MR. JUSTICE BUTLER delivered the opinion of the Court.
The commissioner determined a deficiency of $9,156.69 on account of respondent's 1928 income tax. The Board of Tax. Appeals made the same determination. The court held it excessive and that the evidence did not show the correct amount, reversed the order of the board, and remanded the case for further proceedings in accordance with the opinion. 70 F.2d 619. The petition for our writ states the question: "Whether the Circuit Court of Appeals erred in remanding this case to the Board of Tax Appeals for a new hearing on the ground that the Commissioner's determination of the amount of income was incorrect, although the taxpayer had failed to prove facts from which a correct determination could be made."
In August, 1927, respondent acquired all the stock of four utilities at a total cost of $96,030, organized a holding company and, October 13, transferred to it all the
In May, 1928, the holding company sold the stock of the four utilities to the Colonial corporation for $194,930.16. Later in that year the holding company bought or retired all the preferred and paid the taxpayer $99,000 therefor. In his 1928 return he assigned the $96,030 for which he procured the utilities to the preferred stock of the holding company, deducted that amount from the $99,000 received therefor, and reported the difference, $2,970, as the gain derived from the sale. The applicable statutory provisions are contained in Revenue Act of 1928. §§ 111 (a) (d), 112 (b) (3), 113 (a) (6). 45 Stat. 815-19.
The Commissioner, holding the taxpayer not entitled to charge the cost of all to the preferred, apportioned between the preferred and common. He made his calculation upon the assumption that the cost, in 1927, attributable to the preferred shares bears the same relation to cost of all the shares then acquired as the amount respondent received, in 1928, for the preferred bears to the amount paid the holding company by Colonial corporation for all the utilities shares.
The only question for consideration is that stated in the petition for the writ of certiorari. Gunning v. Cooley, 281 U.S. 90, 98. That question in effect assumes, and here it is taken as granted, that the court rightly held the evidence sufficient to require a finding that the commissioner's apportionment of total cost as between preferred and common stock was unfair and erroneous and that therefore the commissioner's determination was excessive.
The commissioner does not contend that, in cases where Circuit Courts of Appeals properly reverse determinations of the board, they are without power to remand for further hearing in the nature of a new trial.
He cites Revenue Act of 1926, § 274 (e), 44 Stat. 56:
"The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency,
He also cites Revenue Act of 1928, §§ 51 (a) and 54 (a), 45 Stat. 807, 808. Neither gives any support to his contention. The first requires the taxpayer to make under oath a return stating specifically the amount of his gross income and the amounts of deductions and credits allowed. The other requires the taxpayer to keep such records, render under oath such statements, make such returns, and comply with such rules and regulations as the commissioner may prescribe. These requirements give no support to the commissioner's contention. They tend rather to suggest that taxpayer's returns are correct and may not arbitrarily be set at naught.
He also cites Rule 30 adopted by the board: "The burden of proof shall be upon the petitioner, except as otherwise provided by statute and except that in respect of any new matter pleaded in his answer, it shall be upon the respondent." But there is nothing in it to suggest intention to require the taxpayer to prove not only that a deficiency assessment laid upon him was arbitrary and wrong but also to show the correct amount. Moreover, the board held the evidence not sufficient to show the
The commissioner cites United States v. Rindskopf, 105 U.S. 418; United States v. Anderson, 269 U.S. 422, 443; Reinecke v. Spalding, 280 U.S. 227, 232-233. The first of these may be put aside without discussion as having no bearing upon the point here in controversy. The other two were adequately distinguished by the Circuit Court of Appeals. Each was an action to recover taxes paid. Obviously the burden was on the plaintiff, in order to establish a basis for judgment in his favor, specifically to show not merely that the assessment was erroneous but also the amount to which he was entitled. For like reason the burden is upon the taxpayer to establish the amount of a deduction claimed. Burnet v. Houston, 283 U.S. 223, 227. Helvering v. Independent Life Ins. Co., 292 U.S. 371, 381. New Colonial Co. v. Helvering, 292 U.S. 435, 440.
We find nothing in the statutes, the rules of the board or our decisions that gives any support to the idea that the commissioner's determination, shown to be without rational foundation and excessive, will be enforced unless the taxpayer proves he owes nothing or, if liable at all, shows the correct amount. While decisions of the lower courts may not be harmonious, our attention has not
Unquestionably the burden of proof is on the taxpayer to show that the commissioner's determination is invalid. Lucas v. Structural Steel Co., 281 U.S. 264, 271. Wickwire v. Reinecke, 275 U.S. 101, 105. Welch v. Helvering, 290 U.S. 111, 115. Frequently, if not quite generally, evidence adequate to overthrow the commissioner's finding is also sufficient to show the correct amount, if any, that is due. See, e.g., Darcy v. Commissioner, 66 F.2d 581, 585. But, where as in this case the taxpayer's evidence shows the commissioner's determination to be arbitrary and excessive, it may not reasonably be held that he is bound to pay a tax that confessedly he does not owe, unless his evidence was sufficient also to establish the correct amount that lawfully might be charged against him. On the facts shown by the taxpayer in this case, the board should have held the apportionment arbitrary and the commissioner's determination invalid. Then, upon
MR. JUSTICE STONE, dissenting.
I think the judgment should be reversed.
As respondent failed to establish any amount by which the deficiency fixed by the Commissioner should be reduced, the Board of Tax Appeals was without authority, under the statute defining its jurisdiction, to disturb the determination of the Commissioner, c. 27, §§ 274 (b) (e), 906 (c) (d), 44 Stat. 9, 55, 56, 107; 26 U.S.C., §§ 1048a, 1048c, 1217 (c) (d). If, under § 906 (d), it was the duty of the Board to dismiss the petition and enter on its records a finding that it could not determine the amount of the deficiency, these requirements are formal only. Its failure to comply with them does not require a reversal of its order sustaining the action of the Commissioner, or in any case afford ground for decision on appeal that the Board should have held the Commissioner's determination invalid or that it should now take further evidence.
"(d) In the case of a sale or exchange, the extent to which the gain or loss determined under this section shall be recognized for the purposes of this title, shall be determined under the provisions of section 112.
"Sec. 112. (b) (3) No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
"Sec. 113. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that . . .
"(6) If the property was acquired upon an exchange described in section 112 (b) to (c), inclusive, the basis shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized upon such exchange under the law applicable to the year in which the exchange was made." 45 Stat. 815-819.
Cf. Collin v. Commissioner, 32 F.2d 753. Citrus Soap Co. v. Lucas, 42 F.2d 372. Russell v. Commissioner, 45 F.2d 100, 103. Strother v. Commissioner, 55 F.2d 626, 632. And see, involving deduction, Underwood v. Commissioner, 56 F.2d 67, 72.