UNITED STATES
v.
CLEVELAND, CINCINNATI, CHICAGO & ST. LOUIS RAILWAY COMPANY
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The railroad company purchased stock in 1900 and sold it in 1909 at a substantial profit, but did not report the gain as taxable income under the 1909 Corporation Excise Tax Act. The Supreme Court affirmed that only the portion of the profit accruing after December 31, 1908—the date the tax act took effect—was subject to taxation, determined by using the stock's fair market value on that date as a baseline. The decision established that gains on assets held prior to a tax statute's enactment are not taxable income under that statute.
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Mr. Justice Pitney delivered the opinion of the court.
In January, 1900, the respondent purchased 30,000 shares of stock of the Chesapeake & Ohio Railway Company for $981,427.92, and sold them January 28, 1909, for $1,795,719 — a profit of over $814,000. It included no portion of this profit in its return for the year 1909 under the Corporation Excise Tax Act of August 5, 1909, c. 6, 36 Stat. 11, 112, § 38, and the United States brought this suit to recover the tax of 1 per cent, thereon. The District Court directed a verdict in favor of plaintiff. Upon review the Circuit Court of Appeals held the proceeds of sale of the stock could not be considered as income under the act except to the extent by which they exceeded the market value of the stock on December 31, 19.08, ascertained to be $57 per share. It therefore reversed the judgment, and remanded the case'' with instruction to enter a new judgment to include a tax on this account only upon-the balance of the selling price above $57 per share or $1,710,000 in all. 242 Fed. Rep. 18. A writ of certioralri was then allowed.
For reasons sufficiently stated in Doyle v. Mitchell Brothers Co., and Hays v. Gauley Mountain Coal Co., ante, pp. 179, 189, we concur in the view that defendant was not taxable except 'with respect'to so much of the profit upon the stock as accrued after December 31, 1908. Just how this' part is to be separated from that which previously accrued is a matter of some nicety, as we have shown in the Hays Case. The Circuit Court of Appeals adopted the theory of an inventory taken as of the time the act went into effect; and although the assets here under consideration were not acquired for. the purpose of sale in the manner of merchandise, but were bought for investment, and hence were not inventoried on December 31, 1908, it accepted the stipulated fact that the stock had a regular market valué of $57 per share on that date as supplying the lack of an inventory. This result accords with the views we have expressed in the cases referred to.
Judgment affirmed.
Mr. Justice Holmes took no part in the consideration or decision of this case.
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Merchs'. Loan & Tr. Co. v. Smietanka, 255 U.S. 509 (U.S. 1921)…profit upon the sale of the stock as accrued subsequent to the effective date of the act was properly treated as income received during 1911, in assessing the tax for that year. In United States v. Cleveland, Cincinnati, Chicago & St. Louis Ry. Co., 247 U. S. 195, a railroad company pm-chased shares of stock in another railroad company in 1900 which it sold in 1909, realizing a profit of $814,000. ' Here, again, over the same objection, this comt held that the part of the profit which accrued subsequent to t…
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Eldredge v. United States, 31 F.2d 924 (6th Cir. 1929)…sh by being satisfied according to its terms. The cases of Doyle v. Mitchell Bros., 247 U. S. 179, 38 S. Ct. 467, 62 L. Ed. 1054, Hays v. Gauley Mountain Coal Co., 247 U. S. 189, 38 S. Ct. 470, 62 L. Ed. 1061, U. S. v. Cleveland, C. C. & St. L. R., 247 U. S. 195, 38 S. Ct. 472, 62 L. Ed. 1064, and Lynch v. Turrish, 247 U. S. 221, 38 S. Ct. 537, 62 L. Ed. 1087, so strongly enunciate the general rule that only increases in value occurring after the basie date are taxable as to suggest doubts of the constituti…1 / 2
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United States v. Boston & Mont. Consol. Copper & Silver Min. Co. (S.D.N.Y. 1924)…ctual increase from January 1, 1909, to April 1, 1910, and that this actual increase is the only legitimate basis upon which the tax can be' assessed. Doyle v. Mitchell Bros., 247 U. S. 179, 38 Sup. Ct. 467, 62 L. Ed. 1054; U. S. v. Cleveland, etc., 247 U. S. 195, 38 Sup. Ct. 472, 62 L. Ed. 1064. Hence, if we accept the straight-line method,, it must be regarded as the means, of reaching, not a general average for the entire period, but the actual increase during the period in question. By their proofs the…1 / 2