Opinion of the Court.

312 U.S.

here. But even before the decision in Erie R. Co. v. Tompkins, 304 U. S. 64, the federal courts applied state statutes of limitations in accordance with the interpretations given to such statutes by the states' highest courts. As early as 1893, this Court said: "The construction given to a statute [of limitations] of a State by the highest judicial tribunal of such State is regarded as a part of the statute, and is as binding upon the courts of the United States as the text. If the highest judicial tribunal of a State adopt new views as to the proper construction of such a statute, and reverse its former decisions, this court will follow the latest settled adjudications." It was error for the court below to depart from the Mississippi Supreme Court's interpretation of the state statute of limitations.

But respondent says that there is another reason why the judgment in its favor should be sustained." This reason, according to respondent, is that both the District Court and the Circuit Court of Appeals erred in failing to hold that Moore's suit was prematurely brought because of his failure to exhaust the administrative remedies granted him by the Railway Labor Act, 44 Stat. 577, as amended, 48 Stat. 1185, 45 U. S. C. § 151, et seq. But we find nothing in that Act which purports to take away from the courts the jurisdiction to determine a controversy over a wrongful discharge or to make an administrative finding a prerequisite to filing a suit in court. In support of its contention, the railroad points especially to § 153 (i), which, as amended in 1934, pro

3

City of Hattiesburg v. Cobb Bros. Construction Co., 174 Miss. 20; 163 So. 676.

4

Bauserman v. Blunt, 147 U. S. 647, 654, quoting from Leffingwell v. Warren, 2 Black 599, 603. And see Balkam v. Woodstock Iron Co.. 154 U. S. 177, 187.

vides that disputes growing out of grievances or out of the interpretation or application of agreements "shall be handled in the usual manner up to and including the chief operating officer of the carrier designated to handle such disputes; but, failing to reach an adjustment in this manner, the disputes may be referred by petition. of the parties or by either party to the appropriate division of the Adjustment Board with a full statement of the facts and all supporting data bearing upon the disputes." And in connection with this statutory language the railroad also directs our attention to a provision in the agreement between the Trainmen and the railroada provision authorizing Moore to submit his complaint to officials of the railroad, offer witnesses before them, appeal to higher officers of the company in case the decision should be unsatisfactory, and obtain reinstatement and pay for time lost if officials of the railroad should find that his suspension or dismissal was unjust. It is to be noted that the section pointed out, § 153 (i), as amended in 1934, provides no more than that disputes "may be referred . . . to the . . . Adjustment Board . . .' It is significant that the comparable section of the 1926 Railway Labor Act (44 Stat. 577, 578) had, before the 1934 amendment, provided that upon failure of the parties to reach an adjustment a "dispute shall be referred to the designated Adjustment Board by the parties, or by either party . . ." This difference in language, substituting "may" for "shall," was not, we think, an indication of a change in policy, but was instead a clarification of the law's original purpose. For neither the original 1926 Act, nor the Act as amended in 1934, indicates that the machinery provided for settling disputes was based on a philosophy of legal compulsion. On the contrary, the legislative history of the Railway Labor Act shows a consistent purpose on the part of

Statement of the Case.

312 U.S.

Congress to establish and maintain a system for peaceful adjustment and mediation voluntary in its nature. The District Court and the Circuit Court of Appeals properly decided that petitioner was not required by the Railway Labor Act to seek adjustment of his controversy with the railroad as a prerequisite to suit for wrongful discharge. But, for failure to follow state law on the state statute of limitations, the judgment of the Circuit Court of Appeals is reversed; the judgment of the District Court is affirmed.

Reversed.

MR. JUSTICE FRANKFURTER concurs in the result.

HELVERING, COMMISSIONER OF INTERNAL REVENUE, v. ESTATE OF ENRIGHT ET AL.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.

No. 436. Argued March 4, 1941-Decided March 31, 1941.

Section 42 of the Revenue Act of 1934 permits the inclusion, as accruable items, in a decedent's gross income for the period ending with his death, of his share of the profits earned, but not yet received, by a partnership, although both the decedent and his firm kept their accounts and made their income tax reports on a calendar year cash receipts and disbursements basis. P. 640.

So held of a deceased member of a law firm in respect of his share of the earned portion of the estimated receipts from the unfinished business of the firm, valued as of the date of his death.

112 F. 2d 919, reversed.

CERTIORARI, 311 U. S. 638, to review the reversal of a decision of the Board of Tax Appeals sustaining a deficiency assessment.

6

See, e. g., H. Rep. No. 328, 69th Cong., 1st Sess., p. 4.

Mr. Gordon Tweedy, with whom Solicitor General Biddle, Assistant Attorney General Clark, and Messrs. Sewall Key and Morton K. Rothschild were on the brief, for petitioner.

Mr. James D. Carpenter, Jr., for respondents.

Mr. Harold S. Deming filed a brief on behalf of the Estate of Charles S. Haight, as amicus curiae, urging affirmance.

MR. JUSTICE REED delivered the opinion of the Court.

2

1

Certiorari was granted to review the judgment below 1 because of a conflict between it and Pfaff v. Commissioner in the Second Circuit. The issue is whether § 42 of the Revenue Act of 19343 permits the inclusion, as accruable items, in a decedent's gross income for the period ending with his death, of his share of the profits earned, but not yet received, of a partnership, when both the decedent and the partnership reported income on a cash receipts and disbursements basis.

Respondents are the executors of John M. Enright, an attorney and member of a law partnership in New Jersey. Both Mr. Enright and his firm kept their accounts and made their income tax report on a calendar year cash receipts and disbursements basis. He died, testate, No1112 F. 2d 919.

2

3

113 F.2d 114. See Pfaff v. Commissioner, post, p. 646.

48 Stat. 680, c. 277: "SEC. 42. Period in which Items of Gross Income Included. The amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under section 41, any such amounts are to be properly accounted for as of a different period. In the case of the death of a taxpayer there shall be included in computing net income for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise properly includible in respect of such period or a prior period."

Opinion of the Court.

312 U.S.

vember 19, 1934. The partnership agreement provided for the termination of the partnership on the death of any partner and that his estate should have his partnership percentage in the "net monies then in the treasury of the firm, plus his like percentage in the outstanding accounts and the earned proportion of the estimated receipts from unfinished business." The will directed that the valuation for the purpose of closing out the partnership should be made by his senior surviving partner, Mr. James D. Carpenter, and by agreement between Mr. Carpenter and the executors a valuation was made of these items as of the date of death for use in the federal estate tax and New Jersey inheritance tax returns, with the further understanding that the surviving partners would pay over to the executors whatever was ultimately realized out of the valued assets.

Pursuant to this arrangement the interest of Mr. Enright in the uncollected accounts was valued at $2,055.55 and in the unfinished work at $40,855.77. These sums were reported as assets in the estate and inheritance tax returns but were not included in the income tax return made for the decedent for 1934, nor were the sums derived from these assets reported in the estate's income tax for 1934 or later years.

The Commissioner assessed a deficiency because he included in the decedent's return for 1934, under the claimed authority of § 42, supra note 3, the items of accounts and unfinished work. Respondents appealed to the Board of Tax Appeals. The Board decided that the evidence did not show the situation of the unfinished work in sufficient detail to enable the Board to determine independently that it was not accruable. The accounts

'August 28, 1939, by memorandum opinion. Cf. Lillian O. Fehrman, Executrix, 38 B. T. A. 37.