TAXATION-INCOME TAX-DEALINGS BY CORPORATION IN ITS OWN STOCK

From 1921 to 1929, appellee corporation bought shares of its own stock, not for retirement, but to sustain the market, to increase the number of shareholders by resale in smaller blocks, and for other reasons. This stock was held as treasury stock. In 1929 it was sold by the corporation, at a profit. From 1920 to 1934 the Treasury Regulations exempted the proceeds of such a transaction from income tax, treating the purchase and sale as separate decrease and increase in the capital, and not as resulting in income. But in 1934 the regulation was changed, so as to tax ultimate gain from such transactions as income, in cases where there was no purpose of retiring the stock at the time when the purchase was made; that is, where the corporation dealt in its own stock as it would in that of another corporation. Revenue Acts were enacted in 1919, 1921, 1924, 1926, 1928, 1932, 1936 and 1938, without changing the clause defining income. After the change in the regulations, the commissioner attempted to assess an income tax for 1929 upon these stock profits. Held, that the reenactments of the Revenue Act clause defining income, including that of 1928, had given to the former treasury regulation the effect of law by 1929, which could not be retroactively changed in 1934. Helvering v. Reynolds Tobacco Co., (U. S. 1939) 59 S. Ct. 423