65

Opinion of the Court.

II.

Nor is there anything in the legislative history that would lead us to depart from the plain meaning of the statute as petitioners would have us do. There can of course be no question that the purpose of § 117 (m) was, as petitioners contend, to close a loophole that Congress feared could be used to convert ordinary income into capital gain. See H. R. Rep. No. 2319, 81st Cong., 2d Sess.; S. Rep. No. 2375, 81st Cong., 2d Sess. But the crucial point for present purposes is that the method chosen to close this loophole was to establish a carefully and elaborately. defined category of transactions in which what might otherwise be a capital gain would have to be treated as ordinary income. There is no indication whatever of any congressional desire to have the Commissioner or the courts make a determination in each case as to whether the use of the corporation was for tax avoidance. Indeed, the drawing of certain arbitrary lines not here involved such as making the section inapplicable to any shareholder owning 10% or less of the stock or to any gain realized more than three years after the completion of construction-tends to refute any such indication. It is our understanding, in other words, that Congress intended to define what it believed to be a tax avoidance device rather than to leave the presence or absence of tax avoidance elements for decision on a case-to-case basis.

We are reinforced in this conclusion by the practical difficulties—indeed the impossibilities of considering without more legislative guidance than is furnished by § 117 (m) whether there has in fact been "conversion" of ordinary income into capital gains in a particular case. For example, if we were to inquire whether or not the profit would have been ordinary income had an enterprise been individually owned, would we treat each taxpaying shareholder differently and look only to his trade

Opinion of the Court.

374 U.S.

or business or would we consider the matter in terms of the trade or business of any or at least a substantial number of the shareholders? There is simply no basis in the statute for a judicial resolution of this question, and indeed when Congress addressed itself to the problem in 1958, it approved an intricate formulation falling between these two extremes."

As a further example, what if the individual in question is not himself engaged in any trade or business but owns stock in varying amounts in a number of corporate ventures other than the one before the court? Do we pierce each of the corporate veils, regardless of the extent and share of the individual's investment, and charge him with being in the trade or business of each such corporation? Again, there is no basis for a rational judicial answer; the judgment is essentially a legislative one and in the 1958 amendments Congress enacted a specific provision, designed to deal with this matter, that is far too complex to be summarized here."

These examples should suffice to demonstrate the point: The question whether there has in fact been a "conversion" of ordinary income in a particular case is far easier to state than to answer, and involves a number of thorny issues that may not appear on the surface.

We find no

• Int. Rev. Code, 1954, § 341 (e), added by the Technical Amendments Act of 1958, § 20 (a), 72 Stat. 1615.

Int. Rev. Code, 1954, § 341 (e) (1) (C).

"The Government has emphasized in its argument here that the present case involves a particularly "blatant" conversion of ordinary income because by charging the corporations only for the out-ofpocket costs of construction "petitioners contributed their services to create a valuable property for the corporation[s] and ther realized upon that value by selling their stock." Thus, the Government concludes, the petitioners claim as capital gain "what ought to have been (and, in an arm's-length transaction, would have been) taxed as compensation for services."

65

Opinion of the Court.

basis in either the terms or the history of § 117 (m) for concluding that Congress intended the Commissioner and the courts to enter this thicket and to arrive at ad hoc determinations for every taxpayer. Accordingly, the judgments below must be

MR. JUSTICE DOUGLAS dissents.

Affirmed.

DIVISION 1287, AMALGAMATED ASSOCIATION OF STREET, ELECTRIC RAILWAY & MOTOR COACH EMPLOYEES OF AMERICA ET

MISSOURI.

APPEAL FROM THE SUPREME COURT OF MISSOURI.

No. 604. Argued April 24-25, 1963. Decided June 10, 1963. Proceeding under a Missouri statute, the Governor of Missouri proclaimed that the public interest, health and welfare were jeopardized by a threatened strike against a public transit company in the State and issued executive orders taking possession of the company and directing that it continue operations. However, the employees of the company did not become employees of the State; the State did not pay their wages nor supervise their work; the property of the company was not transferred to the State; and the State did not participate in the actual management of the company. Pursuant to the statute, a state court enjoined the strike, and the Supreme Court of Missouri affirmed. After an appeal to this Court had been initiated by the filing of a jurisdictional statement, the Governor issued an executive order terminating his seizure order but reciting that the labor dispute "remains unresolved." Held:

1. Termination of the Governor's seizure order did not render the case moot. Harris v. Battle, 348 U. S. 803, and Oil Workers Unions v. Missouri, 361 U. S. 363, distinguished. Pp. 77-78.

2. The state statute involved here is in conflict with §7 of the National Labor Relations Act, and it cannot stand under the Supremacy Clause of the Constitution. Bus Employees v. Wisconsin Board, 340 U. S. 383. Pp. 78-83.

(a) The State's actual involvement under the Governor's seizure order fell far short of creating a state owned and operated utility whose labor relations are by definition excluded from the coverage of the National Labor Relations Act. P. 81.

(b) Neither the designation of the state statute as "emergency legislation" nor the purported "seizure" by the State could make a peaceful strike against a public utility unlawful in direct conflict with §7 of the National Labor Relations Act, which guarantees the right to strike against a public utility, as against any employer engaged in interstate commerce. Pp. 81-82.

361 S. W. 2d 33, reversed.

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Opinion of the Court.

Bernard Dunau argued the cause for appellants. With him on the briefs were Bernard Cushman and John Manning.

Joseph Nessenfeld, Assistant Attorney General of Missouri, argued the cause for appellee. With him on the brief were Thomas F. Eagleton, Attorney General of Missouri, and J. Gordon Siddens and John C. Baumann, Assistant Attorneys General.

J. Albert Woll, Robert C. Mayer, Theodore J. St. Antoine and Thomas E. Harris filed a brief for the American Federation of Labor and Congress of Industrial Organizations, as amicus curiae, urging reversal.

Briefs of amici curiae, urging affirmance, were filed by Richmond C. Coburn and Alan C. Kohn for the Chamber of Commerce of Metropolitan St. Louis; by James M. Douglas for the Laclede Gas Company; and by Irvin Fane, Harry L. Browne and Howard F. Sachs for the Kansas City Power & Light Company.

Opinion of the Court by MR. JUSTICE STEWART, announced by MR. JUSTICE WHITE.

The appellant union is the certified representative of a majority of the employees of Kansas City Transit, Inc., a Missouri corporation which operates a public transit business in Kansas and Missouri. A collective bargaining agreement between the appellant and the company was due to expire on October 31, 1961, and in August of that year, after appropriate notices, the parties commenced the negotiation of an amended agreement. An impasse in these negotiations was reached, and in early November the appellant's members voted to strike. The strike was called on November 13.

The same day the Governor of Missouri, acting under the authority of a state law known as the King-Thompson