1. A petition for a writ of certiorari to review a decision of
the Circuit Court of Appeals for the Second Circuit was filed
within three months after "entry" of the "judgment," as required by
§ 8 of the Act of February 13, 1925, when filed within three months
after the date of that court's "Order for Mandate," though more
than three months after the date of the "Opinion." P.
325 U. S.
287.
2. A distribution of cash out of earnings and profits of a
corporation, pursuant to a recapitalization which was a
reorganization as defined
Page 325 U. S. 284
by § 112(g) of the Revenue Act of 1936,
held to have
had the "effect of the distribution of a taxable dividend" within
the meaning of § 112(c)(2), and to be taxable in full under that
section, and not as a capital gain under § 112(c)(1). P.
325 U. S.
290.
3. The result here is the same whether the case be treated as
one of statutory construction for the independent judgment of this
Court, or as one within the principle of
Dobson v.
Commissioner. P.
325 U. S.
292.
144 F.2d 27, reversed.
Certiorari, 323 U.S. 707, to review a judgment reversing a
decision of the Tax Court, 1 T.C. 478, which sustained the
Commissioner's determination of a deficiency in income tax.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
At the threshold, the jurisdiction of the Court is challenged on
the ground that the petition for the writ of certiorari was not
filed within three months after "entry" of the "judgment" below as
required by the Judiciary Act of February 13, 1925. [
Footnote 1]
Page 325 U. S. 285
The steps by which the case came here are these. On August 8,
1944, the Circuit Court of Appeals for the Second Circuit filed a
document entitled "Opinion;" on the same day, the Clerk made a
docket entry reading, "Order reversed, A. N. Hand, C.J.;" on August
29, 1944, a document entitled "Order for Mandate" was filed, and
the mandate issued that day; on November 29, 1944, the petition for
writ of certiorari was filed. The petition was filed too late if
the "Opinion," as respondent contends, constitutes the "judgment."
It was filed in time if the "Order for Mandate" may properly be
deemed the "judgment." The issue was ably pressed before us, and,
since it concerns our power to review cases coming from what is
perhaps the busiest circuit, it calls for more than summary
treatment.
Even long continued practice cannot alter the limits within
which Congress has bound the appellate jurisdiction of this Court.
See Depart. of Banking v. Pink, 317 U.
S. 264. But such practice may be decisive in
interpreting procedural ways which, as a matter of dialectic or
abstract analysis, may appear dubious. We are naturally impressed
by the common understanding that, in the Circuit Court of Appeals
for the Second Circuit, the so-called "Order for Mandate" is deemed
the judgment. Robertson and Kirkham, Jurisdiction of the Supreme
Court of the United States (1936) § 384. We have taken and decided
as a matter of course a considerable number of cases in which
certiorari was sought within three months after entry of the "Order
for Mandate" but not within three months after the "Opinion."
[
Footnote 2] This practical
understanding of the controlling significance, for appellate
Page 325 U. S. 286
purposes, of the "Order for Mandate" is supported, and certainly
not contradicted, by all that is conveyed by the "Opinion" and
"Order for Mandate" and the Rules of the lower court.
It does not detract from the "Opinion" as an opinion that, in
its heading, it gives as dates "Argued January 6, 1944, Decided
August 8, 1944," and that it concludes with "The order of the Tax
Court is reversed." The same or similar phrases are commonly
employed in opinions of this Court without changing their character
as opinions. Nor do like phrases in the opinions of the other
circuit courts of appeals turn them into judgments, since in all
other circuits judgment orders are separately filed. In spite of
its title, the "Order for Mandate" on its face fulfills the
function of such a judgment order. It recites that
"it is now hereby ordered, adjudged, and decreed that the order
of said The Tax Court of the United States be and it hereby is
reversed."
"It is further ordered that a Mandate issue to the said The Tax
Court of the United States in accordance with this decree."
"ALEXANDER M. BELL"
"
Clerk"
"By A. DANIEL FUSARO"
"
Deputy Clerk"
This language plainly imports that this is the judgment, and
that it is then being rendered. Nor does the fact that the order
was prepared by the clerk and bears his signature detract from its
quality as a judgment. A judgment "is the act of the court,"
Ex
parte Morgan, 114 U. S. 174,
114 U. S. 175,
even though a clerk does all of the ministerial acts, as here, in
conformity with his court's standing instructions.
Page 325 U. S. 287
The Rules of the court below governing opinions, rehearings,
issuance of mandate, and stay of mandate are invoked to show that
the "Opinion" is the appealable "judgment." These Rules, like other
rules, are not phrased with such fastidious precision as to make of
all the parts a perfect harmony. But, while substantial debating
points may be taken, [
Footnote
3] nothing in these Rules contradicts the natural meaning
yielded by the terms of the "Opinion" and the "Order of Mandate,"
as reflected in the practice of the Second Circuit and in our own,
which treats not the "Opinion," but the "Order for Mandate," as the
order of judgment. The Rules would have to be far less artistic
than they are to warrant us in holding that the Circuit Court of
Appeals has consistently misinterpreted some of its own Rules.
Whether the announcement of an opinion and its entry in the docket
amounts to a judgment for purposes of appeal, or whether that must
await some later formal act, ought not to be decided on nice-spun
argumentation in disregard of the judicial habits of the court
whose judgment is called into question, of the bar practising
before
Page 325 U. S. 288
it, of the clerk who embodies its procedural traditions, as well
as in conflict with the assumption of the reviewing court.
But, now that the existing practice has revealed abstract
disharmonies, if not difficulties, the Circuit Court of Appeals
will doubtless establish a more tidy system for meeting the
technical requirements for review here. The normal time for
entering a judgment, as the starting point for determining whether
review will be sought or whether there has been acquiescence in a
judgment, should be fixed. The uncertainties inherent in litigation
should not be needlessly prolonged. The entry of the "Order for
Mandate," which, in the Second Circuit, begins the running of the
period for appeal, is apparently variable and vagrant. In these
days of rapid communication, the statutory allowance of three
months is more than ample for an unsuccessful litigant to determine
whether to seek further review. So long a period ought not to be
extended by delay in entering a judgment, nor should the burden of
securing such entry be put upon the successful litigant. There are
bound to be diversities in the modes of rendering and recording
judgments of the forty-eight systems of State courts. Uniformity in
the entry of judgment among the eleven circuits forming the single
federal judicature ought to be capable of achievement without loss
to the geographic flexibility of the system.
This brings us to the merits, which involve the validity of an
income tax deficiency assessment for 1937. The case is this. The
estate of Edward T. Bedford, who died May 21, 1931, included 3,000
shares of cumulative preferred stock (par value $100) of
Abercrombie & Fitch Company. Pursuant to a plan of
recapitalization, respondent, as executor of the estate, in 1937
exchanged those shares for 3,500 shares of cumulative preferred
stock (par value $75), 1,500 shares of common stock (par value $1),
and $45,240 in cash (on the basis of $15.08 for each of the old
preferred shares). The recapitalization had been proposed
Page 325 U. S. 289
because the company, after charging against its surplus account
stock dividends totaling $844,100, distributed in 1920, 1928, and
1930, had incurred a book deficit in that account of $399,771.87.
Because of this deficit, the company, under applicable State law,
was unable to pay dividends, although, for the fiscal year ending
January 31, 1937, it had net earnings of $309,073.70.
By comparing the fair market value of the old preferred shares
at the date of Bedford's death with the market value of the new
stock and cash received, the gain to his estate was $139,740.
Admittedly, the recapitalization was a reorganization, §
112(g)(1)(D) of the Revenue Act of 1936, 49 Stat. 1648, 1681, 26
U.S.C. § 112(g)(1)(E), so that only the cash received, but none of
the stock, is taxable. Sections 112(b)(3), 112(c)(1), 49 Stat.
1648, 1679, 1680, 26 U.S.C. §§ 112(b)(3), 112(c)(1). The sole issue
is whether the cash, $45,240, is taxable as a dividend, or merely
as a capital gain to the extent of 40%. The Tax Court sustained the
determination of the Commissioner that the cash was taxable as a
dividend, 1 T.C. 478, but was reversed by the Circuit Court of
Appeals. 144 F.2d 272. On a showing of importance to the
administration of the Revenue Acts, we granted certiorari. 323 U.S.
707.
The precise question is whether the distribution of cash in this
racapitalization "has the effect of the distribution of a taxable
dividend" under § 112(c)(2) of the Revenue Act of 1936, and, as
such, is fully taxable, or is taxable only at the rate of 40% as a
capital gain under § 112(c)(1) of that Act. The relevant provisions
read:
"(c)
Gain from exchanges not solely in kind. -- (1) If
an exchange would be within the provisions of subsection (b), (1),
(2), (3), or (5) of this section if it were not for the fact that
the property received in exchange consists not only of property
permitted by such paragraph to be received without the recognition
of gain, but also of other property or money, then the gain, if
any, to the recipient shall be recognized, but in an amount not in
excess of the sum of such
Page 325 U. S. 290
money and the fair market value of such other property. (2) If a
distribution made in pursuance of a plan of reorganization is
within the provisions of paragraph (1) of this subsection but has
the effect of the distribution of a taxable dividend, then there
shall be taxed as a dividend to each distributee such an amount of
the gain recognized under paragraph (1) as is not in excess of his
ratable share of the undistributed earnings and profits of the
corporation accumulated after February 28, 1913. The remainder, if
any, of the gain recognized under paragraph (1) shall be taxed as a
gain from the exchange of property."
The history of this legislation is not illuminating. Section
112(c)(2) originated in § 203(d)(2) of the Revenue Act of 1924, 43
Stat. 253, 257. But the reports of the Congressional Committees
merely use the language of the section to Explain it. H.Rep.
No.179, 68th Cong., 1st Sess., pp. 14-15; S.Rep. No.398, 68th
Cong., 1st Sess., pp. 15-16. Nor does the applicable Treasury
Regulation add anything; it repeats substantially the Committee
Reports. Treas.Reg. 94, Art. 112(g)-4. We are thrown back upon the
legislative language for ascertaining the meaning which will best
accord with the aims of the language, the practical administration
of the law, and relevant judicial construction.
Although Abercrombie & Fitch showed a book deficit in the
surplus account because the earlier stock dividends had been
charged against it, the parties agree that, for corporate tax
purposes, at least, earnings and profits exceeding the distributed
cash had been earned at the time of the recapitalization. That cash
therefore came out of earnings and profits, and such a distribution
would normally be considered a taxable dividend,
see §
115(a), [
Footnote 4] and has
so
Page 325 U. S. 291
been treated by the courts in seemingly similar situations. It
has been ruled in a series of cases that, where the stock of one
corporation was exchanged for the stock of another and cash and
then distributed, such distributions out of earnings and profits
had the effect of a distribution of a taxable dividend under §
112(c)(2).
Comm'r v. Owens, 69 F.2d 597;
Comm'r v.
Forhan Realty Corp., 75 F.2d 268;
Rose v. Little Inv.
Co., 86 F.2d 50;
Love v. Comm'r, 113 F.2d 236;
Campbell v. United States, 144 F.2d 177. The Tax Court has
reached the same result -- that is, has treated the distribution as
a taxable dividend -- in the case of the recapitalization of a
single corporation.
McCord v. Comm'r, 31 B.T.A. 342, 344;
J. Weingarten, Inc. v. Comm'r, 44 B.T.A. 798, 808, 809;
Knapp Monarch Co. v. Comm'r, 1 T.C. 59, 69, 70,
aff'd
on other grounds, 139 F.2d 863. We cannot distinguish the two
situations, and find no implication in the statute restricting §
112(c)(2) to taxation as a dividend only in the case of an exchange
of stock and assets of two corporations.
Respondent, however, claims that this distribution more nearly
has the effect of a "partial liquidation" as defined in § 115(i).
[
Footnote 5] But the
classifications of § 115, which governs "Distributions by
Corporations" apart from reorganizations, were adopted for another
purpose. They do not apply to a situation arising within § 112. The
definition of a "partial liquidation" in § 115(i) is specifically
limited
Page 325 U. S. 292
to use in § 115. To attempt to carry it over to § 112 would
distort its purpose. That limitation is not true of § 115(a), which
defines "dividend" for the purpose of the whole title. Accordingly,
this definition is infused into § 112(c)(2). Under § 115(a), a
distribution out of accumulated earnings and profits is a
"dividend," thus confirming the conclusion that a distribution of
earnings and profits has the "effect of the distribution of a
taxable dividend" under § 112(c)(2).
Recapitalization does not alter the "effect." Although the
capital of a company is reduced, the cash received is a
distribution of earnings and profits, and, as such, falls within
the federal tax. That the company's treatment of its stock
dividends may bring consequences under State law requiring a
capital reduction does not alter the character of the transactions
which bring them within the federal income tax. Recapitalization is
one of the forms of reorganization under § 112(g)(1)(D). It cannot,
therefore, be urged as a reason for taking the transaction out of
the requirements of § 112 and forcing it into the mold of § 115.
The reduction of capital brings § 112 into operation, and does not
give immunity from the requirements of § 112(c)(2).
Treating the matter as a problem of statutory construction for
our independent judgment, we hold that a distribution, pursuant to
a reorganization, of earnings and profits "has the effect of the
distribution of a taxable dividend" within § 112(c)(2). As is true
of other teasing questions of construction raised by technical
provisions of Revenue Acts, the matter is not wholly free from
doubt. But these doubts would have to be stronger than they are to
displace the informed views of the Tax Court. And, if the case can
be reduced to its own particular circumstances, rather than turn on
a generalizing principle, we should feel bound to apply
Dobson
v. Commissioner, 320 U. S. 489, and
sustain the Tax Court.
Reversed.
[
Footnote 1]
"Sec. 8(a). That no writ of error, appeal, or writ of certiorari
intended to bring any judgment or decree before the Supreme Court
for review shall be allowed or entertained unless application
therefor be duly made within three months after the entry of such
judgment or decree, excepting that writs of certiorari to the
Supreme Court of the Philippine Islands may be granted where
application therefor is made within six months:
Provided,
That, for good cause shown, either of such periods for applying for
a writ of certiorari may be extended not exceeding sixty days by a
justice of the Supreme Court."
43 Stat. 936, 940, 28 U.S.C. § 350.
[
Footnote 2]
During the 1941, 1942 and 1943 Terms, this Court entertained
reviews and affirmed judgments of the Circuit Court of Appeals for
the Second Circuit in not less than ten such cases:
Commercial
Molasses Corp. v. New York Barge Corp., 314 U.
S. 104;
New York v. United States, 315 U.
S. 510;
Mother Lode Coalition Mines Co. v.
Comm'r, 317 U. S. 222;
Smith v. Shaughnessy, 318 U. S. 176;
Helvering v. Griffiths, 318 U. S. 371;
Emil v. Hanley, 318 U. S. 515;
Fred Fisher Music Co. v. Witmark & Sons, 318 U.
S. 643;
Equitable Life Assur. Society v.
Comm'r, 321 U. S. 560;
Medo Photo Supply Corp. v. Labor Board, 321 U.
S. 678;
United States ex rel. Brensilber v. Bausch
& Lomb Optical Co., 320 U.S. 711 (equally divided
court).
[
Footnote 3]
Respondent argues that the Rules of the court below, with
respect to the opinions of the court, rehearings, issuance of
mandate, and stay of mandate, show that the "opinion" is meant to
constitute the court's judgment. But these Rules compute time, with
respect to filing of petitions for rehearing and for issuance of
mandate, not from entry of a "judgment," but from the "filing of
the opinion of this court." Some difficulty is raised because Rule
27 refuses a rehearing "unless a judge who concurred in the
judgment desires it." Also respondent finds it paradoxical to
"stay" the court's mandate under Rule 30 when the mandate is
customarily issued on the same day the "Order for Mandate" is
filed. And respondent argues that the court could not have meant to
confer upon its clerk discretion to hold up, for varying lengths of
time, the rendering of a judgment until fees have been paid by the
prevailing party. In this case, the "Order for Mandate" and
issuance of the mandate were delayed for twenty-one days, and were
not entered within fifteen days from the filing of the opinion,
which Rule 30 and the court's instructions require; the time has
been variously extended in other cases.
[
Footnote 4]
"(a)
Definition of dividend. -- The term 'dividend,'
when used in this title (except in section 203(a)(3) and section
207(c)(1), relating to insurance companies), means any distribution
made by a corporation to its shareholders, whether in money or in
other property, (1) out of its earnings or profits accumulated
after February 28, 1913, or (2) out of the earnings or profits of
the taxable year (computed as of the close of the taxable year
without diminution by reason of any distributions made during the
taxable year), without regard to the amount of the earnings and
profits at the time the distribution was made."
[
Footnote 5]
"(i)
Definition of partial liquidation. As used in this
section, the term 'amounts distributed in partial liquidation'
means a distribution by a corporation in complete cancellation or
redemption of a part of its stock, or one of a series of
distributions in complete cancellation or redemption of all or a
portion of its stock."