Brief Fact Summary. Petitioner managed his and his wife’s large estates. In so doing, he would instructed his broker to sell stock of one, and buy for the other account, in order to establish certain losses. These losses were deducted from their gross income.
Synopsis of Rule of Law. Deductions are prohibited for losses from sales or exchanges of property, directly or indirectly, between family members.
Facts. John P. McWilliams, Petitioner, managed the large independent estate of his wife and his own estate. On multiple occasions he ordered his broker to sell certain stock for one account and buy the same number of shares of the same stock for the other account. He told the broker that it was for establishing tax losses. Petitioners filed separate income tax returns and claimed the losses as deductions from gross income.
Issue. Are the losses claimed by Petitioner deductible against gross income?
Held. Chief Justice Vinson issued the opinion for the Supreme Court of the United States in holding against Petitioner and finding that the losses are not deductible.
Discussion. The Supreme Court found that the rule was intended to prevent taxpayers from choosing their own time for realizing losses on investments. Petitioner argued that it was not a direct transfer between family members, but the Court noted that the rule prohibits indirect transfers as well.