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Murphy v. United States

*fn* submitted pasadena california: April 5, 1993.

CHARLES L. MURPHY, PLAINTIFF-APPELLANT,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Central District of California. D.C. No. CV-90-1254-WJR. William J. Rea, District Judge, Presiding.

Before: J. Clifford Wallace, Chief Judge, Diarmuid F. O'Scannlain, and Ferdinand F. Fernandez, Circuit Judges. Opinion by Judge Fernandez.

Author: Fernandez

FERNANDEZ, Circuit Judge:

Charles L. Murphy appeals the district court's summary judgment in his action challenging the constitutionality of 26 U.S.C. § 1256. Murphy contends that Congress exceeded its authority by taxing "unrealized" gains. We have jurisdiction under 28 U.S.C. § 1291 and affirm.

BACKGROUND

During 1987, Murphy was an investor in commodity futures contracts. The parties stipulated and the district court found that all of his contracts "had been purchased on, and were regularly traded on, a national securities exchange registered with the Securities Exchange Commission or a board of trade designated as a contract market by the Commodity Futures Trading Commission." All were held in marked-to-market accounts.

At the end of the 1987 tax year, the fair market value of Murphy's futures contracts had increased by $20,645. Pursuant to 26 U.S.C. § 1256, Murphy reported that amount on his 1987 tax return as taxable gain. The corresponding tax owed was $4,372, which Murphy paid under protest. Murphy then filed a claim for refund, which was denied. Ultimately, he filed this refund action in the district court in which he claimed that section 1256 was unconstitutional because it taxed unrealized gain.

The government and Murphy filed cross-motions for summary judgment based upon a joint stipulation of facts. The district court granted the government's motion for summary judgment and concluded that section 1256 was constitutional. The district court then denied Murphy's motion for reconsideration, and Murphy timely appealed.

STANDARD OF REVIEW

"The constitutionality of a statute is a question of law. We therefore review the district courts' rulings de novo." Seattle Audubon Soc'y v. Robertson, 914 F.2d 1311, 1314 (9th Cir. 1990). The granting of summary judgment is reviewed de novo. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, 496 U.S. 937, 110 S. Ct. 3217, 110 L. Ed. 2d 664 (1990). Viewing the evidence in the light most favorable to the opposing party, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the substantive law. Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989).

Discussion

The Sixteenth Amendment provides:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

"The power of Congress in levying taxes is very wide, and where a classification is made of taxpayers that is reasonable, and not merely arbitrary and capricious, the Fifth Amendment can not apply." Barclay & Co. v. Edwards, 267 U.S. 442, 450, 45 S. Ct. 348, 349, 69 L. Ed. 703, 45 S. Ct. 135 (1924) (challenge to tax on foreign corporations); Chiles v. United States, 843 F.2d 367, ...


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