author: Mr. Justice Marshall

text:
    UNITED STATES v. MASON, ADMINISTRATOR, et al.
    No. 72-654.
    Argued April 18, 1973
    Decided June 4, 1973

    Marshall, J., delivered the opinion of the Court, in which Burger, C. J., and BrennaN, Stewart, White, BlackmuN, Powell, and RehNQuist, JJ., joined. Douglas, J., concurred in the result.

      Solicitor General Griswold argued the cause for the United States in No. 72-654. With him on the brief were Assistant Attorney General Frizzell, Deputy Solicitor General Lacovara, Harry R. Sachse, Edmund B. Clark, and Carl Strass. Paul C. Duncan, Assistant Attorney General of Oklahoma, argued the cause for petitioner in No. 72-606. With him on the brief was Larry Derryb&rry, Attorney General.

      Charles A. Hobbs argued the cause for respondents in both cases. With him on the brief was Pierre J. LaForce

      Together with No. 72-606, Oklahoma v. Mason, Administrator, et al., also on certiorari to the same court.

        David H. Getches filed a brief for Native American Rights Fund as amicus curiae urging affirmance in No. 72-654.

   Mr. Justice Marshall

delivered the opinion of the Court.

The issue in these cases is whether a trustee in the course of administering its fiduciary obligations is entitled to rely on a directly relevant decision of this Court which has neither been overruled nor questioned. The Court of Claims ruled that the United States breached its fiduciary duty by failing to resist payment of Oklahoma’s estate tax on certain trust property held by the United States acting as trustee for the benefit of the Osage Indians. The Court of Claims recognized that this Court, in West v. Oklahoma Tax Comm’n, 334 U. S. 717 (1948), had squarely upheld the validity of Oklahoma’s inheritance tax as applied to restricted Osage Indians. But the lower court believed that West had been so undermined by later decisions of this and other courts that the United States had an obligation to challenge its continuing validity. Since the court also believed that such a challenge would have been successful, it upheld both the plaintiffs’ claim against the United States for the amount of the tax and the United States’ third-party claim against Oklahoma for indemnification. We reverse. We hold that the United States was entitled to rely on West in paying the tax and thus did not breach its fiduciary obligations. It follows that the plaintiffs below suffered no compensable damages and that the claim over by the United States drops out of the case.

I

The facts and legal background of this dispute may be briefly stated. Before 1906, the Osage Reservation was held in trust for the Osage Tribe by the United States. In that year, the Osage Allotment Act, 34 Stat. 539, was passed, which divided tribal land equally among members of the Tribe. However, an individual Indian was not permitted to alienate the land unless “the Secretary of the Interior, in his discretion, . . . [issued] . . . a certificate of competency, authorizing him to sell and convey any of the lands deeded him by reason of this Act.” 34 Stat. 542. In addition, the Act created so-called “headrights” which are each tribal member’s individual share of the income derived from the minerals located on the land. The minerals and this income were to be placed in trust for the individual tribal members, subject to periodic distribution from income, until 1984, when legal title to the minerals together with the accumulated income would vest in the individual Indians. Various tribal funds were also placed in trust until that year. As amended, the Act provides that land and funds which are either restricted or held in trust “shall not be subject to lien, levy, attachment, or forced sale . . . prior to the issuance of a certificate of competency.” 61 Stat. 747.

The decedent in this case, Rose Mason, was an Osage Indian who had not received a certificate of competency. Pursuant to the Osage Allotment Act, the United States held certain of her property in trust for her. Upon her death intestate, an Oklahoma estate tax return was filed which included in her gross estate these trust properties. The Federal Government then paid Oklahoma some $8,087.10 in estate taxes out of the trust properties. Although the decedent’s administrators were discharged in 1968, in 1970 the estate was reopened for the purpose of permitting the administrators to challenge the United States’ payment of the tax. A suit was filed in the Court of Claims alleging that the United States had breached its fiduciary duty in making the payment, and that court upheld the claim together with the United States’ third-party claim against Oklahoma. See 198 Ct. Cl. 599, 461 F. 2d 1364 (1972). We granted certiorari because of the seeming inconsistency between the decision below and our prior decision in West v. Oklahoma Tax Comm’n, supra. 409 U. S. 1124.

II

In Oklahoma Tax Comm’n v. United States, 319 U. S. 598 (1943), this Court ruled that it could not infer a tax immunity extending to estate taxes on Osage property from the fact that Congress had placed restrictions on the alienability of the property. The West Court extended that ruling to property, such as that involved in this case, held in trust for the Osage Indians. The Court held that by placing the property in trust, Congress did not intend to immunize it from local taxation. Moreover, the federal-instrumentality doctrine was found to be no bar to Oklahoma's estate tax. Although this doctrine had been used in earlier cases to invalidate state property taxes on trust property, see, e. g., McCurdy v. United States, 264 U. S. 484 (1924); United States v. Rickert, 188 U. S. 432 (1903), the Court distinguished estate taxes since “[a]n inheritance or estate tax is not levied on the property of which an estate is composed. Rather it is imposed upon the shifting of economic benefits and the privilege of transmitting or receiving such benefits.” 334 U. S., at 727. Discerning no congressional intent to immunize Osage trust property from state taxation and no constitutional bar to the tax, the Court upheld Oklahoma’s claim.

As the Court of Claims itself recognized, the West decision “applied to the very type of trust property now before us.” 198 Ct. Cl., at 609, 461 F. 2d, at 1370. Nonetheless, the court thought that the rationale of West had been substantially undermined by Squire v. Capoe-man, 351 U. S. 1 (1956), which held that the profits from the sale of timber on the land of a Quinaielt Indian held in trust for him pursuant to the General Allotment Act, 25 U. S. C. § 331, was immune from federal capital gains taxes.

It must be noted, however, that the Squire Court did not purport to question or overrule West, and, indeed, did not so much as mention that decision. The Squire case involved a different tax by a different level of government on the trust properties of a different tribe held pursuant to a different statute. As the West decision itself made clear, decisions relating to other types of taxes are not readily transferable to the area of estate and gift taxation where the tax is imposed on the transfer of property rather than on the property itself or the income it generates. Cf. Plummer v. Coler, 178 U. S. 115 (1900). Moreover, the Squire decision rested heavily on the provision in the General Allotment Act providing for the removal of “all restrictions as to sale, encumbrance, or taxation” when Indian property is granted in fee — a provision which has no analogue in the Osage Allotment Act insofar as these trust properties are concerned.

Nor can we agree with the Court of Claims that the foundations of West have been substantially weakened by subsequent lower court decisions. Apart from our difficulty in comprehending how decisions by lower courts can ever undermine the authority of a decision of this Court, we think it clear that each of the cases relied upon below is distinguishable from West. Thus, while it is true that the Ninth Circuit construed the Mission Indian Act, 26 Stat. 712, to invalidate California’s estate tax as applied to a California Mission Indian in Kirk-wood v. Arenas, 243 F. 2d 863 (CA9 1957), the Kirkwood court carefully distinguished West and recognized its continuing validity. See id., at 865. Similarly, the Court of Claims’ reliance on its own decision in Big Eagle v. United States, 156 Ct. Cl. 665, 300 F. 2d 765 (1962), is misplaced since that decision, like Squire, concerned a federal income tax. See also United States v. Hallam, 304 F. 2d 620 (CA10 1962). And cases such as Nash v. Wiseman, 227 F. Supp. 552 (WD Okla. 1963), and Asenap v. United States, 283 F. Supp. 566 (WD Okla. 1968), are of questionable relevance, since they arose under the General Allotment Act rather than the Osage Allotment Act. Cf. Rev. Rui. 69-164, 1969-1 Cum. Bull. 220.

Thus, as the Court of Claims itself conceded, “since the West case in 1948, there has been no holding exactly on the precise issue now before us — the liability of such Osage property to state death taxation.” 198 Ct. Cl., at 613, 461 F. 2d, at 1372. Although it might be fair to say that over the years the fringes of the West doctrine have been worn away, its core holding remains unim-peached by any decisions of this or any other court.

We need not decide, however, whether in a case squarely presenting the issue, we would continue to adhere to West. For the issue in this case is not whether West should be overruled, but rather whether the United States breached its fiduciary duty in failing to anticipate that it would be overruled. Cf. Helvering v. Griffiths, 318 U. S. 371, 394 (1943).

When the question is so posed, we think that the answer is obvious. There is no doubt that the United States serves in a fiduciary capacity with respect to these Indians and that, as such, it is duty bound to exercise great care in administering its trust. See, e. g., Seminole Nation v. United States, 316 U. S. 286, 296-297 (1942). But it has long been recognized that a trustee is not an insurer of trust property. As Professor Scott has written, “A trustee is under a duty in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property.” 2 A. Scott, Trusts 1408 (3d ed. 1967) (hereinafter cited as Scott). See, e. g., Phelps v. Harris, 101 U. S. 370, 383 (1880). It follows that “[i]f the trust property is lost or destroyed or diminished in value, the trustee is not subject to a surcharge unless he failed to exercise the required care and skill.” 2 Scott 1419.

Applying these familiar principles to the facts before us, we are required to decide whether the United States can be said to have acted with less than the requisite care in refusing to contest the Oklahoma tax. When the State asserts a doubtful tax claim against trust property, the trustee is often presented with a close question. Normally, the trustee is obligated to pay taxes on the trust estate, and, indeed, if he negligently fails to do so, he may be held liable for any resulting penalty. See, e. g., 2 Scott 1422. Yet, as these cases demonstrate, if he pays the tax, he may similarly be called upon to reimburse the trust estate for the amount of the tax.

In order to avoid placing a trustee on the horns of this dilemma, most courts which have considered the problem have given a trustee broad discretion to pay taxes claimed by the State so long as the trustee’s judgment that the taxes are valid or that the costs and risks of litigation outweigh the advantages is not wholly unreasonable. See, e. g., Crutcher v. Joyce, 146 F. 2d 518, 519 (CA10 1945); In re Estate of Miller, 259 Cal. App. 2d 536, 550, 551, 66 Cal. Rptr. 756, 766 (1968); In re Estate of Wehrhane, 41 N. J. Super. 158, 166, 124 A. 2d 334, 338 (1956); Henshie v. McPherson & Citizens State Bank, 177 Kan. 458, 479, 280 P. 2d 937, 953 (1955); In re Vanderbilt’s Will, 190 Mise. 824, 850, 77 N. Y. S. 2d 403, 427 (1948); Selleck v. Hawley, 331 Mo. 1038, 1056-1057, 56 S. W. 2d 387, 395-396 (1932).

Thus, even if the West case had never been decided, the plaintiffs below would still have had difficulty in making out a case that the United States had breached its fiduciary duty by paying the tax. But, of course, West had been decided at the time the tax was paid, and we therefore deal here with an assertion of taxing authority which was not merely plausible but had been expressly approved by a decision of this Court. Generally, when a trustee is in doubt as to what course to pursue, the proper procedure for him to follow is to conform his conduct to the instructions given him by the courts. See, e. g., Mosser v. Barrow, 341 U. S. 267, 274 (1951). Here, the United States did just that, and plaintiffs below ask us to find that obedience to the instructions of this Court constitutes a breach of fiduciary duty.

It is, of course, true that Supreme Court decisions are on occasion overruled and that the opportunity to overrule them would never arise if litigants did not continue to challenge their validity. But, in this context at least, it is unnecessary to penalize the United States’ proper reliance on our past decisions in order to re-examine them, since there is no bar to a suit by plaintiffs below directly against Oklahoma for recovery of the tax. Cf. Poafpybitty v. Shelly Oil Co.., 390 U. S. 365 (1968). And if the doctrine of stare decisis has any meaning at all, it requires that people in their everyday affairs be able to rely on our decisions and not be needlessly penalized for such reliance. Cf. Flood v. Kuhn, 407 U. S. 258, 283 (1972); Wallace v. M‘Connell, 13 Pet. 136, 150 (1839).

We do not have to say that a fiduciary may never be held liable for reliance on prior decisions of this Court. But, as the discussion above demonstrates, the United States’ reliance on West was reasonable in this situation. The West decision has neither been overruled nor questioned in our subsequent cases. It is fully consistent with later developments and has been followed without protest for 24 years. Since we find that the United States acted with the requisite care and prudence in following West, the decision below must be reversed with instructions to enter judgment dismissing the complaint.

So ordered.

Mr. Justice Douglas concurs in the result.

       The land in question originally belonged to the Cherokee Nation, but in 1866, the Cherokees entered a treaty with the United States authorizing the United States to settle friendly Indians in Cherokee territory. See 14 Stat. 799. Pursuant to this treaty, the Osage Indians settled the land in question, and in 1883, the Cherokees conveyed the area to the United States to be held in trust for the Osage Indians. See West v. Oklahoma Tax Comm’n, 334 U. S. 717, 720 (1948).

       The Act followed the pattern of the General Allotment Act of 1887, 24 Stat. 388, 25 U. S. C. § 331, which empowered the President to allot reservation land to certain Indians, but from which the Osage Indians were omitted.

       The Act has been frequently amended. 78 Stat. 1008; 61 Stat. 747 ; 52 Stat. 1034 ; 45 Stat. 1478; 37 Stat. 86.

       Originally, the Act provided that the property in question would vest in the Indians in 25 years. See 34 Stat. 544. However, an amendment was passed in 1938 extending the trust period to 1984. See 52 Stat. 1035.

       The suit was brought under 28 U. S. C. § 1491, which gives the Court of Claims jurisdiction “to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.”

         Both the United States, as 'defendant below, and Oklahoma, as third-party defendant below, petitioned for certiorari. We granted both petitions, cf. 41 U. S. C. § 114 (b), and consolidated the cases.

       Respondents argue before this Court that our recent decision in McClanahan v. Arizona State Tax Comm’n, 411 U. S. 164 (1973), substantially extended the protection afforded Indian tribes against state taxation and therefore undermined West. McClanahan, however, concerned a state income tax on the income of a reservation Indian which was earned within the reservation — a situation wholly different from that presented here. Moreover, McClanahan cited Oklahoma Tax Comm’n v. United States, 319 U. S. 598 (1943), the predecessor of West, with approval, and specifically distinguished the case of the Osage Indians by holding that “the [Indian sovereignty] doctrine has not been rigidly applied in cases where Indians have left the reservation and become assimilated into the general community.” 411 U. S., at 171.

       The Court of Claims relied in part upon a Technical Advice Memorandum issued by the Internal Revenue Service to the Oklahoma District Director of Internal Revenue on August 15, 1969. The Memorandum announced that, henceforth, Osage trust property would be exempt from federal estate taxation. The court also pointed to Beartrack v. United States, Ct. Cl. No. 281-67, in which the United States settled a suit for refund of federal estate taxes paid on restricted trust properties. It is obvious, however, that Internal Revenue Service decisions as to the scope of its own taxing power have no effect on the taxing power of the States.

       As all parties apparently recognize, the scope of the United States’ fiduciary duty in administering the trust property is a question of federal law. Cf. Clearfield Trust Co. v. United States, 318 U. S. 363 (1943).


source: Caselaw Access Project

author: Me. Justice Blackmun Mr. Justice Douglas, Mr. Justice Stewart,

license: Public Domain

text:
    UNITED STATES v. CHICAGO, BURLINGTON & QUINCY RAILROAD CO.
    No. 72-90.
    Argued February 26, 1973
    Decided June 4, 1973
    BlacicmuN, J., delivered the opinion of the Court, in which Burger, C. J., and BreNNAN, White, Marshall, and RehNquist, JJ., joined. Douglas, J., filed a dissenting opinion, post, p. 416. Stewart, J., filed a dissenting opinion, in which Douglas, J., joined, post, p. 417. Powell, J., took no part in the consideration or decision of the case.

      Richard B. Stone argued the cause for the United States. With him on the brief were Solicitor General Griswold, Acting Assistant Attorney General Ugast, Meyer Rothwacks, and Grant W. Wiprud.

      Richard J. Schreiber argued the cause for respondent. With him on the brief was Richard T. Cubbage.

   Me. Justice Blackmun

delivered the opinion of the Court.

The issue in this federal income tax case is whether the respondent, Chicago, Burlington & Quincy Railroad Company (CB&Q), an interstate common carrier railroad, may depreciate the cost of certain facilities paid for prior to June 22, 1954, not by it or by its shareholders, but from public funds.

Starting about 1930, CB&Q entered into a series of contracts with various Midwestern States. By these agreements the States were to fund some or all of the costs of construction of specified improvements, and the railroad apparently was to bear, at least in part, the costs of maintenance and replacement of the improvements once they had been installed. In 1933, as part of the program of the National Industrial Recovery Act, 48 Stat. 195, Congress authorized federal reimbursement to the States of the shares of the costs the States incurred in the construction of those improvements that inured to the benefit of public safety and improved highway traffic control. In 1944 Congress went further and authorized reimbursement, with stated limitations, to the States for the entire cost of the improvements, subject to the condition that a railroad that received a benefit from a facility so constructed was liable to the Government for up to 10% of the cost of the project pro rata in relation to the benefit received by the railroad.

Under these programs CB&Q received, at public expense, highway undercrossings and overcrossings having a cost of $1,538,543; crossing signals, signs, and floodlights having a cost of $548,877; and jetties and bridges having a cost of $58,721. These improvements, aggregating $2,146,141, were carried on the railroad’s books as capital assets even though most of the agreements between CB&Q and the several States did not expressly convey title to the railroad.

CB&Q instituted a timely suit in the Court of Claims alleging, among other things, that it had overpaid its 1955 federal income tax because it had failed to assert, as a deduction on its return as filed, allowable depreciation on the subsidized assets. By a 4-to-3 decision on this issue (only one of several in the case), the Court of Claims concluded that, under § 167 of the Internal Revenue Code of 1954, 26 U. S. C. § 167, CB&Q was entitled to the depreciation deduction it claimed. This was on the theory that the subsidies qualified as contributions to the railroad’s capital under §§ 362 and 1052 (c) of that Code, 26 U. S. C. §§ 362 and 1052 (c), and under § 113 (a)(8) of the Internal Revenue Code of 1939.

In arriving at this conclusion, the Court of Claims majority relied on Brown Shoe Co. v. Commissioner, 339 U. S. 583 (1950), and reasoned that, even though the governmental payments for the facilities may not have been intended as contributions to the railroad’s capital, the “principal purpose” being, instead, “to benefit the community-at-large,” 197 Ct. Cl., at 276, 455 F. 2d, at 1000, the facilities did in fact enlarge the railroad’s working capital, were used in its business, and produced economic benefits for it, thereby qualifying as contributions to its capital under the cited section of the 1939 Code. The three dissenting judges disagreed with this interpretation of Brown Shoe, and, instead, relied on Detroit Edison Co. v. Commissioner, 319 U. S. 98 (1943). They concluded that the critical features were the donor’s attitude, purpose, and intent, and that, with governmental payments, there could be no intention to confer a benefit upon CB&Q. Instead, as the findings revealed, the intention was to expedite traffic flow and to improve public safety at highway-railroad crossings. 197 Ct. Cl., at 315, 320, 455 F. 2d, at 1023, 1026.

Because the Court of Claims decision apparently would afford a precedent for the tax treatment of substantial sums, we granted certiorari. 409 U. S. 947.

I

Section 23 (l) of the 1939 Code and its successor, § 167 (a) of the 1954 Code, 26 U. S. C. § 167 (a), allow a taxpayer “as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear ... of property used in the trade or business.” In the usual situation the taxpayer himself incurs cost in acquiring the assets as to which the depreciation deduction is asserted. But there are other and different situations formally recognized in the governing tax statutes. A familiar example is gift property. Another is property acquired by a corporation from its shareholders as paid-in surplus or as a contribution to capital. Another, and the one that is pertinent here, is covered by § 113 (a)(8) of the 1939 Code and by the contrasting provisions of §§ 362 (a) and (c) of the 1954 Code, 26 U. S. C. §§362 (a) and (c). This concerns a contribution to capital by a nonshare-holder. See Treas. Reg. Ill, § 29.113 (a)(8)-l (1943). Under §§ 113 (a)(8) and 114 (a) of the earlier Code, the nonshareholder-contributed asset in the hands of the receiving corporation had the same basis, subject to adjustment, for depreciation purposes as it had in the hands of the transferor; under the 1954 Code, however, its basis for the transferee is zero.

Pertinent to all this is the Court’s decision in Edwards v. Cuba R. Co., 268 U. S. 628 (1925). The Court there held that subsidies granted by the Cuban Government to a railroad to promote construction in Cuba “were not profits or gains from the use or operation of the railroad,” and did not constitute income to the receiving corporation. Id., at 633. The holding in Edwards, taken with § 113 (a)(8) of the 1939 Code, produced a seemingly anomalous result, for it meant that a corporate taxpayer receiving property from a nonshareholder as a contribution to capital not only received the property free from income tax but was allowed to assert a deduction for depreciation on the asset so received tax free. This result also ensued under the Court’s holding in Brown Shoe and led to the enactment of the zero-basis provision, referred to above, in § 362 (c) of the 1954 Code, 26 U. S. C. § 362 (c). Veterans Foundation v. Commissioner, 317 F. 2d 456, 458 (CA10 1963).

CB&Q argues that this very result should follow here. It is said that the railroad received no taxable income and incurred no income tax liability when it received, at governmental expense prior to June 22, 1954, the facilities as to which CB&Q now asserts depreciation. And, in providing the facilities, CB&Q argues, the Government intended to make a contribution to the railroad’s capital, within the meaning of § 113 (a)(8), thereby permitting CB&Q to depreciate the Government’s cost in the assets. Whether the governmental subsidies qualified as income to the railroad is an issue not raised in this case, and we intimate no opinion with respect to it. The United States, however, asserts that the subsidies did not constitute a “contribution to capital” under §113 (a)(8), and that, accordingly, the transferee railroad’s tax basis is zero and no depreciation deduction is available.

Our inquiry, therefore, is a narrow one: whether the nonshareholder payment in this case constituted a “contribution to capital,” within the meaning of § 113 (a) (8). Because both Detroit Edison and Brown Shoe bear upon the issue, we turn to those two decisions.

l — l 1 — 1

Detroit Edison concerned customers’ payments to a utility for the estimated costs of construction of service facilities (primary power lines) that the utility otherwise was not obligated to provide. For its tax years 1936 and 1937, to which the Revenue Act of 1936, 49 Stat. 1648, applied, the utility claimed the full cost of the facilities in its base for computing depreciation. The Commissioner disallowed, for depreciation purposes, that portion of the cost paid by customers and not refundable. The Board of Tax Appeals, 45 B. T. A. 358 (1941), and the Court of Appeals, 131 F. 2d 619 (CA6 1942), sustained the Commissioner. This Court affirmed.

Mr. Justice Jackson, speaking for a unanimous Court (the Chief Justice not participating), observed, “The end and purpose of it all [depreciation] is to approximate and reflect the financial consequences to the taxpayer of the subtle effects of time and use on the value of his capital assets.” 319 U. S., at 101. The statute, § 113 (a) of the 1936 Act, it was said, “means . . . cost to the taxpayer,” even though the property “may have a cost history quite different from its cost to the taxpayer.” Also, the “taxpayer’s outlay is the measure of his re-coupment through depreciation accruals.” 319 U. S., at 102. The utility’s attempt to avoid this result by its contention that the payments were gifts or contributions to its capital, and entitled to the transferors’ bases, was rejected.

“It is enough to say that it overtaxes imagination to regard the farmers and other customers who furnished these funds as makers either of donations or contributions to the Company. The transaction neither in form nor in substance bore such a semblance.
“The payments were to the customer the price of the service. . . . They have not been taxed as income. . . . But it does not follow that the Company must be permitted to recoup through untaxed depreciation accruals on investment it has refused to make.” Id., at 102-103.

Detroit Edison, by itself, would appear almost to foreclose CB&Q’s claims here, for there is an obvious parallel between the customers’ payment for the utility service facilities in Detroit Edison, and the governmental payments for improvements to the railroad’s service facilities in the case before us.

But Detroit Edison was not the last word. Brown Shoe was decided seven years later, and the opposite tax result was reached by an 8-1 vote of the Court, with Mr. Justice Black in dissent without opinion.

Brown Shoe concerned a corporate taxpayer’s excess profits tax, under the Second Revenue Act of 1940, 54 Stat. 974, as amended, for its fiscal years 1942 and 1943. Community groups paid cash or transferred property to the taxpayer as an inducement for the location or expansion of factory operations in their communities. Contracts were entered into, and in each instance the taxpayer obligated itself to locate or enlarge a facility in the community and to operate it for at least a minimum term. The value of the payments and transfers was the focus of the controversy between the taxpayer and the Commissioner, for depreciation on the transferred assets was claimed and their inclusion in equity invested capital was asserted. The Tax Court overruled the Commissioner’s disallowance with respect to the acquisitions paid for with cash, but sustained the Commissioner with respect to buildings transferred. 10 T. C. 291 (1948). The Court of Appeals upheld the Commissioner on both items. 175 F. 2d 305 (CA8 1949). This Court reversed.

Mr. Justice Clark, writing the opinion for the majority of the Court, concluded that the assets transferred by the community groups to the taxpayer were contributions to capital, within the meaning of § 113 (a)(8) of the 1939 Code. The Court noted that in time they would wear out and, if the taxpayer continued in business, the physical plant eventually would have to be replaced. Detroit Edison was cited and recognized, but was considered not to be controlling. In Brown Shoe there were "neither customers nor payments for service,” and therefore the Court “may infer a different purpose in the transactions between petitioner and the community groups.” 339 U. S., at 591. The only expectation of the groups was that “such contributions might prove advantageous to the community at large.” Thus, it was said, “the transfers manifested a definite purpose to enlarge the working capital of the company.” Ibid.

The Court thus professed to distinguish and not at all to overrule Detroit Edison. It did so on an analysis of the purposes behind the respective transfers in the two cases. Where the facts were such that the trans-ferors could not be regarded as having intended to make contributions to the corporation, as in Detroit Edison, the assets transferred were not depreciable. But where the transfers were made with the purpose, not of receiving direct service or recompense, but only of obtaining advantage for the general community, as in Brown Shoe, the result was a contribution to capital.

Ill

It seems fair to say that neither in Detroit Edison nor in Brown Shoe did the Court focus upon the use to which the assets transferred were applied, or upon the economic and business consequences for the transferee corporation. Instead, the Court stressed the intent or motive of the transferor and determined the tax character of the transaction by that intent or motive. Thus, the decisional distinction between Detroit Edison and Brown Shoe rested upon the nature of the benefit to the transferor, rather than to the transferee, and upon whether that benefit was direct or indirect, specific or general, certain or speculative. These factors, of course, are simply indicia of the transferor’s intent or motive.

That this line of inquiry, and these distinctions, have relatively little to do with the economic and business consequences of the transaction seems self-evident. In both cases the assets transferred were actually used in the transferee's trade or business for the production of income. In neither case did the transferee provide the investment for the assets sought to be depreciated. Yet in both cases, the assets in question were transferred for a consideration pursuant to an agreement. If, at first glance, Detroit Edison and Brown Shoe seem somewhat inconsistent, they may be reconciled, and indeed must be, on the ground that in Detroit Edison the transferor intended no contribution to the transferee’s capital, whereas in Brown Shoe the transferors did have that intent.

The statutory phrase “contribution to capital” is nowhere expressly defined in either the 1939 Code or the 1954 Code, and our prior decisions provide only limited guidance as to its precise meaning. Detroit Edison might be said to be only a holding that a payment for services is not a contribution to capital. Brown Shoe sheds little additional light, for the Court stated only that because the community payments were not compensation for specific services rendered, and did not constitute gifts, they must have been made in order to enlarge the working capital of the company. 339 U. S., at 591.

But other characteristics of a contribution to capital are implicit in the two cases and become apparent when viewed in the light of the facts presently before us. In Brown Shoe, for example, the contributed funds were intended to benefit not only the transferors but the transferee as well, for the assets were put to immediate use by the taxpayer for the generation of additional income. Without benefit to the taxpayer, the agreement certainly would not have been made. Perhaps to some extent this was true in Detroit Edison; that taxpayer, however, was a public utility, and the anticipated revenue from the service lines to the customers would not have warranted the investment by the utility itself. 319 U. S., at 99. Its benefit, therefore, was marginal.

We can distill from these two cases some of the characteristics of a nonshareholder contribution to capital under the Internal Revenue Codes. It certainly must become a permanent part of the transferee’s working capital structure. It may not be compensation, such as a direct payment for a specific, quantifiable service provided for the transferor by the transferee. It must be bargained for. The asset transferred foreseeably must result in benefit to the transferee in an amount commensurate with its value. And the asset ordinarily, if not always, will be employed in or contribute to the production of additional income and its value assured in that respect.

By this measure, the assets with which this case is concerned clearly do not qualify as contributions to capital. Although the assets were not payments for specific, quantifiable services performed by CB&Q for the Government as a customer, other characteristics of the transaction lead us to the conclusion that, despite this, the assets did not qualify as contributions to capital. The facilities were not in any real sense bargained for by CB&Q. Indeed, except for the orders by state commissions and the governmental subsidies, the facilities most likely would not have been constructed at all. See Nashville, C. & St. L. R. Co. v. Walters, 294 U. S. 405, 421-424 (1935). The transaction in substance was unilateral: CB&Q would accept the facilities if the Government would require their construction and would pay for them. Any incremental economic benefit to CB&Q from the facilities was marginal; its extent and importance were indicated and accounted for by the requirement that the railroad pay not to exceed 10% of the cost in relation to its own benefit. The facilities were peripheral to its business and did not materially contribute to the production of further income by the railroad. They simply replaced existing facilities or provided new, better, and safer ones where none otherwise would have been deemed necessary. As the Court of Claims found, the facilities were constructed “primarily for the benefit of the public to improve safety and to expedite highway traffic flow,” and the need of the railroad for capital funds was not considered, 197 Ct. Cl., at 326. While some incremental benefit from lower accident rates, from reduced expenses of operating crossing facilities, and from possibly higher train speed might have resulted, these were incidental and insubstantial in relation to the value now sought to be depreciated, and they were presumably considered in computing the railroad’s maximum 10% liability under the Act. In our view, no substantial incremental benefit in terms of the production of income was foreseeable or taken into consideration at the time the facilities were transferred. Accordingly, no contribution to capital was effected.

CB&Q nevertheless contends that it is entitled to depreciate the facilities because of its obligation to maintain and replace them. Whatever may be the desirability of creating a depreciation reserve under these circumstances, as a matter of good business and accounting practice, the answer is, as Judge Davis of the Court of Claims observed in dissent, 197 Ct. Cl., at 318, 455 F. 2d, at 1025, “Depreciation reflects the cost of an existing capital asset, not the cost of a potential replacement.” Reisinger v. Commissioner, 144 F. 2d 475, 478 (CA2 1944). See United States v. Ludey, 274 U. S. 295, 300-301 (1927); Weiss v. Wiener, 279 U. S. 333, 335-336 (1929); Helvering v. Lazarus Co., 308 U. S. 252, 254 (1939); Massey Motors v. United States, 364 U. S. 92 (1960); Fribourg Nav. Co. v. Commissioner, 383 U. S. 272 (1966).

We conclude that the governmental subsidies did not constitute contributions to CB&Q’s capital, within the meaning of §113 (a)(8) of the 1939 Code; that the assets in question in the hands of CB&Q have a zero basis, under §§113 and 114 of that Code and § 1052 (c) of the 1954 Code, 26 U. S. C. § 1052 (c); and that CB&Q is therefore precluded from claiming a depreciation allowance with respect to those assets. The judgment of the Court of Claims on this issue is reversed and the case is remanded for further proceedings.

It is so ordered.

Mr. Justice Powell took no part in the consideration or decision of this case.

Mr. Justice Douglas,

dissenting.

While I join the dissent of Mr. Justice Stewart, I add a few words. Funds were contributed by the States and by the Federal Government to respondent for the construction of highway overpasses and underpasses and for grade-crossing protection equipment. While the Government provided most of the funds, the respondent did most of the construction work — all as found by the Court of Claims. 197 Ct. Cl. 264, 271, 455 F. 2d 993, 997-998.

This case is not controlled by Detroit Edison Co. v. Commissioner, 319 U. S. 98, as Mr. Justice Stewart says, for there the advances were made by customers of a utility as part of “the price of the service.” Id., at 103. Here, however, the situation was different. As the Court of Claims found:

“[U]nder all the agreements, plaintiff was obligated to maintain and replace as necessary, at its own expense, facilities originally built. The facilities were constructed primarily for the benefit of the public to improve safety and to expedite motor-vehicle trafile flow. The record shows, however, that plaintiff received economic benefits from the facilities, e. g., probable lower accident rates, reduced expenses of operating crossing equipment and, where permitted, higher train speed limits. Plaintiff also received intangible benefits, e. g., goodwill from the community-at-large, which was to plaintiff’s long-term economic advantage.” 197 Ct. Cl., at 272, 455 F. 2d, at 998.

The case is therefore on all fours with Brown Shoe Go. v. Commissioner, 339 U. S. 583. In distinguishing Detroit Edison we said:

“Since in this case there are neither customers nor payments for service, we may infer a different purpose in the transactions between petitioner and the community groups. The contributions to petitioner were provided by citizens of the respective communities who neither sought nor could have anticipated any direct service or recompense whatever, their only expectation being that such contributions might prove advantageous to the community at large. Under these circumstances the transfers manifested a definite purpose to enlarge the working capital of the company.” Id., at 591.

I would affirm the judgment of the Court of Claims.

Mr. Justice Stewart,

with whom Mr. Justice Douglas joins, dissenting.

This case involves the depreciation of certain railroad facilities constructed with public funds prior to June 22, 1954. The precise question before the Court is whether those facilities constituted “contributions to capital” within the meaning of § 113 (a)(8)(B) of the Internal Revenue Code of 1939.

Beginning in the early 1930’s, various state governments entered into agreements with the respondent railroad for the construction of highway overpasses and underpasses at highway-railroad intersections, and construction of grade-crossing protection equipment such as flashing-light signals and automatic gates. The agreements generally provided that the States would pay 50% or more of the total cost, and subsequently Congress authorized the Federal Government to assume the State’s share of the construction costs. See National Industrial Recovery Act §204 (a), 48 Stat. 203. Under the Federal-Aid Highway Act of 1944, §5, 58 Stat. 840, the Federal Government reimbursed the States for the entire cost of the highway-railroad crossing projects, subject to payment by the railroads for up to 10% of the cost of the project if the railroads were benefited by the facilities.

The respondent filed suit in the Court of Claims seeking a refund on its 1955 income taxes, claiming that the Commissioner of Internal Revenue had erred by refusing to allow a depreciation deduction for these publicly contributed facilities. The respondent asserted that these facilities were “depreciable property” held throughout 1955 “for use in its trade or business,” and that they were acquired prior to June 22, 1954, as “contributions to capital.”

The respondent’s claim was an uncomplicated one. Section 167 of the Internal Revenue Code of 1954, 26 U. S. C. § 167, applicable to the respondent’s 1955 income tax return, allowed as a depreciation deduction “a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) — ’(1) of property used in the trade or business ....” Section 1052 (c) of the 1954 Code, 26 U. S. C. § 1052 (c), provided for using the basis rules of the 1939 Code for certain property that was acquired in transactions to which the 1939 Code applied, including “contributions to capital.” The respondent contended that the publicly contributed facilities were “contributions to capital,” and that under § 113 (a)(8)(B) of the 1939 Code, it could carry over the transferor’s basis; in short, it claimed that its basis for the highway-safety facilities was the cost of the facilities to the governments that had financed them.

The Court of Claims agreed with the respondent that these facilities were exhaustible assets properly depre-ciable to the full extent of their value. 197 Ct. Cl. 264, 276, 455 F. 2d 993, 1002. The depreciable nature of the facilities was undisputed, since the Government conceded that “the facilities are of a character normally subject to allowance for depreciation and that to the extent they were paid for by [the respondent], appropriate depreciation deductions are proper.” Id., at 273-274, 455 F. 2d, at 999. The court concluded that the facilities were “contributions to capital” under § 113 (a)(8)(B) of the 1939 Code and that the Government’s cost basis in the facilities was, therefore, available to the respondent. “The facilities were constructed primarily for the benefit of the public to improve safety and to expedite motor-vehicle traffic flow. The record shows, however, that [the respondent] received economic benefits from the facilities, e. g., probable lower accident rates, reduced expenses of operating crossing equipment and, where permitted, higher train speed limits. [The respondent] also received intangible benefits, e. g., goodwill from the community-at-large, which was to [the respondent’s] long-term economic advantage.” Id., at 272, 455 F. 2d, at 998. The court thus concluded “that the facilities enlarged [the respondent’s] working capital and were used by [the respondent] in its business; and though they may not produce income to the same extent as other railroad property, such as track or freight cars, [the respondent] derived economic benefits from them.” Id., at 276, 455 F. 2d, at 1000.

I think the Court of Claims was entirely right in holding that these publicly contributed facilities constituted contributions to capital within the meaning of § 113 (a) (8) (B) of the 1939 Code. The facilities at issue fall within the plain language of a “contribution to capital.” As the Court noted, they were “contributed” to the respondent in the sense that the railroad now owns them. And they are now part of the “capital” of the railroad as that term is generally used in business and accounting practice, part of the permanent investment in the business. See Brown Shoe Co. v. Commissioner, 339 U. S. 583, 589 and n. 11; Texas & Pacific R. Co. v. United States, 286 U. S. 285; Edwards v. Cuba R. Co., 268 U. S. 628, 631-633; H. Guthmann & H. Dougall, Corporate Financial Policy 136-138 (4th ed.); R. Marple, Capital Surplus and Corporate Net Worth 136-137; 1 J. Mertens, Law of Federal Income Taxation § 5.06 n. 47 (J. Malone rev. ed.); Harvey, Some Indicia of Capital Transfers Under the Federal Income Tax Laws, 37 Mich. L. Rev. 745, 747-749.

The only two prior decisions of this Court that bear directly on the question before us — Detroit Edison Co. v. Commissioner, 319 U. S. 98, and Brown Shoe Co. v. Commissioner, supra — confirm that these publicly contributed facilities are contributions to the respondent’s capital.

In Detroit Edison Co. v. Commissioner, supra, prospective customers of an electric company were required to pay for the construction of additional facilities in order to receive the company’s services. The Court rejected the contention that those payments were contributions to capital: “[I]t overtaxes imagination to regard the farmers and other customers who furnished these funds as makers either of donations or contributions to the Company. . . . The payments were to the customer the price of the service.” Id., at 102-103.

In Brown Shoe, supra, various community groups contributed cash and property to the taxpayer corporation to induce it to locate in or expand its operations in the respective communities. The Court held these assets to be “contributions to capital” within the meaning of § 113 (a)(8)(B), stressing the fact that they were in a very practical sense an addition to the corporation’s capital: “‘[T]he assets received . . . are being used by the taxpayer in the operation of its business. They will in time wear out, and if [the taxpayer] is to continue in business, the physical plant must eventually be replaced. Looking as they do toward business continuity, the Internal Revenue Code’s depreciation provisions— and especially those which provide for a substituted rather than a cost basis — would seem to envision allowance of a depreciation deduction in situations like this. . . .’ ” Id., at 590 (quoting Commissioner v. McKay Products Corp., 178 F. 2d 639, 643). The Court explained Detroit Edison as a case of payments for services rather than contributions to capital. By contrast, in Brown Shoe, “[t]he contributions to [the taxpayer] were provided by citizens of the respective communities who neither sought nor could have anticipated any direct service or recompense whatever, their only expectation being that such contributions might prove advantageous to the community at large.” Id., at 591.

It seems plain to me that the present case is controlled by Brown Shoe. As in that case, these publicly contributed facilities were in no sense direct payments for services. The State and Federal Governments did not purchase any services in connection with construction of the facilities. Rather, to achieve the public goal of transportation safety they transferred assets to the railroad which increased its working capital. In short, these, assets fell within the practical, working definition of “contributions to capital” that was recognized by the Court in Brown Shoe,, and they did not fall within the narrow exception of payments for services that the Court found significant in Detroit Edison.

The Government urges us to read Brown Shoe as holding that, in order to establish a “contribution to capital,” a taxpayer must prove that the transferor of the asset had a definite purpose to enlarge the taxpayer’s working capital. But that case did not turn on the presence of any such specific purpose. The purpose of the community contributions in Brown Shoe was to induce the taxpayer to locate or expand its operations in the local area, and this purpose was accomplished by contributing assets; there was no gratuitous attempt to enlarge the taxpayer’s capital. The Court noted, in passing, the existence of a purpose to enlarge the taxpayer’s working capital only in order to underline the fact that the community groups there were not customers paying compensation for services rendered. And, as in Brown Shoe, the State and Federal Governments here attempted to accomplish a general public goal by contributing facilities to the taxpayer. As in Brown Shoe, they were not paying for services.

The Court today, however, does not appear to decide this case on the presence or absence of any specific motive, intent, or purpose. Rather, the Court constructs a series of guidelines that must be met before there can be a “contribution to capital.” These guidelines seem to be based upon the value of the assets to the transferee. For the Court relies primarily on the fact that the publicly financed facilities were “peripheral” to the railroad’s business and did not materially contribute to the production of further income, and concludes that they were not therefore contributions to the railroad’s capital. But the Court cites nothing in the statute, the regulations, or our prior cases to warrant this strange definition of “capital” when that term is used in the phrase “contribution to capital.”

Brown Shoe made clear that “capital” was to be defined “as that term has commonly been understood in both business and accounting practice . . . .” 339 U. S., at 589. The facilities in the present case meet that test. They are certainly part of the respondent’s capital under any traditional understanding of that term; they are assets permanently invested in the railroad’s business. See supra, at 421. Indeed, many of these facilities are essential to the railroad’s continued operation- — a railroad bridge, for example, is an obvious physical necessity if the railroad is to operate. All of the facilities enlarged the railroad’s working capital, were used in its business, and yielded tangible and intangible economic benefits to the railroad. And the Court even appears to acknowledge that these assets are “capital” in the normal sense of that term, since it concedes that the portion of the facilities constructed by the railroad with its own funds is depreciable. I do not understand why that portion of the same assets that was contributed to the railroad is not also part of the railroad’s capital. I would maintain the straightforward approach taken by Brown Shoe and Detroit Edison — nonshareholder additions to capital are “contributions to capital” unless they are direct payments for services rendered.

The Government argues that to allow the railroad to claim a depreciation deduction on these facilities as “contributions to capital” would lead to the “anomalous” result that although the railroad had incurred no expense with respect to the publicly financed facilities, it could nevertheless recoup their cost. But if this is an anomaly, it is the same anomaly that existed in Brown Shoe. The taxpayer there had not paid for the property contributed by the community groups, yet it was able to claim a full depreciation deduction on it. In short, this so-called anomaly is the ineluctable result of § 113 (a)(8)(B) which allowed a carryover basis for non-shareholder contributions to capital. It was Congress that had created the anomaly, and it was for Congress to correct it. In enacting § 362 (c) of the 1954 Code, Congress did precisely that. It eliminated any depreciation deduction for nonshareholder contributions to capital by providing a zero basis for such transfers, but it did so only for property acquired on or after June 22, 1954.

In sum, Congress in 1954 rewrote the tax law so as to overrule Brown Shoe and prohibit depreciation to be taken on contributions to capital made by nonshare-holders on or after June 22, 1954. As it now turns out, Congress could have saved itself the trouble. For today the Court rewrites the law and prohibits depreciation to be taken on such assets the railroad has owned since the 1930’s. I would follow the law as Congress wrote it and affirm the judgment of the Court of Claims.

       National Industrial Recovery Act, §204 (a)(1), 48 Stat. 203.

       Federal-Aid Highway Act of 1944, §5, 58 Stat. 840.

       The Court of Claims, both the majority and dissenters, asserted, and indeed found, that the $1,538,543 figure related to highway undercrossings and overcrossings. 197 Ct. Cl. 264, 271-272, 325, 455 F. 2d 993, 997-998 (1972). CB&Q, in its Brief, p. 3, and in oral argument, Tr. of Oral Arg. 25, claims that this figure has to do only with railroad bridges and that the assets sought to be depreciated relate only to railroad use. According to CB&Q, no facilities directly related to highway use are involved. Inasmuch as the resolution of this factual issue would not affect the result we reach, it need not be resolved.

       The parties are in agreement as to what the adjusted bases of the assets in question would be, and as to the applicable rates of depreciation, if depreciation for tax purposes is allowable at all.

       The Trial Commissioner and the Court of Claims made the following finding of fact:
      “9. The facilities noted in finding 7 were constructed primarily for the benefit of the public to improve safety and to expedite highway traffic flow. Plaintiff [CB&Q], however, received benefits from the facilities, among others, probable lower accident rates, reduced expenses of operating crossing facilities, and, where permitted, higher train speed limits, all of which permitted plaintiff to function more efficiently and presumably less expensively.” 197 Ct. CL, at 326-327.

       The Solicitor General asserts, Pet. for Cert. 15-16, that $623,000,000 in federal funds were paid out for projects and improvements at railroad-highway grade crossings alone between 1934 and 1954. See U. S. Department of Transportation, Report to Congress: Railroad-Highway Safety, Part I: A Comprehensive Statement of the Problem 38 (1971). The Commissioner of Internal Revenue estimates that, taking into account grants of this kind to railroads and federal grants to utility companies, depreciation on property with asserted cost bases between a half billion and one billion dollars is dependent upon the resolution of this issue and is still litigable. Pet. for Cert. 16.

       Section 113 (a) of the 1939 Code and § 1012 of the 1954 Code, 26 U. S. C. § 1012, state the general rule that the “basis of property shall be the cost of such property.”

       Section 113 (a)(2) of the 1939 Code provides that with respect to “property . . . acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except . . . .” This provision was carried over into § 1015 (a) of the 1954 Code, 26 U. S. C. § 1015 (a). The language of § 362 (c) of the 1954 Code, to the effect that the basis of a nonshareholder’s contribution made on or after June 22, 1954, to the capital of a corporation shall be zero in the hands of the transferee, has been said not to affect the availability of a carryover basis with respect to gifts. See H. R. Rep. No. 1337, 83d Cong., 2d Ses’s., A128 (1954); S. Rep. No. 1622, 83d Cong., 2d Sess., 272 (1954); B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders ¶ 3.14, pp. 3-51 and n. 81 (3d ed. 1971); 3A J. Mertens, Law of Federal Income Taxation §21.134 (1968 rev.).

       Section 113 (a) (8) of the 1939 Code; § 362 (a) of the 1954 Code, 26 U. S. C. §362 (a).

       “§ 113. Adjusted basis for determining gain or loss.
      “(a) Basis (unadjusted) of property.
      “The basis of property shall be the cost of such propertj''; except that—

      “ (8) Property acquired by issuance of stock or as paid-in surplus.
      “If the property was acquired after December 31, 1920, by a corporation—
      “(A) by the issuance of its stock or securities in connection with a transaction described in section 112 (b) (5) (including, also, cases where part of the consideration for the transfer of such property to the corporation was property or money, in addition to such stock or securities), or
      “(B) as paid-in surplus or as a contribution to capital, then the basis shall be the same as it would be in the hands of the trans-feror, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made.”

       “§ 362. Basis to corporations.
      “ (a) Property acquired by issuance of stock or as paid-in surplus.
      “If property was acquired on or after June 22, 1954, by a corporation—
      “(1) in connection with a transaction to which section 351 (relating to transfer of property to corporation controlled by trans-feror) applies, or
      “(2) as paid-in surplus or as a contribution to capital, then the basis shall be the same as it would be in the hands of the trans-feror, increased in the amount of gain recognized to the transferor on such transfer.

      “(c) Special rule for certain contributions to capital.
      “(1) Property other than money.

        “Notwithstanding subsection (a)(2), if property other than money—
      “(A) is acquired by a corporation, on or after June 22, 1954, as a contribution to capital, and
      “(B) is not contributed by a shareholder as such, then the basis of such property shall be zero.
      “(2) Money.
      “Notwithstanding subsection (a)(2), if money- — ■
      “(A) is received by a corporation, on or after June 22, 1954, as a contribution to capital, and
      “(B) is not contributed by a shareholder as such, then the basis of any property acquired with such money during the 12-month period beginning on the day the contribution is received shall be reduced by the amount of such contribution.”

       See, for example, Teleservice Co. v. Commissioner, 254 F. 2d 105 (CA3 1958), cert, denied, 357 U. S. 919 (1959); United Grocers, Ltd. v. United States, 308 F. 2d 634 (CA9 1962). There is support in the legislative history of § 118 of the 1954 Code, 26 U. S. C. § 118, providing for the exclusion from gross income of “any contribution to the capital of the taxpayer,” for the indirect benefit — prepayment-for-future-services distinction. H. R. Rep. No. 1337, 83d Cong., 2d Sess., 17 (1954).

       The distinctions wrought by Detroit Edison and Brown Shoe have been the subject of scholarly criticism. See, for example, Note, Taxation of Nonshareholder Contributions to Corporate Capital, 82 Harv. L. Rev. 619 (1969); Landis, Contributions to Capital of Corporations, 24 Tax L. Rev. 241 (1969); Note, Tax Consequences of Non-Shareholder Contributions to Corporate Capital, 66 Yale L. J. 1085 (1957); Freeman & Speiller, Tax Consequences of Subsidies to Induce Business Location, 9 Tax. L. Rev. 255 (1954). In the article last cited the authors suggest that Detroit Edison and Brown Shoe are irreconcilable, the latter in effect overruling the former. Id., at 262. See also The Supreme Court, 1949 Term, 64 Harv. L. Rev. 114, 149-151 (1950).

       Counsel for CB&Q stated at oral argument that the railroad was under a “preexisting legal obligation to construct these facilities” that were funded by the governmental subsidies. Tr. of Oral Arg. 30, 35-36.

       The Government does not challenge the CB&Q’s right to depreciate those portions of a facility for which it was required to pay.

       See n. 5, supra.

       The Government has argued, in the alternative, that, by virtue of a “terms letter” agreement entered into by CB&Q and the Commissioner with respect to a change in the railroad's accounting method from retirement to straight-line depreciation, CB&Q irrevocably agreed to exclude donated property, or contributions or grants in aid of construction from any source, from its depreciation base. Because of our conclusion that the governmental payments did not qualify as contributions to capital, we need not determine whether the "terms letter” agreement barred CB&Q from claiming depreciation on the assets in question.

       The basis provision of the 1954 Code, which provides a zero basis for nonshareholder contributions to capital, applies only to property acquired on or after June 22, 1954. 26 U. S. C. § 362. See n. 9,
        infra. All the property at issue in the present case was acquired before June 22, 1954.

       Section 113 (a)(8) provides in pertinent part:
      “If the property was acquired after December 31, 1920, by a corporation—

      “(B) as paid-in surplus or as a contribution to capital, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made.”

       It was undisputed that the facilities had been “contributed” to the respondent by the States, “and this is taken to mean that [the respondent] owns them 197 Ct. Cl. 264, 272, 455 F. 2d 993, 998.

       The Findings of Fact of the Trial Commissioner which were accepted by the court indicated as follows:
      “The facilities . . . were constructed primarily for the benefit of the public to improve safety and to expedite highway traffic flow. [The respondent], however, received benefits from the facilities, among others, probable lower accident rates, reduced expenses of operating crossing facilities, and, where permitted, higher train speed limits, all of which permitted [the respondent] to function more efficiently and presumably less expensively.” 197 Ct. Cl., at 326-327.

       The Government has suggested as an alternative basis for reversal that the respondent entered into a “terms letter” agreement with the Commissioner whereby it agreed to exclude contributed property from its depreciation base. The Court does not reach this contention. I agree with the reasoning of the Court of Claims in holding that the terms letter did not bar the respondent from claiming a depreciation deduction on contributed property.

       The text of §113 indicates that there is no significance in the fact that the State and Federal Governments attempted here to achieve the public goal of transportation safety rather than simply to make a gratuitous transfer to the railroad. For if a donative purpose were required for a “contribution to capital” then that provision would simply be duplicative of § 113 (a) (2) of the 1939 Code which allows a carryover basis for gifts.
      And similarly it is of no consequence that the contribution was by a nonshareholder, for a contribution by a shareholder would have a carryover basis under the “paid-in surplus” provision of § 113 (a)(8)(B). See Treas. Reg. Ill, §29.113 (a) (8)-l.
      In short, a “contribution to capital” is any nongratuitous transfer to a corporation by a nonshareholder, such as is involved in the present case. See Freeman & Speiller, Tax Consequences of Subsidies to Induce Business Location, 9 Tax L. Rev. 255, 261.

       Federal courts in distinguishing between Brown Shoe and Detroit Edison have relied on the fact that Detroit Edison involved direct payments by customers for services. See United Grocers, Ltd. v.
        United States, 308 F. 2d 634, 639-640; Teleservice Co. v. Commissioner, 254 F. 2d 105, 110-111. See also Note, Taxation of Non-shareholder Contributions to Corporate Capital, 82 Harv. L. Rev. 619, 626-627.

       There is no dispute that the railroad can claim a depreciation deduction for its 10% share of the cost of the facilities.

       Section 362 of the Internal Revenue Code of 1954, 26 U. S. C. §362, provides in pertinent part:
      “(a) Property acquired by issuance of stock or as paid-in surplus.
      “If property was acquired on or after June 22, 1954, by a corporation—

      “(2) as paid-in surplus or as a contribution to capital, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer.

      "(c) Special rule for certain contributions to capital.
      "(1) Property other than money.
      “Notwithstanding subsection (a)(2), if property other than money—

        “(A) is acquired by a corporation, on or after June 22, 1964, as a contribution to capital, and
      “(B) is not contributed by a shareholder as such,
      “then the basis of such property shall be zero.
      “(2) Money.
      “Notwithstanding subsection (a)(2), if money—
      “(A) is received by a corporation, on or after June 22, 1954, as a contribution to capital, and
      “(B) is not contributed by a shareholder as such,
      “then the basis of any property acquired with such money during the 12-month period beginning on the day the contribution is received shall be reduced by the amount of such contribution. The excess (if any) of the amount of such contribution over the amount of the reduction under the preceding sentence shall be applied to the reduction (as of the last day of the period specified in the preceding sentence) of the basis of any other property held by the taxpayer. The particular properties to which the reductions required by this paragraph shall be allocated shall be determined under regulations prescribed by the Secretary or his delegate.”

       It was explicitly recognized that 26 U. S. C. §362 (c) was enacted to overcome the effect of Brown Shoe. H. R. Rep. No. 1337, 83d Cong., 2d Sess., A128; S. Rep. No. 1622, 83d Cong., 2d Sess., 271-272; Veterans Foundation v. Commissioner, 317 F. 2d 456, 458.


author: Per Curiam.

text:
    NORTHCROSS et al. v. BOARD OF EDUCATION OF THE MEMPHIS CITY SCHOOLS et al.
    No. 72-1164.
    Decided June 4, 1973
   Per Curiam.

This case presents the question of the propriety, under § 718 of the Emergency School Aid Act of 1972, 86 Stat. 369, 20 U. S. C. § 1617, of a denial of attorneys' fees to the successful plaintiffs in this litigation aimed at desegregating the public schools of Memphis, Tennessee. Section 718, which became effective on July 1,1972, provides that “[u]pon the entry of a final order by a court of the United States against a local educational agency, a State (or any agency thereof), or the United States (or any agency thereof),” in any action seeking to redress illegal or unconstitutional discrimination with respect to “elementary and secondary education, the court, in its discretion, upon a finding that the proceedings were necessary to bring about compliance, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs.” In this case, the United States Court of Appeals for the Sixth Circuit denied petitioners’ motion for an award of attorneys’ fees. The Court of Appeals did not, however, state reasons for the denial and it is therefore not possible for this Court to determine whether the Court of Appeals applied the proper standard in reaching this result.

Section 718 tracks the wording of § 204 (b) of the Civil Rights Act of 1964, 78 Stat. 244, 42 U. S. C. § 2000a-3(b), which provides that, in an action seeking to enforce Title II of that Act, “the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs . . . In Newman v. Piggie Park Enterprises, Inc., 390 U. S. 400 (1968), we held that, under § 204 (b), “one who succeeds in obtaining an injunction under that Title should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.” Id., at 402. The similarity of language in § 718 and § 204 (b) is, of course, a strong indication that the two statutes should be interpreted pari passu. Moreover, “the two provisions share a common raison d’etre. The plaintiffs in school cases are 'private attorneys general’ vindicating national policy in the same sense as are plaintiffs in Title II actions. The enactment of both provisions was for the same purpose — ‘to encourage individuals injured by racial discrimination to seek judicial relief ....’” Johnson v. Combs, 471 F. 2d 84, 86 (CA5 1972), quoting Newman v. Piggie Park Enterprises, Inc., supra, at 402. We therefore conclude that, as with §204 (b), if other requirements of § 718 are satisfied, the successful plaintiff “should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.” 390 U. S., at 402. Since it is impossible for us to determine whether the Court of Appeals applied this standard and, if so, whether it did so correctly, we grant the petition for certiorari, vacate the judgment below insofar as it relates to the denial of attorneys’ fees, and remand to the Court of Appeals for further proceedings consistent with this opinion. See Taylor v. Mc-Keithen, 407 U. S. 191 (1972); cf. California v. Krivda, 409 U. S. 33 (1972).

Mr. Justice Marshall did not participate in the consideration or decision of this case.

       Respondents suggest that petitioners’ motion for costs and attorneys’ fees might have been denied due to untimeliness. Although it is clear that the petitions for rehearing en banc were denied as untimely, there is no indication that the bill of costs was filed out of time, or that costs and attorneys’ fees were denied for that reason.

       We need not, and therefore do not, decide whether § 718 authorizes an award of attorneys’ fees insofar as those expenses were incurred prior to the date that that section came into effect. We also do not decide whether, and under what circumstances, an award of attorneys’ fees is permissible in suits brought under 42 U. S. C. § 1983 in the absence of specific statutory authorization for such an award. See Knight v. Auciello, 453 F. 2d 852 (CA1 1972); Lee v. Southern Home Sites Corp., 444 F. 2d 143 (CA5 1971).


text:
    DOUGLAS v. BUDER, JUDGE
    No. 72-6198.
    Decided June 4, 1973
   Per Curiam.

In November 1971, petitioner, a 50-year-old truck driver with no prior offenses, pleaded guilty to two counts of manslaughter and was given a suspended sentence and placed on probation for a period of four years by the respondent Missouri Circuit Court Judge. One of the conditions of probation was that “[a] 11 arrests for any reason must be reported without delay to [petitioner’s] probation and parole officer.” In January 1972, petitioner was involved in a seven-vehicle chain-reaction accident on an Arkansas highway. The driver of the first vehicle was issued a traffic citation for failure to yield the right of way, and petitioner, along with four other drivers involved in the accident, was issued a citation for driving too fast for existing conditions. At the next scheduled meeting with his probation officer, 11 days after the accident, petitioner mentioned the accident and the receipt of the traffic citation. On the same day, the probation officer reported this information to respondent who thereupon scheduled a hearing for the purpose of determining whether petitioner’s probation should be revoked. At the hearing, both the probation officer and the prosecutor took the position that petitioner had not violated any of the conditions of his probation and both recommended that probation be continued. Nevertheless, respondent, stating that petitioner’s failure to report the accident and the traffic citation “displayed poor attitude toward his probation” and was not in “strict compliance with the terms of the probation,” revoked probation and sentenced petitioner to concurrent terms of two years on each of the original two counts. Petitioner sought a writ of prohibition in the Missouri Supreme Court, but that court, in a A-3 decision, concluded that respondent had not abused his discretion and therefore denied relief.

The apparent premise upon which respondent proceeded in revoking petitioner’s probation was that petitioner had failed promptly to report an “arrest.” But the issuance of the traffic citation was not an “arrest” under either Missouri or Arkansas law. By statute, Missouri defines an “arrest” as “an actual restraint of the person of the defendant, or . . . submission to the custody of the officer, under authority of a warrant or otherwise.” Mo. Rev. Stat. § 544.180 (1953). Similarly, Arkansas defines an “arrest” as the “placing of the person of the defendant in restraint, or . . . submitting to the custody of the person making the arrest.” Ark. Stat. Ann. §43-412 (1947). The record before us discloses absolutely no evidence that petitioner was subjected to an "actual restraint” or taken into “custody” at the scene of the accident or elsewhere. Consequently, we conclude that the finding that petitioner had violated the conditions of his probation by failing to report “all arrests . . . without delay” was so totally devoid of evidentiary support as to be invalid under the Due Process Clause of the Fourteenth Amendment. Thompson v. Louisville, 362 U. S. 199 (1960); Garner v. Louisiana, 368 U. S. 157 (1961).

The State argues, however, that the revocation of petitioner’s probation should be viewed as a determination by respondent that, for purposes of Missouri law, a traffic citation is the equivalent of an arrest even though not accompanied by an actual restraint. But neither respondent nor the Missouri Supreme Court specifically made such a finding and no prior Missouri decisional law is cited to support the contention that a traffic citation has ever before been treated as the equivalent of an arrest. Moreover, even if it were clear that respondent had declared Missouri law to be that a traffic citation is the equivalent of an arrest, we would have to conclude that under the rationale of Bouie v. City of Columbia, 378 U. S. 347 (1964), the unforeseeable application of that interpretation in the case before us deprived petitioner of due process. We held in Bouie that “[w]hen . . . [an] unforeseeable state-court construction of a criminal statute is applied retroactively to subject a person to criminal liability for past conduct, the effect is to deprive him of due process of law in the sense of fair warning that his contemplated conduct constitutes a crime.” Id., at 354-355. And that same principle of due process is fully applicable in the context of the case before us.

The motion for leave to proceed in forma pauperis and the petition for a writ of certiorari are granted. The judgment is reversed and the cause is remanded to the Missouri Supreme Court for proceedings not inconsistent with this opinion.

Reversed and remanded.

The Chief Justice and Mr. Justice Rehnquist concur in the result.

Mr. Justice Blackmun took no part in the consideration or decision of this case.


author: Mr. Chief Justice Burger,

text:
    STRUNK, aka WAGNER v. UNITED STATES
    No. 72-5521.
    Argued April 24, 1973
    Decided June 11, 1973
    Burger, C. J., wrote the opinion for a unanimous Court.

      John R. Wideikis argued the cause and filed a brief for petitioner pro hac vice.

      William Bradford Reynolds argued the cause for the United States. With him on the brief were Solicitor General Griswold, Assistant Attorney General Petersen, and Jerome M. Feit.

   Opinion of the Court by

Mr. Chief Justice Burger,

announced by Mr. Justice Douglas.

Petitioner was found guilty in United States District Court of transporting a stolen automobile from Wisconsin to Illinois in violation of 18 U. S. C. § 2312 and was sentenced to a term of five years. The five-year sentence was to run concurrently with a sentence of one to three years that petitioner was then serving in the Nebraska State Penitentiary pursuant to a conviction in the courts of that State.

Prior to trial, the District Court denied a motion to dismiss the federal charge, in which petitioner argued that he had been denied his right to a speedy trial. At trial, petitioner called no witnesses and did not take the stand; the jury returned a verdict of guilty. The Court of Appeals reversed the District Court, holding that petitioner had in fact been denied a speedy trial. However, the court went on to hold that the “extreme” remedy of dismissal of the charges was not warranted; the case was remanded to the District Court to reduce petitioner’s sentence to the extent of 259 days in order to compensate for the unnecessary delay which had occurred between return of the indictment and petitioner’s arraignment.

I

Certiorari was granted on petitioner’s claim that, once a judicial determination has been made that an accused has been denied a speedy trial, the only remedy available to the court is “to reverse the conviction, vacate the sentence, and dismiss the indictment.” No cross-petition was filed by the Government to review the determination of the Court of Appeals that the defendant had been denied a speedy trial. The Government acknowledges that, in its present posture, the case presents a novel and unresolved issue, not controlled by any prior decisions of this Court.

The Court of Appeals stated that the 10-month delay which occurred was “unusual and call[ed] for explanation as well as justification,” 467 P. 2d 969, 972. The Government responded that petitioner had, after receiving the proper warnings, freely admitted his guilt to an FBI agent while incarcerated in the Nebraska Penitentiary, and had stated that he intended to demand a speedy trial under Fed. Rule Crim. Proc. 20. The Government claimed that it had postponed prosecution because of petitioner’s reference to Rule 20, and consequently, that a large portion of the delay which ensued was attributable to petitioner. The Court of Appeals regarded this explanation as tenuous; it also rejected the lack of staff personnel in the United States Attorney’s Office as a justification for the delay. The entire course of events from the time of arrest through the Court of Appeals plainly placed the Government on notice that the speedy trial issue was being preserved by the accused and would be pressed, as indeed it has been.

On this record, it seems clear that petitioner was responsible for a large part of the 10-month delay which occurred and that he neither showed nor claimed that the preparation of his defense was prejudiced by reason of the delay. It may also well be correct that the United States Attorney was understaffed due to insufficient appropriations and, consequently, was unable to provide an organization capable of dealing with the rising caseload in his office, especially with respect to criminal cases. Unintentional delays caused by overcrowded court dockets or understaffed prosecutors are among the factors to be weighed less heavily than intentional delay, calculated to hamper the defense, in determining whether the Sixth Amendment has been violated but, as we noted in Barker v. Wingo, 407 U. S. 514, 531 (1972), they must

“nevertheless ... be considered since the ultimate responsibility for such circumstances must rest with the government rather than with the defendant.”

This served to reaffirm what the Court held earlier in Dickey v. Florida, 398 U. S. 30, 37-38 (1970):

“Although a great many accused persons seek to put off the confrontation as long as possible, the right to a prompt inquiry into criminal charges is fundamental and the duty of the charging authority is to provide a prompt trial.” (Footnote omitted.)

However, in the absence of a cross-petition for cer-tiorari, questioning the holding that petitioner was denied a speedy trial, the only question properly before us for review is the propriety of the remedy fashioned by the Court of Appeals. Whether in some circumstances, and as to some questions, the Court might deal with an issue involving constitutional claims, absent its being raised by cross-petition, we need not resolve. Suffice it that in the circumstances presented here in which the speedy trial issue has been pressed by the accused from the time of arrest forward and resolved in his favor, we are not disposed to examine the issue since we must assume the Government deliberately elected to allow the case to be resolved on the issue raised by the petition for certiorari.

II

Turning to the remaining question of the power of the Court of Appeals to fashion what it appeared to consider as a “practical” remedy, we note that the court clearly perceived that the accused had an interest in being tried promptly, even though he was confined in a penitentiary for an unrelated charge. Under these circumstances,

“the possibility that the defendant already in prison might receive a sentence at least partially concurrent with the one he is serving may be forever lost if trial of the pending charge is postponed.” Smith v. Hooey, 393 U. S. 374, 378 (1969) (footnote omitted).

The Court of Appeals went on to state:

“The remedy for a violation of this constitutional right has traditionally been the dismissal of the indictment or the vacation of the sentence. Perhaps the severity of that remedy has caused courts to be extremely hesitant in finding a failure to afford a speedy trial. Be that as it may, we know of no reason why less drastic relief may not be granted in appropriate cases. Here no question is raised about the sufficiency of evidence showing defendant’s guilt, and, as we have said, he makes no claim of having been prejudiced in presenting his defense. In these circumstances, the vacation of the sentence and a dismissal of the indictment would seem inappropriate. Rather, we think the proper remedy is to remand the case to the district court with direction to enter an order instructing the Attorney General to credit the defendant with the period of time elapsing between the return of the indictment and the date of the arraignment. Fed. R. Crim. P. 36 provides that the district court may correct an illegal sentence at any time. We choose to treat the sentence here imposed as illegal to the extent of the delay we have characterized as unreasonable.” 467 F. 2d, at 973.

It is correct, as the Court of Appeals noted, that Barker prescribes “flexible” standards based on practical considerations. However, that aspect of the holding in Barker was directed at the process of determining whether a denial of speedy trial had occurred; it did not deal with the remedy for denial of this right. By definítion, such denial is unlike some of the other guarantees of the Sixth Amendment. For example, failure to afford a public trial, an impartial jury, notice of charges, or compulsory service can ordinarily be cured by providing those guaranteed rights in a new trial. The speedy trial guarantee recognizes that a prolonged delay may subject the accused to an emotional stress that can be presumed to result in the ordinary person from uncertainties in the prospect of facing public trial or of receiving a sentence longer than, or consecutive to, the one he is presently serving — uncertainties that a prompt trial removes. Smith v. Hooey, 393 U. S., at 379; United States v. Ewell, 383 U. S. 116, 120 (1966). We recognize, as the Court did in Smith v. Hooey, that the stress from a delayed trial may be less on a prisoner already confined, whose family ties and employment have been interrupted, but other factors such as the prospect of rehabilitation may also be affected adversely. The remedy chosen by the Court of Appeals does not deal with these difficulties.

The Government’s reliance on Barker to support the remedy fashioned by the Court of Appeals is further undermined when we examine the Court’s opinion in that case as a whole. It is true that Barker described dismissal of an indictment for denial of a speedy trial as an “unsatisfactorily severe remedy.” Indeed, in practice, “it means that a defendant who may be guilty of a serious crime will go free, without having been tried.” 407 U. S., at 522. But such severe remedies are not unique in the application of constitutional standards. In light of the policies .which underlie the right to a speedy trial, dismissal must remain, as Barker noted, “the only possible remedy.” Ibid.

Given the unchallenged determination that petitioner was denied a speedy trial, the District Court judgment of conviction must be set aside; the judgment is therefore reversed and the case remanded to the Court of Appeals to direct the District Court to set aside its judgment, vacate the sentence, and dismiss the indictment.

Reversed and remanded.

       American Bar Association Project on Standards for Criminal Justice, Speedy Trial 27-28 (Approved Draft 1968) (hereafter ABA, Speedy Trial).

       It can also be said that an accused released pending trial often has little or no interest in being tried quickly; but this, standing alone, does not alter the prosecutor’s obligation to see to it that the case is brought on for trial. The desires or convenience of individuals cannot be controlling. The public interest in a broad sense, as well as the constitutional guarantee, commands prompt disposition of criminal charges.

       ABA, Speedy Trial 40-41.