Source: https://openjurist.org/274/us/398
Timestamp: 2019-04-23 04:23:58+00:00

Document:
S. S. WHITE DENTAL MFG. CO. OF PENNSYLVANIA.
This case comes here on writ of certiorari to the Court of Claims, Act Feb. 13, 1925, 43 Stat. 939, § 3(b), being Comp. St. § 1172a, amending Judicial Code, to review a judgment of that court allowing recovery by respondent of income taxes paid for the year 1918. The sole question presented is the right of the respondent, upheld below, to deduct from its gross income for 1918, the amount of its investment in a subsidiary German corporation whose entire property was seized in that year by the German government as enemy property.
In March, 1918, the sequestrator appointed by the German government took over the property of the German corporation and the management of its business. It is inferable from the findings, as the government concedes, that the sequestration was similar in purpose and legal effect to that authorized under the Trading with the Enemy Act of the United States Oct. 6, 1917, c. 106, 40 Stat. 411, Act March 28, 1918, c. 28, 40 Stat. 459, Act July 11, 1919, c. 6, 41 Stat. 35, Act June 5, 1920, c. 241, 41 Stat. 977, Act March 4, 1923, c. 285, 42 Stat. 1511, Act May 7, 1926, c. 252, 44 Stat. 406, and we shall deal with the case on that basis.
The case turns upon the question whether the loss, concededly sustained by the respondent through the seizure of the assets of the German company in 1918, was so evidenced by a closed transaction within the meaning of the quoted statute and treasury regulations as to authorize its deduction from gross income of that year. The statute obviously does not contemplate and the regulations (article 144) forbid the deduction of losses resulting from the mere fluctuation in value of property owned by the taxpaper. New York Ins. Co. v. Edwards, 271 U. S. 109, 116, 46 S. Ct. 436, 70 L. Ed. 859, cf. Miles v. Safe Deposit Co., 259 U. S. 247, 42 S. Ct. 483, 66 L. Ed. 923. But with equal certainty they do contemplate the deduction from gross income of losses, which are fixed by identifiable events, such as the sale of property (article 141, 144), or caused by its destruction or physical injury (article 141, 142, 143), or, in the case of debts, by the occurrence of such events as prevent their collection (article 151).
The transaction evidencing the loss here was the seizure of the property of the German company. The loss resulted to the respondent because it was a creditor and shockholder of that company which, as a result of the sequestration, was left without property or assets of any kind. The sequestration of enemy property was within the rights of the German government as a belligerent power and when effected left the corporation without right to demand its release or compensation for its seizure, at least until the declaration of peace. See Littlejohn & Co. v. United States, 270 U. S. 215, 46 S. Ct. 244, 70 L. Ed. 553; White v. Mechanics' Securities Corp., 269 U. S. 283, 300, 301, 46 S. Ct. 116, 70 L. Ed. 275; Swiss Insurance Co. v. Miller, 267 U. S. 42, 45 S. Ct. 213, 69 L. Ed. 504; Stoehr v. Wallace, 255 U. S. 239, 242, 244, 41 S. Ct. 293, 65 L. Ed. 604; Central Trust Co. v. Garvan, 254 U. S. 554, 41 S. Ct. 214, 65 L. Ed. 403; Brown v. United States, 8 Cranch, 110, 122, 3 L. Ed. 504. What would ultimately come back to it, as the event proved, might be secured, not as a matter of right, but as a matter either of grace to the vanquished or exaction by the victor. In any case the amount realized would be dependent upon the hazards of the war then in progress.
If the seized assets are viewed as the property of respondent, ignoring the entity of the German company, the result is the same. The quoted regulations, consistently with the statute, contemplate that a loss may become complete enough for deduction without the tax payer's establishing that there is no possibility of an eventual recoupment. It would require a high degree of optimism to discern in the seizure of enemy property by the German government in 1918 more than a remote hope of ultimate salvage from the wreck of the war. The taxing act does not require the taxpayer to be an incorrigible optimist.

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