United States v. Mississippi Chemical Corp.

Respondent taxpayers are cooperative associations within the meaning of the Agricultural Marketing Act, and thus qualify for membership in one of the Banks for Cooperatives established by the Farm Credit Act of 1933, which provides that members may borrow money from their Banks. Respondents secured membership in the New Orleans Bank and elected to borrow. They were required by the Farm Credit Act of 1955 to make quarterly purchases of $100 par value Class C stock of the Bank equal to not less than 10% nor more than 25% of the amount of the quarterly interest paid to the Bank on their loans. During the relevant period the rate set by the Bank was 15%. Respondents claimed a $99 interest expense deduction on their tax returns for each $100 stock purchase required by the statute. The deductions were disallowed and respondents filed this suit for refunds. The Government contended the the stock is a capital asset as defined by 26 U.S.C. § 1221, and is nondeductible, while respondents asserted that the purchase price is part of "the amount [they] contracted to pay for the use of the borrowed money," and is deductible as interest. The District Court found for the respondents and the Court of Appeals affirmed.

Held: It is clear from the legislative scheme that the Class C stock is a capital asset having a long-term value. Its cost is, therefore, not deductible as an interest expense. Pp. 302-312.

431 F. 2d 1320, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which all Members joined except BLACKMUN, J., who took no part in the consideration or decision of the case.

Matthew J. Zinn argued the cause for the United States. With him on the briefs were Solicitor General Griswold, Assistant Attorney General Walters, Thomas L. Stapleton, and Leonard J. Henzke, Jr.

John C. Satterfield argued the cause for respondents. With him on the brief was J. Dudley Buford.

Mac Asbill, Jr., Harold S. Cook, D. Jeff Lance, and William W. Beckett filed a brief for Agway, Inc., et al. as amici curiae urging affirmance.