Anderson, Clayton & Co., a Delaware corporation, was organized in 1929. Its capital structure consisted of preferred stock and 100,000 shares of common stock, the capital value of which was fixed at one dollar per share. By April 21, 1930, all of the common stock had been issued, in varying amounts, to the corporation's managing officials, in consideration of their worth and responsibility to the company, which is engaged in the highly technical and skilled business of cotton merchandising.
In 1931 a written agreement was entered into between the corporation and the common stockholders, the purpose of which was to restrict the ownership of the common stock to the management group and to adjust the respective interests in the common stock among that group as responsibility changed. Accordingly, the agreement provided that the stock could not be disposed of except by written consent of the owners of 75% of the common stock. Upon the death of any party to the agreement, the corporation agreed to purchase the common stock of the deceased at its book value as of July 31 preceding the stockholder's death.
One M. D. Anderson, one of the chief officers of the company, was originally issued 31,000 shares. During the development of the corporation, Mr. Anderson had transferred shares of his stock, pursuant to the agreement, to junior officials as they assumed more duties and responsibilities, until at the time of his death in 1939 he owned 18,574 shares. These shares the corporation purchased at their book value of $50.79 per share. This stock was not retired, but was retained as treasury stock. While in the treasury, it could not be voted nor were dividends paid on it.
The company in 1944 sold 6,500 of these shares to junior officials at the then book value of $112.68 per share. The difference between the price paid Anderson's estate and that received from the sale of the shares to the junior officials was $402,285, on which the United States imposed a long-term capital-gains tax of $100,571.25. Respondent paid the tax and sued in the Court of Claims to recover the amount. The respondent took the position that no long-term capital gain resulted because it was not dealing in its stock 'as it might in the shares of another corporation,' as contemplated in Treasury Regulations 111, § 29.22(a)-15. The Court of Claims, 122 F.Supp. 837, 129 Ct.Cl. 295, agreed with respondent and entered judgment for recovery of the tax paid, with interest. We granted certiorari, 348 U.S. 936, 75 S.Ct. 356, because of the claim of conflict with decisions of the Courts of Appeals.
The sole question therefore is whether, in the circumstances of this case, Treasury Regulations 111, § 29.22(a)-15 makes the sale of this treasury stock of the corporation a taxable transaction under § 22(a) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 22(a).
Article 66 of Treasury Regulations 74, promulgated under the Revenue Act of 1928, provided that a corporation which purchases its own stock, holds it as treasury stock, and later sells it 'realizes no gain or loss' from such transactions. This Court upheld that regulation as a proper one interpretive of the general terms of § 22(a) of the Internal Revenue Code. Helvering v. R. J. Reynolds Tobacco Co., 306 U.S. 110, 114, 59 S.Ct. 423, 425, 83 L.Ed. 536. The present regulation was promulgated in 1934. Its effect was to remove the categorical exclusion of taxable gains or losses arising out of the purchase and sale by a corporation of its own stock accorded such transactions by Article 66 of Treasury Regulations 74. The amended regulation specifically excludes from tax consequences a corporation's sale of its stock upon original issue whether sold for more or less than par or stated value. On the other hand, the regulation specifically provides that tax consequences flow from the receipt by the corporation of its own stock as consideration for sales of its property or in satisfaction of indebtedness to it. With regard to all other dealings by a corporation in its own stock, whether or not tax consequences result depends generally upon the 'real nature of the transaction, which is to be ascertained from all its facts and circumstances.' The regulation provides further that 'if a corporation deals in its own shares as it might in the shares of another corporation,' such dealings are considered, for tax purposes, as though the corporation were in fact dealing in the other corporation's stock. Thus, whether the transaction here in question is taxable depends, in the final analysis, on whether respondent corporation dealt with its shares of treasury stock 'as it might' have dealt with another corporation's stock.