Brief Fact Summary. Plaintiff, Kirby Lumber Co., issued bonds in a large amount and retired a portion of these by purchasing in the open market at below par value.
Synopsis of Rule of Law. If bonds are purchased and retired at a price less than the issuing price or face value, then the excess of the issuing price or face value is gain or income for the taxable year.
Issue. Is the difference taxable gain or income for the Plaintiff?
Held. Justice Holmes issued the opinion for the Supreme Court of the United States in holding that the difference should be considered as taxable gain or income.
Discussion. The Supreme Court notes that in this case there was no shrinking of the assets and taxpayer had a clear gain. Taxpayer gains assets by offsetting the bonds.