author: Mr. Justice Brennan

text:
    UNITED STATES v. MIDLAND-ROSS CORP.
    No. 628.
    Argued March 31, 1965.
    Decided May 3, 1965.

      Frank I. Goodman argued the cause for the- United States. With him on the brief were Solicitor General Cox, Assistant Attorney General Oberdorfer, Wayne G. Barnett and Joseph Kovner.

      Theodore R. Colborn argued the cause for respondent. With him on the brief was Theodore M. Garver.

   Mr. Justice Brennan

delivered, the opinion of the Court.

The question for decision is whether, under the Internal Revenue Code of 1939, certain gains realized by the taxpayer are taxable as capital gains or as ordinary income. The taxpayer bought noninterest-bearing promissory notes from the issuers at prices discounted below the face amounts. With one exception, each of the notes was held for more than six months, and, before maturity and in the year of purchase, was sold for less than its face amount but more than its issue price. It is conceded that the gain in each case was the economic equivalent of interest for the use of the money to the date of sale but the taxpayer reported the gains as capital gains. The Commissioner of Internal Revenue determined that the gains attributable to original issue discount were but interest in another form and therefore were taxable as ordinary income. Respondent paid the resulting deficiencies and in this suit for refund prevailed in the District Court for the Northern District of Ohio, 214 F. Supp. 631, and in the Court of Appeals for the Sixth Circuit, 335 F. 2d 561. Because this treatment as capital gains conflicts with the result reached by other courts of appeals, we granted certiorari. 379 U. S. 944. We reverse.

The more favorable capital gains treatment applied only to gain on “the sale or exchange of a capital asset.” § 117 (a)(4). Although original issue discount becomes property when the obligation falls due or is liquidated prior to maturity and § 117 (a)(1) defined a capital asset as “property held by the taxpayer,” we have held that

“not everything which can be called property in the ordinary sense and which is outside the statutory exclusions qualifies as a capital asset. This Court has long held that the term 'capital asset’ is to be construed narrowly in accordance with the purpose of Congress to afford capital-gains treatment only-in situations typically involving the realization of appreciation in value accrued over a substantial period of time, and thus to ameliorate the hardship of taxation of the entire gain in one year.” Commissioner v. Gillette Motor Co., 364 U. S. 130, 134.

See also Corn Products Co. v. Commissioner, 350 U. S. 46, 52. In applying this principle, this Court has consistently construed “capital asset” to exclude property representing income items or accretions to the value of a capital asset themselves properly attributable to income. Thus the Court has held that “capital asset” does not include compensation awarded a taxpayer as representing the fair rental value of its facilities during the period of their operation under government control, Commissioner v. Gillette Motor Co., supra; the amount of the proceeds of the sale of an orange grove attributable to the value of an unmatured annual crop, Watson v. Commissioner, 345 U. S. 544; an unexpired lease, Hort v. Commissioner,. 313 U. S. 28; and oil payment rights, Commissioner v. P. G. Lake, Inc., 356 U. S. 260. Similarly, earned original issue discount cannot be regarded as “typically involving the realization of appreciation in value accrued over a substantial period of time . . . [given capital gains treatment] to ameliorate the hardship of taxation of the entire gain in one year.”

Earned original issue discount serves the same function as stated interest, concededly ordinary income and not a capital asset; it is simply “compensation for the use or forbearance of money.” Deputy v. du Pont, 308 U. S. 488, 498; cf. Lubin v. Commissioner, 335 F. 2d 209 (C. A. 2d Cir.). Unlike the typical case of capital appreciation, the earning of discount to maturity is predictable and measurable, and is “essentially a substitute for . . . payments which § 22 (a) expressly characterizes as gross income [; thus] it must be regarded as ordinary income, and it is immaterial that for some purposes the contract creating the right to such payments may be treated as 'property’ or ‘capital.’ ” Hort v. Commissioner, supra, at 31. The $6 earned on a one-year note for $106 issued for $100 is precisely like the $6 earned on a one-year loan of $100 at 6% stated interest. The application of general principles would indicate, therefore, that earned original issue discount, like stated interest, should be taxed under § 22 (a) as ordinary income.

The taxpayer argues, however, that administrative practice and congressional treatment of original issue discount under the 1939 Code establish that such discount is to be accounted for as capital gain when realized. Section 1232 (a) (2) (A) of the Internal Revenue Code of 1954 provides that “upon sale or exchange of . . . evidences of indebtedness issued after December 31, 1954, held by the taxpayer more than 6 months, any gain realized . . . [up to the prorated amount of original issue discount] shall be considered as gain from the sale or exchange of property which is not a capital asset,” that is, it is to be taxed at ordinary income rates. From this the taxpayer would infer that Congress understood prior administrative and legislative history as extending capital gains treatment to realized original issue discount. If administrative practice and legislative history before 1954 did in fact ignore economic reality and treat stated interest and original issue discount differently for tax purposes, the taxpayer should prevail. See Hanover Bank v. Commissioner, 369 U. S. 672; Deputy v. du Pont, supra; cf. Helvering v. R. J. Reynolds Tobacco Co., 306 U. S. 110. But the taxpayer must persuade us that this was clearly the case, see Watson v. Commissioner, supra, at 551, and has not done so.

The taxpayer refers us to various statutory provisions treating original issue discount as ordinary income in specific situations, arguing that these establish a congressional understanding that in situations not covered by such provisions, original issue discount is entitled to capital gains treatment. Even if these provisions were merely limited applications of the principle of § 1232 (a) (2), they may demonstrate, not that the general rule was to the contrary, but that the general rule was unclear, see Brandis, Effect of Discount or Premium on Bondholder’s North Carolina Income Tax, 19 N. C. L. Rev. 1, 7 (1940), and that Congress wished to avoid any doubt as to its treatment of particular situations. Cf. S. Rep. No. 1622, 83d Cong., 2d Sess., p. 112 (1954).

First we are referred to §§42 (b) and 42 (c) of the 1939 Code. Section 42 (b) applied, inter alia, to discounted noninterest-bearing obligations periodically redeemable for specified increasing amounts, and permitted cash-basis taxpayers an election to accrue the annual increase. If anything, the statutory language supports the Government’s position, for it implies that an accrual-basis taxpayer has no election, but must accrue the increases; this seems to indicate a congressional understanding that such increases were ordinary income. Section 42 (c) postpones recognition of discount on short-term government obligations until maturity or sale. That provision, however, has its own history. Earlier law, requiring the proration of original issue discount according to the time the obligation was held, was considered to “impose on taxpayers the duty of making burdensome computations.” See S. Rep. No. 673, Part 1, 77th Cong., 1st Sess., p. 30 (1941). The proration provisions had in turn succeeded a statute enacted, not to make an exception to a general rule of capital gains treatment for issue discount, but to insure that the then-existing exemption for discount as representing interest could be claimed by taxpayers other than the original holder. H. R. Conf. Rep. No. 17, 71st Cong., 1st Sess., p. 2 (1929). Since the tax exemption for Treasury paper was eliminated in 1941, there was no longer any important reason to distinguish exempt original issue discount from nonexempt market discount, and § 42 (c) was enacted expressly to simplify administration by eliminating the necessity for allocation between interest and capital gain or loss, and treating all discount as income, but taxable only on realization. If the inferences drawn by respondent were correct, these provisions would be rendered superfluous by the enactment of § 1232 (a) (2), but they have been carried forward as §§ 454 (a) and (b) of the 1954 Code.

It is also argued that §§ 201 (e) and 207 (d) of the 1939 Code manifested a congressional view opposed to ordinary income treatment. These sections required annual accrual of bond premium and discount by life and mutual casualty insurance companies. But again, somewhat like § 42 (b), these provisions provided for accrual by cash-basis taxpayers. See Massachusetts Mutual Life Ins. Co. v. United States, 288 U. S. 269. Moreover, the Commissioner had interpreted these provisions as requiring him to treat market discounts or premiums, as well as interest agreed upon by the borrower in the guise of original issue discount, as ordinary income items.

Thus, the taxpayer has not demonstrated that, in specifying ordinary income treatment for original issue discount in particular situations, Congress evinced its understanding that such discount would otherwise be entitled to capital gains treatment. Therefore we turn to the question whether Treasury practice and decisional law preclude ordinary income treatment.

The taxpayer premises this part of his argument primarily upon the case of Caulkins v. Commissioner, 1 T. C. 656, acq., 1944 Cum. Bull. 5, aff’d, 144 F. 2d 482 (C. A. 6th Cir.), acq. withdrawn, 1955-1 Cum. Bull. 7. The taxpayer there purchased an “Accumulative Installment Certificate” providing for 10 annual payments of $1,500 in return for $20,000 at the end of 10 years. The certificate provided for gradually increasing cash surrender and loan values. In 1939 the taxpayer received $20,000 as agreed and, relying on the long-term capital gains provisions of the Revenue Act of 1938, c. 289, 52 Stat. 447, reported only half the profit as taxable income. Acting primarily on the theory that the certificate was not in registered form as required by§ 117 (f), the Commissioner sought to treat the increment as interest or as income arising out of a transaction entered into for profit. The Tax Court upheld the taxpayer, finding that the certificate was in registered form within the meaning of § 117 (f) of the Revenue Act of 1938, a provision identical to § 117 (f) of the 1939 Code, but its discussion of the capital gains question is at best opaque. The Court of Appeals acknowledged that “the transaction presents no true aspect of capital gain” and that “Congress might well have made the differentiation urged by the Commissioner, since it is difficult to perceive any practical reason for taxing increment of the type involved here differently from ordinary income . . . [as] consideration paid for the use of the amounts paid in. . . .” 144 F. 2d, at 484. Nevertheless it construed the words “amounts received by the holder upon . . . retirement” in § 117 (f) as unsuscep-tible of partition, and therefore as including the increment attributable to interest, which, with the principal amount, was thus taxable only as capital gain.

Caulkins did not unambiguously establish that original issue discount was itself a “capital asset” entitled to capital gains treatment. It held only that under § 117(f) Congress had not provided that the “amount” received on retirement might be broken down into its component parts. This was inconsistent with the view expressed in Williams v. McGowan, 152 F. 2d 570 (C. A. 2d Cir.), and approved by this Court in Watson v. Commissioner, supra, at 552, that “Congress plainly did mean to com-minute the elements of a business; plainly it did not regard the whole as 'capital assets.’ ” 152 F. 2d, at 572. The Tax Court has consistently regarded Caulkins as having erroneously read § 117 (f) to preclude differentiation of the sources of proceeds on redemption. Paine v. Commissioner, 23 T. C. 391, 401, reversed on other grounds, 236 F. 2d 398 (C. A. 8th Cir.); Stanton v. Commissioner, 34 T. C. 1; see 3B Mertens, The Law of Federal Income Taxation 184-186, 378-381 (Zimet rev.). The Commissioner, in addition to withdrawing his acquiescence in Caulkins, has also rejected the interpretation of “amount” under § 117 (f) as not subject to apportionment under general principles. Rev. Rul. 119, 1953-2 Cum. Bull. 95; Rev. Rul. 55-136, 1955-1 Cum. Bull. 213; Rev. Rul. 56-299, 1956-1 Cum. Bull. 603. To the extent the Tax Court’s decision in Caulkins rested, as its opinion indicates, on a reading of § 117 (f) to require more favorable treatment on redemption than on sale, it is clearly at odds with the legislative purpose, which was merely to treat alike redemptions and sales or exchanges of securities in registered form or with coupons attached, and not to extend the class of capital assets. Rev. Rul. 56-299, supra. Such an interpretation, which would not benefit the taxpayer in the sale transactions here involved, may underlie the Tax Court’s decision but it has no justification in logic or in the legislative history, and even the taxpayer would reject such a meaning, however well supported by the Caulkins acquiescence. Finally, notwithstanding the acquiescence, what little other administrative practice we are referred to seems contrary to Caulkins. See I. T. 1684, II — 1 Cum. Bull. 60 (1923).

The concept of discount or premium as altering the effective rate of interest is not to be rejected as an “esoteric concept derived from subtle and theoretic analysis.” Old Colony R. Co v. Commissioner, 284 U. S. 552, 561. For, despite some expressions indicating a contrary view. this Court has often recognized the economic function of discount as interest. In Old Mission Co. v. Helvering, 293 U. S. 289, 290, for example, the Court regarded it as “no longer open to question that amortized bond discount may be deducted in the separate return of a single taxpayer.” The radical changes since Caulkins in the concept of treatment of accumulated interest under the 1939 Code are consistent with this. For example, accrued bond interest on stated interest bonds sold between interest dates has long been taxable to the seller of the bonds. See I. T. 3175, 1938-1 Cum. Bull. 200. But on “flat” sales of defaulted notes at prices in excess of face amount, with no attribution of interest arrearages in the sale price, the requirement of allocation to treat a portion of the proceeds as ordinary income dates only from 1954. Fisher v. Commissioner, 209 F. 2d 513 (C. A. 6th Cir.) ; see Jaglom v. Commissioner, 303 F. 2d 847 (C. A. 2d Cir.). The propriety of such allocation in the present case is even more evident; unlike defaulted bond interest, there is no suggestion that full payment of the original issue discount will not be made at maturity.

For these reasons we hold that earned original issue discount is not entitled to capital gains treatment under the 1939 Code.

Reversed.

       The original plaintiff, Industrial Rayon Corporation, .was merged into respondent Midland-Ross Corporation in 1961. During 1952, 1953, and 1954, Industrial’s idle funds were used to purchase 13 non-interest-bearing notes, varying in face amount from $500,000 to $2,000,000, from General Motors Acceptance Corporation, Commercial Investment Trust Company and Commercial Credit Company. The original issue discount in most instances was calculated to yield the equivalent of 2% to 2½% on an annual basis if the note were held to maturity, and the gains on sale approximated the discount earned to date. It is not contended that any part of the gain was attributable to market fluctuations as opposed to the passage of time.

        Real Estate Investment Trust of America v. Commissioner, 334 F. 2d 986 (C. A. 1st Cir.), petition for writ of certiorari pending, No. 620; Dixon v. United States, 333 F. 2d 1016 (C. A. 2d Cir.), affirmed, post, p. 68; Rosen v. United States, 288 F. 2d 658 (C. A. 3d Cir.); United States v. Harrison, 304 F. 2d 835 (C. A. 5th Cir.); Commissioner v. Morgan, 272 F. 2d 936 (C. A. 9th Cir.). See also Pattiz v. United States, 160 Ct. Cl. 121, 311 F. 2d 947; Schwartz v. Commissioner, 40 T. C. 191; Leavin v. Commissioner, 37 T. C. 766; Gibbons v. Commissioner, 37 T. C. 569.

       “Sec. 117. Capital Gains and Losses.

      “(a) Definitions. — As used in this chapter—
      “(1) Capital Assets. — The term ‘capital assets’ means property held by the taxpayer . . . .”

       Our disposition makes it unnecessary to decide certain questions raised at argument, as to which we intimate no view:
      (1) Since each note was sold in the year of purchase, we do not reach the question whether an accrual-basis taxpayer is required to report discount earned before the final disposition of an obligation;
      (2) Since no argument is made that the gain on the sale of each note varied significantly from the portion of the original issue discount earned during the holding period, we do not reach the question of the tax treatment under the 1939 Code of “market discount” arising from post-issue purchases at prices varying from issue price plus a ratable portion of the original issue discount, or of the tax treatment of gains properly attributable to fluctuations in the interest rate and market price of obligations as distinguished from the anticipated increase resulting from mere passage of time.

        “Sale or exchange.—
      “(A) [As amended by §50 (a), Technical Amendments Act of 1958, Pub. L. 85-866, 72 Stat. 1606] General rule. — Except as provided in subparagraph (B), upon sale or exchange of bonds or other evidences of indebtedness issued after December 31, 1954, held by the taxpayer more than 6 months, any gain realized which does not exceed—
      “(ii) ... an amount which bears the same ratio to the original issue discount (as defined in subsection (b)) as the number of complete months that the bond or other evidence of indebtedness was held by the taxpayer bears to the number of complete months from the date of original issue to the date of maturity,
      ‘‘shall be considered as gain from the sale or exchange of property which is not a capital asset. Gain in excess of such amount shall be considered gain from the sale or exchange of a capital asset held more than 6 months.”
      Section 1232 (b) defines “original issue discount” as “the difference between the issue price and the stated redemption price at maturity. . . .”
      We intimate no view on the construction of this statute. In particular, we imply no view upon the Commissioner’s implicit contention that accrual-basis taxpayers are required to report discount as earned prior to final disposition of obligations acquired after December 31, 1954. Cf. Lubin v. Commissioner, supra.

       “Sec. 42. Period in Which Items of Gross Income Included.
      “(b) Noninterest-bearing Obligations Issued at Discount. — If, in the case of a taxpayer owning any noninterest-bearing obligation issued at a discount and redeemable for fixed amounts increasing at stated intervals or owning an obligation described in paragraph (2) of subsection (d), the increase in the redemption price of such obligation occurring in the taxable year does not (under the method of accounting used in computing his net income) constitute income to him in such year, such taxpayer may, at his election made in his return for any taxable year beginning after December 31, 1940, treat such increase as income received in such taxable year. ... In the case of any such obligations owned by the taxpayer at the beginning of the first taxable year to which his election applies, the increase in the redemption price of such obligations occurring between the date of acquisition . . . and the first day of such taxable year shall also be treated as income received in such taxable year.
      “(c) Short-Term Obligations Issued on Discount Basis. — In the case of any obligation of the United States or any of its possessions, or of a State or Territory, or any political subdivision thereof, or of the District of Columbia, issued on or after March 1, 1941, on a discount basis and payable without interest at a fixed maturity date not exceeding one year from the date of issue, the amount of discount at which such obligation is originally sold shall not be considered to accrue until the date on which such obligation is paid at maturity, sold, or otherwise disposed of.”

       Since the statute applied only to paper with maturity of a year or less, the simplification resulting from recognizing income only on realization outweighed the possible shifting of income between tax years by accrual-basis taxpayers. At the same time, short-term government paper was excluded from the definition of “capital asset” in § 117 (a) (1) (D) of the 1939 Code, avoiding the necessity of separating out the amount of proceeds attributable to market fluctuations rather than earned discount. This exclusion is carried forward as § 1221 (5) of the 1954 Code.

      “Sec. 201. Life Insurance Companies.
      “(e) Amortization of Premium and Accrual of Discount. — The gross income, the deduction provided in section 201 (c) (7) (A) and the credit allowed against net income in section 26 (a) shall each be decreased by the appropriate amortization of premium and increased by the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures or other evidences of indebtedness held by a life insurance company. Such amortization and accrual shall be determined (1) in accordance with the method regularly employed by such company, if such method is reasonable, and (2) in all other cases, in accordance with regulations prescribed by the Commissioner with the approval of the Secretary.
      “Sec. 207. Mutual Insurance Companies other than Life or Marine.
      “(d) Amortization of Premium and Accrual of Discount. — The gross amount of income during the taxable year from interest, the deduction provided in subsection (b)(4)(A), and the credit allowed against net income in section 26 (a) shall each be decreased by the appropriate amortization of premium and increased by the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures or other evidences of indebtedness held by a mutual insurance company subject to the tax imposed by this section. Such amortization and accrual shall be determined (1) in accordance with the method regularly employed by such company, if such method is reasonable, and (2) in all other cases, in accordance with regulations prescribed by the Commissioner with the approval of the Secretary.”

       This provision was eliminated and the life insurance provision amended by the Revenue Act of 1964, § 228, 78 Stat. 19, 98-99, amending §§ 818 (b), 822 (d) (2) of the 1954 Code. See S. Rep. No. 830, 88th Cong., 2d Sess., pp. 122-124, for a detailed explanation.

       We consider the decisions and acquiescence only as evidence of the earlier understanding of the tax law. With respect to the claim of a particular taxpayer that he relied to his detriment on the acquiescence, see Dixon v. United States, post, p. 68.

        “Retirement of Bonds, Etc. — For the purposes of this chapter, amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.”

       The entire discussion of the capital gains question is as follows:
      “Prior to the enactment of the Revenue Act of 1934, the payment of a bond by the corporation issuing it was held to be but the fulfillment of a contractual obligation to repay money in accordance with the fixed terms of the obligation and not a sale or exchange of a capital asset. Fairbanks v. United States, 306 U. S. 436; Felin v. Kyle, 102 Fed. (2d) 349; John H. Watson, Jr., 27 B. T. A. 463; Arthur E. Braun, Trustee, 29 B. T. A. 1161; Frank J. Cobbs, 39 B. T. A. 642; petition to review dismissed, 111 Fed. (2d) 644. Section 117 (f), supra, appeared for the first time in the Revenue Act of 1934. In McClain v. Commissioner, 311 U. S. 527, the Supreme Court said: ‘It is plain that Congress intended by the new sub-section (f) to take out of the bad debt provision certain transactions and to place them in the category of capital gains and losses.’ This tribunal has held that by a parity of reasoning Congress also intended to take out of the ordinary income provisions of the revenue act gains realized by a taxpayer in connection with the retirement of the specified obligations. William H. Noll, 43 B. T. A. 496.” 1 T. C., at 660-661.
      It thus seems unclear whether the acquiescence related to the essentially uncontested capital gains question, and whether the decision was meant to apply beyond the narrow confines of § 117 (f). See Dixon v. United States, post, at 76-79.

       See, e. g., New York Life Ins. Co. v. Edwards, 271 U. S. 109, 116; Old Colony R. Co. v. Commissioner, supra. Though these bond premium cases are said to be inconsistent with the view taken here, they are equally inconsistent with the treatment of discount to the borrower.

       See also Helvering v. Union Pacific R. Co., 293 U. S. 282, 285, 288; Western Maryland R. Co. v. Commissioner, 33 F. 2d 695, 696 (C. A. 4th Cir.); Longview Hilton Hotel Co. v. Commissioner, 9 T. C. 180, 182.


source: Caselaw Access Project

license: Public Domain

text:
    DIXON et al. v. UNITED STATES.
    No. 486.
    Argued March 30-31, 1965.
    Decided May 3, 1965.

      Bernard E. Brandes argued the cause for petitioners. With him on the briefs was Sanford Saideman.

      Frank I. Goodman argued the cause for the United States. With him on the brief were Solicitor General Cox, Assistant Attorney General Oberdorfer, Wayne G. Barnett and Joseph Kovner.

   Mr. Justice Brennan

delivered the opinion of the Court.

This case involves the issue decided today in United States v. Midland-Ross Corp., No. 628, ante, p. 54. Petitioners are members of a partnership which, during the tax year 1952, bought 33 short-term noninterest-bear-ing notes from issuers at discounts between 2⅜% and 3¾% of face value. The notes had maturities ranging from 190 to 272 days. Their total face value was $43,050,000, and the total issue price was $42,222,357. The partnership sold 20 of the 33 notes before the end of the tax year but after having held them for more than six months, realizing a gain of $494,528. The remaining 13 notes were disposed of in the next tax year. In its 1952 return the partnership reported the $494,528 gain as a long-term capital gain, and, although on the accrual basis, did not accrue any income on account of the 13 unsold notes. Petitioners’ individual income tax returns reflected the same treatment for their respective distributive shares of the partnership income derived from the sale of the notes.

The Commissioner of Internal Revenue determined that the gain realized was taxable as ordinary income, and also that a portion of the original issue discount on the 13 unsold notes was earned and reportable as ordinary income for 1952. Petitioners paid the resulting deficiencies, and in this suit for refund the United States prevailed in the District Court for the Southern District of New York, 224 P. Supp. 358, and in the Court of Appeals for the Second Circuit, 333 F. 2d 1016. We brought the case here on certiorari, 379 U. S. 943, to resolve a conflict with United States v. Midland-Ross Corp., supra. We affirm.

Our holding today in Midland-Boss that original issue discount is not entitled to capital gains treatment under the 1939 Internal Revenue Code requires that we affirm the result below unless an affirmance is precluded by an argument made here and not in Midland-Boss. The petitioners contend that in purchasing the notes they relied upon the Commissioner’s published acquiescence in the Tax Court’s decision in Caulkins v. Commissioner, 1 T. C. 656, aff’d 144 F. 2d 482, not withdrawn until the transaction was closed, which acquiescence would require treating the gain realized as gain on the sale or exchange of a capital asset. Although petitioners concede that under § 7805 (b) of the Internal Revenue Code of 1954 the Commissioner has discretion to apply the withdrawal of the acquiescence retroactively, cf. Automobile Club of Michigan v. Commissioner, 353 U. S. 180, they contend that he abused his discretion in this case.

Section 7805 (b) provides:

“Retroactivity of Regulations or Rulings. — The Secretary [of the Treasury] or his delegate may prescribe the extent, if any, to which any ruling or regulation, relating to the internal revenue laws, shall be applied without retroactive effect.”

In Caulkins the Tax Court allowed capital gains treatment of the full amount received by the taxpayer upon the retirement of an “Accumulative Installment Certificate,” a debt security under which the lender made 10 annual remittances to the borrower in the amount of $1,500 each in return for a payment of $20,000 in the tenth year. See United States v. Midland-Ross Corp., supra, at 63. This result gave capital gains treatment to an amount corresponding to but not in the form of original issue discount. The basis for this result was an interpretation of § 117 (f) of the Revenue Act of 1938, c. 289, 52 Stat. 447, which was re-enacted as § 117 (f) of the 1939 Code, and which provided that “amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness . . . with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.” The Commissioner’s 1955 withdrawal of his acquiescence in the Tax Court’s decision in Caulkins was made retroactive as a genera] matter, but an exception was made for “amounts received upon redemption of Accumulative Installment Certificates issued by Investors Syndicate which were purchased during the period beginning December 25, 1944, the date acquiescence in the Caulkins case was announced and March 14, 1955, the date this Revenue Ruling is published .. ..” The exception thus covered only the debt securities of the specific type involved in Caulkins, and issued by the particular issuer there involved.

In Automobile Club of Michigan v. Commissioner, supra, at 183-184, we held that the Commissioner is empowered retroactively to correct mistakes of law in the application of the tax laws to particular transactions. He may do so even where a taxpayer may have relied to his detriment on the Commissioner’s mistake. See Manhattan General Equipment Co. v. Commissioner, 297 U. S. 129. This principle is no more than a reflection of the fact that Congress, not the Commissioner, prescribes the tax laws. The Commissioner’s rulings have only such force as Congress chooses to give them, and Congress has not given them the force of law. Consequently it would appear that the Commissioner’s acquiescence in an erroneous decision, published as a ruling, cannot in and of itself bar the United States from collecting a tax otherwise lawfully due.

But petitioners point to prefatory statements in the Internal Revenue Bulletins for 1952 and other years stating that Tax Court decisions acquiesced in “should be relied upon by officers and employees of the Bureau of Internal Revenue as precedents in the disposition of other cases.” See, e. g., 1952-1 Cum. Bull. iv. These are merely guidelines for Bureau personnel, however, and hardly help the petitioners here. The title pages of the same Revenue Bulletins give taxpayers explicit warning that rulings

“. . . are for the information of taxpayers and their counsel as showing the trend of official opinion in . . . the Bureau of Internal Revenue; the rulings other than Treasury Decisions have none of the force or effect of Treasury Decisions and do not commit the Department to any interpretation of the law which has not been formally approved and promulgated by the Secretary of the Treasury.” (Emphasis added.)

This admonition, together with the language of § 7805 (b)’s predecessor, § 3791 (b) of the 1939 Code, gave ample notice that the Commissioner’s acquiescence in Caulkins was not immune from subsequent retroactive correction to eliminate a mistake of law.

Indeed, long before the tax year here in question this Court had made it clear that “The power of an administrative officer or board to administer a federal statute and to prescribe rules and regulations to that end is not the power to make law . . . but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity.” Manhattan General Equipment Co. v. Commissioner, supra, at 134. There we held that the Commissioner could make retroactive a new regulation increasing tax liability beyond that provided for by the prior regulation where the superseding regulation corrected an erroneous interpretation of the statute.

“The statute defines the rights of the taxpayer and fixes a standard by which such rights are to be measured. The regulation constitutes only a step in the administrative process. It does not, and could not, alter the statute. It is no more retroactive in its operation than is a judicial determination construing and applying a statute to a case in hand.” Id., at 135.

This reasoning applies with even greater force to the Commissioner’s rulings and acquiescences. Therefore the acquiescence in Caulkins, even assuming for the moment that it embodied the Commissioner’s acceptance of the treatment petitioners urge upon us here, does not preclude the Commissioner from collecting the tax lawfully due under the statute.

We cannot agree with petitioners that Automobile Club of Michigan v. Commissioner, supra, supports a finding that the Commissioner abused, his discretion in giving retroactive effect to the withdrawal of the acquiescence. In that case the Commissioner had issued general pronouncements according exempt status to all automobile clubs similarly situated, following letter rulings to that effect in favor of the taxpayer. The Commissioner then corrected his erroneous view and, in 1945, specifically revoked the taxpayer’s exemption for 1943 and subsequent years. We rejected the taxpayer’s claim that the Commissioner had abused the discretion given him by § 7805 (b)’s predecessor. The Commissioner’s action had been forecast in a General Counsel Memorandum in 1943, and the corrected ruling had been applied to all automobile clubs for tax years back to 1943. 353 U. S., at 185-186.

Petitioners make two arguments based on Automobile Club of Michigan. First, they contend that the Commissioner’s decision to apply his change of position retroactively to them is an abuse of discretion because, unlike the taxpayer in Automobile Club, they had no notice in the relevant tax year that the Commissioner was about to correct his mistake of law, and thus had purchased the discounted notes in express reliance upon the Commissioner’s published acquiescence in Caulkins. Second, they argue that the Commissioner abused his discretion because the retroactive withdrawal of his acquiescence in Caulkins excepted certificates of the type involved in Caulkins if issued by the issuer there involved and purchased while the acquiescence was in effect; this is said to be an unreasonable and arbitrary classification since, petitioners assert, there is no significant difference between the excepted certificates and the notes that they had purchased.

Although we mentioned certain facts in support of our conclusion in Automobile Club that there had not been an abuse of discretion in that case, it does not follow that the absence of one or more of these facts in another case wherein a ruling or regulation is applied retroactively establishes an abuse of discretion. Automobile Club merely examined all the circumstances of the particular case to determine whether the Commissioner had there abused his discretion. 353 U. S., at 185. In the present case it cannot be said that the Commissioner abused his discretion in either of the respects urged by petitioners. The absence of notice does not prove an abuse, since, for the reasons we have stated, the petitioners were not justified in relying on the acquiescence as precluding correction of the underlying mistake of law and the retroactive application of the correct law to their case. Since no reliance was warranted, no notice was required.

Nor is there merit in the argument that the Commissioner abused his discretion in distinguishing Investors Syndicate Accumulative Installment Certificates from other debt securities, for we do not think the Commissioner’s acquiescence in Caulkins was to be interpreted as his acceptance of the proposition that earned original issue discount was entitled to capital gains treatment. That interpretation might be properly put upon his acquiescence only if, first, the Tax Court in Caulkins squarely decided that any discount element in the amount realized by the taxpayer on the retirement of the certificate was not to be taxed as ordinary income but as capital gain, and, second, the decision of the Tax Court should be read as holding that the tax treatment of gain attributable to discount is the same on sales and retirements. But Caul-kins embodies neither of these holdings. Therefore, when the Commissioner revoked his acquiescence in 1955 he was not repudiating his earlier acceptance of a decision that prescribed capital gains treatment for the earned original issue discount here involved. Consequently, his decision to except Accumulative Installment Certificates from the retroactive application of his nonacquiescence in Caulkins could not constitute an abuse of discretion of which the petitioners may complain.

As to item first: that the Tax Court in Caulkins did not squarely decide that the discount element in the amount realized by the taxpayer on the retirement of a debt security is to be taxed as a capital gain is apparent from its opinion. The Tax Court seemed to regard the only significant issue before it as whether the taxpayer’s certificate of indebtedness was a “registered” certificate within the meaning of § 117 (f). There was no explicit consideration of whether any discount element in the amount realized by the taxpayer on the certificate was to be taxed as ordinary income or as capital gain. It is at best highly questionable, therefore, that by acquiescing in this decision the Commissioner conceded that § 117 (f) extended capital gains treatment to the discount element in the certificate of indebtedness.

As to item second: the petitioners were not warranted in reading Caulkins as holding that the gain realized on a sale that is attributable to original issue discount is to be given the same tax treatment as gain so attributable realized on a retirement. The opinion deals only with, and rests squarely upon, § 117 (f), which is concerned with retirements. It is true that, in the case of securities in registered form or with coupons attached, that section was added by the Revenue Act of 1934, 48 Stat. 680, 714r-715, to eliminate a difference in treatment between sales and retirements. See, e. g., Fairbanks v. United States, 306 U. S. 436; Watson v. Commissioner, 27 B. T. A. 463. But the opinion in Caulkins appears erroneously to carry forward a distinction and to give more favorable treatment to retirements. See United States v. Midland-Ross Corp., supra, at 63-66. Thus petitioners should not have read Caulkins as they did. Indeed the Tax Court has since distinguished Caulkins on the ground that it rested on the § 117 (f) language of retirement and consequently was inapplicable to a sale. See Paine v. Commissioner, 23 T. C. 391, 401, rev’d on other grounds, 236 F. 2d 398 (C. A. 8th Cir.); United States v. Midland-Ross Corp., supra, at 65.

Furthermore, even on the assumption that Caulkins may be read as petitioners contend, petitioners had the burden of demonstrating that Accumulative Installment Certificates could not rationally be distinguished from other discounted securities. Cf. American State Bank v. United States, 279 F. 2d 585, 589-590 (C. A. 7th Cir.) ; Schwartz v. Commissioner, 40 T. C. 191, 193. But the record is devoid of any evidence of effort by petitioners to discharge this burden by showing the absence of any significant difference between the holders of Accumulative Installment Certificates and themselves. Indeed, the Commissioner might well have believed that however mistaken the view that his acquiescence in Caul-kins was tantamount to an acceptance of capital gains treatment for original issue discount, the assumption that such treatment would be given the discount element of their debt securities was more understandable in the case of holders of Accumulative Installment Certificates — -the same obligations as were involved in Caulkins• — than, in the case of other taxpayers. So thinking, the Commissioner might further have concluded that equitable considerations pointed to making an exception to the retroactive application of the nonacquiescence for the holders of these Certificates. It is not for us to pass upon the wisdom of any such distinction. It suffices that on this record we cannot say that the distinction was so devoid of rational basis that we must now overturn the Commissioner’s judgment.

Insofar as petitioners’ arguments question the policy of empowering the Commissioner to correct mistakes of law retroactively when a taxpayer acts to his detriment in reliance upon the Commissioner’s acquiescence in an erroneous Tax Court decision, their arguments are more appropriately addressed to Congress. Congress has seen fit to allow the Commissioner to correct mistakes of law, and in § 7805 (b) has given him a large measure of discretion in determining when to apply his corrections retroactively. In the circumstances of this case we cannot say that this discretion was abused.

Affirmed.

       The petitioners concede the correctness of this treatment of the earned discount on the 13 unsold notes if original issue discount is reportable as ordinary income. Again, as in Midland-Boss, we do not reach or intimate any view upon the question whether an accrual-basis taxpayer is required to report discount earned before the final disposition of an obligation. See United States v. Midland-Ross, ante, p. 54, at 58, note 4.

       The Commissioner initially published a notification of nonac-quiescence. See Rev. Rul. 11581, 1943 Cum. Bull. 1, 28. He published his acquiescence after the Court of Appeals affirmed the Tax Court. See Rev. Rul. 11907, 1944 Cum. Bull. 1, 5. The withdrawal of his acquiescence and the reinstatement of his initial nonacquies-cence came in 1955, in 1955-1 Cum. Bull. 7, and Rev. Rul. 55-136, 1955-1 Cum. Bull. 213.

       Section 3791 (b) of the 1939 Code, 53 Stat. 467, was similarly worded except that the 1954 Act substituted “The Secretary or his delegate” for “The Secretary, or the Commissioner with the approval of the Secretary . . . .”
      Whether the discount element of the gain from the notes here involved is a capital or an income item is governed by the relevant provisions of the 1939 Code, but the statute governing the retroactive application of the withdrawal of the acquiescence in 1955 is § 7805 (b) of the 1954 Code, and not § 3791 (b) of the 1939 Code. This makes no practical difference since the two provisions are identical apart from the variance mentioned above.

         The withdrawal was published March 14, 1955. However, the exception was later limited to certificates acquired before December 31, 1954, Rev. Rul. 56-299, 1956-1 Cum. Bull. 603, apparently because § 1232 of the 1954 Code applies to obligations issued after that date.

       See also Helvering v. Reynolds, 313 U. S. 428; Manhattan General Equipment Co. v. Commissioner, 297 U. S. 129, 134-135.

       Compare the current Internal Revenue Bulletins, wherein, with specific regard to aequiescences, it is stated:
      “Actions of aequiescences in adverse decisions shall be relied on by Revenue officers and others concerned as conclusions of the Service only to the application of the law to the facts in the particular case. Caution should be exercised in extending the application of the decision to a similar case unless the facts and circumstances are substantially the same . . . E. g., 1964-1 Cum. Bull. 3.
      And the introduction to Revenue Rulings now expressly warns that “Except where otherwise indicated, published rulings and procedures apply retroactively.” Id., at 1. See also Rev. Proc. 62-28, 1962-2 Cum. Bull. 496, which states at 604:
      “A ruling . . . may be revoked or modified at any time in the wise administration of the taxing statutes. ... If a ruling is revoked or modified, the revocation or modification applies to all open years under the statutes, unless the Commissioner exercises the discretionary powers given to him under section 7805 (b) of the Code to limit the retroactive effect of the ruling.”

       See also Miller v. United States, 294 U. S. 435, 439-440; Lynch v. Tilden Produce Co., 265 U. S. 315, 320-322.

       The Commissioner’s acquiescence in Caulkins and his withdrawal and reinstatement of nonacquiescence were stated in Revenue Rulings. Present practice appears to be to publish acquiescences and nonacquiescences without incorporating them in rulings. See, e. g., 1964-1 Cum. Bull. 3.

       Petitioners invoke the principle that “The Commissioner cannot tax one and not tax another without some rational basis for the difference. And so, assuming the correctness of the principle of ‘equality,’ it can be an independent ground of decision that the Commissioner has been inconsistent, without much concern for whether we should hold as an original matter that the position the Commissioner now seeks to sustain is wrong.” United States v. Kaiser, 363 U. S. 299, 308 (concurring opinion). See also Schuster v. Commissioner, 312 F. 2d 311 (C. A. 9th Cir.); Exchange Parts Co. of Fort Worth v. United States, 150 Ct. Cl. 538, 279 F. 2d 251; City Loan & Savings Co. v. United States, 177 F. Supp. 843, aff’d 287 F. 2d 612 (C. A. 6th Cir.); Brecklein v. Bookwalter, 231 F. Supp. 404; Connecticut Railway & Lighting Co. v. United States, 142 F. Supp. 907.

       The opinion of the Court of Appeals stated that § 117 (f) required that all gain realized upon retirement of an obligation to which the section applied be given capital gains treatment; that court’s primary concern, however, was also with the question whether the section applied to the Caulkins certificates. Technically, the Commissioner’s acquiescence in Caulkins was in the Tax Court decision and not in the decision of the Court of Appeals. As a general matter, the Commissioner still follows the practice of noting his acquiescence or nonacquiescence only in Tax Court decisions.

       Cf. Griswold, A Summary of the Regulations Problem, 54 Harv. L. Rev. 398,411-419 (1941).


author: Mr. Justice Brennan Mr. Justice Harlan, Mr. Justice Black, Mr. Justice Stewart and Mr. Justice Goldberg,

text:
    SIMONS v. MIAMI BEACH FIRST NATIONAL BANK, EXECUTOR.
    No. 363.
    Argued March 10, 1965.
    Decided May 3, 1965.

      Robert C. Ward argued the cause for petitioner. On the brief was William, Gresham Ward.

      Marion E. Sibley argued the cause for respondent. With him on the brief was Irving B. Levenson.

   Mr. Justice Brennan

delivered the opinion of the Court.

The question to be decided in this case is whether a husband’s valid Florida divorce, obtained in a proceeding wherein his nonresident wife was served by publication only and did not make a personal appearance, unconstitutionally extinguished her dower right in his Florida estate.

The petitioner and Sol Simons were domiciled in New York when, in 1946, she obtained a New York separation decree that included an award of monthly alimony. Sol Simons moved to Florida in 1951 and, a year later, obtained there a divorce in an action of which petitioner had valid constructive notice but in which she did not enter a personal appearance. After Sol Simons’ death in Florida in 1960, respondent, the executor of his estate, offered his will for probate in the Probate Court of Dade County, Florida. Petitioner appeared in the proceeding and filed an election to take dower, under Florida law, rather than have her rights in the estate governed by the terms of the will, which made no provision for her. The respondent opposed the dower claim, asserting that since Sol Simons had divorced petitioner she had not been his wife at his death, and consequently was not entitled to dower under Florida law. Petitioner thereupon brought the instant action in the Circuit Court for Dade County in order to set aside the divorce decree and to obtain a declaration that the divorce, even if valid to alter her marital status, did not destroy or impair her claim to dower. The action was dismissed after trial, and the Florida District Court of Appeal for the Third District affirmed. 157 So. 2d 199. The Supreme Court of Florida declined to review the case, 166 So. 2d 151. We granted certiorari, 379 U. S. 877. We affirm.

Petitioner’s counsel advised us during oral argument that he no longer challenged the judgment below insofar as it embodied a holding that the 1952 Florida divorce was valid and terminated the marital status of the parties. We therefore proceed to the decision of the question whether the Florida courts unconstitutionally denied petitioner’s dower claim.

Petitioner argues that since she had not appeared in the Florida divorce action the Florida divorce court had no power to extinguish any right which she had acquired under the New York decree. She invokes the principle of Estin v. Estin, 334 U. S. 541, where this Court decided that a Nevada divorce court, which had no personal jurisdiction over the wife, had no power to terminate a husband’s obligation to provide the wife support as required by a pre-existing New York separation decree. As this was so, we there ruled that New York, in giving continued effect to the maintenance provisions of its separation decree, did not deny full faith and credit to the Nevada decree. See U. S. Const., Art. IV, § l. The application of the Estin principle to the instant case, petitioner contends, dictates that we hold the Florida courts to their constitutional duty to give effect to the New York decree, inherent in which is a preservation of her dower right.

The short answer to this contention is that the only obligation imposed on Sol Simons by the New York decree, and the only rights granted petitioner under it, concerned monthly alimony for petitioner’s support. Unlike the ex-husband in Estin, Sol Simons made the support payments called for by the separate maintenance decree notwithstanding his ex parte divorce. In making these payments until his death he complied with the full measure of the New York decree; when he died there was consequently nothing left of the New York decree for Florida to dishonor.

This conclusion embodies our judgment that there is nothing in the New York decree itself that can be construed as creating or preserving any interest in the nature of or in lieu of dower in any property of the decedent, wherever located. Petitioner refers us to no New York law that treats such a decree as having that effect, or, for that matter, to any New York law that has such an effect irrespective of the existence of the decree. We think it clear that the burden of showing this rested upon petitioner. Cf. State Farm Ins. Co. v. Duel, 324 U. S. 154, 160; Alaska Packers Assn. v. Industrial Accident Comm’n, 294 U. S. 532, 547-548. It follows that insofar as petitioner’s argument rests on rights created by the New York decree or by New York law, the denial of her dower by the Florida courts was not a violation of the Full Faith and Credit Clause. Cf. Armstrong v. Armstrong, 350 U. S. 568.

Insofar as petitioner argues that since she was not subject to the jurisdiction of the Florida divorce court its decree could not extinguish any dower right existing under Florida law, Vanderbilt v. Vanderbilt, 354 U. S. 416, 418, the answer is that under Florida law no dower right survived the decree. The Supreme Court of Florida has said that dower rights in Florida property, being inchoate, are extinguished by a divorce decree predicated upon substituted or constructive service. Pawley v. Pawley, 46 So. 2d 464.

It follows that the Florida courts transgressed no constitutional bounds in denying petitioner dower in her ex-husband’s Florida estate.

Affirmed.

Mr. Justice Harlan,

concurring.

I am happy to join the opinion of the Court because it makes a partial retreat from Vanderbilt v. Vanderbilt, 354 U. S. 416, a decision which I believe must eventually be rerationalized, if not entirely overruled.

The Vanderbilt case was this. The Vanderbilt couple was domiciled in California. Mr. Vanderbilt went to Nevada, established a new domicile, and obtained an ex parte divorce decree which did not provide for alimony payments to Mrs. Vanderbilt. In the meantime Mrs. Vanderbilt went to New York. After the Nevada decree had become final, she sued in New York for support under New York law, sequestering Mr. Vanderbilt’s property located there. New York ordered support payments, rejecting full-faith-and-credit arguments based on the Nevada decree. Over dissents by Mr. Justice Frankfurter and myself (354 U. S., at 419, 428) the Court affirmed the New York award, holding that because the Nevada court had no personal jurisdiction over Mrs. Vanderbilt, “the Nevada decree, to the extent it purported to affect the wife’s right to support, was void . . . .” 354 U. S., at 419.

Two rules emerged from the case, neither of which, I suggest with deference, commends itself: (1) an ex parte divorce can have no effect on property rights; (2) a State in which a wife subsequently establishes domicile can award support to her regardless of her connection with that State at the time of the ex parte divorce and regardless of the law in her former State of domicile.

The first rule slips unobtrusively into oblivion in today’s decision, for Florida is allowed to turn property rights on its ex parte decree. A concurrence disputes this, but I do not understand how the Court’s language in this case can be read as anything less. If I may paraphrase only slightly, the Court says, “Insofar as petitioner argues that since she was not subject to the jurisdiction of the Florida divorce court, its decree could not extinguish any dower right existing under Florida law, Vanderbilt v. Vanderbilt, 354 U. S. 416, 418, the answer is that the Florida decree extinguished petitioner’s dower rights.” Ante, p. 85. The Court goes on to state and accept the Florida law that an ex parte divorce extinguishes dower rights. I do not see how a withdrawal from the due process phase of Vanderbilt could be clearer.

Because New York was petitioner’s State of domicile at all times relevant to this case and did not purport to invest her with any rights to property beyond those she received from her husband, the second rule is not involved here. My hope is that its time will come too. I continue to believe that the views expressed in my Vanderbilt dissent embody a more satisfactory and workable approach to the law of “divisible divorce” (Estin v. Estin, 334 U. S. 541) than can be distilled from existing Court opinions.

Mr. Justice Black,

with whom Mr. Justice Douglas joins,

concurring.

I agree completely with the Court’s judgment and opinion, and add these few words only in reply to the suggestion of my Brother Harlan that the Court here is making “a partial retreat from Vanderbilt v. Vanderbilt, 354 U. S. 416.” I do not think that today’s decision marks any “retreat” at all from the opinion or holding in Vanderbilt, and I do not understand the Court so to regard it. Vanderbilt held that a wife’s right to support could not be cut off by an ex parte divorce. In the case before us, Mrs. Simons’ Florida dower was not terminated by the ex parte divorce. It simply never came into existence. No one disputes that the ex parte divorce was effective to end the marriage, so that after it Mrs. Simons was no longer Mr. Simons’ wife. Florida law, as the Court’s opinion shows, grants dower only to a woman who is the legal wife of the husband when he dies. Mrs. Simons therefore had no property rights cut off by the divorce. She simply had her marriage ended by it, and for that reason was not a “widow” within the meaning of the Florida law. Unless this Court were to make the novel declaration that Florida cannot limit dower rights to widows, I see no possible way in which the Vanderbilt case, which dealt with rights which a State did give to divorced wives, could be thought to apply.

Mr. Justice Stewart and Mr. Justice Goldberg,

dissenting.

We would dismiss the writ of certiorari in this case as improvidently granted, believing that, as the Court’s opinion clearly demonstrates, no federal question is presented. There exists no question under the Full Faith and Credit Clause, because Sol Simons, even after his Florida divorce, “complied with the full measure of the New York decree,” ante, at 84.

No other federal question is even remotely suggested in the present posture of this case. Petitioner asserted in her petition for a writ of certiorari that “[t]he Courts of Florida have denied to the widow, Lucy C. Simons, her constitutional property rights to which she was entitled ... by the mere subterfuge of an ex parte divorce case in the Courts of Florida, where the Florida Court did not have jurisdiction because of the lack of proper residence.” We were advised at oral argument by petitioner’s counsel, however, that petitioner no longer challenged the judgment below insofar as it embodied a holding that the 1952 Florida divorce decree was valid and terminated the marital status of the parties.

The only possible questions which remain in this case, therefore, are questions of state law which are of no proper concern to this Court.

       Petitioner was served by publication while still living in New York and received copies of the order for publication and the divorce complaint. She did not enter an appearance in the Florida proceeding on advice of counsel.

       21 Fla. Stat. Ann. 1964, § 731.34 provides as follows:
      “Whenever the widow of any decedent shall not be satisfied with the portion of the estate of her husband to which she is entitled under the law of descent and distribution or under the will of her husband, or both, she may elect in the manner provided by law to take dower, which dower shall be one third in fee simple of the real property which was owned by her husband at the time of his death or which he had before conveyed, whereof she had not relinquished her right of dower as provided by law, and one third part absolutely of the personal property owned by her husband at the time of his death ....”

       Petitioner attacked the validity of the divorce on the grounds: (1) that- Sol Simons had defrauded the Florida courts by falsely claiming residence, (2) that the New York decree was a bar to the divorce suit and that Sol Simons had defrauded the court by failing to disclose the prior New York decree, (3) that the divorce decree on its face showed want of jurisdiction and (4) that after petitioner received notice of the divorce suit Sol Simons lulled her into inaction. The trial court made findings of fact adverse to petitioner on all points and dismissed the suit with prejudice. In affirming, the Florida District Court of Appeal held that “[t]he prior New York separate maintenance decree was not a bar to a divorce suit by the husband, and his failure to disclose it in his complaint was not a fraud on the court. . . . Any affirmative defense the prior suit may have afforded should have been presented in the divorce suit.” 157 So. 2d 199, at 200.

       Neither the Florida trial court nor the District Court of Appeal expressly discussed the merits of petitioner’s claim that the divorce, even if valid, did not destroy or impair her dower rights. But since Florida law allows dower only to a decedent’s wife, see note 6, infra,
        we interpret the Florida courts’ decisions sustaining the validity of the divorce as also holding that the divorce extinguished petitioner’s dower rights.

       “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. . . .”

       In Pawley the Supreme Court of Florida distinguished the dower right from the right to support, saying at 46 So. 2d 464, 472-473, n. 2:
      “In this, if not in every jurisdiction, right of dower can never be made the subject of a wholly independent issue in any divorce suit. It stands or falls as a result of the decree which denies or grants divorce. It arises upon marriage, as an institution of the law. The inchoate right of dower has some of the incidents of property. It pa-rtakes of the nature of a lien or encumbrance. It is not a right which is originated by or is derived from the husband; nor is it a personal obligation to be met or fulfilled by him, but it is a creature of the law, is born at the marriage altar, cradled in the bosom of the marital status as an integral and component part thereof, survives during the life of the wife as such and finds its sepulcher in divorce. Alimony too is an institution of the law but it is a personal obligation of the husband which is based upon the duty imposed upon him by the common law to support his wife and gives rise to a personal right of the wife to insist upon, if she be entitled to, it. It has none of the incidents of, and is in no sense a lien upon or interest in, property. Consequently, the right of the wife to be heard on the question of alimony should not, indeed lawfully it cannot, be destroyed by a divorce decree sought and secured by the husband in an action wherein only constructive service of process was effected.”
      A petition for writ of certiorari to this Court alleged, “Petitioner is thus permitted to file another suit for alimony, but her contract of marriage is annulled and her inchoate dower rights destroyed without due process of law.” Brief for petitioner, p. 9, Pawley v. Pawley, No. 325, October Term, 1950. The petition was denied, 340 U. S. 866.

        “Ex parte” throughout this opinion is used to denote a situation in which the divorce court has not obtained personal jurisdiction over the defendant spouse.

       The Vanderbilt result might have been proper on any of three grounds. (1) If New York was Mrs. Vanderbilt’s State of domicile at the time of the ex parte Nevada divorce, New York law investing a wife with support rights should not be overborne by an ex parte decree in another State. (2) If California was Mrs. Vanderbilt’s domicile at the time of the Nevada divorce and under California law support could have been awarded, New York should also be free (though not bound) to award support. (3) If Mr. Vanderbilt owned property in New York at the time of the ex parte divorce, New York might arguably be free to hold that ownership of New York property carries with it the obligation to support one’s wife, at least to the extent of the value of that property.
      The Court did not concern itself with the location of Mrs. Vanderbilt’s domicile or Mr. Vanderbilt’s property at the time of the Nevada divorce.