United States v. Catto

PETITIONER: United States
LOCATION: Congress

DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 384 US 102 (1966)
ARGUED: Mar 22, 1966 / Mar 23, 1966
DECIDED: Apr 26, 1966

Facts of the case


Media for United States v. Catto

Audio Transcription for Oral Argument - March 23, 1966 in United States v. Catto

Audio Transcription for Oral Argument - March 22, 1966 in United States v. Catto

Earl Warren:

Number 535, United States, Petitioner, versus John Catto, Jr. et al.

Mr. Levin, you may proceed with your argument.

Jack S. Levin:

Thank You, Your Honor.

Mr. Chief Justice, may it please the Court.

This is an income tax case.

It presents the question whether cattle ranchers and others who are in the business of raising livestock can deduct as incurred the costs of raising their livestock which they used for breeding purposes or whether they can be required by the Commissioner to defer the deduction of such expenses until the livestock, the breeding livestock, are sold, and deduct the expenses against the proceeds of sale in computing gain.

The respondents argued that they should be entitled to a deduction for their costs of raising breeding livestock as these expenses are incurred.

Despite the requirement in the Treasury Regulations that they defer such costs and deduct them from the proceeds derived from selling such animals in computing gain.

Potter Stewart:

The same as a -- is that the same as increasing the basis on the sale?

Jack S. Levin:

Yes, Your Honor, if we --

Potter Stewart:

It's not exactly the same concept, isn't it?

Because the peculiar tax laws are applicable to these people, isn't that right?

Jack S. Levin:

Well, it is I would say, just about the same concept.

Potter Stewart:

The same result.

Jack S. Levin:

Yes, the same sections require it.

There are two questions with regard to a deduction, to an expense which you incur.

The first question is the time of the deduction.

That is when you will deduct what you have deducted at the time you incur it or whether you will postpone it until you --

Potter Stewart:

At some later time.

Jack S. Levin:

-- disposed of an asset and deducted that.

The second question is the type of income against which that expenditure will be offset.

That is whether ordinary income or capital gain.

And these are the two question which we must answer in this case, which regard to the costs of raising breeding livestock, stated as Your Honor has stated it, whether they get a deduction as they expend their money for raising their livestock, their breeding livestock, or whether they must add the expenses to the basis of the livestock and then deduct them from the sales proceeds in computing gain from the sale of that livestock.

This is livestock, which typically they raised from birth.

And if they deducted all of the expenses of raising them --

Potter Stewart:

That'd be a zero base?

Jack S. Levin:

-- when they sold them, they would have a zero basis.

That's right.

There are nine cases consolidated here.

Respondents and all of them raised livestock, mostly cattle but including some sheep and goats, and they hold these livestock for sale.