E. R. Squibb & Sons v. Helvering

PER CURIAM. Upon the former disposition of this cause the court held that the taxpayer was not liable for a deficiency in 1932 income taxes based upon the excess of the price received for “treasury shares” reissued in that year over the sum paid to acquire them. This ruling resulted in expunging the deficiency redetermined by the Board; it was grounded upon the principle that Article 66 of Regulations 771 and the corresponding article in earlier regulations established an administrative construction that had obtained Congressional approval giving it the force of law. But in the final paragraph of our opinion we suggested that the shares may' have had a value at the time of sale (reissue) less than the price ($50 per share) received for them, and that such difference may represent a taxable profit. Accordingly, we remanded the cause to the Board to assess any deficiency based upon differences between the sale price and the value of the shares at the time of sale. By petition for rehearing, which was granted, the taxpayer complains that, since no such question was raised before the Board or before this court, the case' should not have been remanded to permit the commissioner to attempt to sustain the deficiency in whole or in part upon a new theory of tax liability suggested by the court sua sponte,2 and in any event that the suggested theory is erroneous. The majority of the court as now constituted is of opinion that the regulation in force at the time of the reissue of the stock precludes recognition of the suggested theory of tax liability. See Helvering v. R. J. Reynolds Tobacco Co., 59 S.Ct. 423, 83 L.Ed. -, United States Supreme Court, January 30, 1939. It expressly provides that the sale of treasury stock is to be considered a capital transaction and that the proceeds of such sale will not constitute income of the corporation. Hence no part of such proceeds will be income, and whether there, is a difference between the “value” of the shares and the price at which they are issued is immaterial to a determinaton of the corporation’s 1932 income tax. Consequently, the final paragraph of our former opinion should be withdrawn, and the order of the Board should be reversed without a remand of the cause. It is so ordered. Footnotes [1] So far as material Art. 66, Reg. 77,-provides: “* * * if the corporation purchases any of its stock and holds it as treasury stock, the sale of such stock will be considered a capital transaction and the proceeds of such sale will be treated as capital and will not constitute income of the corporation. A corporation realizes no' gain or loss from the purchase or sale of its own stock.” Article 66 was amended on May 2, 1934 to provide that where a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss may be recognized. But we held the amendment inapplicable to a prior transaction, .and so the Supreme Court decided on January 30, 1939. Hel-vering v. R. J. Reynolds Tobacco Co., 59 S.Ct. 423, 83 L.Ed. —, October Term, 1938; First Clirold Corp. v. Commissioner, 59 S.Ct. 427, 83 L.Ed. —, October Term 1938. [2] Tbe taxpayer relies upon General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 205, 56 S.Ct. 185, 80 L. Ed. 154; Helvering v. Salvage, 297 U.S. 106, 109, 56 S.Ct. 375, 80 L.Ed. 511; Helvering v. Pfeiffer, 302 U.S. 247, 250, 58 S.Ct. 159, 82 L.Ed. 231. Tbe commissioner replies that remand is permissible un.der Helvering v. Gowran, 302 U.S. 238, 58 S.Ct. 154, 82 L.Ed. 224.