Opinion · Supreme Court of the United States

Griffiths v. Commissioner

Griffiths v. Comm’r, 308 U.S. 355 (1939)

Type
Opinion
Court
Supreme Court of the United States
Jurisdiction
Federal
Date
1939-12-18
Topic
general

How later courts describe this case

  • holding that liability cannot be escaped by anticipatory arrangements and contracts however skillfully devised
  • looking to “the crux” of transaction by imagining it in its simplest form
  • “[C]ourts will look through the ‘form’ of a business transaction and rule on the basis of its ‘substance.’ ”
  • “Legislative words are not inert, and derive vitality from the obvious purposes at which they are aimed.”
  • "installment sale” of stock found to be rescission of contract from which "seller” had previously been allowed a loss
  • gain from property is taxable to him who commands such property and command "may be exercised through specific retention of legal title"
  • "We cannot too often reiterate that 'taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed--the actual benefit for which the tax is paid.'"
  • “Taxes cannot be escaped ‘by anticipatory arrangements and contracts however skillfully devised ... by which the fruits are attributed to a different tree from that on which they grew.’ ” (quoting Lucas v. Earl, 281 U.S. 111, 115, 50 S.Ct. 241, 74 L.Ed. 731 (1930))

Citator

UpLaw has not yet analyzed Griffiths v. Commissioner. The absence of a flag is not a finding that it is good law.

Cited by
447 opinions

Headnotes

  1. Tax Law — Income A taxpayer cannot escape or postpone income tax on the profit derived from a sale of his stock by interposing as vendor a corporation formed for the purpose and wholly controlled by himself, which in form receives a conveyance of the shares, transfers them to the purchaser, receives the purchaser's money, and agrees to pay it over to the taxpayer in annual installments; the taxpayer is taxable on the settlement amount in the year it is realized. 308 U.S. 355, 357
  2. Tax Law — Income Where a taxpayer holds a claim for fraud which, when satisfied, wipes out a loss for which he had previously received a deduction, satisfaction of the claim constitutes income to him even if it is cast by legal ingenuity into an intricate form. 308 U.S. 355
  3. Tax Law — Substance over Form — Actual Command of Property Taxation is concerned not with the refinements of legal title but with actual command over the property taxed and the actual benefit for which the tax is paid; it makes no difference whether that command is exercised through retention of legal title, the creation of a new equitable but controlled interest, or the maintenance of an effective benefit through the interposition of a subservient agency. 308 U.S. 355 (citing Corliss v. Bowers, 281 U.S. 376, 378)
  4. Tax Law — Substance over Form — Devious Path A given result at the end of a straight path is not made a different result because reached by following a devious path; legislative words are not inert and derive vitality from the obvious purposes at which they are aimed, particularly in provisions of a tax law governing installment sales. 308 U.S. 355 (citing Minnesota Tea Co. v. Helvering, 302 U.S. 609, 613)
  5. Tax Law — Income Taxes cannot be escaped by anticipatory arrangements and contracts, however skillfully devised, by which the fruits are attributed to a different tree from that on which they grew. 308 U.S. 355 (citing Lucas v. Earl, 281 U.S. 111, 115)
GRIFFITHSv. COMMISSIONER,308 U.S. 355(1939)
60 S.Ct. 277
GRIFFITHSv. COMMISSIONER OF INTERNAL REVENUE.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
No. 49.
Argued December 5, 1939.
Decided December 18, 1939.
A taxpayer cannot escape or postpone the income tax on the profit derived from a sale of his stock by interposing as vendor in the transaction a corporation formed for the purpose and wholly controlled by himself, which, in form, receives from him a conveyance of the shares, transfers them to the purchaser, receives the purchaser's money and agrees to pay it over to the taxpayer in annual installments. P. 357.103 F.2d 110, affirmed.
CERTIORARI,post, p. 531, to review a decision which
reversed an order of the Board of Tax Appeals,37 B.T.A. 314,
overruling a deficiency income tax assessment.
Mr. Herman A. Fischer, with whomMr. Delbert A. Clitherowas on the brief, for petitioner.Mr. Arnold Raum, with whomSolicitor General Jackson,Assistant Attorney General Clark, andMessrs. Sewall Key, J.Louis Monarch, andJoseph M. Joneswere on the brief, for respondent.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
The case is here to review a decision of the Circuit Court of Appeals for the Seventh Circuit,103 F.2d 110,Page 356reversing an order of the Board of Tax Appeals,37 B.T.A. 314, which had overruled a deficiency assessment by the Commissioner of Internal Revenue in petitioner's income tax return for 1933. We grantedcertiorari, post, p. 531, because of an alleged conflict between the decision below and that of the Circuit Court of Appeals for the Second Circuit inSmithv.Higgins,102 F.2d 456;post, p. 473.

The facts are undisputed, and, for purposes of our decision, may be thus abridged: In 1926 Griffith, the petitioner, paid one Lay $100,000 for some stock. The investment was unprofitable and the upshot of a complicated series of transactions was allowance to Griffiths by the Commissioner of a deductible loss of $92,500 for the year 1931 resulting from a sale of the stock by Griffiths to a family corporation. Thereafter, in 1932, Griffiths got wind of the fact that Lay had defrauded him in the 1926 sale. Negotiations were begun for a settlement of Griffiths' claim against Lay, and by January 1933, Griffiths' lawyer had devised an arrangement for such a settlement. The gist of the arrangement was this: Griffiths was to re-acquire the shares, convey them to a corporation newly created for the purpose of furthering the scheme and wholly controlled by Griffiths, which in turn was to transfer the stock back to Lay for $100,000 to be paid by him, and that sum was to be paid over by the corporation to Griffiths in annual installments for forty years, with interest on the deferred payments.1ThePage 357essentials of this scheme were carried out. Its purpose — to disguise by intervening elaborations what in fact was a rescission of the original purchase by Griffiths for $100,000 — was made more manifest by these facts: Griffiths personally re-acquired and transferred the shares to Lay without revealing the existence of the new corporation, gave Lay a personal release of all claims against him, and personally received from Lay the $100,000 which he then turned over to the corporation.

On these findings the Commissioner ruled that Griffiths, having been allowed a deduction for loss attributable to the stock purchased from Lay and having now recouped that loss through settlement of his claim against Lay, was subject to tax for the amount of the settlement in 1933. We think the Commissioner was right, and that the Circuit Court of Appeals properly reversed the Board of Tax Appeals.

The facts leave little scope for legal explication. Griffiths had a claim for fraud against Lay which, when satisfied, wiped out the loss for which he had received an earlier deduction. Had satisfaction of the claim come to him without any conduct, it would have indisputably been his income. The claim having been recognized by Lay and cast into a form realizable by Griffiths, a lawyer's ingenuity devised a technically elegant arrangement whereby an intricate outward appearance was given to the simple sale from Griffiths to Lay and the passage of money from Lay to Griffiths. That was the crux of the business to Griffiths, and that is the crux of the business to us.

We cannot too often reiterate that "taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed — the actual benefit for which the tax is paid."Corlissv.Bowers,281 U.S. 376,378. And it makes no difference that suchPage 358"command" may be exercised through specific retention of legal title or the creation of a new equitable but controlled interest, or the maintenance of effective benefit through the interposition of a subservient agency. Cf.Gregoryv.Helvering,293 U.S. 465. "A given result at the end of a straight path," this Court said inMinnesota Tea Co. v.Helvering,302 U.S. 609,613, "is not made a different result because reached by following a devious path." Legislative words are not inert, and derive vitality from the obvious purposes at which they are aimed, particularly in the provisions of a tax law like those governing installment sales in § 44 of the Revenue Act of 1932. Taxes cannot be escaped "by anticipatory arrangements and contracts however skilfully devised . . . by which the fruits are attributed to a different tree from that on which they grew."Lucasv.Earl,281 U.S. 111,115. What Lay gave, Griffiths in reality got, and on that he must be taxed.

The judgment isAffirmed.
  1. Page 356 Of the total sum paid, $15,000 was to be applied by the corporation in payment of a personal indebtedness owed by Griffiths. This sum, of course, was clearly income to petitioner. The remainder was to be paid in installments by the corporation to Griffiths. Petitioner contends that these installments alone are taxable to him as they are paid, under the provisions of § 44 of the Revenue Act of 1932, c. 209,47 Stat. 169. ↩