Respondents Brief — Pierce v. United States (No. 36)

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4 _ Statutes and regulations involved ___-,----...----..---- > ie

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CITATIONS

Cases:

Cole v. Commissioner, 81 F. (2d) 485_.._..._.__________-

Commissioner v. Rabenold, 108 F. (2d) 639____._________

Commissioner v. Thomas, 84 F. (2d) 562________________

Crowe v. Commissioner, 86 F. (2d) 796____ ge

Gummey, Frank B., v. Commissioner, 26 B. T. A. 894. ee

Helvering v. Janney, No. 36, present Term____.________-

Hill v. United States, 12 F. Supp. 798___-_.__..._.____-_-

Pierce v. Commissioner, 100 F. (2d) 397____.__.___.-_=

Taft v. Helvering, No. 183, present term___._____________

Uthlein, Joseph E., v. Commissioner, 30 B. T. A. 399,

affirmed, sub nom. Cemmissioner v. Brumber, 82. F. (2d)

Statutes: |

Revenue Act of 1924, c. 234, 43 Stat. 253, Sec. 208 (c)___-_

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 208 (c)_______

Revenue Act of 1928, c. 852, 45 Stat. 791, Sec. LO® (b)____

Revenue Act of 1932, c. 209, 47 Stat. 169:

ls OE Sib ars vicensete hes ctn es cn gebena uence

RI oe ed ee ee

Revenue Act of 1938, c. 289, 52 Stat. 447:

aie salen sbubaimsl Ghaeleonteas

Sf ° eae ee ag Fie ae

(Tt)

273952—40

a)

we

J

®

COWNNN =

>

II

>

Miscellaneous:

I TN i ee

53 Harv. L. Rev. 681, 682 (1940)._........._-_--.

H. Rept. No. 704, 73d Cong., 2d Sess., p. 23_____-_-

H. Rept. No. 1860, 75th Cong., 3d uns. pp. 29-30.

5, Be Seere beek Se ee, 248... . 2-2 rs

I. T. 2824, XITI-2 Cum. Bull. 2038. ............--_!

. 1980-1 Cum. Bull. 554, 571... .......2..-.-.----.

[a S. Rept. No. 665, 72d Cong., Ist Sess., p. 17_..__-_--

ae Treasury Regulations 86, Art. 51-1__.._____..___-.

ae 40 Yale L. J. 1379, 1283 (1040) ......-52--..--2--.

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Ynthe Supreme Gourt of the United States

OcToBER TERM, 1940

No. 113

CHESTER GAINES AND THERESA GAINES, HusBAND

AND WIFE, PETITIONERS

v.

Guy T. HeELvertna, CoMMISSIONER OF INTERNAL

REVENUE

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENT

OPINIONS BELOW

The memorandum opinion of the Board of Tax

Appeals (R. 15) is unreported. The per curiam

opinion of the Circuit Court of Anpeals (R. 27)

is reported in 111 F. (2d) 144.

JURISDICTION

The judgment of the Circuit Court of Appeats

was entered May 8, 1940. (R. 27-28.) The pe-

tition for a writ\of certiorari was filed May 29,

(1)

ho

J /

//

pak

1940, and was granted October 14, 1940, The

jurisdiction of this Court is conferred by Section

240 (a) of the Judicial Code, as amended by the _

Act of February 13, 1925.

QUESTION PRESENTED

Whether, under the Revenue Act of 1934, the

filing of a joint return permits the wife’s capital -

losses to be deducted from her husband’s capital

gains.

STATUTES AND REGULATIONS INVOLVED

The statutes and regulations involved are set

forth in the Appendix infra, pp. 9-12.

STATEMENT

The facts, as stipulated (R. 23-24), may be

summarized as follows:

The petitioners were marti “a and living to-

gether as husband and wife throughout the calen-

dar year 1934. During that year the husband,

Chester Gaines, realized a net gain from the sale

of capital assets of $18,466.41, the entire amount

of which was to be taken into account under Sec-

tion 117 (a) of the Revenue Act of 1934. During

the same year his wife, Theresa Gaines, sustained

a net loss from the sale of capital assets of $35,-

959.86, of which the amount to be taken into

account under Section 117 (a) of the Revenue

Act of 1934 was $20,031.59,

a

3

-

The petitioners filed a joint income tax return

for 1934, in which they reported a capital loss of

$1,565.18, which represented the difference be-

tween the husband’s et Citta gain taken into

account ($18,466.41) and the wife’s net capital

losses taken into account ($20,031.59).

In auditing the return, the Commissioner held

_that the losses sustained by the wife could not be

applied to reduce the gains realizei by the hus-

band, and that the wife’s losses accordingly could

be deducted only to the extent of her own gains,

plus $2,000. By reason of this holding, the Com-

missioner added $18,033.59 to the net income re-

ported by the petitioners: On the basis of this

adjustment, the Commissioner determined a de-

ficiency of $5,008.55 (R. 13).

The Board of Tax Appeals sustained the Com-

missioner’s determination (R. 16). The Circuit

Court of Appeals affirmed (R. 27), per curiam,

the order of the Board upon the authority of that

eourt’s decision in” Pierce v. Commisstoner, 100

F. (2d) 397. This Court granted certiorari (R.

29).

ARGUMENT

The. question presented in this ease is precisely

the same as that in Helvering V. Janney, No. 36,

this Term, to be argued immediately preceding this

ease. Both cases arise under the Revenue Act of

1934. Hence, we adopt for this case the brief on

behalf of the Commissioner of Internal Revenue in

the Janney case. Here we discuss only those of

a ‘

eee advanced by the petitioners which

are not eevered in the brief for the Commissioner

in the Janney case. :

1. The petitioners’ principal argument in the

present case is that prior to enactment of the Reve-

nue Act of 1932 the right of husband and wife to

pool their losses in a joint return embraced the

right here claimed, that Congress had no purpose

‘‘to diminish this prior privilege” by the insertions

of Section 23 (r) (1) in the 1932 Act and 117 (d)

in the 1934 Aci, and that the adoption of the pro-

visions hence did not justify the Treasury in pro-

mulgating regulations in derogation of the “prior

privilege.’’ But the specific question here at issue

arose only with the enactment of Section 23 (r) (1)

of the 1932 Act, providing that losses from sales or

exchanges of stocks and bonds held by the taxpay-

ers for less than two years should be allowed only

to the extent of gains from such sales or exchanges.’

And so far as that question was determinable

according to general principles, the predecessors

of Article 51-1 of Regulations 86, providing that if

*“There are no provisions in existing law corresponding |

to Section 23 (r), (s), and (t).” S. Rept. No. 665, 72d

Cong., 1st Sess., p. 17.

The petitioners apparently suggest (Br. 10, note 2) that

the question at bar arose under Section 208 (c) of the 1924

* Act and its successors (Revenue Act of 1926, Section 208

(c) ; 1928, Section 101 (b) ; 1932, Section 101 (b)), and that

the right here claimed by the taxpayers was accorded in the

administration of that provision. Section 208 (c) provided

that in the case of any taxpayer who sustained a capital net

loss (i. e. a loss from the sale or exchange of property held

Tene nee Oe a A a ET

5

a joint return were filed the tax should be computed

on the aggregate income and that all deductions “to

which either is entitled’’ should be taken from such

aggregate income, gave notice that it was the Treas-

ury’s general position that before any deduction

might be entered in a joint return it must be a de-

duction to which either the husband or the wife,

separately considered, was entitled under the law.

2. In Pierce v. Commissioner, 100 F. (2d) 397

(C. C. A. 2d), and in the brief for the Commis-

sioner in the Janney case, various decisions are re-

ferred to in support of the proposition that even ~

though husband and wife file a joint return ‘each

is treated as a sepa.‘ate individual who can carry

deductions into the joint return only in his or her

for more than two years) the tax should be determined by

computing a tax upon the ordinary net income at the usual

rates and by dedycting from this tax 12% per centum of the —

capital net loss. This section further provided that in no

case should the tax computed under it be less than the ‘ax

computed without reference to it. Because of the provision

last referred to, Section 208 (c) was operative only with

respect to capital losses which would otherwise have been

offset. against income taxable at the rate of 12144 per centum

or more. Section 208 (c) was correlative to Section 208 (b),

which permitted a taxpayer to elect that his net capital gain

be taxed at the rate of 1214 per centum instead of at the

rate otherwise applicable. ;

Section 208 (c), unlike the statutory provisions involved

here and in the 7aft case No. 183, argued herewith, did not

make the amount of or the right to the deduction contingent

upon the amount or kinds of income of the taxpayer.

Hence it was unnecessary to the policy of the Section that-

one spouse be prohibited from deducting the capitai losses of

the other; there was no more reason to prohibit the pooling

of such ded: ctions than of other deductions.

> ae

6

own right’”’ (100 F. (2d) at 398). Petitioners

assert that the decisions so refered to do not

us support the proposition for which they are cited,

and, at the same time, that the position unsuc-

cessfully taken by the Commissioner in some of

these cases was inconsistent with his present posi-

tion. We think, on the other hand; that the posi-

tions taken in those cases were ‘not inconsistent

with the present position of the Treasury, for the

reason that those cases presented special consid-

erations which might have removed them from the

operation of the ‘principle that a husband and

wife remain separate individuals for the purpose

of computing their deductions even though they

file a joint return. And certainly the cases stand

for this principle, since the courts refused to ex-

clude them from its scope, despite the presence of

factors which might have induced the courts to do

SO.

The earliest of these cases is Frank B. Gummey

v. Commissioner, 26 B. T. A. 894 (1932). There

the Board lield that husband and wife were to be

treated as separate individuals for purposes of the

‘“‘wash”’ sale provision, i. e., that a deduction might

be taken in a joint return for losses sustained by.

one spouse on the sale of securities even though |

the other spouse brought similar securities imme-

diately thereafter.* Similarly held that losses

*The Bureau acquiesced*in this decision, XIII-2 Cum

Bull. 8, and overrvled its prior ruling to the contrary. I. T. ‘

2824, XIII-2 vue Bull. 293, overruling I. T. 1997, IIT-1

Cum. Bulli. 149. -

7 2

stained by one spouse in a bona fide sale of securi-

25 to the other spouse could be deducted in a joint

turn. Commissioner v. Thomas, 84 F. (2d) 562

1. . A. 5th) ; Joseph E. Uihlein v. Commissioner,

)B. T. A. 399 affirmed sub nom Commissioner V.

rumder, 82 F. (2d) 944 (C. C.,A. Tth); Hill v.

nited States, 12 F. Supp. 798 (C. Cls.). In those

ses a contrary result might well have been

ached as necessary to prevent tax evasion, with-

it abandoning the position that husband and wife

re not, as a general proposition, to be treated as

single taxpayer even if they file a jot return.

- was to elese the avenue of tax evasion opened by

1ese decisions, and not as an outgrowth of any

ngle taxpayer theory, that Congress provided in

ection 24 (b) (1) of the Revenue Act of 1938 that

» deductions should be allowed for losses result-

1g from sales between members of a family.

ee H. Rep. No. 704, 73d Cong., 2d Sess., p. 23;

939-1 Cuyn. Bull. 554, 571; 78 Cong. Rees 2662.

ee also (1940) 53 Harv. L. Rev. 681, 682; (1940)

9 Yale L. J: 1279, 1283. The position taken by

he Bureau in those casts was thus not inconsistent

ith, and the holdings of the courts support, its

osition here. ,

Similarly the position taken by the Commis-

ioner that. spouses filing a joint return were

3 Whether this amendment reaches the question which was

resented in the Gummey case, or only that involved in the

"homas, Brumder, and Hill cases, is not clear. See (1940)

9 Yale L. J. 1279, 1283, note 35.

8

jointly and severally liable for the tax was neces-

Sary as a matter of administration, because of the

difficulty of determining the proportion of the tax

liability attributable to each spouse. Congress so

recognized in inserting in Section 51 (b) of the

1938 Act a provision explicitly making liability for

the tax joint and several. See H. Rept. No. 1860,

75th Cong., 3d Sess., pp. 29-30. But the cases

rejecting the Commissioner’s contention support

the view that a husband and wife remain separate

taxpayers even though they file a joint return.

Cole v. Commissioner, 81 F. (2d) 485, 487 (C. C. A.

Sth); Crowe v. Commissioner, 86 F. (2d) 796

(C. C. A. 7th) ; Commissioner v. Rabenold, 108 F.

(2d) 639 (C. C. A. 2d).

CONCLUSION

For the reason stated in the brief for the Com-

missioner in the Janney case and herein it is sub-

mitted that the judgment of the court below should

be affirmed.

Respectfully submitted.

Rosert H. Jackson,

Attorney Ge eneral.

SAMUEL O. CLARK, Jr.,

Assistant Attorney General.

SEWALL Key,

Maurice J. MAHONEY,

THoMas E, Harris,

Special Assistants to the Attorney General.

NOVEMBER 1940.

4

APPENDIX

Revenue Act of 1934, c. 277, 48 Stat. 680:

SrecTIon 23. DEDUCTIONS FROM GROSS IN-

COME.

In computing net income there shall be

allowed as deductions:

- * * * *

/

(j) Capital Losses.—Losses from sales or

exchanges of capital assets shall be allowed

only to the extent provided in section 117

(d).

* * * * *

(U.S. C., Title 26, Sec. 23.)

Sro. 51. INDIVIDUAL RETURNS.

* * * + *

(b) Husband and Wife.—It a husband

and wife living together have an aggregate

net income for the taxable year of $2,500

or over, or an aggregate gross income for

such year of $5,000 or over—

(1) Each shall make such a return, or

(2) The income of each shall be included

in a single joint return, in which case the

tax shall be computed on the aggregate

income.

* * * * *~

(U.S. C., Title 26, Sec. 51.)

Sec. 117. CAPITAL GAINS AND LOSSES.

(a) General Rule.—In the case of a tax-

payer, other than a corporation, only the fol-

lowing percentages of the gain or loss recog-

nized upon the sale or exchange of a capital

(9)

10

asset shall be taken into account in comput-

ing net income:

100 per centum if the capital asset has

been held for not more than 1 year;

80 per centum if the capital asset has been

held for more than 1 year but not for more

than 2 years;

60 per centum if the capital asset has been

held for more than 2 years but not for more

than 5 years;

40 per centum if the capital asset has been

held for more than 5 years but not for more

than 10 years;

30 per centum if the capital asset has been

held for more than 10 years.

* * © * *

(d) Limitation on Capital Losses.—Losses

from sales or exchanges of capital assets

shall be allowed only to the extent of $2,000

plus the gains from such sales or exchanges,

If a bank or trust company incorporated

under the laws of the United States or of

any State or Territory, a substantial part of

whose business is the receipt of deposits,

sells any bond, debenture, note, or certificate

or*other evidence of indebtedness issued by

any corporation (including one issued by —

a government or _ political subdivision

thereof), with interest coupons or in regis-

tered form, any loss resulting from such

sale (except such portion of the loss as does

not exceed the amount, if any, by which the

adjusted basis of such instrument exceeds

the par or face value thereof) shall not be

subject to the foregoing limitation and shall

not be included in determining the appli-

eability of such limitation to other losses.

* * * * *

(U.S. C., Title 26, See. 101.) hee

ll

Treasury Regulations 86, promulgated under the

avenue Act of 1934:

Art. 51-1. Individual returns.—For each

taxable year every single person and every

married person not living with husband or

wife for any part of the taxable year, whose

gross income as defined in sections 22 and

116 is $5,000 or over, or whose net income as

defined in section 21 is $1,000 or over, must

make a return of income. Every -married

person living with husband or wife for any

part of the taxable year, but not at the close

of the taxable year, must make a return if

his gross income for the taxable year is

$5,000 or more, or his net income is equal to,

or in excess of, the credit allowed him by

section 25 (b) (1) and (3) (computed with-

out regard to his status as the head of a

family). (Sge article 25-7.) A husband

and wife livige together for the entire year

need make no returns unless their aggregate

gross income for the taxable year is at least

$5,000, or their aggregate net income is at

least $2,300. If their aggregate net income

for the taxable year is $2,500 or more, or

their aggregate gross income is $5,000 or

more, either each must make a return, or

the income of each must be included in a

single joint return. A husband and wife

living together at the close of the taxable

year but not during the entire taxable year

must make a return or returns if their ag-

regate gross income for the taxable year is

,000 or more, or their aggregate net income

is equal to, or in excess of, the credit allowed

them by section 25 (b) (1) and (3). (Com-

puted without regard to the status of either

of them as the head of a family.) (See

article 25-7.) If the income of each is in-

eluded in a single joint return, the tax is

12

computed on the aggregate income and all

deductions and credits to which either is

entitled shall be taken from such aggregate

income. A joint return of husband and wife

may be filed only if they were living together

at the close of their taxable year. If one

spouse dies prior to the last day of the tax-

able year, the surviving spouse may not in-

clude.the income of the deceased spouse in a

joint return for such taxable year.

* Big * *

Art. 117-5. Application of section 117 in

the case of husband and wife.—In the appli-

eation of section 117, a hushand and wife,

regardless of whether a joint return or sepa-

rate returns are made, are considered to be

separate taxpayers. Accordingly, the lim-

itation under section 117 (d) on the allow-

ance of losses of one spouse from sales or

exchanges of capital assets is in all cases to

be computed without regard to gains and

losses of the other spouse upon sales or ex-

changes of capital assets.

U.S. GOVERNMENT PRINTING OFFICE: 1940

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{—

SUPREME* COURT of THE UNITED STATES.

Nos. 36 and 113.—Ocrosrer TERM, 1940.

Guy T. Helvering, Commissioner of )

Internal Revenue, Petitioner, On Writ of Certiorari to

the United States Circuit

36 vs.

Walter C. Janney and Pauline F. M. j Court of Appeals for the

Third Circuit.

Janney.

¢ .

Chester Gaines and Theresa Gaines, )

Petitioners,

113 vs.

Guy T. Helvering, Commissioner of

Internal Revenue.

[December 9, 1940.]

Mr. Chief Justice HucHeEs delivered the opinion of the Court.

These cases present the same question, that is, whether under the

Revenue Act of 1934, in the case of a joint return by husband and

wife, the capital losses of one spouse may be deducted from the

capital gains of the other.

In Helvering v. Janney, the wife realized net gains from the sale

of capital assets during 1934, and the husband realized net losses

from the sale of capital assets during the same year. They filed a

joint income tax return reporting the capital gain, which repre-

sented the difference between the wife’s adjusted capital gains and

the husband’s adjusted capital losses. The Commissioner ruled

that the husband’s losses could not be applied to reduce the gains

‘realized by his wife and accordingly determined a deficiency. The

Board of Tax Appeals sustained the Co: missioner (39 B. T. A.

240) but the Cireuit Court of Appeals for the Third Circuit re-

‘ versed. 108 F. (2d) 564.

In Gaines v. Helvering, the husband realizeda net gain from the

sale of capital assets during 1934, while his wife sustained a net

loss from the sale of capital assets. They filed a joint return re-

porting a capital loss, which represented the difference between the

husband’s net capital gain and his wife’s net capital loss. The Com-

missioner, as in the Janney case, decided against this adjustment

and the Board of Tax Appeals affirmed. The Circuit Court of Ap-

On Writ of Certiorari to

the United States Circuit

- Court of Appeals for the

Second Circuit.

2 Helvering vs. Janney et al.

peals for the Second Circuit affirmed the decision of the Board. 111

F. (2d) 144.

In view of the conflict between these decisions, we granted cer-

tiorari. No. 36, 310 U. S. 617; No. 113,-October 14, 1940.

Section 51(b) of the Revenue Act of 1934! with respect to the

returns of husband and wife provided: bs

‘‘(b) Husband and Wife.—If a husband and wife lfyjng together

have an aggregate net income for the taxable year of $2,500 or over,

or an aggregate gross income for such year of $5,000 or over—

“*(1) Each shall make such a return, or

**(2) The income of each shall be included ir a single joint re-

turn, in which case the tax shall be computed on the aggregate

income’’,

The same provision in substance is found in the earlier Revenue

Acts from that of 1921.2

The ‘‘aggregate income’’, to which paragraph 2 of Section 51(b)

refers, is cl. arly. the aggregate net income as it is the aggregate in-

come on which ‘‘the tax is to be computed’’. In that view the de-

ductions to which either spouse would be entitled would be taken,

in the case of a joint return, from the aggregate gross income. <

That was the construetion placed upon the provision for a joint

return in the Revenue Act of 1918 by the Solicitor of Internal

Revenue in an opinion rendered in 1921.2 After considering the

terms of the statute and the reasonable inference us to theyintent

of Congress, the Solicitor concluded:

‘‘From the foregoing it follows that the proper construction of

the Revenue Act of 1918 permits a husband and wife living together,

at their option, to file sepgrate returns or a single joint return. If

a single joint return is filed it is treated as the return of a taxable

unit and the net income disclosed by the return is subgect to both

normal and surtax as though the return were that of a single indi-

vidual. In cases, therefore, in which the husband or wife has allow-

able deductions in excess of his or her gross income, such excess

148 Stat. 697.

2 The Revenue Act of 1918, Section 223, also provided tux u joint return by

husband and wife, 40 Stat. 1074.

Section 223(b) of the Revenue Act of 1921 provided (42 Stat. 250):

**(b) If a husband and wife living together have an aggregate net income

for the taxable year of $2,000 or over, or an aggregate gross income for such

year of $5,000 or over—

‘*(1) Each shall make such a return, or

‘*(2) The income of each shall be included in a single joint return, in which

ease the tax shall be computed on the aggregate income’’.

8 Sol. Op. 90, Cum. Bull. No. 4, p. 236 (1921).

Helvering vs. Jamney et al. 3

may, if joint return is filed, be deducted from the net income of the

other for the purpose of computing both the normal and surtax’’.

The terms of the Revenue Act of 1921 made this view even

clearer.t Treasury Regulations 62, Article 401, promulgated under

the Revenue Act of 1921, apparently foliowed the same view. That

article provided as to joint returns of husband and wife,—

‘‘Where the income of each is scala in a single joint return,

the tax ig-computed on the aggregate income and all deductions and

eredits to which either is entitled shall be taken from such aggregate

income’’.®

The question as to deductions for losses on sales or exchanges of

securities arose under Section 23(r)(1) of the Revenue Act of

1932.6 That provided that losses as there described should be

aliowed only to the extent of gains derived from such sales or ex-

changes. Nothing was said in this section which in any way

affected the provision of the statute as to joint returns by husband

and wife. The question in that relation, that is, as to deduction

for lisses on sales of securities, was submitted to the Commissioner

of Internal Revenue end was answered by him on December 29,

1932, as follows:

‘‘The specific question presented is whether the loss sustained

by the husband may be applied to offset the same amount of gain

realized by the wife in rendering joint income tax return for the

year. In reply you are advised that, in the case of a husband and

wife living together who file a joint income tax return, the tax lia-

bility is computed on the aggregate income as provided by section

51(b)(2) of the Revenue Act of 1932, and such joint return is

4The Committee on Ways and Means of the House of Representatives re-

ported with respect to the provision of the bill which became the Revenue Act

of 1921 as follows:

‘¢Section 231 of the bill proposes to amend Section 223 of the present law

in such a manner as to clear up the doubt now existing as to the right of hus-

band and wife in all cases to make a joint return s7th Gon the tax computed

on the combined income’’. House Rep. No. 350, 67th Cong., 1st Seas. See,

also, Sen, Rep. No. 275, 67th Cong., 1st Sess.

5 'Yhe same provision was continued in substance in succeeding regulations.

Article 401 of Treasury Regulations 65 and 69 under the Ravenue Acts of 1924

and 1926; Article 381 of Regulations 74 ang@77 under tha Revenue Acts of

1928 and 1932. sanceac ee ote et Tm 4

647 Stat. 183. Section 23(r)(1) provided: ‘‘ Losses from sales or exchanges

of stocks and bonds (as defined in subsection (t) of this section) which are not

capital assets (as defined in section 101) shall be allowed only to the extent

of the gains from such sales or exchanges (including gains which may be de-

rived by a taxpayer from the retirement of his own obligaticns).

#, , .

+ Helvering vs. Janney et al.

treated as if it was the return of a single individual. The aggregate

income in such case would of course embrace the gains as well as

the allowable deductions of each spouse. If it is correctly under.

stood from your letter that the gains and losses in the illustration

presented are from transactions falling within the same class within

the meaning of the statute such as sales of securities not held for a

period of more than two years, the loss sustained by the husband

would offset the same amount of gain realized by the wife from such

source’’.?

This statement by the Commissioner applied the same principle

whichhad previously been followed with respect to deductions in

the joint returns of husband and wife, there having been no indica-

tion by Congress of any different purpose.

Treasury Regulation No. 77, promulgated under the Act of 1932,

contained nothing to the contrary and the regulation theretofore

obtaining as to such joint returns was left unchanged. Art. 381.

The Revenue Act of 1934 continued the prior statutory provisions

as to joint returns of husband and wife, and Section 117(d) of that

Act, as to capital losses, did not purport to alter the rule as to the

right of the spouses to deductions in their joint return. Section

117(d) merely limited the amount of losses which could be de-

ducted, as follows:

**(d) Limitation @n Capital Losses——Losses from sales or ex-

changes of capital assets shal! be allowed only to the extent of

$2,000 plus the gains from such sales or exchanges’’.

The conclusion of the Commissioner with respect to the Act of

1932, in the opinion above mentioned, was equally applicable to the

new Act.

It was not until 1935 that the Treasury Department by Article

117-5 of Regulations 86 undertook to provide that ‘‘the allowance

of losses of one spouse from sales or exchanges of capital assets is

in all cases to be computed without regard to gains and losses of the

other spouse upon sales or exchanges of capital assets’’.§

* We are of the opinion that under the provision of the Act of 1934

as to joint returns of husband and wife, which embodied a policy

set forth in substantially the same terms for many years, Congress

intended to provide for a tax on the aggregate net income and that

the losses of one spouse might be deducted from the gains of the

7 1933 Commerce Clearing House Federal Tax Service, Vol. 1II, par. 6037.

8It was also in 1935 that the Bureau of Internal Revenue announced the

same ruling under the Act of 1932. G,.C. M. 15438, Cum. Bull. XIV-2, p. 156.

a