During 1934 and 1935, the petitioner, bought and sold stocks, bonds, and commodities. In connection with the sales, he paid selling commissions to brokers, and in his books these commissions were deducted from selling price before net profit or loss was determined. In his income tax returns for 1934 and 1935, he treated the commissions similarly, not making deductions for them as ordinary and necessary business expenses. In 1939, however, in the course of proceedings before the Board of Tax Appeals, the petitioner asserted that he was entitled to tax refunds for the reason that his failure to make deductions for the commissions had resulted in overpayment in both years. The Board sustained his contention in part, holding that the selling commissions could properly have been deducted as ordinary and necessary business expenses, that the refund claimed for 1935 should be allowed, but that the refund claimed for 1934 was barred by the applicable statute of limitations. 41 B.T.A. 1204. The Circuit Court of Appeals reversed, holding that the claimed deductions for selling commissions were not permissible, and finding it unnecessary therefore to determine whether the refund claim for 1934 was timely. Cir., 119 F.2d 667. Because of a conflict in decisions of Circuit Courts of Appeal, we granted certiorari, 314 U.S. 600, 62 S.Ct. 130, 86 L.Ed. --, to consider the question: Are sales commissions paid by a taxpayer engaged in the business of buying and selling securities deductible as ordinary and necessary expenses under Section 23(a) of the Revenue Act of 1934, or are they to be treated as offsets against selling price relevant only to the determination of capital losses or gains?
In Helvering v. Winmill, 305 U.S. 79, 59 S.Ct. 45, 83 L.Ed. 52, we held that a taxpayer who bought and sold securities could not deduct the commissions paid on his purchases as a business expense. Although the Winmill case arose under the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 482 et seq., the statutory provisions and regulations there relevant are identical with those again in controversy here. And the conclusion we reached there that a general regulation designating 'commissions' as one of a long list of deductible business expenses is not controlling in the face of a specific regulation pertaining to commissions on securities transactions-is equally applicable here.
The specific regulation pertaining to securities transactions provides: 'Commissions paid in purchasing securities are a part of the cost price of such securities. Commissions paid in selling securities, when such commissions are not an ordinary and necessary business expense, are an offset against the selling price. * * *' If there is any justification for treating sales commissions differently from purchase commissions, it must depend upon the significance of the clause 'when such commissions are not an ordinary and necessary business expense.' This clause first appeared in Treasury Regulations 77, accompanying the Revenue Act of 1932. In the income tax regulations prior to that time, it was consistently prescribed that commissions paid on purchases and sales of securities were to be treated as part of the cost or selling price and were not otherwise to be deductible. And in Helvering v. Union Pacific Co., 293 U.S. 282, 286, 55 S.Ct. 165, 167, 79 L.Ed. 363, this Court expressly recognized that such commissions have been 'consistently treated * * * not as items of current expense, but as additions to the cost of the property or deductions from the proceeds of sale.'