Helvering v. Pfeiffer

Delivered the opinion of the Court.

This case presents questions of income taxation applicable to stock dividends.

In 1931, Annie M. Pfeiffer, a holder of common stock in William R. Warner Corporation, received as a dividend thereon 6,291% shares of its preferred stock. She also received from the corporation in that year $200,000 cash in exchange for 2,000 shares of its preferred stock which she had received as a dividend in 1928. In her income tax return for 1931, she did not include as taxable income either the preferred stock or the $200,000 cash. She did not include the preferred stock received in that year, because she deemed it exempt from taxation under § 115 (f) of the Revenue Act of 1928, 45 Stat. 791, 822. She did not include the $200,000 cash as taxable income, because she considered it the proceeds from the sale of a capital asset. But she did include $180,100 thereof as taxable capital gain on the sale, computing the gain in accordance with the then effective Treasury Regulations. And she paid a tax of $22,512.50 on such capital gain.

The Commissioner assessed a deficiency on each item. He determined that the 6,291% shares of preferred stock valued at $629,125, were taxable income of 1931, because not exempt under § 115 (f); and that the $200,000 cash were the proceeds of a redemption under § 115 (g), and hence taxable income. He eliminated the taxable capital gain reported and assessed a deficiency on each of the items.

The taxpayer sought a review by the Board of Tax Appeals. It affirmed the Commissioner’s determination that the preferred stock received in 1931 was taxable income ; but reversed his determination as to the proceeds of the 2,000 shares, and said:

“The Commissioner held that the redemption of the 2,000 shares in 1931 was at such time and in such manner as to be substantially equivalent to a taxable dividend in 1931, within the meaning of section 115 (g) of the Revenue Act of 1928. He erred in this since the distribution was subject to tax as a dividend in 1928 (see cases above cited). Thereafter the shares had a basis for gain or loss to the petitioner of $100 each, and they were redeemed without gain or loss to the petitioner at $100 each in 1931.”

The Commissioner acquiesced in the Board’s decision. The taxpayer sought a review by the Circuit Court of Appeals. It reversed the Board’s decision as to the 1931 stock dividend, on the ground that § 115 (f) exempted that dividend from taxation; and it affirmed the Board’s decision that the $200,000 cash was not taxable income of 1931, saying, 88 F. (2d) 3, 5:

“The appellee argues that the proceeds from the redemption in 1931 of 2,000 shares of preferred stock distributed as a stock dividend in 1928 should be considered either (a) subject to a tax as a capital gain or (b) subject to taxation as the equivalent of the distribution of a taxable dividend pursuant to section 115 (g) of the Revenue Act. The question of taxability as capital gain of the $200,000 or any part thereof was not in issue before or decided by the Board of Tax Appeals. The contention that we have authority to sustain the deficiency pro tanto even though the issue was not raised before the Board nor decided by it nor assigned as error in the petition to this court for a review of the Board’s decision is untenable. General Utilities & Operating Co. v. Helvering, 296 U. S. 200, . . .; Helvering v. Salvage, 297 U. S. 106, .... The Board held that this stock dividend redeemed in 1931 at $100 per share was taxable in the year 1928 when received and was therefore not taxable under section 115 (g); that it had a basis for gain or loss of $100 per share; and that therefore there was no taxable income from the redemption. The Commissioner did not file a cross-appeal. By the provisions of section 115 (g) the proceeds of the redemption of the stock can be taxed only if it occurs at such time and in such manner as to make the redemption essentially equivalent to the distribution of a taxable dividend. Since the Board did not so find, we cannot support this contention.”

The Commissioner’s petition for certiorari was granted in connection with that in Helvering v. Gowran, ante, p. 238, decided this day.

First. As to the 1931 dividend in preferred stock, the Commissioner contends that the immunity from taxation conferred by § 115 (f) did not extend to it. We hold, for the reasons stated in Paragraph First of Helvering v. Gowran, supra, that it was exempt from taxation.

Second. As to the $200,000 received in 1931, the Commissioner contends that the Circuit Court of Appeals erred in failing to hold it taxable income, since under the rule declared in Helvering v. Gowran, supra, the cost was zero.

We are not at liberty to entertain that contention. The Board of Tax Appeals decided that the $200,000 was not taxable income of 1931. As the Commissioner did not seek a review of that decision, which was adverse to him, the Circuit Court of Appeals properly refused to consider the contention. General Utilities & Operating Co. v. Helvering, 296 U. S. 200, 206. While a decision below may be sustained, without a cross-appeal, although it was rested upon a wrong ground, see Helvering v. Gowran, supra, an appellee cannot without a cross-appeal attack a judgment entered below. Compare United States v. American Railway Express Co., 265 U. S. 425, 435; Morley Construction Co. v. Maryland Casualty Co., 300 U. S. 185. The same rule applies to a decision of the Board of Tax Appeals.

Third. The Commissioner requests that, if we hold that the Board erred in declaring that the 2,000 shares received in 1928 were then taxable and refuse to review its decision that the proceeds received in 1931 were not taxable, we should remand the case to the Board to determine whether redemption of the 2,000 shares was made at such time and in such manner as to be essentially equivalent to the distribution of a taxable dividend under § 115 (g). The Commissioner acquiesced in the decision of the Board. No good reason is shown for disturbing it.

Affirmed.

See also The Stephan Morgan, 94 U. S. 599; Mount Pleasant v. Beckwith, 100 U. S. 514, 527; United States v. Blackfeather, 155 U. S. 180; Landram v. Jordan, 203 U. S. 56; Southern Pine Lumber Co. v. Ward, 208 U. S. 126, 137; Fitchie v. Brown, 211 U. S. 321, 329; Bothwell v. United States, 254 U. S. 231.