*1 the Supreme Court the District of Columbia direc- with tions to that court dismiss the bill.

Reversed. HELVERING, COMMISSIONER OF INTERNAL YORK TRUST

REVENUE, CO., NEW TRUSTEE.* Argued May May 28,

No. 873. 1934. Decided * Together with No. Co., Trustee, New York Trust v. Helver Commissioner, ing, certiorari to the Appeals Circuit Court of for the Second Circuit. *2 Griswold, with whom Erwin N. Solicitor General

Mr. Wideman, General Attorney Mr. Assistant James Biggs, Morris, brief, Miss Helen R. were on the W. Carloss Internal Commissioner of Revenue. for the *3 Newlin, Messrs. DuPratt Chauncey with whom J. Mr. on brief, D. Russell Morrill were White and Co., Trustee. York Trust New *5 opinion Butler delivered Court. Mr. Justice of controversy out calculation of an This arises realized on the of income tax on the sale gain April Matthiessen ac 27, 1906, a trustee one $141,375. quired at 6,000 shares stock cost Its on' March less than December value was cost. 4, 1921, desiring provision son, Erard, make for his he New York Company transferred the Trust stock him with remainder trust for over case of his death. When the trust was created the market value of stock it $577,500. $603,385. was The trustee sold In tax year return for that the trustee included from $87,385 gain resulting figure as the the sale. That was reached subtracting cost of the shares to the $516,000, then be trustor, claimed to from the amount the trustee received for But then, them. the trustee always has, gain insisted that should be on calculated the basis of the value at the time of the creation of the applied And it the rate of per cent., appli trust. 12% gains. cable to The Commissioner ascertained gain in the return principle adopted on the but found $141,375. cost to trustor normal applied He ordinarily and surtax rates that are upon laid the incomes individuals and use these factors at arrived $238,275,95.1 an additional assessment The Board of Tax sustained Appeals determination. B.T.A. made $14,391.71. 1 On the basis the tax return On the (2) construction for which trustee contends the § tax $7,714.00. would be cor- The lower court held that had been per but it was taxable at

rectly ascertained, 12% *6 F. 19. These writs were on (2d) granted peti- cent. 68 of cross-petition of Commissioner the trustee. tion and the (1) The are: Whether the questions gain resulting from price by sale is the difference between paid the trustee’s if by trustee, (2) so, that and received whether trustor and cent, per rate applicable. the 12% 227, governs. of The Revenue Stat. Sec- Act or (9) taxpayer any person, defines to include tion trust by subject imposed a tax the Act. estate to Section ascertaining “That the for (a) gain basis the provides: . . . of . property from sale ... . derived . shall be except the of that ... the property; (2) such In cost acquired by gift property, case of such after December 1920, the shall be the as that which it basis same would in the of have hands the Section 206 (a) (6) donor.” “ acquired assets to be held property defines and taxpayer or than profit the investment more ” (b) years provides two and that the net from the taxed may sale of assets be at the rate of 12% cent, ordinary (a) of at rates. Section per instead the that normal surtax net declares the and on of incomes apply individuals shall to income of property the held trust, (3) including income held future for' distribu- the (b) fiduciary tion; required to make the return of income for the And (c) provides trust. subsection that (3) under imposed cases tax shall upon be of income the trust shall be paid by net and the fiduciary. By indenture, trust which recites mutual covenants and the agreements payment $10 of and each to “ consideration, other as trustor sell, assign, did ” “ transfer, convey 6,000 trust, shares never- ” son, theless, the benefit to Erard, his be admin- ” specified the trustee under terms istered and condi- required The are these: trustee which among tions any purchased out the shares and to hold twenty-first retain income until the avails, collect to him the accumulated Erard, pay then to birthday of income until he him current pay thereafter to income, time twenty-five at years, and age attained income. principal to to him the undistributed deliver trustor, was not sell the life of the trustee During and approval or reinvest without written consent age In trustor. of Erard’s death before case twenty-five, to other go entire estate was sons the trustor. irrevocably He disposed trustor the shares. did

not sell Guggenheim, but made a 288 U.S. gift. Burnet gave He the trustee title held legal temporarily *7 conserve, to enable it to transfer prop administer and the erty for the use the and benefit of his son to whom he gave beneficial interest. It be that may rightly said the trustee “ ” beneficiary acquired by (a). and as 202 2 by gift § meant might If the in 2 (9) alone, broad definition stood either § as rule regarded taxpayer qualified by be the it is but the that the trustee the pay the tax. It follows that must taxpayer trustee be as for properly may regarded and, the purpose calculating gain, as having assumed (a) place (2) of the trustor. Section 202 was enacted Bowers, prevent on capital gains. evasion of taxes v. Taft 470, Cooper States, 278 479, U.S. 482. see And v. United 280 409. trustees for the U.S. Transfers to benefit enactment,. reason clearly others are within the for the 2 Murdoch, McDonogh’s Executors 367, 400, v. 15 How. Trefry, Maguire 12, Lagow, 16. Neilson v. 98, v. 253 U.S. How. Shererd, Considine, 106-107, 110. Croxall v. 281. Doe v. Wall. Chase, Young Bowen v. 812, 817, 6 Wall. 94 U.S. 818-819. Wilson, 787. Anderson Bradley, 101 U.S. v. 289 U.S. 24-25.

They may be used to burdens intended to be avoid im- quite may are posed, effectively gifts directly as that made. The between the cost to the trustor in difference for the amount which the trustee sold in 1922 taken as taxable income of the rightly trust. was question whether derived We come to cent. per from the trustee’s is taxable at That sale 12% “ the shares were applicable rate is not unless “ ” (6) to be ac- property assets defined § or taxpayer profit held investment quired and The time between the crea- years.” for more than two specified less than tion of the trust and sale was to, looked and, if the words alone are period more “held ... taxpayer were not shares after the of the Act years.” passage than two Soon ruled Bureau of Internal Revenue Income Tax Unit of the trustee, purposes to a that transferred analogous expressed those upon terms and conditions hands remained his us, indenture before which ” that assets years less than two cent, per at the was not taxable resulting gain 12% by the Board rate. was followed That construction for the Third Appeals Tax the Circuit Court of Appeals, of Co- the District Appeals Circuit and the Court the words says lumbia.3 The Commissioner and that the statute ambiguity definition are free from he of this court opinion no From an exception. contains *8 3 1660, II-l 1922) I.T. 1379, (July-December, 41. I.T. 1-2 C.B. (January- 1923) (January-June, 1889, C.B. I.T. III —1 C.B. 36. 804, McKinney (1929) 16 B.T.A. June, 1924) v. Commissioner 70. 611, 614; affirmed (1929) B.T.A. Johnson Commissioner v. 17 808. Schoenberg Commissioner (C.C.A.-3, 1931) (2d) 52 F. 727. v. (2d) (1930) App.D.C. 381; F. 399, 400; 55 affirmed, 19 B.T.A. 60 Mc Steagall 1231, (1931) 1235. Commissioner v. 24 B.T.A. Crory Commissioner (1932) 994, v. 25 B.T.A. “ If the language these statements: be clear it is

invokes There can be no construction where there conclusive. Hartwell, 6 to construe.” United States v. nothing 385, suggests Wall. 396. He that his construction was 1924, (a) (8), the Revenue Act of approved by § 263, definition, which retained the and that the pro- Stat. Revenue (8), § vision in the Act of Stat. 19, which conforms to the construction for which the change here contends to make a in the operated trustee law. ambiguity,

The rule that where statute no contains literally it effect given according must be taken and is a not to be to avoid language put its sound one aside from hardships may result effect giving sometimes Immigration legislative purpose. to the Commissioner of Gottlieb, 310, 313. v. Refrigerating v. 265 U.S. Bate Co. 157 U.S. 37. But of a Sulzberger, expounding strictly according to the letter without statutory provision legislative history regard parts to other of the Act and object often defeat intended to would be accom through Taney Chief Justice Brown plished. Speaking “ Duchesne, (p. 194): 19 How. this It court said v. that, interpreting statute, is well settled court will merely look to a in which particular general clause used, will take connection it may words but with be. (or statute statutes on the subject) same and whole objects law, of the as its policy indicated give various such a construction as provisions, carry Legislature, into execution the will of the will ascertained, according its true intent mean thus States, Quite recently 260 U.S. ing.” Ozawa United 194): duty It is the of this Court to (p. give we said Congress. Primarily to the intent of this intent effect natural by giving significance, the words their ascertained plainly but if this leads to an unreasonable result at vari whole, must policy legislation ance with the we as a *9 matter further. may examine the We then look to the reason of enactment inquire into its antecedent in history give it accordance effect with its design and if purpose, sacrificing, necessary, the literal meaning the purpose may order not fail.” And in Pelt, Barrett Van v. U.S. we applied the People Co., laid down in v. Utica Ins. rule 15 Johns. 358, 381, thing that “a which is within the intention of makers of a statute is as within much the statute as if within letter, thing were a which is within statute, letter of not statute, within the unless it is within the intention of the makers.” The part definition under consideration is this: held ... more than years.” two Although on su- perficial inspection the words appear to be entirely clear, Treasury Department construction necessary deemed meaning that, upon disclose the consideration of the actual transactions of the taxpayers, Congress it found have intended. 62, Art. 'Regulations declares: “ The specific or property exchanged sold must have been held for more than years, two but in the stock case a the prescribed applies original dividend period to the stock and the stock as a dividend received considered a exchanged unit and where property prop- for other . erty . . the prescribed applies to period the property exchanged and the con- property exchange received a unit.” sidered as Construed strictly according to the letter, provision would not include received as shares years less than two before or sale, dividend exchange period. taken within that this need of regulation ambiguities requiring illustrates how construc- often upon reading tion exist where first the words seem meaning Generally, as to questions clear. intended language compared do arise until the used is with the or of which intent and respect facts transactions Bradley Washington, are to be purpose ascertained. v. Co., Cray, Deery A. & Steam-Packet G. 13 Pet. *10 White, 217. Patch v. 210, 270. 117 263, 10 Wall. U.S. Stone, & 590. American Net Gilmer 120 U.S. Worthington, Twine 141 U.S. 468, v. Co. the to

Legislative applying cap- reasons lower rate the gains give support ital to the construction which Ways on report trustee contends. The the Committee is . . assets and Means states: sale . capital seriously by profits retarded fact that gains now the law years present over a series of are under the earned (and a lump greatly taxed as sum the amount of surtax year thereby) profit the which the enhanced Many profit such with their sales, possible realized. consequent increase of the tax have taking revenue, In by this feature of the present blocked law. order been to go such transactions forward without fear permit to the prohibitive proposed bill, a section tax, to providing section ... the income that tax, new adds net derived from the sale or other gain dis- where would, ordinary under the capital pro- assets position to an income tax in subjected per excess of cedure, cent, 12y2 changed tax per to upon cent.] [afterwards gain shall be to that rate. It net limited is be- provision of this would passage materially lieved that revenue, only because it would stimu- increase transactions but because the limitation profit-taking late cent, applied also losses. Under per likely there are be more losses than conditions present Session, 1st House Congress, Report 67th No. gains.” Report In also Senate No. p. 10. See p. legislative purpose lessen hindrance respect surtaxes, normal and there is no by high distinc- caused from a sale made an gains by derived between owner tion years for more than two held the has who from one a donee whose tenure resulting plus those period. donor exceeds that Here the taxable ascertained gain was to- putting in which gether periods were held shares respectively. trustor and trustee The taxable if the same as the former held from continuously of purchase time in 1906 until sale in 1922. But to the applicable ascertain rate the Commissioner broke continuity. If the trustor had held until sale, cent, per rate would have been applicable and 12% tax would have been substantially less than one- fourth of the amount against assessed the trustee who, the purpose calculating gain, was substituted for the trustor.4

Sections (a) (2) and (a) (6) are included ,and the same Act applicable are respectively to different *11 elements of the same or like transactions and are not to be regarded as wholly unrelated. While undoubtedly legally possible and within Congress, the of power the methods adopted by results attained the Commissioner are lacking so in harmony as to suggest the that continuity required to be used to get the was for base also intended in use finding the rate. Noi ground valid been has sug- for gested requiring tenures to be the added for one pur- pose forbidding combination for legis- the other. The to by lative purpose be served the application of the rate upon directly lower is capital gains opposed to the Commissiqner’s ground construction. There is no for that discrimination such as to which the trustee was It subjected. is to inferred Congress that not did of penalization intend that sort.

The suggestion that, Commissioner’s by the retaining same definition 1924 Act, the Congress approved the he construction which contends is without merit. The deficiency assessed, $238,275.91, original plus 4 The assessment, $14,- $252,667.66. 391.71, taxpayer’s makes total The calculation cent, if per applied indicates that rate were the total tax 12% $58,921.51. would be definition Deci any Treasury had not been construed sion, of Tax by Appeals by any prior Board or court to that enactment. The of all constructions of dates to are the definition which our has been called attention The margin.5 Regulation shown above referred to ques In February respect was approved no defini involved, upon tion here construction puts tion. The I.T. 1660 and rulings, cited passage Commissioner were made before- the Treasury they none of the force Act but have or effect in any Department Decisions and do not commit cautionary published See notice the law.” terpretation rulings. these does not containing ap in the bulletins It any Congress had that the attention been called pear no infer ground There is on which to construction. such Congress approve Act intended it. the 1924 sub- (a) (8)6 § 208 contains Act of The Revenue 1921 Act language that used in the stantially the same That subdivision part assets. to define determining period which rules followed one Among them is property. held has taxpayer be- those the case presented to facts such as applicable substantially the construction the same as fore us. It language change Mere trustee contends. for which law. change intention to necessarily indicate does what may clarify be to the variation purpose against misapprehension as *12 safeguard to doubtful and .so 3. Note 5 See ’ 6 " ' property capital means held the tax assets The term years. determining period ... In the than two more payer acquired property there taxpayer has held however which the by any which such was held period for be included shall [corresponding to provisions of section 204 if under the person, other property has, purpose such for the the 1921 (2) of Act] 202 § exchange, in a the same basis determining loss from sale or gain or would the hands of such hands as it have part in his whole or 19. 44 person.” Stat. 'other

469 to existing law. In view of the same inclusion definition 1921, Acts of 1924 and 1926 and the legislative purpose underlying it, contention that “ new change words were added meaning to ” assets as defined in the earlier Acts is without force. “ The definition so clarified was not new law a but more explicit expression of the purpose of the prior law.” Roche, Jordan 228 436, v. U.S. 445. Merle-Smith v. Commissioner, 42 (2d) 837, F. v. Com 842. McCauley missioner, 44 (2d) 919, F. 920. Affirmed. Roberts,

Mr. Justice dissenting. meaning Within 202 (a) of the Act § Revenue of 1921 the acquired trustee res the trust gift. But reference must be to 206 and had §§ to ascertain gain rate of tax to be to the applied on the sale. These sections, distinct not in are found juxtaposition 202, with but portions dealing Act with topics; unrelated “ ” the one Capital with Gains other with “Estates and Trusts.” Confessedly the an grants first exemption from normal rate tax allows pay- “ ” ment at a lower rate a only taxpayer who realizes from sale of a (the asset which he tax- ”) has payer or profit held investment for over two years. The second, in words too plain be misunder- designates stood, of a trustee trust such as the one here in question as the taxpayer. unambiguous mandate of Act should enforced. be Under the recognized rules of construction we should give the words statute their ordinary common meaning. Colony Commissioner, Old R. Co. v. U.S. If 560. the language there is plain nothing Rathbone, Hamilton v. construe. 419; U.S. States, Thompson United v. U.S. can We enact law under the pretense construing one. Donnan, Heiner U.S. *13 of statute a meaning the plain we avoid

Nor can as written think so-called, we construction, because consequences, absurd objectionable or “hard begets ” of contemplation the not within were probably which Harrelson, Where, 55. U.S. Crooks its framers. an granting is one case, provision the present taxation, must be doubts from the full rate exemption Trust Heiner taxpayer. v. Colonial against the resolved Co., U.S. Act of the passage after years

For twelve the benefit uniformly denied rulings administrative a donee Act of 1921 to of the gains sections years. over two not himself who had held consideration' and will respectful These are entitled Fawcus weighty reasons. disregarded except for not be States, Two U.S. Co. v. United Machine con against have decided trustee’s Appeals Courts agreement of the unbroken In the face this tention. we be slow should judicial departments, executive contrary a view. to announce assigned import ignoring plain The reason provisions, 219 is that 206 and terms used §§ bring thought a result ordinary about sense, read in their permit contradictory paramount purpose to be gains at a reduced rate. of tax on payment inadvertently omitted suggestion Congress is that of the tacking tenures donor whereby provision finding since it rate, would be allowed and donee tacking ascertaining such the base. It required has ,any absurd to attribute other in it would be said necessary But there no framers law. tent to the in the inconsistency provisions, literally two applied. requirement that a donee should calculate Plainly the the value donor paid prevent on his was to his through transfer and immediate evasions, sale the value at the date of the donee, gift would claim who *14 as the base assert that he had no There gain. and made is no in in incongruity declaring gift that of a case shall tax the full he shall pay donee at rate unless years. Congress might have held the a full two property well think condition of a proper privilege it thus to rate nothing reduced to one who for paid property. Assuming, for sake of that there however, argument, inconsistency is a logical between method prescribed arriving at the base that ascertaining province it is the of rate, Congress alone to remove it. justice There no in any abstract of taxation. system could involve more Nothing dangerous than consequences, should rewrite plain the courts of a tax provisions in bring act order to them into with harmony a supposed a Such of em- general policy. principle decision would a of bark us on sea construction whose diffi- bounds it is envisage. Every cult to revenue act embodies policies conflict to some extent which with those in the elsewhere legislation evinced. Income tax Act is a continuous of corrections and in an series amendments effort to make of policy congruous. more taxation very extending sections the relief a reduced capital gains, rate on teach how inconsistently us has principle impossible been followed im- and how proper would be for a court rewrite to the sections an to effort make them logically consistent. The Act omitted impose to limitation any per 12%

cent, capital on net losses. If, therefore, a taxpayer had no capital gains during year, he could his deduct capital from entire losses ordinary his income.1 This omission cured the Revenue Act of 1926, which reduced the permissible deduction from the tax net on cent, per income to capital net loss.2 The amend- 12% (a) (2); (2); 202 206 (b); 206 42 § § Stat. 232-3. (c), 44 Stat. 20. §208 glaring inconsistency,

ment of leaves a turn, a no though may yet have actual as taxpayer income, 12y2 cent, application mandatory result of the per losses, may pay rate to net he tax.3 have Under the Act assets were so defined consumption to exclude held for use or property personal the Revenue taxpayer family. By or his Act It re exception later was omitted.5 1924 and Acts the such taxpayer may sults that whereas the now include automo occupied by him, as the his residence biles, he jewels, items, respect gains, his similar de may respect losses, not include with for no them the case permitted duction whatever for losses is *15 consumption.6 held for or property personal use inconsistency logical might multiplied of Instances but capital gain provisions; in incidence of the or loss at because it thinks the liberty, pro- court this not in rewrite them order illogical, inconsistent to visions or harmony them into with its as to the bring to views underlying purpose Congress. of question

The 'were reenacted without sections in change If, suggested, the Revenue of in Act 1924. as a omission of one as provision permitting circumstanced have of the reduced this trustee the benefit rate vir to as his own tenure was inad tue of his donor’s well .an 3 Regulations 69, 1654, Art. As stated in 44 20. See 208 Stat. (c), § capital net he election taxpayer has a has an (b), 208 if the capital gains provisions; and losses return it under whether to provided in respect to a net loss 208 with the limitation but taxpayer’s irrespective election. applied of (c) will be (a) (6), 42 Stat. 206 4 § 5 263; (a) (8), (a) 1926, Act of 208 44 Stat. (8), 43 Stat. § § (a) (8), 45 Stat. 811. 19; Act of § (2), Regulations 69, 19; Act 44 Stat. 6 Revenue § V-I, Bulletin 141; Cumulative 1651; Art. Art. vertence as respects Act of it is curious that the same inadvertence occurred the enactment of the 1924 Act, despite the fact that rulings of the depart had ment been against present trustee’s contention. The section was amended the Act to of 1926 so as allow donee to tack his donor’s tenure to up make required years.7 two In it the reporting committees the Senate and House both referred this anas amend ment change the law. The was recommended con nection with two other in language, alterations both tended confirm In rulings department. referring particular this the committees alteration said: question The same arises in the case of re property by gift ceived after December 1920. The amendment provides period which the property held by the donor shall be added to the which the period in was held donee in property determining whether or so received falls within the gain or loss section.”

Certainly is far language compelling this from the con- pressed upon us, merely that the clusion amendment was understanding Congress confirmation as to the effect of the earlier Acts. re- be reversed judgment should and the cause at calculation tax to the trustee

manded *16 ordinary for the reason that did not hold rates so as years, for two to entitle it assets 12% rate. per cent. and Mr. Justice Stone concur Brandéis Justice

Mr. opinion. in this (8), Stat. 19. 7 § Rep. Cong., No. 69th 1st Rep. 1 and Session. Senate No. House