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306 U.S. 436

59 S. Ct. 607

83 L. Ed. 855

Docket No. 65.

Fairbanks v. United States

Supreme Court of the United States

Argued February 28, 1939.

Decided March 27, 1939.

Supreme Court of the United States · decided 1939-03-27

3 counsel of record

Key passage — most relied on by later courts

““(a) General rule. — For purposes of this subtitle, in the case of bonds, debentures, notes, or certificates or other evidences of indebtedness, which are capital assets in the hands of the taxpayer, and which are issued by any corporation, or government or political subdivision thereof' — ■ “(1) Retirement. — Amounts received by the holder on retirement of such bonds or other evidences of indebtedness shall be considered as amounts received in exchange therefor (except that in the case of bonds or other evidences of indebtedness issued before January 1, 1955, this paragraph shall apply only to those issued with interest coupons or in registered form, or to those in such form on March 1, 1954). “(2) Sale or exchange.— “(A) General rule. — Except as provided in subparagraph (B), upon sale or exchange of bonds or other evidences of indebtedness issued after December 31, 1954, held by the taxpayer more than 6 months, any gain realized which does not exceed— “(i) an amount equal to the original issue discount (as defined in subsection (b)), or “(ii) if at the time of original issue there was no intention to call the bond or other evidence of indebtedness before maturity, an amount which bears the same ratio to the original issue discount (as defined in subsection (b)) as the number of complete months that the bond or other evidence of indebtedness was held by the taxpayer bears to the number of complete months from the date of original issue to the date of maturity, “shall be con”

quoted by 6 later decisions, including Helvering v. William Flaccus Oak Leather Co., General Foods Corp. v. United States

““What may have been property in the hands of the holder of the notes simply vanished when the surrender took place and the maker received them. He then had, at most, only his own obligations to pay himself. Any theoretical concept of a sale of the notes to the maker in return for what he gave up to get them back must yield before the hard fact that he received nothing which was property in his hands but had merely succeeded in extinguishing his liabilities by the amounts which were due on the notes. There was, therefore, no sale of the notes to him in the ordinary meaning of the word and no exchange of assets for assets since the notes could not, as assets, survive the transaction. That being so, such a settlement as the one this petitioner made involved neither a sale nor an exchange of capital assets within the meaning of the statute.””

quoted by 2 later decisions, including Smith v. United States, Pattiz v. United States

Relies on Watson v. Commissioner · Werner v. Commissioner · Averill v. Commissioner

Cited in Case Law’s definition of “sale or exchange”

Good law ✅— No negative treatment on recordhow we know

Affirmed · 8–0 · Decided 1939-03-27

How this case has been cited

Cited by 323 later decisions (19 by the Supreme Court) — most recently December 2013 · most notably Dixon v. Unied States (1965), Helvering v. William Flaccus Oak Leather Co. (1941)

152 federal appellate · 9 district · 1 state decisions

950193919401950196019701980199020002010decided

Later decisions citing this case, by decade. The current decade is in progress, and our corpus holds fewer opinions from the most recent years, so the latest bars are undercounted — not a real decline.

View the full empirical analysis of this case →

¶1Mr. William Stanley argued the cause, and Mr. Arthur F. Driscoll was on a brief, for petitioner.

¶2Mr. Andrew D. Sharpe, with whom Solicitor General' Jackson, Assistant Attorney General Morris, and Messrs. Sewall Key and Maurice J. Mahoney were on the brief, for the United States.

¶3By leave of Court, Messrs. Carroll N. Perkins and Leonard A. Pierce filed a brief on behalf of Frances M. Averill, as arnica curiae, in support of ‘petitioner.

¶4Mr. Justice McReynolds

¶5delivered the opinion of the Court.

¶6Both courts below ruled that gain derived by the petitioner from redemption of bonds during 1927, 1928 and' *4371929 was not “capital gain” within the meaning of the controlling statutes.

¶7No contest now exists concerning the facts. The narrow point as counsel agree is this — Must the redemption of bonds before maturity by the issuing corporation be treated as tantamount to a sale or exchange of capital assets within the meaning of § 208 (a) (1), Revenue Act 1926, and § 101 (c) (1), Revenue Act 1928.1

¶8If redemption amounts to sale or exchange, the petitioner’s gain was subject to taxation at,the twelve and one-half per cent rate; otherwise, under normal and surtax rates.

¶9Payment and discharge of a. bond is neither sale nor exchange within the. commonly accepted meaning of thé words. The courts below found no sufficient reason for disregarding this and rightly applied the statutes under that view.

¶10The Tax Acts of 1921, 1924, 1926, 1928 and 1932 contain like definitions of capital gain. From 1921 to 1929 the Commissioner held that such gain did not arise from redemption. In 1929 the Board of Tax Appeals held otherwise. Werner v. Commissioner, 15 B. T. A. 482. But in 1932 it definitely overruled that determination. Watson v. Commissioner, 27 B. T. A. 463.

¶11*438The Revenue Act 1934 (May 10, 1934, c. 277, 48 Stat. 680, 714N715) provides—

“Sec. 117. Capital Gains and Losses.
(a) General Rule. — In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income: . . .
(f) Retirement of Bonds, Etc. — For the purposes of this title, amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.”

¶12What we regard as the correct meaning of the definition of capital gain in the Revenue Act 1921 and its four successors is accentuated by long-continued executive construction, also the last conclusion of the Board of Tax' Appeals.

¶13The Circuit Court of Appeals below was right in holding that by the Act 1934 Congress did not attempt to construe the prior Acts and purposely made a material addition thereto. In Averill v. Commissioner, 101 F. 2d 644, the Circuit Court of Appeals First Circuit acted upon a different view. This conflict caused us to bring up the present cause notwithstanding the application for cer-tiorari had been denied earlier in the term.

¶14The challenged judgment must be

¶15Affirmed.

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