US SUPREME COURT DECISIONS

The advance in the value of personal property during a series of years does not constitute the gains, profits, or income of any one particular year of the series, although the entire amount of the advance be at one time turned into money by a sale of the property. Accordingly, when bonds of the United States were sold by the owner, after being held by him four years, at an advance of $20,000 over their cost to him, it was held that this amount was not taxable as "gains, profits, or income" of the owner for the year in which the sale was made, under the amendatory Internal Revenue Act of March 2, 1867.

An act of Congress of March 2, 1867, [Footnote 1] provides that

"There shall be levied, collected, and paid annually upon the gains, profits, and income of every person, . . . whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation, . . . or from any other source whatever, . . . a tax of five percentum on the amount so derived over $1,000. . . . And the tax herein provided for shall be assessed, collected, and paid upon the gains, profits, and income for the year ending the 31st of December next preceding the time for levying, collecting, and paying said tax."

The same section also provides (with some exceptions not important to be mentioned), that

"In estimating the gains, profits, and income of any person, there shall be included all incomes derived from interest upon notes, bonds, and other securities of the United States, profits realized within the year from sales of real estate purchased within the year, or within two years previous to the year for which income is estimated, . . . and all other gains, profits, and income derived from any source whatever."

In this state of statutory law, W. Darlington brought the present action against W. C. Gray Collector of Internal chanrobles.com-red

Page 82 U. S. 64

Revenue, to recover the sum of $1,000, alleged to have been illegally assessed and collected under the said law as gains, profits, and income of him, the said Darlington, for the year 1869. It appeared from the allegations of the declaration, that in 1865, the plaintiff, being then the owner of certain United States Treasury notes, exchanged them for United States five-twenty bonds; that in 1869, he sold these bonds at an advance of $20,000 over the cost of the Treasury notes, and that upon this amount the assistant assessor of the United States for the collection district in Pennsylvania within which the plaintiff resided, assessed a tax of five percent, alleging it to be gains, profits, and income of the plaintiff for that year; that on appeal to the assessor of the district, and to the Commissioner of Internal Revenue, this assessment was affirmed, and was transmitted to the defendant, as collector of the district, for enforcement; and that upon the latter's demand, with notice that, unless paid, he would collect the same with penalty and interest, the tax was paid by the plaintiff under protest.

To the declaration, setting forth substantially the facts above stated, the defendant demurred. The demurrer was overruled by the circuit court, and judgment given in favor of the plaintiff for the amount paid by him, with interest and costs. The defendant brought the case to this Court on writ of error, and assigned as error the overruling of the demurrer.