Source: https://www.legalcrystal.com/case/97086/higgins-vs-smith
Timestamp: 2019-04-21 04:41:13+00:00

Document:
1. Under § 23(e) of the Revenue Act of 1932, authorizing in the computation of income tax deductions for losses sustained during the taxable year, no deductible loss occurs upon a sale by the taxpayer to a corporation wholly owned by him. P. 308 U. S. 476 .
2. The contention that this conclusion is inconsistent with prior interpretations of the income tax laws and unfair to the taxpayer examined and rejected. P. 308 U. S. 478 .
3. From the fact that § 24(a)(6) of the Revenue Act of 1934 provides explicitly that losses determined by sales to corporations controlled by the taxpayer are not deductible, it does not follow that the law formerly was otherwise. P. 308 U. S. 479 .
4. Claims of error prejudicial to the taxpayer, arising out of the District Court's rulings on evidence in this case, held without merit. P. 308 U. S. 480 .
The taxpayer has preserved two objections to the district judge's rulings on the evidence. He claims that evidence as to transactions between the taxpayer and the corporation which took place prior to the sale here involved was remote and highly prejudicial. We think it apparent that this evidence was entirely relevant to the present issue; the history of the taxpayer's relations with the corporation shed considerable light on the actual effect of the sale in question. The second contention is that the district judge charged the jury to give less effect to the book entries of Smith and the corporation than they were entitled to under the applicable book entry statute. [ Footnote 18 ] The alleged departure from the statute has but dubious support in the record, resting on a single statement of the judge lifted from its context as part of an extended colloquy with counsel. In the circumstances, there is no merit in the claim of prejudice to the taxpayer.
103 F.2d 110, aff'd sub nom. Griffiths v. Commissioner, ante, p. 308 U. S. 355 .
Burnett v. Huff, 288 U. S. 156 , 288 U. S. 161 .
Cf. Stone v. White, 301 U. S. 532 , 301 U. S. 537 .
See also Klein v. Board of Supervisors, 282 U. S. 19 ; Dalton v. Bowers, 287 U. S. 404 ; Burnet v. Clark, 287 U. S. 410 .
Cf. Edwards v. Chile Copper Co., 270 U. S. 452 , 270 U. S. 456 .
Lucas v. Earl, 281 U. S. 111 ; Corliss v. Bowers, 281 U. S. 376 ; Griffiths v. Commissioner, ante, p. 308 U. S. 355 .
Helvering v. Wilshire Oil Co., ante, p. 308 U. S. 90 .
Cf. Sanford's Estate v. Commissioner, ante, p. 308 U. S. 39 .
The problem as to how a sale to a corporation wholly owned or wholly controlled by an individual taxpayer is to be treated is not a new one. The existence of such corporations and the dealings between them and their stockholder or stockholders have long been understood. Congress was not ignorant of the problem. [ Footnote 2/1 ] At the outset, Congress might well have adopted the policy that a sale by the stockholder to the corporation, or vice versa, should be disregarded, and the stockholder treated as in effect the owner of the capital asset until its sale to a stranger. On the other hand, it would be a practical policy to recognize the separate entity of the corporation, to treat a transfer at current value for adequate consideration occurring between it and its sole stockholder as closing a transaction for the purpose of reckoning either gain or loss, and then to tax the vendee upon his or its gain or loss upon a subsequent transfer by comparison of the basis on which the asset was acquired and the amount realized on final disposition by the vendee. In fact, the latter course was adopted and was consistently followed until 1934, when Congress dealt with the subject.
Dalton v. Bowers, 287 U. S. 404 ; Menihan v. Commissioner, 79 F.2d 304.
Burnet v. Commonwealth Improvement Co., 287 U. S. 415 .

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