1. The Tax Court was not required by any statute, applicable
regulation, or principle of law to treat as taxable income of the
taxpayer a recovery -- in respect of a loss (on a sale of stock)
deducted and
Page 320 U. S. 490
allowed on returns for an earlier year, adjustment of the tax
liability for which was barred by limitation -- where it found
that, viewing as a whole the transactions out of which the recovery
arose, the taxpayer had realized no economic gain and had derived
no tax benefit from the loss deduction; and the Circuit Court of
Appeals, on review, was without power to order that the recovery be
treated us taxable income, rather than as a return of capital. P.
320 U. S.
506.
2. Where no constitutional question is involved, and in the
absence of a controlling statute or regulation, a determination of
the Tax Court as to whether particular transactions are integrated
or separated for tax purposes is no more reviewable than any other
question of fact. P.
320 U. S.
502.
3. When the reviewing court cannot separate the elements of a
decision so as to identify a clear-cut mistake of law, the decision
of the Tax Court must stand. P.
320 U. S.
502.
4. In determining questions of law, courts may properly attach
weight to decisions of such questions by an administrative body
having special competence to legal with the subject matter, and
though decisions of the Tax Court may not be binding precedents for
courts dealing with similar problems, uniform administration would
be promoted by conforming to them where possible. P.
320 U. S.
502.
133 F.2d 732 affirmed in part, reversed in part.
Certiorari, 319 U.S. 739-740, to review a judgment which, on
review of decisions of the Board of Tax Appeals, redetermining
deficiencies in income tax, in No. 47 affirmed and in Nos. 446
reversed.
See 46 B.T.A. 765, 770.
MR. JUSTICE JACKSON delivered the opinion of the Court.
These four cases were consolidated in the Court of Appeals. The
facts of one will define the issue present in all.
Page 320 U. S. 491
The taxpayer, Collins, in 1929 purchased 300 shares of stock of
the National City Bank of New York which carried certain beneficial
interests in stock of the National City Company. The latter company
was the seller, and the transaction occurred in Minnesota. In 1930,
Collins sold 100 shares, sustaining a deductible loss of
$41,600.80, which was claimed on his return for that year and
allowed. In 1931, he sold another 100 shares, sustaining a
deductible loss of $28,163.78, which was claimed in his return and
allowed. The remaining 100 shares he retained. He regarded the
purchases and sales as closed and completed transactions.
In 1936, Collins learned that the stock had not been registered
in compliance with the Minnesota Blue Sky Laws, and learned of
facts indicating that he had been induced to purchase by fraudulent
representations. He filed suit against the seller alleging fraud
and failure to register. He asked rescission of the entire
transaction, and offered to return the proceeds of the stock, or an
equivalent number of shares plus such interest and dividends as he
had received. In 1939, the suit was settled, on a basis which gave
him a net recovery of $45,150.63, of which $23,296.45 was allocable
to the stock sold in 1930 and $6,454.18 allocable to that sold in
1931. In his return for 1939, he did not report as income any part
of the recovery. Throughout that year, adjustment of his 1930 and
1931 tax liability was barred by the statute of limitations.
The Commissioner adjusted Collins' 1939 gross income by adding
as ordinary gain the recovery attributable to the shares sold, but
not that portion of it attributable to the shares unsold. The
recovery upon the shares sold was not, however, sufficient to make
good the taxpayer's original investment in them. And, if the
amounts recovered had been added to the proceeds received in 1930
and 1931, they would not have altered Collins' income tax liability
for those years, for even if the entire deductions
Page 320 U. S. 492
claimed on account of these losses had been disallowed, the
returns would still have shown net losses.
Collins sought a redetermination by the Board of Tax Appeals,
now the Tax Court. He contended that the recovery of 1939 was in
the nature of a return of capital from which he realized no gain
and no income either actually or constructively, and that he had
received no tax benefit from the loss deductions. In the
alternative, he argued that, if the recovery could be called income
at all, it was taxable as capital gain. The Commissioner insisted
that the entire recovery was taxable as ordinary gain, and that it
was immaterial whether the taxpayer had obtained any tax benefits
from the loss deduction reported in prior years. The Tax Court
sustained the taxpayer's contention that he had realized no taxable
gain from the recovery. [
Footnote
1]
The Court of Appeals concluded that the "tax benefit theory"
applied by the Tax Court "seems to be an injunction into the law of
an equitable principle, found neither in the statutes nor in the
regulations." Because the Tax Court's reasoning was not embodied in
any statutory precept, the court held that the Tax Court was not
authorized to resort to it in determining whether the recovery
should be treated as income or return of capital. It held as matter
of law that the recoveries were neither return of capital nor
capital gain, but were ordinary income in the year received.
[
Footnote 2] Questions
important to tax administration were involved, conflict was said to
exist, and we granted certiorari. [
Footnote 3]
It is contended that the applicable statutes and regulations,
properly interpreted, forbid the method of calculation followed by
the Tax Court. If this were true, the Tax Court's decision would
not be "in accordance with law," and the Court would be empowered
to modify or reverse
Page 320 U. S. 493
it. [
Footnote 4] Whether it
is true is a clear-cut question of law, and is for decision by the
courts.
The court below thought that the Tax Court's decision "evaded or
ignored" the statute of limitation, the provision of the
Regulations that "expenses, liabilities, or deficit of one year
cannot be used to reduce the income of a subsequent year,"
[
Footnote 5] and the principle
that recognition of a capital loss presupposes some event of
"realization" which closes the transaction for good. We do not
agree. The Tax Court has not attempted to revise liability for
earlier years closed by the statute of limitation, nor used any
expense, liability, or deficit of a prior year to reduce the income
of a subsequent year. It went to prior years only to determine the
nature of the recovery -- whether return of capital or income. Nor
has the Tax Court reopened any closed transaction; it was compelled
to determine the very question whether such a recognition of loss
had in fact taken place in the prior year as would necessitate
calling the recovery in the taxable year income, rather than return
of capital.
The 1928 Act provides that
"the Board, in redetermining a deficiency in respect of any
taxable year, shall consider such facts with relation to the taxes
for other taxable years as may be necessary correctly to
redetermine the amount of such deficiency. . . . [
Footnote 6]"
The Tax Court's inquiry as to past years was authorized if
"necessary correctly to redetermine" the deficiency. The Tax Court
thought in this case that it was necessary; the Court of Appeals
apparently thought it was not. This precipitates a question, not
raised by either counsel, as to whether the court is empowered to
revise the Tax Court's decision
Page 320 U. S. 494
as "not in accordance with law" because of such a difference of
opinion.
With the 1926 Revenue Act, Congress promulgated, and at all
times since has maintained, a limitation on the power of courts to
review Board of Tax Appeals (now the Tax Court) determinations.
". . . [S]uch courts shall have power to affirm or, if the
decision of the Board is not in accordance with law, to modify or
to reverse the decision of the Board. . . . [
Footnote 7]"
However, even a casual survey of decisions in tax cases, now
over 5,000 in number, will demonstrate that courts including this
Court have not paid the scrupulous deference to the tax laws'
admonitions of finality which they have to similar provisions in
statutes relating to other tribunals. [
Footnote 8] After thirty years of income tax history, the
volume of tax litigation necessary merely for statutory
interpretation would seem due to subside. That it shows no sign of
diminution suggests that many decisions have no value as
precedents, because they determine only fact questions peculiar to
particular cases. Of course, frequent amendment of the statute
causes continuing uncertainty and litigation, but, all too often,
amendments are themselves made necessary by court decisions.
Increase of potential tax litigation due to more taxpayers and
higher rates lends new importance to observance of statutory
limitations on review of tax decisions. No other branch of the law
touches human
Page 320 U. S. 495
activities at so many points. It can never be made simple, but
we can try to avoid making it needlessly complex.
It is more difficult to maintain sharp separation of court and
administrative functions in tax than in other fields. One reason is
that tax cases reach circuit courts of appeals from different
sources, and do not always call for observance of any
administrative sphere of decision. Questions which the Tax Court
considers at the instance of one taxpayer may be considered by many
district courts at the instance of others.
The Tucker Act authorizes district courts, sitting without jury
as courts of claims, to hear suits for recovery of taxes alleged to
have been "erroneously or illegally assessed or collected."
[
Footnote 9] District courts
also entertain common law actions against collectors to recover
taxes erroneously demanded and paid under protest. Trial may be by
jury, but waiver of jury is authorized, [
Footnote 10] and, in tax cases, jury frequently is
waived. In such cases, the findings of the court may be either
special or general. The scope of review on appeal may be affected
by the nature of the proceeding, the kind of findings, and whether
the jury was waived under a particular statutory authorization or
independently of it. [
Footnote
11] The multiplicity and complexity of rules is such that often
it is easier to review the whole case on the merits than to decide
what part of it is reviewable, and under what rule. The reports
contain many cases in which the question is passed over without
mention.
Another reason why courts have deferred less to the Tax Court
than to other administrative tribunals is the manner
Page 320 U. S. 496
in which the Tax Court finality was introduced into the law.
The courts have rather strictly observed limitations on their
reviewing powers where the limitation came into existence
simultaneously with their duty to review administrative action in
new fields of regulation. But this was not the history of the tax
law. Our modern income tax experience began with the Revenue Act of
1913. The World War soon brought high rates. The law was an
innovation, its constitutional aspects were still being debated,
interpretation was just beginning, and administrators were
inexperienced. The Act provided no administrative review of the
Commissioner's determinations. It did not alter the procedure
followed under the Civil War income tax by which an aggrieved
taxpayer could pay under protest and then sue the Collector to test
the correctness of the tax. [
Footnote 12] The courts, by force of this situation,
entertained all manner of tax questions, and precedents rapidly
established a pattern of judicial thought and action whereby the
assessments of income tax were reviewed without much restraint or
limitation. Only after that practice became established did
administrative review make its appearance in tax matters.
Administrative machinery to give consideration to the taxpayer's
contentions existed in the Bureau of Internal Revenue from about
1918, but it was subordinate to the Commissioner. [
Footnote 13] In 1923, the situation was
brought to the attention of Congress by the Secretary of the
Treasury, who proposed creation of a Board of Tax Appeals, within
the Treasury Department, whose decision was to conclude Government
and taxpayer on the question of assessment, and leave the taxpayer
to pay the tax and then
Page 320 U. S. 497
test its validity by suit against the collector. [
Footnote 14] Congress responded by creating
the Board of Tax Appeals as "an independent agency in the executive
branch of the Government." [
Footnote 15] The Board was to give hearings and notice
thereof and "make a report in writing of its findings of fact and
decision in each case." [
Footnote 16] But Congress dealt cautiously with finality
for the Board's conclusions, going only so far as to provide that,
in later proceedings, the findings should be "
prima facie
evidence of the facts therein stated." [
Footnote 17] So the Board's decisions first came
before the courts under a statute which left them free to go into
both fact and law questions. Two years later, Congress reviewed and
commended the work of the new Board, [
Footnote 18] increased salaries and lengthened the tenure
of its members, [
Footnote
19] provided for a direct appeal from the Board's decisions to
the circuit courts of appeals or the Court of Appeals of the
District of Columbia, [
Footnote
20] and enacted the present provision limiting review to
questions of law. [
Footnote
21]
But this restriction upon judicial review of the Board's
decisions came only after thirteen years of income tax experience
had established a contrary habit. Precedents had accumulated in
which courts had laid down many rules of taxation not based on
statute, but upon their ideas of right accounting or tax practice.
It was difficult to
Page 320 U. S. 498
shift to a new basis. This Court applied the limitation, but
with less emphasis and less forceful resolution of borderline cases
in favor of administrative finality than it has employed in
reference to other administrative determinations. [
Footnote 22]
That neglect of the congressional instruction is a fortuitous
consequence of this evolution of the Tax Court, rather than a
deliberate or purposeful judicial policy, is the more evident when
we consider that every reason ever advanced in support of
administrative finality applies to the Tax Court.
The court is independent, and its neutrality is not clouded by
prosecuting duties. Its procedures assure fair hearings. Its
deliberations are evidenced by careful opinions. All guides to
judgment available to judges are habitually consulted and
respected. It has established a tradition of freedom from bias and
pressures. [
Footnote 23] It
deals with a subject that is highly specialized, and so complex as
to be the despair of judges. It is relatively better staffed for
its task than is the judiciary. [
Footnote 24] Its members not infrequently bring to their
task long legislative or administrative
Page 320 U. S. 499
experience in their subject. The volume of tax matters flowing
through the Tax Court keeps its members abreast of changing
statutes, regulations, and Bureau practices, informed as to the
background of controversies, and aware of the impact of their
decisions on both Treasury and taxpayer. Individual cases are
disposed of wholly on records publicly made, in adversary
proceedings, and the court has no responsibility for previous
handling. Tested by every theoretical and practical reason for
administrative finality, no administrative decisions are entitled
to higher credit in the courts. Consideration of uniform and
expeditious tax administrations require that they be given all
credit to which they are entitled under the law.
Tax Court decisions are characterized by substantial uniformity.
Appeals fan out into courts of appeal of ten circuits and the
District of Columbia. This diversification of appellate authority
inevitably produces conflict of decision even if review is limited
to questions of law. But conflicts are multiplied by treating as
questions of law what really are disputes over proper accounting.
The mere number of such questions, and the mass of decisions they
call forth, become a menace to the certainty and good
administration of the law. [
Footnote 25]
Page 320 U. S. 500
To achieve uniformity by resolving such conflicts in the Supreme
Court is, at best, slow, expensive, and unsatisfactory. Students of
federal taxation agree that the tax system suffers from delay in
getting the final word in judicial review, from retroactivity of
the decision when it is obtained, and from the lack of a roundly
tax-informed viewpoint of judges. [
Footnote 26]
Perhaps the chief difficulty in consistent and uniform
compliance with the congressional limitation upon court
Page 320 U. S. 501
review lies in the want of a certain standard for distinguishing
"questions of law" from "questions of fact." This is the test
Congress has directed, but its difficulties in practice are well
known, and have been subject of frequent comment. Its difficulty is
reflected in our labeling some questions as "mixed questions of law
and fact" [
Footnote 27] and
in a great number of opinions distinguishing "ultimate facts" from
evidentiary facts. [
Footnote
28]
It is difficult to lay down rules as to what should or should
not be reviewed in tax cases except in terms so general that their
effectiveness in a particular case will depend largely upon the
attitude with which the case is approached. However, all that we
have said of the finality of administrative determination in other
fields is applicable to determinations of the Tax Court. Its
decision, of course, must have "warrant in the record," and a
reasonable basis in the law. But "the judicial function is
exhausted when there is found to be a rational basis for the
conclusions approved by the administrative body."
Rochester
Telephone Corp. v. United States, 307 U.
S. 125,
307 U. S. 146;
Swayne & Hoyt v. United States, 300 U.
S. 297,
300 U. S. 304;
Mississippi Valley Barge Line Co. v. United States,
292 U. S. 282,
292 U. S.
286-287;
Gray v. Powell, 314 U.
S. 402,
314 U. S. 412;
Helvering v. Clifford, 309 U. S. 331,
309 U. S. 336;
United States v. Louisville & Nashville R. Co.,
235 U. S. 314,
235 U. S. 320;
Wilmington Trust Co. v. Helvering, 316 U.
S. 164,
316 U. S. 168.
Congress has invested the Tax Court with primary authority for
redetermining deficiencies, which constitutes the greater part of
tax litigation. This requires it to consider both law and facts.
Whatever latitude exists in
Page 320 U. S. 502
resolving questions such as those of proper accounting, treating
a series of transactions as one for tax purposes, or treating
apparently separate ones as single in their tax consequences,
exists in the Tax Court, and not in the regular courts; when the
court cannot separate the elements of a decision so as to identify
a clear-cut mistake of law, the decision of the Tax Court must
stand. In view of the division of functions between the Tax Court
and reviewing courts, it is, of course, the duty of the Tax Court
to distinguish with clarity between what it finds as fact and what
conclusion it reaches on the law. In deciding law questions, courts
may properly attach weight to the decision of points of law by an
administrative body having special competence to deal with the
subject matter. The Tax Court is informed by experience, and kept
current with tax evolution and needs by the volume and variety of
its work. While its decisions may not be binding precedents for
courts dealing with similar problems, uniform administration would
be promoted by conforming to them where possible.
The Government says that "the principal question in this case
turns on the application of the settled principle that the single
year is the unit of taxation." But the Tax Court was aware of this
principle, and in no way denied it. Whether an apparently
integrated transaction shall be broken up into several separate
steps, and whether what apparently are several steps shall be
synthesized into one whole transaction, is frequently a necessary
determination in deciding tax consequences. [
Footnote 29] Where no statute or regulation
controls, the Tax Court's selection of the course to follow is no
more reviewable than any other question of fact. Of course, we are
not here considering the scope of review where constitutional
questions are involved. The
Page 320 U. S. 503
Tax Court analyzed the basis of the litigation which produced
the recovery in this case and the obvious fact that, "regarding the
series of transactions as a whole, it is apparent that no gain was
actually realized." It found that the taxpayer had realized no tax
benefits from reporting the transaction in separate years. It said
the question under these circumstances was whether the amount the
taxpayer recovered in 1939 "constitutes taxable income, even though
he realized no economic gain." It concluded that the item should be
treated as a return of capital, rather than as taxable income.
There is no statute law to the contrary, and the administrative
rulings in effect at the time tended to support the conclusion.
[
Footnote 30] It is true
that the Board, in a well considered opinion, reviewed a number of
court holdings, but it did so for the purpose of showing that they
did not fetter its freedom to reach the decision it thought sound.
With this, we agree.
Viewing the problem from a different aspect, the Government
urges in this Court that, although the recovery is capital return,
it is taxable in its entirety because taxpayer's basis for the
property in question is zero. The argument relies upon §
113(b)(1)(A) of the Internal Revenue Code, which provides for
adjusting the basis of property for "expenditures, receipts,
losses, or other items, properly chargeable to capital account."
This provision, it is said, requires that the right to a deduction
for a capital loss be treated as a return of capital. Consequently,
by deducting in 1930 and 1931 the entire difference between the
cost of his stock and the proceeds of the sales, taxpayer reduced
his basis to zero. But the statute contains no such fixed rule as
the Government would have us read into it. It does not specify the
circumstances or manner in
Page 320 U. S. 504
which adjustments of the basis are to be made, but merely
provides that "Proper adjustment . . . shall in all cases be made"
for the items named if "properly chargeable to capital account."
What, in the circumstances of this case, was a proper adjustment of
the basis was thus purely an accounting problem, and therefore a
question of fact for the Tax Court to determine. Evidently the Tax
Court thought that the previous deductions were not altogether
"properly chargeable to capital account," and that to treat them as
an entire recoupment of the value of taxpayer's stock would not
have been a "proper adjustment." We think there was substantial
evidence to support such a conclusion.
The Government relies upon
Burnet v. Sanford & Brooks
Co., 282 U. S. 359, for
the proposition that losses of one year may not offset receipts of
another year. But the case suggested its own distinction:
"While [the money received] equaled, and in a loose sense was a
return of, expenditures made in performing the contract, still, as
the Board of Tax Appeals found, the expenditures were made in
defraying the expenses. . . . They were not capital investments the
cost of which, if converted, must first be restored from the
proceeds before there is a capital gain taxable as income."
282 U.S. at
282 U. S.
363-364. It is also worth noting that the Court affirmed
the Board's decision, which had been upset by the circuit court of
appeals, and answered, in part, the contention of the circuit court
that certain regulations were applicable by saying,
". . . nor, on this record, do any facts appear tending to
support the burden, resting on the taxpayer, of establishing that
the Commissioner erred in failing to apply them."
282 U.S. at
282 U. S.
366-367.
It is argued on behalf of the Commissioner that the Court should
overrule the Board by applying to this question rules of law laid
down in decisions on the analogous problem raised by recovery of
bad debts charged off without
Page 320 U. S. 505
tax benefit in prior years. The court below accepted the
argument. However, instead of affording a reason for overruling the
Tax Court, the history of the bad debt recovery question
illustrates the mischief of overruling the Tax Court in matters of
tax accounting. Courts were persuaded to rule, as matter of law,
that bad debt recoveries constitute taxable income, regardless of
tax benefit from the charge-off. [
Footnote 31] The Tax Court had first made a similar
holding, [
Footnote 32] but
had come to hold to the contrary. [
Footnote 33] Substitution of the courts' rule for that of
the Tax Court led to such hardships and inequities that the
Treasury appealed to Congress to extend relief. [
Footnote 34] It did so. [
Footnote 35] The
Page 320 U. S. 506
Government now argues that, by extending legislative relief in
bad debt cases, Congress recognized that, in the absence of
specific exemption, recoveries are taxable as income. We do not
find that significance in the amendment. A specific statutory
exception was necessary in bad debt cases only because the courts
reversed the Tax Court and established, as matter of law, a
"theoretically proper" rule which distorted the taxpayer's income.
Congress would hardly expect the courts to repeat the same error in
another class of cases, as we would do were we to affirm in this
case. [
Footnote 36]
The Government also suggests that, "[i]f the tax benefit rule
were judicially adopted, the question would then arise of how it
should be determined," and the difficulties of determining tax
benefits, it says, create "an objection, in itself, to an attempt
to adopt such a rule by judicial action." We are not adopting any
rule of tax benefits. We only hold that no statute or regulation
having the force of one, and no principle of law, compels the Tax
Court to find taxable income in a transaction where, as matter of
fact, it found no economic gain and no use of the transaction to
gain tax benefit. The error of the court below consisted of
Page 320 U. S. 507
treating as a rule of law what we think is only a question of
proper tax accounting.
There is some difference in the facts of these cases. In two of
them, the Tax Court sustained deficiencies because it found that
the deductions in prior years had offset gross income for those
years, and therefore concluded that the recoveries must, to that
extent, be treated as taxable gain. [
Footnote 37] The taxpayers object that this conclusion
disregards certain exemptions and credits which would have been
available to offset the increased gross income in the prior years,
so that the deductions resulted in no tax savings. In determining
whether the recoveries were taxable gain, however, the Tax Court
was free to decide for itself what significance it would attach to
the previous reduction of taxable income as contrasted with
reduction of tax. The statute gives no inkling as to the
correctness or incorrectness of the Tax Court's view, and we can
find no compelling reason to substitute our judgment. In No. 47,
the decision of the Tax Court was upheld by the court below, and,
in that case, the judgment is affirmed. In Nos. 44, 45, and 46, the
Court of Appeals reversed the Tax Court, and, for the reasons
stated, its judgments in those cases are reversed.
No. 47 affirmed.
Nos. 44, 45, 46 reversed.
* Together with No. 45,
Dobson v. Commissioner, No. 46,
Estate of Collins v. Commissioner, and No. 47,
Harwick
v. Commissioner of Internal Revenue, also on writs of
certiorari to the Circuit Court of Appeals for the Eighth
Circuit.
[
Footnote 1]
Estate of James N. Collins v. Commissioner, 46 B.T.A.
765.
[
Footnote 2]
133 F.2d 732.
[
Footnote 3]
319 U.S. 740.
[
Footnote 4]
Revenue Act of 1926, § 1003(b), 44 Stat. 9, 110, now Internal
Revenue Code, § 1141(c)(1).
[
Footnote 5]
Treasury Regulations 103, § 19.43-2.
[
Footnote 6]
Revenue Act of 1928, § 272(g), 45 Stat. 854, now Internal
Revenue Code, § 272(g).
[
Footnote 7]
Revenue Act of 1926, § 1003(b), 44 Stat. 9, 110, now Internal
Revenue Code, § 1141(c)(1).
[
Footnote 8]
Compare Helvering v. Tex-Penn Oil Co., 300 U.
S. 481,
and Bogardus v. Commissioner,
302 U. S. 34,
with Rochester Telephone Corp. v. United States,
307 U. S. 125
(Federal Communications Commission);
Shields v. Utah Idaho
Central R. Co., 305 U. S. 177
(Interstate Commerce Commission);
Sunshine Coal Co. v.
Adkins, 310 U. S. 381,
310 U. S.
399-400;
Gray v. Powell, 314 U.
S. 402 (Bituminous Coal Commission);
Labor Board v.
Waterman S.S. Corp., 309 U. S. 206
(National Labor Relations Board).
[
Footnote 9]
28 U.S.C. § 41(20).
[
Footnote 10]
28 U.S.C. § 773, Act of May 29, 1930, c. 357, 46 Stat. 486.
[
Footnote 11]
28 U.S.C. § 875.
See Carloss, Monograph on Findings of
Fact (Supt. of Documents, 1934) 4. Some 280 cases on the review of
findings of fact are considered.
[
Footnote 12]
See Cheatham v. United States, 92 U. S.
85,
92 U. S. 89.
[
Footnote 13]
For an account thereof,
see opinion of Mr. Justice
Brandeis in
Williamsport Wire Rope Co. v. United States,
277 U. S. 551,
277 U. S. 562,
n. 7.
[
Footnote 14]
Annual Report of Secretary of Treasury, Finance 1 (1923) 10;
Hamel, Practice and Evidence before the U.S. Board of Tax Appeals
(1938) 5.
[
Footnote 15]
Revenue Act of 1924, § 900(k), 43 Stat. 253, 336.
[
Footnote 16]
Id., § 900(h).
[
Footnote 17]
Id., § 900(g).
[
Footnote 18]
H.R.Rep. No. 1, 69th Cong., 1st Sess.; Sen.Rep. No. 52, 69th
Cong., 1st Sess.
[
Footnote 19]
Revenue Act of 1926, § 1000, 44 Stat. 9, 106, 105.
[
Footnote 20]
Id., § 1001(a), 44 Stat. 9, 109.
[
Footnote 21]
Id., § 1003(b), 44 Stat. 9, 110.
[
Footnote 22]
E.g., Helvering v. Rankin, 295 U.
S. 123,
295 U. S. 131;
Helvering v. Tax-Penn Oil Co., 300 U.
S. 481,
300 U. S. 491;
Bogardus v. Commissioner, 302 U. S.
34,
302 U. S. 38-39.
For a sample of the diverse treatment of Board decisions when
reviewed by this Court,
see Elmhurst Cemetery Co. v.
Commissioner, 300 U. S. 37;
Palmer v. Commissioner, 302 U. S. 63,
302 U. S. 70;
Helvering v. National Grocery Co., 304 U.
S. 282,
304 U. S. 294;
Colorado National Bank v. Commissioner, 305 U. S.
23;
Helvering v. Lazarus & Co.,
308 U. S. 252;
Griffiths v. Commissioner, 308 U.
S. 355;
Helvering v. Kehoe, 309 U.
S. 277;
Higgins v. Commissioner, 312 U.
S. 212;
Powers v. Commissioner, 312 U.
S. 259;
Wilmington Trust Co. v. Helvering,
316 U. S. 164,
316 U. S. 168;
Merchants National Bank v. Commissioner, 320 U.
S. 256.
Compare the foregoing with the cases
cited
supra, note
8
[
Footnote 23]
See reports of congressional committees on the Revenue
Act of 1926, cited
supra, note 18
[
Footnote 24]
See Miller, Supporting Personnel of Federal Courts, 29
A.B.A.Journal 130, 131.
[
Footnote 25]
"Judge-made law is particularly prolific in connection with
federal taxation, coming, as it does, from so many courts of
coordinate jurisdiction. And the constant outpouring of decisions
has steadily increased in volume. For the year 1920, a leading tax
service catalogued only 300 decisions; CCH Federal Tax Service
(1921). . . . Today, one must look to approximately 20,000 court
and Board decisions, many pages of regulations, and about 5,000
rulings. Since 1924, the Board of Tax Appeals alone has published
about 8,500 opinions, as well as approximately 4,000 unreported
memorandum opinions. For the fiscal years 1935, 1936, and 1937, the
number of Board dockets appealed to the Circuit Courts of Appeal
has amounted, on the average, to 509 each year. The Supreme Court's
balance sheet shows that federal taxation was the principal concern
of that Court during the 1934 term, with 44 decisions being handed
down in that field. During the three years 1935, 1936, and 1937,
the Supreme Court rendered decisions in 84 federal tax cases."
Paul, Selected Studies in Federal Taxation (1938) 2, n. 2.
"As of December 31, 1936, 4,700 decisions had been appealed to
the Circuit Courts of Appeal (or the Court of Appeals of the
District of Columbia), of which 3,996 had been disposed of. This
left a pending Appellate docket of 704."
Id. 140, n. 133.
[
Footnote 26]
Paul, Selected Studies in Federal Taxation (1938) 204, n. 18,
comments on the number and variety of the sources contributing to
tax law.
See Griswold, Book Review, 56 Harv.L.Rev. 1354.
Magill, The Impact of Federal Taxes (1943) 209, says:
"At the present time, it is impossible to obtain a really
authoritative decision of general application upon important
questions of law for many years after the close of any taxable
year. The average period between the taxable year in dispute and a
Supreme Court decision relating thereto is nine years. Meanwhile,
confusion reigns in the day-by-day settlement of the more debatable
questions of the tax law. One circuit court holds that a certain
situation gives rise to tax liability; another circuit holds the
contrary. The Commissioner and the lower federal courts are both
confronted with the problem of reconciling the irreconcilable. A
great part of the criticism of changing interpretations of the law
announced by the Commissioner of Internal Revenue is properly
attributable to the multitude of tribunals with original
jurisdiction in tax cases, and to the absence of provision for
decisions with nationwide authority in the majority of cases. If we
were seeking to secure a state of complete uncertainty in tax
jurisprudence, we could hardly do better than to provide for 87
Courts with original jurisdiction, 11 appellate bodies of
coordinate rank, and only a discretionary review of relatively few
cases by the Supreme Court."
[
Footnote 27]
E.g., Helvering v. Rankin, 295 U.
S. 123,
295 U. S. 131;
Helvering v. Tex-Penn Oil Co., 300 U.
S. 481,
300 U. S. 491;
Bogardus v. Commissioner, 302 U. S.
34,
302 U. S.
39.
[
Footnote 28]
E.g., Anderson v. Commissioner, 78 F.2d 636;
Childers v. Commissioner, 80 F.2d 27;
Eaton v.
Commissioner, 81 F.2d 332;
Rankin v. Commissioner, 84
F.2d 551.
[
Footnote 29]
See Paul, "Step Transactions," Selected Studies in
Federal Taxation (1938) 203.
[
Footnote 30]
General Counsel's Memorandum 20854, 1939-1 Cum.Bull. 102,
following G.C.M. 18525, 1937-1 Cum.Bull. 80; revoked by G.C.M.
22163, 1940-2, Cum.Bull. 76. This dealt with bad debt
recoveries.
[
Footnote 31]
Commissioner v. United States & International Securities
Corp., 130 F.2d 894;
Helvering v. State-Planters Bank
& Trust Co., 130 F.2d 44.
[
Footnote 32]
Lakeview Trust & Savings Bank v. Commissioner, 27
B.T.A. 290.
[
Footnote 33]
Central Loan & Investment Co. v. Commissioner, 39
B.T.A. 981;
Citizens State Bank v. Commissioner, 46 B.T.A.
964.
[
Footnote 34]
Mr. Randolph Paul, Tax Adviser to the Secretary of the Treasury,
in a statement to the House Committee on Ways and Means said:
"The Secretary has pointed out that wartime rates make it
imperative to eliminate as far as possible existing inequities
which distort the tax burden of certain taxpayers. I should like to
discuss the inequities which the Secretary mentioned, as well as a
few additional hardships. . . ."
"
* * * *"
"(c)
Recoveries of bad debts and taxes. -- If a
taxpayer who has taken a bad debt deduction later receives payment
of such debt, such payment must be included in his income even
though he obtained no tax benefit from the deduction in the prior
year. While this result is theoretically proper under our annual
system of taxation, it may produce severe hardships in certain
cases through a distortion of the taxpayer's real income. At the
same time, any departure from our annual system of taxation always
produces administrative difficulties which serve to impede the
collection of taxes."
"It is believed that the hardships can be removed, and the
administrative difficulties kept to a minimum, by excluding from
income amounts received in payment of the debt to the extent that
the deduction on account of the debt in the prior year did not
produce a tax benefit. The troublesome question whether a benefit
resulted should be determined pursuant to regulations prescribed by
the Commissioner with the approval of the Secretary. It is also
suggested that this treatment be extended to refunds of taxes
previously deducted."
Hearings before Committee on Ways and Means on Revenue Revision
of 1942, 77th Cong., 2d Sess., Vol. I, 80, 87-88.
[
Footnote 35]
Revenue Act of 1942, § 116, 56 Stat. 798, 812.
[
Footnote 36]
The question of whether a recovery is properly accounted for as
income in the year received, or should be related to a previous
reported deduction without tax benefit, is one with a long history,
and much conflict. It arises not only in case of recoveries of
previously charged-off bad debts and recoveries of the type we have
here. It is also present in case of refund of taxes or cancellation
of expenses or interest previously reported as accrued, adjustments
of depreciation and depletion or amortization, and other similar
situations.
[
Footnote 37]
Dobson v. Commissioner, 46 B.T.A. 770.