Brief Fact Summary. Petitioners were equal owners of a corporation and liquidated the assets and divided the proceeds. A judgment levied against the corporation was paid by Petitioners who sought to claim the loss as an ordinary business loss instead of a capital loss.
Synopsis of Rule of Law. Each taxable year is a separate unit for tax accounting purposes.
And it is plain that their liability as transferees was not based on any ordinary business transaction of theirs apart from the liquidation proceedings.View Full Point of Law
Issue. Was it in error to consider the loss as a capital loss?
Held. Justice Black issued the opinion for the Supreme Court of the United States in holding that the loss was properly classified as a capital loss.
Dissent. Justice Douglas issued a dissenting opinion arguing that there were no capital transactions during the year the losses were suffered. The capital transactions occurred in earlier years and finding otherwise violates the principle that each year is a separate taxing unit.
Justice Jackson issued a dissenting opinion joined by Justice Frankfurter arguing that greater deference should have been given to the Tax Court because of their expertise in rulings as they relate to tax law as a whole.
Discussion. The Supreme Court noted that the liability was not based on any ordinary business transaction. Further, considering previous relevant transactions does not breach the separate taxing unit principle because they are not reopening or adjusting the previous returns.