accounts as a unit, treated the sales
through the "short" account as sales of the taxpayer's "long"
shares. None of these sales was labeled as a "short" sale. The
broker required no margin, and charged no "short" sale tax. He
credited the "short" account with the proceeds, and made an entry
therein showing delivery of the shares at the time of the execution
of the sales to the purchaser. In no such case did the broker
borrow any stock from other brokers or customers. Orders were
executed on the stock exchange in the regular way, and delivery was
made on the next full business day from certificates in street
names held by the broker's New York correspondents. Those street
certificates included shares held by the broker for the taxpayer,
though none of them was specifically designated as belonging to the
taxpayer. The taxpayer was allowed interest on the proceeds of
sale. Dividends were collected for the taxpayer only on the number
of shares by which her "long" position exceeded her "short"
position. On the other hand, whenever the taxpayer's "long"
accounts contained no shares of the kind sold, the broker executed
the sale as a "short" sale, required the customary margin, charged
the "short" sale tax, and made delivery from borrowed
Page 316 U. S. 167
stock. On the basis of such facts, the Board found that "the
sales in question were intended to be and were actually executed as
ordinary sales, or sales of shares held" in the taxpayer's "long
In overturning that finding of fact, the Circuit Court of
Appeals laid great emphasis on the manner in which the transactions
were entered on the taxpayer's books. It also noted that gains or
losses were not reported at the moment of the sales, but only when
the covering transaction was completed, and that the certificates
used in completing the sales were in no way designated as belonging
to the taxpayer. And it also stated that it could not be said that
the broker did not use borrowed stock to make deliveries on the
"short" sales. On that aspect of the case, respondent lays primary
emphasis. The contention is that the taxpayer's "long" stock was
not "delivered" in consummation of the sales in the "short"
account, since the broker merely made delivery out of certificates
in street names held by it or for its account, instead of borrowing
from other brokers, and since none of those street certificates was
in any way designated as the taxpayer's. It is urged that, the
facts being undisputed, the question of whether stock was borrowed
to complete the sales was a question of law as respects which the
Board did not have the final say.
The true character of the "short" account is a question of fact
to be determined in the light of the outward or manifested
intention of the taxpayer and the way in which the account was
actually managed. The designation of the accounts, the fact that,
as a matter of bookkeeping, sales made through the "short" account
apparently were not reflected in the "long" accounts, the method of
reporting gains or losses are some evidence to support the
conclusion of the court below. But there are numerous other
circumstances which look the other way. They are embraced in the
several subsidiary findings which the Board
Page 316 U. S. 168
made and which we have enumerated. Those findings are supported
by substantial evidence, and are abundant justification for the
Board's ultimate finding that the sales made through the "short"
account were ordinary sales. It is the function of the Board, not
the Circuit Court of Appeals, to weigh the evidence, to draw
inferences from the facts, and to choose between conflicting
inferences. The court may not substitute its view of the facts for
that of the Board. Where the findings of the Board are supported by
substantial evidence, they are conclusive. Helvering v. Lazarus
& Co., supra; Helvering v. Kehoe, 309 U.
, and cases cited. Under the statute, the court
may modify or reverse the decision of the Board only if it is "not
in accordance with law." 44 Stat. 110, § 1003(b), 26 U.S.C.
Int.Rev.Code, § 1141(c)(1). In this case, the criteria which the
board employed in determining whether the sales were "short" sales
complied with the legal principles announced in Provost v.
United States, 269 U. S. 443