The Attorney General and Mr. Golden W. Bell, Asst. Sol. Gen., of Washington, D.C., for respondent.
Mr. Justice SUTHERLAND delivered the opinion of the Court.
These cases involve identical facts and questions of law, and were disposed of by the court below in one opinion. 76 F.(2d) 892. The facts, so far as they concern the question here, are taken from the statement of that court:
It thus appears, the New York company having parted with all its assets except $50,000 in cash, that the assets behind the 4,964 shares when the 100-share distribution was made consisted of only that sum, while the 100 shares of the Delaware company stock were represented by the transferred assets of the New York company of the value of $961,952.86. The sale of the 4,964 shares brought $49,640; and the simple question to be determined is, What method for the purposes of taxation should be employed to determine the loss in respect of the 4,964 shares under the Revenue Act of 1926, 204(a)(9), c. 27, 44 Stat. 9, 14, 15 (26 U.S.C.A. 113 note)? That section provides that the basis for determining the gain or loss from such sale shall be the cost of the property, except that,
At the time of the reorganization, article 1599 of Treasury Regulations 69, which had been promulgated on August 28, 1926, was in force. Petitioners invoke subdivision 2 of that regulation which provided:
April 3, 1928, this regulation was amended by striking from it the italicized portion. The taxpayer contended that its loss should be computed in accordance with the original regulation. This would have resulted in an allocation to the 4,964 shares of the New York corporation of $2,452,392.77, and, after making certain deductions, the allowable loss, as already appears, would have been something over $2,000,000. The Commissioner, however, proceeding in strict accordance with the amended regulation, determined the amount of loss to be $495,696.76. Without pursuing the matter in further detail, it is enough to say that the case turns entirely upon the ques- [297 U.S. 129, 134] tion whether the loss was to be determined in accordance with the original or the amended regulation. If in accordance with the former, the taxpayer is right; if in accordance with the latter, the Commissioner is right. The court below held that the amended and not the original regulation furnished the applicable rule, and affirmed the determination of the Board of Tax Appeals, which in turn had sustained the Commissioner. We agree with that view.
In determining a loss, the statute requires that the basis shall be 'apportioned' between the old and the new stock. To apportion is to 'divide and assign in just proportion,' 'to distribute among two or more a just part or share to each,' Fisher v. Charter Oak Life Ins. Co., 14 Abb.N. C.(N.Y.) 32, 36, albeit, a division may be just without necessarily being also an exactly equal division. The result of applying the original regulation here is to bring about an inequitable apportionment, contrary to the intent of the statute, and to credit the taxpayer with a loss essentially and greatly disproportionate. On the other hand, application of the amended regulation effectuates the legislative intent that the basis of apportionment between the old and the new stock shall result in a fair and jut division.
The power of an administrative officer or board to administer a federal statute and to prescribe rules and regulations to that end is not the power to make law, for no such power can be delegated by Congress, but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity. Lynch v. Tilden Produce Co., 265 U.S. 315 , 320-322, 44 S.Ct. 488; Miller v. United States, 294 U.S. 435, 439 , 440 S., 55 S.Ct. 440, and cases cited. And not only must a regulation, in order to be valid, be consistent with the statute, but it must be reasonable. [297 U.S. 129, 135] International R. Co. v. Davidson, 257 U.S. 506, 514 , 42 S.Ct. 179, 66 L.Ed . 41. The original regulation as applied to a situation like that under review is both inconsistent with the statute and unreasonable.
The contention that the new regulation is retroactive is without merit. Since the original regulation could not be applied, the amended regulation in effect became the primary and controlling rule in respect of the situation presented. It pointed the way, for the first time, for correctly applying the antecedent statute to a situation which arose under the statute. See Titsworth v. Commissioner of Int. Rev. (C.C.A.) 73 F.(2d) 385, 386. The statute defines the rights of the taxpayer and fixes a standard by which such rights are to be measured. The regulation constitutes only a step in the administrative process. It does not, and could not, alter the statute. It is no more retroactive in its operation than is a judicial determination construing and applying a statute to a case in hand.
[ Footnote 1 ] Sec. 203(c), 44 Stat. 13 (26 U.S.C.A. 112 note) provides: 'If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or n another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized.'