Cooper v. United States

Background

A woman paid income taxes for 1921 and sued to recover $8,474.90, saying part of her tax was wrongly collected. She had been given 380 shares of bank stock by her husband on November 1, 1921, and sold them on November 7, 1921, at $210 per share. Her husband had bought the shares in 1918 at $113.50 per share. The tax was assessed under Section 202(a)(2) of the Revenue Act passed November 23, 1921, which was written to take effect January 1, 1921.

Reasoning

The main questions were whether the 1921 provision should apply to transactions completed before the Act’s passage and whether applying it to this sale violated the Fifth Amendment’s requirement of due process. The Court found that Congress clearly intended the provision to reach this kind of transaction. It relied on previous decisions recognizing Congress’s power to tax profits measured by a donor’s original cost and explained that other decisions invalidating taxes on earlier transfers did not control here. The Court saw nothing arbitrary or capricious and affirmed the lower court’s judgment.

Real world impact

The ruling means people who receive gifts of property and sell them soon after can be taxed on the gain measured by the giver’s original cost rather than the value at the gift. The decision denies the petitioner’s refund and confirms that similar recent transactions can be taxed under the 1921 rule. This is a final ruling affirming the Court of Claims’ judgment.