Government of Guam v. George E. Koster and Crystal K. Koster

In their joint Guam Territorial income tax returns for the years 1957 through 1960, George E. Koster and his wife, Crystal K. Koster, claimed as deductions, mainland United States business losses for those years. Guam tax officials disallowed these deductions, asserting that under applicable regulations, only expenses, losses or other deductions directly attributable to gross income derived from or earned in Guam may be claimed. The taxpayers paid the asserted deficiencies and brought this action for a refund contending that the regulations in question are invalid.

While there were several issues in the case, the question of the validity of the pertinent regulations was separately tried pursuant to Rule 42(b), Federal Rules of Civil Procedure. A judgment was entered adjudicating the regulations to be invalid. The Government of Guam then took this interlocutory appeal, following the procedure prescribed in 28 U. S.C. § 1292(b) (1964).

The authority of the Government of Guam to collect income taxes was initially derived from section 31 of the Organic Act of Guam, 64 Stat. 392 (1950). That section as originally enacted, reads:

At that time the income-tax laws in force in the…