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U.S. Supreme Court

Commissioner v. Jacobson, 336 U.S. 28 (1949)

Commissioner v. Jacobson

Nos. 32 and 33

Argued November 8, 1948

Decided January 17, 1949

336 U.S. 28


In 1938, 1939, and 1940, an individual taxpayer, in straitened financial circumstances but solvent, purchased at less than their face amount certain secured negotiable bonds originally issued by him at face value for cash. Some of the purchases were directly from the bondholders, others were through agents of the taxpayer or of the bondholders. Although each seller knew that the bonds were being bought by or for the maker, there was nothing to indicate that any seller intended to transfer or release something for nothing, or to make a gift of any part of his claim, as distinguished from making a sale and assignment of his whole claim for the highest available price.

Held: under § 22(a) of the Revenue Act of 1938 and of the Internal Revenue Code, the gain to the taxpayer from each purchase was includible in gross income for the year in which he made the purchase, and was not excludable as a "gift" under § 22(b)(3) of that Act and Code. Pp. 336 U. S. 29-52.

1. The taxpayer's gains from such transactions must be included in his gross income under § 22(a). Pp. 336 U. S. 38-47.

(a) On the facts of this case, the taxpayer realized an immediate financial gain from his purchase of these bonds at a discount. Pp. 336 U. S. 38-41.

(b) The amendments to § 22(b) of the Internal Revenue Code by the Revenue Act of 1939, though relating to corporate taxpayers, are persuasive that a natural person is obliged to include in his gross income under § 22(a) gains of the kind here involved. Pp. 336 U. S. 41-47.

2. Gains of this type are not excluded from the taxpayer's gross income by the general exemption of "gifts" from taxation prescribed by § 22(b)(3). Pp. 336 U. S. 47-52.

(a) The provision of the Internal Revenue Code for the exclusion of "gifts" from gross income is to be construed with restraint in the light of the purpose of Congress to tax income comprehensively. Pp. 336 U. S. 47-49. chanrobles.com-red

Page 336 U. S. 29

(b) On the facts of this case, there is nothing to indicate that the bondholders intended to transfer or did transfer something for nothing. Pp. 336 U. S. 50-51.

(c) The decision in this case is not rested on the fact that the sale was made before maturity, or that the seller may have received valid consideration for a total release of his claim because the debtor's payment was made before maturity. P. 336 U. S. 51.

(d) Helvering v. American Dental Co., 318 U. S. 322, distinguished. P. 336 U. S. 51.

3. The situation in each transaction is a factual one, turning upon whether the transaction is, in fact, a transfer of something for the best price available, or is a transfer or release of only a part of a claim for cash and of the balance "for nothing." Pp. 336 U. S. 51-52.

164 F.2d 594 reversed.