Document: 344 U.S. 6 73 S.Ct. 71 97 L.Ed. ARROWSMITH et al.v.COMMISSIONER OF INTERNAL REVENUE. No. 51. Argued Oct. 24, 1952. Decided Nov. 10, Rehearing Denied Dec. 8, See 900, 273. Mr. George R. Sherriff, New York City, for petitioners. Helen Goodner, Washington, D.C., respondent. Justice BLACK delivered the opinion of Court. 1 This is an income tax controversy growing out following facts as shown by findings Tax In 1937 two taxpayers, petitioners here, decided to liquidate and divide proceeds a corporation in which they had equal stock ownership.* Partial distributions made 1937, 1938, 1939 were followed final one 1940. Petitioners reported profits obtained from this transaction, classifying them capital gains. They thereby paid less than would have been required attributed ordinary business transactions profit. About propriety these 1937—1940 returns, there no dispute. But 1944 judgment was rendered against old Frederick Bauer, individually. The taxpayers did pay corporation, whose assets transferees. Phillips-Jones Corp. v. Parmley, 302 233, 235—236, 58 197, 198, 82 221. Cf. I.R.C. § 311(a), 26 U.S.C.A. 311(a). Classifying loss one, each took deduction 100% amount paid. Treatment allowed much smaller amount. 117(b), (d)(2) (e), (d)(2), (e). Commissioner viewed payment part original liquidation transaction requiring classification loss, just treated dividends Disagreeing with Court classified loss. 15 T.C. 876. Appeals reversed, treating 'capital.' 2 Cir., 193 F.2d 734. latter holding conflicts Third Circuit's Internal Revenue V. Switlik, 184 299. Because conflict, we granted certiorari. 343 976, 72 1075. 23(g), treats losses sales or exchanges 'capital losses' 115(c), requires that be exchanges. here fall squarely within definition contained sections. Taxpayers because liability imposed on transferees distribution assets. And it plain their not based any theirs apart proceedings. It even denied after liquidation, but during year 1940, properly ones. For 1940 simply reduced gains received year. 3 contended, however, transformed into well-established principle taxable separate unit accounting purposes. United States Lewis, 340 590, 522, 95 560; North American Oil Consolidated Burnet, 286 417, 52 613, 76 1197. breached considering all 1937—1944 events order classify nature Such examination attempt reopen readjust action inconsistent annual principle. 4 petitioner Bauer's executor presents argument reversal applies Bauer alone. He liable only reason being transferee corporate also held jointly he secretly profited breach his fiduciary relationship creditor. Trounstine Pogue & Co., 44 F.Supp. 767, 773; Id., 144 379, 382. both corporation. contended should considered basis individual who sustained We agree contention sustained. While him capacities, whole His half indicates other paying capacities such. see giving preferred position. 5 Affirmed. DOUGLAS, dissenting. 7 I JACKSON ordinary, capital, losses. There suffered. Those occurred accounted earlier years accord established 560. felt, my dissent Lewis case indicates, law inexorable if law, require observance it—not merely government well. force stand its own footing, whoever may gain lose particular case. impeach when treat year's diminished last 8 JACKSON, whom FRANKFURTER joins, 9 problem arises subsequent liquidation. 10 Had transferor-corporation occurred, prior thereto, problem, under laws, arise. decreased available liquidating proportionately taxes assessed stockholders. Probably corporation's income. 11 Congress might allowed, such circumstances, returns reopened readjusted so give same results become known solution foreclosed us alternatives left are regard fastened operation adjudication 12 simplifies choice reading English language, declares come 'squarely within' sections Code. What seems clear seen at Court, consideration issue; nor grasped Circuit. 1950, 13 find little aid arguments equities. One enables taxpayer deduct taxed high 87%, while 25% (now 26%). consequence readily characterized windfall (regarding anything collector has finished him). 14 On hand, adoption contrary alternative penalize factors: (1) since deductible gains, plus $1,000, having net ensuing five opportunity beyond $5,000; (2) discharged portion probably effect Government, could taken deduction, total comes pockets Solicitude revenues plausible treacherous upon decide A victory implications future cases will cost Treasury more defeat. case, know. Suppose found undisclosed claims instead liabilities applicable state prosecuted benefit logic Court's decision adhered to, result lesser return Government recoveries Would shoe foot? 16 Where statute indecisive importance lies rational harmonious relation general scheme think great deference due twice-expressed spite gelding Dobson Commissioner, 320 489, 64 239, 88 248, recent revision Judicial Code, Act June 25, 1948, 36, 62 Stat. 991—992, 1141(a), still competent steady influence toward systematic body our sporadic omnipotence field beset invisible boomerangs. reverse, reliance more, perhaps, own. * At dissolution owned P. Davenport Pogue's estate. parties now widow,

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