Document: 26 L.Ed.2d 1 90 S.Ct. 1550 398 U.S. James G. NASH et al., Petitioners,v.UNITED STATES. No. 678. Argued April 21, 1970. Decided May 18, Harold I. Apolinsky, Birmingham, Ala., for petitioners. Matthew J. Zinn, office Sol. Gen., Washington, D.C., respondent. Mr. Justice DOUGLAS delivered the opinion of Court. Petitioners were partners operating eight finance offices in Alabama. The partnership reported its income on accrual method accounting and instead deducting bad debts within taxable year as permitted by § 166(a) Internal Revenue Code 1954 it used reserve 166(c). Under a taxpayer includes his full face amount receivable creation adjusts at end each account so that equals portion current accounts is estimated to become worthless subsequent years. Any additions necessary increase are currently deductible. When an becomes during year, decreased no additional debt deduction allowed. As 31, 1960, books showed $486,853.69 $73,028.05. 2 On June 1, petitioners formed new corporation transferred assets offices, including receivable, corporations exchange shares corporations—a transfer concededly provided gain or loss under 351 Code. 3 Commissioner determined should have included ($73,028.05) applicable had been transferred. Tax deficiencies computed; petitioners, having paid them, brought this suit refunds. District Court allowed recovery Appeals reversed, 414 F.2d 627. We granted petition certiorari resolve conflict between Fifth Ninth Circuits1 question law. 396 1000, 556, 24 492. share view Circuit reverse present judgment. 4 There provision deals precisely with question. But Commissioner's basic premise2 rests so-called tax benefit rule, viz., item has produced prior be added recovery.3 argues here, means unused amounts must restored when found longer necessary, was partnership's 'need' ended termination business. Congress could make synonymous 'recovery' meaning rule read: '(A) recovered need ended.' semantics would then honored ruling. we do not feel free state those terms context. deal 351(a) which provides: 5 'No shall recognized if property one more persons solely stock securities such immediately after person control * corporation.' 6 All received from equal value net worth transferred, less debts. If, conceded, there 'gain' 'loss' result transaction, seems anomalous treat 'income' transferor.4 7 Deduction receivables conforms reality risk noncollection transferee. Since purposes case deemed reasonable upon receivables, does seem us any 'recovery.' A originally taken income. double issued covering receivables. not, however, understand how can reserve.5 That merely perpetuates status quo tinker out reserve. 8 For these reasons, Schmidt case6 held although transfer, did mark cases, 355 F.2d, 113. agree accordingly judgment below. 9 Reversed. 10 BLACK STEWART, dissenting. 11 reasoning Judge Tuttle's case, 627, Raum's Schuster v. Commissioner, 50 T.C. 98. Accordingly, affirm Estate Revenue, Cir., 111. See Rev.Rul. 62—128, 1962—2 Cum.Bull. 139. Section 111(a) 'Gross include attributable debt, tax, delinquency amount, extent exclusion respect amount.' stated Geyer, Cornell & Newell, Inc. 96, 100: 'A consists entries account. It neither asset nor liability. existence except books, and, unlike liability, other entity.' '(T)he infirmities justify carry over hands corporation. Presumably will ultimately collected gross but rather Thus, only what themselves worth, namely, collectable than Arent, Reallocation Income Expenses Connection Formation Liquidation Corporations, 40 Taxes 995, 998 (1962). N. supra.

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