Petition for Review from the United States Board of Tax Appeals.
Before BIDDLE, JONES, and BUFFINGTON, Circuit Judges.
The petitioners were married and living together in 1934. Mrs. Janney realized gains and Mr. Janney losses in that year on the sale capital assets. They filed a joint income tax return in which the losses were used to offset the gains. Except to the extent of $2,000 the Commissioner of Internal Revenue disallowed all the losses, on the ground that the losses of one spouse could not be set off against the gains of the other. The Board of Tax Appeals sustained the Commissioner, and this appeal followed.
The statutory provisions involved are found in the Revenue Act of 1934. Section 51(b)*fn1 provides:
"(b) Husband and wife. If a husband and wife living together have an aggregate net income for the taxable year of $2,500 or over, or an aggregate gross income for such year of $5,000 or over -
"(1) Each shall make such a return, or
"(2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income."
Section 23*fn2 of the act provides, with respect to capital losses:
"In computing net income there shall be allowed as deductions:
"(j) Capital losses. Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in section 117  (d)."
The relevant part of Section 117(d)*fn3 is as follows:
"Limitation on capital losses. Losses from sales or exchanges of capital assets shall be allowed only to the extent of $2,000 plus the gains from such sales or exchanges."
The decision of the Board is supported by the authority of the Second, First and Fourth Circuits respectively in Pierce v. Commissioner, 100 F.2d 397, 398; Sweet v. Commissioner,*fn4102 F.2d 103, 121 A.L.R. 647; and Nelson v. Commissioner, 104 F.2d 521, involving the construction of the Act of 1932, a similar statute.*fn5 Judge Learned Hand dissented vigorously in the Pierce case; and the two later decisions, noting the doubt without expanding the reasoning, followed the precedent of the majority.*fn6 In the Pierce case Treasury Regulation 77, Art. 381, provided that where "the income of each is included in a single joint return, the tax is computed on the aggregate income and all deductions or credits to which either is entitled shall be taken from such aggregate income." Section 23(r)*fn7 of the Act of 1932, which was before the court, limited stock losses to "losses from sales or exchanges of stocks * * * which are not capital assets [i.e. held less than two years] * * * only to the extent of the gains from such sales or exchanges * * * ." The majority reasoned that neither taxpayer, under this limitation, could take the deduction, since the wife had no gains, and the husband could not deduct the loss of another taxpayer. Judge Hand, accepting the Regulation, could find no preference for a construction of the statute holding that this clause "imposes a condition upon the privilege, as opposed to a limitation upon its amount." [100 F.2d 398.] He argued that when the Act required the tax to be computed on the net aggregate income it meant ...