MR. JUSTICE BRENNAN delivered the opinion of the Court.
This case involves the issue decided today in United States v. Midland-Ross Corp., No. 628, ante, p. 54. Petitioners are members of a partnership which, during the tax year 1952, bought 33 short-term noninterest-bearing notes from issuers at discounts between 2 3/8% and 3 3/4% of face value. The notes had maturities ranging from 190 to 272 days. Their total face value was $43,050,000, and the total issue price was $42,222,357. The partnership sold 20 of the 33 notes before the end of the tax year but after having held them for more than
The Commissioner of Internal Revenue determined that the gain realized was taxable as ordinary income, and also that a portion of the original issue discount on the 13 unsold notes was earned and reportable as ordinary income for 1952.
Our holding today in Midland-Ross that original issue discount is not entitled to capital gains treatment under the 1939 Internal Revenue Code requires that we affirm the result below unless an affirmance is precluded by an argument made here and not in Midland-Ross. The petitioners contend that in purchasing the notes they relied upon the Commissioner's published acquiescence in the Tax Court's decision in Caulkins v. Commissioner, 1 T.C. 656,
Section 7805 (b) provides:
In Caulkins the Tax Court allowed capital gains treatment of the full amount received by the taxpayer upon the retirement of an "Accumulative Installment Certificate," a debt security under which the lender made 10
In Automobile Club of Michigan v. Commissioner, supra, at 183-184, we held that the Commissioner is empowered retroactively to correct mistakes of law in the application of the tax laws to particular transactions.
But petitioners point to prefatory statements in the Internal Revenue Bulletins for 1952 and other years stating that Tax Court decisions acquiesced in "should be relied upon by officers and employees of the Bureau of Internal Revenue as precedents in the disposition of other cases." See, e. g., 1952-1 Cum. Bull. IV. These are merely guidelines for Bureau personnel, however, and hardly help the petitioners here. The title pages of the same Revenue Bulletins give taxpayers explicit warning that rulings
Indeed, long before the tax year here in question this Court had made it clear that "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 . . . 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." Manhattan General Equipment Co. v. Commissioner, supra, at 134.
This reasoning applies with even greater force to the Commissioner's rulings and acquiescences.
We cannot agree with petitioners that Automobile Club of Michigan v. Commissioner, supra, supports a finding that the Commissioner abused his discretion in giving retroactive effect to the withdrawal of the acquiescence. In that case the Commissioner had issued general pronouncements according exempt status to all automobile clubs similarly situated, following letter rulings to that effect in favor of the taxpayer. The Commissioner then corrected his erroneous view and, in 1945, specifically revoked the taxpayer's exemption for 1943 and subsequent years. We rejected the taxpayer's claim that the Commissioner had abused the discretion given him by § 7805 (b)'s predecessor. The Commissioner's action had been forecast in a General Counsel Memorandum in 1943, and the corrected ruling had been applied to all automobile clubs for tax years back to 1943. 353 U. S., at 185-186.
Petitioners make two arguments based on Automobile Club of Michigan. First, they contend that the Commissioner's decision to apply his change of position retroactively to them is an abuse of discretion because, unlike
Although we mentioned certain facts in support of our conclusion in Automobile Club that there had not been an abuse of discretion in that case, it does not follow that the absence of one or more of these facts in another case wherein a ruling or regulation is applied retroactively establishes an abuse of discretion. Automobile Club merely examined all the circumstances of the particular case to determine whether the Commissioner had there abused his discretion. 353 U. S., at 185. In the present case it cannot be said that the Commissioner abused his discretion in either of the respects urged by petitioners. The absence of notice does not prove an abuse, since, for the reasons we have stated, the petitioners were not justified in relying on the acquiescence as precluding correction of the underlying mistake of law and the retroactive application of the correct law to their case. Since no reliance was warranted, no notice was required.
Nor is there merit in the argument that the Commissioner abused his discretion in distinguishing Investors Syndicate Accumulative Installment Certificates from other debt securities, for we do not think the Commissioner's acquiescence in Caulkins was to be interpreted as his acceptance of the proposition that earned original
As to item first: that the Tax Court in Caulkins did not squarely decide that the discount element in the amount realized by the taxpayer on the retirement of a debt security is to be taxed as a capital gain is apparent from its opinion. The Tax Court seemed to regard the only significant issue before it as whether the taxpayer's certificate of indebtedness was a "registered" certificate within
As to item second: the petitioners were not warranted in reading Caulkins as holding that the gain realized on a sale that is attributable to original issue discount is to be given the same tax treatment as gain so attributable realized on a retirement. The opinion deals only with, and rests squarely upon, § 117 (f), which is concerned with retirements. It is true that, in the case of securities in registered form or with coupons attached, that section was added by the Revenue Act of 1934, 48 Stat. 680, 714-715, to eliminate a difference in treatment between sales and retirements. See e. g., Fairbanks v. United States, 306 U.S. 436; Watson v. Commissioner, 27 B. T. A. 463. But the opinion in Caulkins appears erroneously to carry forward a distinction and to give more favorable treatment to retirements. See United States v. Midland-Ross Corp., supra, at 63-66. Thus petitioners should not have read Caulkins as they did. Indeed the Tax Court has since distinguished Caulkins on the ground that it rested on the § 117 (f) language of
Furthermore, even on the assumption that Caulkins may be read as petitioners contend, petitioners had the burden of demonstrating that Accumulative Installment Certificates could not rationally be distinguished from other discounted securities. Cf. American State Bank v. United States, 279 F.2d 585, 589-590 (C. A. 7th Cir.); Schwartz v. Commissioner, 40 T.C. 191, 193. But the record is devoid of any evidence of effort by petitioners to discharge this burden by showing the absence of any significant difference between the holders of Accumulative Installment Certificates and themselves. Indeed, the Commissioner might well have believed that however mistaken the view that his acquiescence in Caulkins was tantamount to an acceptance of capital gains treatment for original issue discount, the assumption that such treatment would be given the discount element of their debt securities was more understandable in the case of holders of Accumulative Installment Certificates—the same obligations as were involved in Caulkins—than in the case of other taxpayers. So thinking, the Commissioner might further have concluded that equitable considerations pointed to making an exception to the retroactive application of the nonacquiescence for the holders of these Certificates. It is not for us to pass upon the wisdom of any such distinction. It suffices that on this record we cannot say that the distinction was so devoid of rational basis that we must now overturn the Commissioner's judgment.
Insofar as petitioners' arguments question the policy of empowering the Commissioner to correct mistakes of law retroactively when a taxpayer acts to his detriment in reliance upon the Commissioner's acquiescence in an
Whether the discount element of the gain from the notes here involved is a capital or an income item is governed by the relevant provisions of the 1939 Code, but the statute governing the retroactive application of the withdrawal of the acquiescence in 1955 is § 7805 (b) of the 1954 Code, and not § 3791 (b) of the 1939 Code. This makes no practical difference since the two provisions are identical apart from the variance mentioned above.
"Actions of acquiescence in adverse decisions shall be relied on by Revenue officers and others concerned as conclusions of the Service only to the application of the law to the facts in the particular case. Caution should be exercised in extending the application of the decision to a similar case unless the facts and circumstances are substantially the same . . . . " E. g., 1964-1 Cum. Bull. 3.
And the introduction to Revenue Rulings now expressly warns that "Except where otherwise indicated, published rulings and procedures apply retroactively." Id., at 1. See also Rev. Proc. 62-28, 1962-2 Cum. Bull. 496, which states at 504:
"A ruling . . . may be revoked or modified at any time in the wise administration of the taxing statutes. . . . If a ruling is revoked or modified, the revocation or modification applies to all open years under the statutes, unless the Commissioner exercises the discretionary powers given to him under section 7805 (b) of the Code to limit the retroactive effect of the ruling."