Source: https://supreme.justia.com/cases/federal/us/292/435/
Timestamp: 2019-04-20 22:16:06+00:00

Document:
1. Whether and to what extent deductions of losses shall be allowed in computing income taxes depends upon legislative grace, and only as there is clear statutory provision therefor can any particular deduction be allowed. P. 292 U. S. 440.
defined, has there been provision for an allowance for losses suffered in an earlier year. P. 292 U. S. 440.
3. The statutes also have disclosed a general purpose to confine allowable losses to the taxpayer sustaining them -- i.e., to treat them as personal to him, and not transferable to or usable by another. P. 292 U. S. 440.
4. In order to overcome financial difficulties, all the assets, liabilities and business of a corporation were taken over by a new corporation specially organized for the purpose and having substantially the same capital structure, in exchange for a portion of its stock, which was distributed by the older corporation among its stockholders, share for share, thereby retiring the old shares. Creditors were given a supervising management of the new corporation through a stock voting trust until their claims should be paid. The corporate existence of the older corporation continued. Held that the two corporations were distinct entities, and that the new corporation, in the computation of the tax on its net income for succeeding year, was not entitled to deduct earlier losses of the old corporation, under § 204(b) of the Revenue Act of 1921, which provides that, where any "taxpayer" has sustained a net loss, the amount may be deducted from the net income of "the taxpayer" for succeeding tax years. P. 292 U. S. 440.
5. As a general rule a corporation and its stockholders are deemed separate entities, and this is true in respect of tax problems. P. 292 U. S. 442.
Petitioner also insists that the ultimate parties in interest -- stockholders and creditors -- were substantially the same after the transfer as before, and this may be conceded. But there is here no effort to tax either creditors or stockholders. Other statutes, as also constitutional provisions, have an important bearing on the taxation of gains by stockholders through corporate reorganizations, and the cited decisions relating to that subject [Footnote 1] are not presently apposite. What is being taxed in this instance is the income realized by the new company in conducting the business after the transfer, and the sole matter for decision is whether, under § 204(b), there shall be deducted from that income the losses suffered by the old company in its conduct of the same business before the transfer.
These views, often reflected in decisions of this Court, have been recently reaffirmed and applied in Woolford Realty Co. v. Rose, 286 U. S. 319, 286 U. S. 326 et seq.; Planters' Cotton Oil Co. v. Hopkins, 286 U. S. 332, and Helvering v. Independent Life Ins. Co., ante, p. 292 U. S. 371.
As a general rule, a corporation and its stockholders are deemed separate entities, [Footnote 3] and this is true in respect of tax problems. [Footnote 4] Of course, the rule is subject to the qualification that the separate identity may be disregarded in exceptional situations where it otherwise would present an obstacle to the due protection or enforcement of public or private rights. [Footnote 5] But, in this case, we find no such exceptional situation -- nothing taking it out of the general rule. On the contrary, we think it a typical case for the application of that rule.
United States v. Phellis, 257 U. S. 156; Rockefeller v. United States, 257 U. S. 176; Cullinan v. Walker, 262 U. S. 134; Weiss v. Stearn, 265 U. S. 242; Marr v. United States, 268 U. S. 536.
See Southern Pacific Co. v. Lowe, 247 U. S. 330, 247 U. S. 337; Peabody v. Eisner, 247 U. S. 347, 247 U. S. 349; Gulf Oil Corp. v. Lewellyn, 248 U. S. 71.
Pullman's Palace Car Co. v. Missouri Pacific Ry. Co., 115 U. S. 587, 115 U. S. 596-597; Donnell v. Herring-Hall-Marvin Safe Co., 208 U. S. 267, 208 U. S. 273; United States v. Delaware, L. & W. R. Co., 238 U. S. 516, 238 U. S. 527-529; Cannon Mfg. Co. v. Cudahy Packing Co., 267 U. S. 333; Klein v. Board of Tax Supervisors, 282 U. S. 19, 282 U. S. 24.
Klein v. Board of Tax Supervisors, 282 U. S. 19, 282 U. S. 24; Dalton v. Bowers, 287 U. S. 404, 287 U. S. 410; Burnet v. Clark, 287 U. S. 410, 287 U. S. 415; Burnet v. Commonwealth Improvement Co., 287 U. S. 415, 287 U. S. 418-420.
United States v. Lehigh Valley R. Co., 220 U. S. 257, 220 U. S. 272-274; Chicago, Milwaukee & St. Paul Ry. Co. v. Minneapolis Civic & Commerce Assn., 247 U. S. 490, 247 U. S. 500-501; Southern Pacific Co. v. Lowe, 247 U. S. 330, 247 U. S. 337-338; Gulf Oil Corp. v. Lewellyn, 248 U. S. 71.

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