Hellermann v. Commissioner

The Hellermanns (plaintiffs) bought four buildings for approximately $93,000 and sold the buildings 12 years later for $264,000. They reported a capital gain of approximately $170,000 on their tax return the year of the sale. Later, the Hellermanns claimed that much of the gain from the sale of the buildings was due to inflation, and they requested a refund of the capital-gains tax they paid. In the years between the purchase and sale of the buildings, the Consumer Price Index had doubled. Thus, the Hellermanns concluded, the economic gain from the sale was closer to $88,000. The Hellermanns argued that they should be taxed on their economic gain, not on their total capital gain, because the gain that was attributable to inflation was a return of capital and not taxable income. In their view, taxing the capital gain that was solely attributable to inflation violated the Sixteenth Amendment to the United States Constitution because it was a direct tax, not an income tax. The Hellermanns further argued that Congress did not have the power to measure capital gains in terms of dollars because the value of the dollar changes. The Commissioner of Internal Revenue (the Commissioner) (defendant) held that capital gains from the property sale were taxable income regardless of the actual economic value of the sale. The Hellermanns petitioned the United States Tax Court for a redetermination.