General Foods Corp. v. United States

Davis, Judge,

concurring in the result:

My vote to dismiss the petition is not founded on the use in section 1232 of “capital assets,” the primary purpose of which I take to be to separate securities held for investment from those held in the ordinary course of trade or business. Rather, I 'am moved by the simple fact that section 1232 fails to deal at all with original issue discount on securities held for no more than six months, and therefore must conclude that the applicable rule, even under the 1954 Code, was the “economic reality” of United States v. Midland-Ross Corp., 381 U.S. 54 (1965), that such discount is equivalent to interest. Taxpayers can point to no part of section 1232 which lays down the treatment for original issue discount on bonds held for no more than six months. Subsection (a) (2) (A), as everyone agrees, is restricted on its face to evidences of indebtedness held for more than six months; subsection (a) (1) is no more than the equivalent of section 117(a) (4) of the 1939 Code which the Court in Midland-Boss held not a bar to treating original issue discount as ordinary income. The text of section 1232, in the initial 1954 Code, did not deal at all, as I read it, with the problem of original issue discount on bonds retained no more than half-a-year.

I agree with the taxpayer that the Congress which enacted that section may well have thought that original issue discount on such securities would thereafter be dealt with as short-term capital gain. But that was because that Congress *618 mistakenly believed that Commissioner v. Caulkins, 144 F. 2d 482 (C.A. 6, 1944) — which had held all original issue discount on bonds held for investment to be capital gain— would continue as good tax law except insofar as the rule was changed in section 1232 for the longer-term securities. And the probability is that that same 'Congress did not think it important to change the CaulJcins rule for the no-more-than-six-months bonds because short-term capital gain is normally taxed at ordinary income rates. (The peculiar situation now before us does not seem to have been in anyone’s mind.) 1 At any rate, it seems to me clear that the Congress which enacted the 1954 Code did not adopt, in section 1232 or another provision, any rule for original issue discount on evidences of indebtedness held for no more than six months; it simply left that subject uncovered by specific rule. The result is that, since Congress has not imbedded any part of CaulJcins in the Code, we are required to apply the rule of Midlcmd-Boss which superseded and overruled CaulJcins. Congress is not legislating when, instead of laying down a statutory rule, it leaves a subject alone, even though it may be content to let the matter be covered by a lower-court decision which later happens to be set aside by the Supreme Court. Cf. Helvering v. Hallock, 309 U.S. 106, 119-22 (1940). 2

As for the claim of unlawful discrimination, I would rest squarely on the ground that the taxation of non-resident foreign taxpayers raises such different considerations that it cannot validly be compared, for equal protection purposes, to the taxation of domestic taxpayers.

The views of a later Congress on the earlier law have “ ‘very little, if any, significance.’ ” United States v. Southwestern Cable Co., 392 U.S. 157, 170 (1968). Therefore weight should not be given to the 1969 Senate report which said that “In * * * [the case of pre-1969 corporate indebtedness and Government bonds], gain on the sale or exchange of a bond or other evidence of indebtedness which is a capital asset in the hands of the taxpayer but which has not been held by the taxpayer for more than 6 months is to be treated as a short-term capital gain as under present law.” S. Rep. No. 91-552, 91st Cong., 1st Sess. 148 (1969) (1969-3 Cum. Bull. 518).