Opinion of the Court.

331 U.S.

the mortgage, so, when she sold the equity, the amount she realized on the sale was the net cash received, or $2,500.00. This sum less the zero basis constituted her gain, of which she reported half as taxable on the assumption that the entire property was a "capital asset." 3

The Commissioner, however, determined that petitioner realized a net taxable gain of $23,767.03. His theory was that the "property" acquired and sold was not the equity, as petitioner claimed, but rather the physical property itself, or the owner's rights to possess, use, and dispose of it, undiminished by the mortgage. The original basis thereof was $262,042.50, its appraised value in 1932. Of this value $55,000.00 was allocable to land and $207,042.50 to building. During the period that petitioner held the property, there was an allowable depreciation of $28,045.10 on the building, so that the adjusted basis of the building at the time of sale was $178,997.40. The amount realized on the sale was said to include not only the $2,500.00 net cash receipts, but also the principal amount of the mortgage subject to which the property was sold, both totaling $257,500.00. The selling price was allocable in the proportion, $54,471.15 to the land and $203,028.85 to the building. The Commissioner agreed that the land was

5

6

3 See § 117 (a), (b), Revenue Act of 1938, c. 289, 52 Stat. 447. Under this provision only 50% of the gain realized on the sale of a "capital asset" need be taken into account, if the property had been held more than two years.

The parties stipulated as to the relative parts of the 1932 appraised value and of the 1938 sales price which were allocable to land and building.

5

The parties stipulated that the rate of depreciation applicable to the building was 2% per annum.

The Commissioner explains that only the principal amount, rather than the total present debt secured by the mortgage, was deemed to be a measure of the amount realized, because the difference was attributable to interest due, a deductible item.

7 See supra, note 4.

1

Opinion of the Court.

a "capital asset," but thought that the building was not. Thus, he determined that petitioner sustained a capital loss of $528.85 on the land, of which 50% or $264.42 was taken into account, and an ordinary gain of $24,031.45 on the building, or a net taxable gain as indicated.

The Tax Court agreed with the Commissioner that the building was not a "capital asset." In all other respects it adopted petitioner's contentions, and expunged the deficiency. Petitioner did not appeal from the part of the ruling adverse to her, and these questions are no longer at issue. On the Commissioner's appeal, the Circuit Court of Appeals reversed, one judge dissenting. 10 We granted certiorari because of the importance of the questions raised as to the proper construction of the gain and loss provisions of the Internal Revenue Code."

The 1938 Act,12 § 111 (a), defines the gain from "the sale or other disposition of property" as "the excess of the amount realized therefrom over the adjusted basis provided in section 113 (b) . . . ." It proceeds, § 111 (b), to define "the amount realized from the sale or other disposition of property" as "the sum of any money received plus

(1), Revenue Act of 1938, supra.

8 See § 117 (a) 93 T. C. 585. The Court held that the building was not a "capital asset" within the meaning of § 117 (a) and that the entire gain on the building had to be taken into account under § 117 (b), because it found that the building was of a character subject to physical exhaustion and that petitioner had used it in her trade or business.

But because the Court accepted petitioner's theory that the entire property had a zero basis, it held that she was not entitled to the 1938 depreciation deduction on the building which she had inconsistently claimed.

For these reasons, it did not expunge the deficiency in its entirety. 10 153 F.2d 504.

11 328 U.S. 826.

12 All subsequent references to a revenue act are to this Act unless otherwise indicated. The relevant parts of the gain and loss provisions of the Act and Code are identical.

Opinion of the Court.

331 U.S.

the fair market value of the property (other than money) received." Further, in § 113 (b), the "adjusted basis for determining the gain or loss from the sale or other disposition of property" is declared to be "the basis determined under subsection (a), adjusted . . . [(1) (B)] . . . for exhaustion, wear and tear, obsolescence, amortization . . . to the extent allowed (but not less than the amount allowable) ." The basis under subsection (a) "if the property was acquired by . . . devise . . . or by the decedent's estate from the decedent," § 113 (a) (5), is "the fair market value of such property at the time of such acquisition."

Logically, the first step under this scheme is to determine the unadjusted basis of the property, under § 113 (a) (5), and the dispute in this case is as to the construction to be given the term "property." If "property," as used in that provision, means the same thing as "equity," it would necessarily follow that the basis of petitioner's property was zero, as she contends. If, on the contrary, it means the land and building themselves, or the owner's legal rights in them, undiminished by the mortgage, the basis was $262,042.50.

We think that the reasons for favoring one of the latter constructions are of overwhelming weight. In the first place, the words of statutes-including revenue actsshould be interpreted where possible in their ordinary, everyday senses.13 The only relevant definitions of "property" to be found in the principal standard dictionaries" are the two favored by the Commissioner, i. e., either that "property" is the physical thing which is a subject of ownership, or that it is the aggregate of the owner's rights to control and dispose of that thing.

13 Old Colony R. Co. v. Commissioner, 284 U. S. 552, 560.

14 See Webster's New International Dictionary, Unabridged, 2d Ed.; Funk & Wagnalls' New Standard Dictionary; Oxford English Dictionary.

99 15

"Equity" is not given as a synonym, nor do either of the foregoing definitions suggest that it could be correctly so used. Indeed, "equity" is defined as "the value of a property . . . above the total of the liens. The contradistinction could hardly be more pointed. Strong countervailing considerations would be required to support a contention that Congress, in using the word "property," meant "equity," or that we should impute to it the intent to convey that meaning."

shall be

The land and

In the second place, the Commissioner's position has the approval of the administrative construction of § 113 (a) (5). With respect to the valuation of property under that section, Reg. 101, Art. 113 (a) (5)–1, promulgated under the 1938 Act, provided that "the value of property as of the date of the death of the decedent as appraised for the purpose of the Federal estate tax deemed to be its fair market value.... building here involved were so appraised in 1932, and their appraised value-$262,042.50-was reported by petitioner as part of the gross estate. This was in accordance with the estate tax law " and regulations,18 which had always required that the value of decedent's property, undiminished by liens, be so appraised and returned, and that mortgages be separately deducted in computing the net estate.19 As the quoted provision of the Regula

15 See Webster's New International Dictionary, supra. 16 Crooks v. Harrelson, 282 U. S. 55, 59.

17 See §§ 202 and 203 (a) (1), Revenue Act of 1916; §§ 402 and 403 (a) (1), Revenue Acts of 1918 and 1921; §§ 302, 303 (a) (1), Revenue Acts of 1924 and 1926; § 805, Revenue Act of 1932.

18 See Reg. 37, Arts. 13, 14, and 47; Reg. 63, Arts. 12, 13, and 41; Reg. 68, Arts. 11, 13, and 38; Reg. 70, Arts. 11, 13, and 38; Reg. 80, Arts. 11, 13, and 38.

19 See City Bank Farmers' Trust Co. v. Bowers, 68 F. 2d 909, cert. denied, 292 U. S. 644; Rodiek v. Helvering, 87 F. 2d 328; Adriance v. Higgins, 113 F. 2d 1013.

tions has been in effect since 1918,20 and as the relevant statutory provision has been repeatedly reenacted since then in substantially the same form," the former may itself now be considered to have the force of law.22

Moreover, in the many instances in other parts of the Act in which Congress has used the word "property," or expressed the idea of "property" or "equity," we find no instances of a misuse of either word or of a confusion of the ideas.23 In some parts of the Act other than the gain and loss sections, we find "property" where it is unmistakably used in its ordinary sense.24 On the other hand, where either Congress or the Treasury intended to convey the meaning of "equity," it did so by the use of appropriate language.2

20 See also Reg. 45, Art. 1562; Reg. 62, Art. 1563; Reg. 65, Art. 1594; Reg. 69, Art. 1594; Reg. 74, Art. 596; Reg. 77, Art. 596; Reg. 86, Art. 113 (a) (5)-1 (c); Reg. 94, Art. 113 (a) (5)-1 (c); Reg. 103, § 19.113 (a) (5)-1 (c); Reg. 111, § 29.113 (a) (5)-1 (c).

21

§ 202 (a) (3), Revenue Act of 1921; § 204 (a) (5), Revenue Act of 1924; § 204 (a) (5), Revenue Act of 1926; § 113 (a) (5), Revenue Act of 1928; § 113 (a) (5), Revenue Act of 1932; § 113 (a) (5), Revenue Act of 1934; § 113 (a) (5), Revenue Act of 1936; § 113 (a) (5), Revenue Act of 1938; § 113 (a) (5), Internal Revenue Code.

22 Helvering v. Reynolds Co., 306 U. S. 110, 114.

23 Cf. Helvering v. Stockholms Bank, 293 U. S. 84, 87.

24 Sec. 23 (a) (1) permits the deduction from gross income of "rentals required to be made as a condition to the continued use . . . for purposes of the trade or business, of property . . . in which he [the taxpayer] has no equity." (Italics supplied.)

Sec. 23 (1) permits the deduction from gross income of "a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business . . . ." (Italics supplied.)

See also 303 (a) (1), Revenue Act of 1926, c. 27, 44 Stat. 9; § 805, Revenue Act of 1932, c. 209, 47 Stat. 280.

25 See § 23 (a) (1), supra, note 24; § 805, Revenue Act of 1932, supra, note 24; § 3482, I. R. C.; Reg. 105, § 81.38. This provision of the Regulations, first appearing in 1937, T. D. 4729, 1937-1 Cum. Bull. 284, 289, permitted estates which were not liable on mortgages