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U.S. Supreme Court

McLaughlin v. Alliance Insurance Co., 286 U.S. 244 (1932)

McLaughlin v. Alliance Insurance Co.

No. 548

Argued April 13, 14, 1932

Decided May 16, 1932*

286 U.S. 244


1. While increase in value of property not realized as gain by it sale or other disposition may, in an economic or bookkeeping sense, be deemed an addition to capital in a later period, it is nevertheless a gain from capital investment which, when realized by conversion into money or other property, constitutes income within the meaning of the Sixteenth Amendment, taxable a such in the period when realized. P. 286 U. S. 249.

2. The tax being upon realized gain, it may constitutionally be imposed upon the entire amount of the gain realized within the taxable period, even though some of it represents enhanced value in an earlier period before the adoption of the taxing act. P. 286 U. S. 250.

3. Gains realized by stock fire insurance companies from sale or other disposition of property, accruing after March 1, 1913, were taxable as income under the revenue acts of 1913-1918, but not under those of 1921-1926. The Act of 1928 taxed their income and by § 204(b) defined their gross income as including "gain during the taxable year from sale or other disposition of property." Held, that the tax under the 1928 Act is on the entire gain realized within the taxable year, to be determined, pursuant to §§ 111-113, by deducting from the net selling price the cost of the property sold, or the fair market value on March 1, 1913, if acquired before that date. P. 286 U. S. 251.

Questions certified in two cases pending in the court below upon appeals from judgments of the District Court in two suits to recover alleged overpayments of income taxes from the Collector . In both cases, the District Court construed § 204 of the Revenue Act of 1928 as measuring taxable gains from the sale or other disposition of property on its fair market value as of January 1, 1928. In No. 547, it sustained the tax, computed on this

Page 286 U. S. 245

basis, and, in No. 548, it held the tax invalid because computed on the basis of value on March 1, 1913, or other basis as provided by § 113 of the Act, and not on the basis of value as of January 1, 1928. See 49 F.2d 361.

Page 286 U. S. 247

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