Hanover Bank v. Commissioner

PETITIONER: Hanover Bank
RESPONDENT: Commissioner
LOCATION: United States Court of Appeals District of Columbia Circuit

DECIDED BY: Warren Court (1962)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 369 US 672 (1962)
ARGUED: Feb 27, 1962
DECIDED: May 21, 1962

Facts of the case


Media for Hanover Bank v. Commissioner

Audio Transcription for Oral Argument - February 27, 1962 in Hanover Bank v. Commissioner

Earl Warren:

Number 224, The Hanover Bank, Executor, et al., Petitioner, versus Commissioner of Internal Revenue.

Mr. Tannenwald.

Theodore Tannenwald, Jr.:

Mr. Chief Justice, members of the Court, I approach this argument with some trepidation after the spirit of exchange took place with Mr. Doolittle and Mr. Dietz.

This is a rather straightforward tax case which comes here on writ of certiorari from the Second Circuit.

It does, however, involve the issue of how far the Commissioner of Internal Revenue may go in extending the clear language of the statute and it also involves the conflict of Circuits and that the Third and the Sixth Circuits have decided this case differently than the Second Circuit.

The single issue that is presented here is the question of whether a taxpayer who pays a premium for a bond, which is subject to both a general call at one price and a special call at one -- at another price, lower price, may deduct the difference between the amount that he pays or -- and the amount of the general call price.

Or whether he may, as petitioners contend under Section 125 of the Internal Revenue Code of 1939, deduct the difference between what he paid and the lower special call price.

Our position, we submit, is supported by both the express language of the statute and the legislative history.

And furthermore is supported by the Commissioner's own publicly announced position, during the tax year involved in this case, a position which he did not reversed until 1956, three years after the year in question.

John M. Harlan II:

How long had the administrative interpretation going on?

Theodore Tannenwald, Jr.:

Between the years 1951 through 1956.

First ruling was issued in 1951.

The Commissioner reversed this position in 1956.

I should add in all fairness Mr. Justice Harlan that the earlier rulings commencing in 1951, were not formally published rules.

They were issued to individual taxpayers, but they were widely circulated and published in financial and tax services and were generally known to the public.

And in fact, into this particular record, there is evidence that at least petitioner Gourielli relied on the ruling that he had read about.

In both of these cases, the taxpayers purchased approximately half a million dollars worth of bond.

Mr. Gourielli paid 117 and a half.

Mr. Goldfarb paid 110 on the average.

In both cases, the bonds were callable at a general call price on 30 days notice at approximately 105.

And in both cases, the bonds were also callable at a special call price out of certain sinking funds which the issuer was required to maintain and which I will deal with it in some detail later at 102.

The Government conceives that the taxpayers were entitled to deduct the difference between what they paid in Mr. Gourielli's case 117 and in Mr. Goldfarb's case approximately 110, and the general call price 105 in the year in question.

The Government, however, denies the further right of the taxpayer to deduct down to the special call price which in one case was 102 and the other case approximately 101.

Potter Stewart:

There was a privilege of call in 30 days notice --

Theodore Tannenwald, Jr.:

In either case --

Potter Stewart:

-- in either case.

Theodore Tannenwald, Jr.:

-- Mr. Justice Stewart in --

Potter Stewart:

And the --

Theodore Tannenwald, Jr.:

Either case.

Potter Stewart:

-- and maturity on the other hand was several years away.