Messrs. Robert H. Jackson, Atty. Gen., and Thomas E. Harris, of Washington, D.C., for petitioner Helvering. [311 U.S. 189, 190] Mr. Bernhard Knollenberg, of New York City, for respondents janney.
Messrs. Frederick Baum and Frank E. Karelsen, Jr., both of New York City, for petitioner Gaines.
Mr. Chief Justice HUGHES delivered the opinion of the Court.
These cases present the same question, that is, whether under the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Acts, page 664 et seq., in the case of a joint return by husband and wife, and capital losses of one spouse may be deducted from the capital gains of the other.
In Helvering v. Janney, the wife realized net gains from the sale of capital assets during 1934, and the husband realized net losses from the sale of capital assets during the same year. They filed a joint income tax return reporting the capital gain, which represented the difference between the wife's adjusted capital gains and the husband's adjusted capital losses. The Commissioner ruled that the husband's losses could not be applied to reduce the gains realized by his wife and accordingly determined a deficiency. The Board of Tax Appeals sustained the Commissioner (39 B.T.A. 240) but the Circuit Court of Appeals for the Third Circuit reversed. 108 F.2d 564.
In Gaines v. Helvering, the husband realized a net gain from the sale of capital assets during 1934, while his wife sustained a net loss from the sale of capital assets. They filed a joint return reporting a capital loss, which represented the difference between the husband's net capital gain and his wife's net capital loss. The Commissioner, as in the Janney case, decided against this adjustment and the Board of Tax Appeals affirmed. The Circuit [311 U.S. 189, 191] Court of Appeals for the Second Circuit affirmed the decision of the Board. 111 F.2d 144.
Section 51(b) of the Revenue Act of 19341 with respect to the returns of husband and wife provided:
The same provision in substance is found in the earlier Revenue Acts from that of 1921.2
The 'aggregate income', to which paragraph 2 of Section 51[b] refers, is clearly the aggregate net income as it is the aggregate income on which 'the tax shall be computed'. In that view the deductions to which either spouse would be entitled would be taken, in the case of a joint return, from the aggregate gross income.
That was the construction placed upon the provision for a joint return in the Revenue Act of 1918 by the Solicitor of Internal Revenue in an opinion rendered in [311 U.S. 189, 192] 1921.3 After considering the terms of the statute and the reasonable inference as to the intent of Congress, the Solicitor concluded:
The terms of the Revenue Act of 1921 made this view even clearer. 4 Treasury Regulations 62, Article 401, promulgated under the Revenue Act of 1921, apparently followed the same view. That article provided as to joint returns of husband and wife,-
Treasury Regulation No. 77, promulgated under the Act of 1932, contained nothing to the contrary and the regulation theretofore obtaining as to such joint returns was left unchanged. Art. 381.
The Revenue Act of 1934 continued the prior statutory provisions as to joint returns of husband and wife, and Section 117(d) of that Act, 26 U. S.C.A. Int.Rev.Acts, page 708, as to capital losses, did not purport to alter the rule as to the right of the spouses to deductions in their joint return. Section 117(d) merely limited the amount of losses which could be deducted, as follows:
The conclusion of the Commissioner with respect to the Act of 1932, in the opinion above mentioned, was equally applicable to the new Act.
It was not until 1935 that the Treasury Department by Article 117-5 of Regulations 86 undertook to provide that 'the allowance of losses of one spouse from sales or exchanges of capital assets is in all cases to be computed without regard to gains and losses of the other spouse upon sales or exchanges of capital assets'.8
We are of the opinion that under the provision of the Act of 1934 as to joint returns of husband and wife, which embodied a policy set forth in substantially the same terms for many years, Congress intended to provide [311 U.S. 189, 195] for a tax on the aggregate net income and that the losses of one spouse might be deducted from the gains of the other; and that this applied as well to deductions for capital losses as to other deductions. This, we think, was the meaning of the provision of the Revenue Act of 1934 when it was enacted, and it was subject to change only by Congress, and not by the Department.
In No. 36, the judgment of the Circuit Court of Appeals is affirmed.
In No. 113, the judgment of the Circuit Court of Appeals is reversed and the cause is remanded for further proceedings in conformity with this opinion. It is so ordered.
Judgment affirmed in No. 36.
Judgment reversed and remanded in No. 113.
Mr. Justice ROBERTS took no part in the consideration and decision of this case.
[ Footnote 1 ] 48 Stat. 697, 26 U.S.C.A. Int.Rev.Acts, page 683.
[ Footnote 2 ] The Revenue Act of 1918, Section 223, also provided for a joint return by husband and wife. 40 Stat. 1074.
Section 223(b) of the Revenue Act of 1921 provided (42 Stat. 250):
[ Footnote 3 ] Sol.Op. 90, Cum.Bull. No. 4, p. 236 (1921).
[ Footnote 4 ] The Committee on Ways and Means of the House of Representatives reported with respect to the provision of the bill which became the Revenue Act of 1921 as follows:
[ Footnote 5 ] The same provision was continued in substance in succeeding regulations. Article 401 of Treasury Regulations 65 and 69 under the Revenue Acts of 1924 and 1926; Article 381 of Regulations 74 and 77 under the Revenue Acts of 1928 and 1932.
[ Footnote 6 ] 47 Stat. 183, 26 U.S.C.A. Int.Rev.Acts, page 493. Section 23(r)(1) provided: 'Losses from sales or exchanges of stocks and bonds (as defined in subsection (t) of this section) which are not capital assets (as defined in section 101) shall be allowed only to the extent of the gains from such sales or exchanges (including gains which may be derived by a taxpayer from the retirement of his own obligations).'
[ Footnote 7 ] 1933 Commerce Clearing House Federal Tax Service, Vol. III, par. 6037.
[ Footnote 8 ] It was also in 1935 that the Bureau of Internal Revenue announced the same ruling under the Act of 1932. G.C.M. 15438, Cum. Bull. XIV-2, p. 156.