Document: 499 U.S. 554 111 S.Ct. 1503 113 L.Ed.2d 589 COTTAGE SAVINGS ASSOCIATIONv.COMMISSIONER OF INTERNAL REVENUE. No. 89-1965. Argued Jan. 15, 1991. Decided April 17, Syllabus Petitioner Cottage Savings Association simultaneously sold participation interests in 252 mortgages to four savings and loan associations purchased from them 305 other mortgages. All of the loans were secured by single-family homes. The fair market value package exchanged each side was approximately $4.5 million. face relinquished $6.9 For Federal Home Loan Bank Board (FHLBB) accounting purposes, Savings' treated as having been for "substantially identical" ones held lenders. On its 1980 federal income tax return, claimed a deduction adjusted difference between it traded received. Following Commissioner's disallowance deduction, Tax Court determined permissible. Appeals reversed, finding that had realized losses through transaction, but not entitled because actually sustained purposes § 165(a) Internal Revenue Code, which allows deductions only bona fide losses. Held: 1. tax-deductible loss properties materially different. Pp. 559-567. (a) In order avoid cumbersome, abrasive, unpredictable administrative task valuing assets annually determine whether their has appreciated or depreciated, 1001(a) Code defers consequences gain property until is "sale disposition [the] property." This rule serves convenience change investment's form extent can be easily detected taxpayer an officer. P. 1507. (b) An exchange constitutes "disposition property" under if are Although statute legislative history silent on subject, Treasury Regulation 1.1001-1 includes material differencerequire ment realization occur property. should given deference reasonable interpretation 1001(a). Where, here, long continues without substantial applies substantially reenacted statute, deemed have congressional approval. regulation also consistent with this Court's landmark precedents realization, make clear realizes taxable "materially" "essentially" United States v. Phellis, 257 156, 173, 42 63, 67, 66 L.Ed. 180; Weiss Stearn, 265 242, 253-254, 44 490, 491-493, 68 1001; Marr States, 268 536, 540-542, 45 575, 576-577, 69 1079. Since these cases part contemporary legal context substance originally enacted, since Congress left principles undisturbed subsequent reenactments, presumed intended codify 560-562. (c) Properties different respective possessors enjoy entitlements kind extent. As identical, will allow both Commissioner transacting fix depreciated values relative bases. There no support Weiss, "economic substitute" concept difference, differences would when parties, relevant market, regulatory body consider so. Moreover, complexity approach ill goal underlying requirement incompatible Code's structure. 562-566. (d) transactions satisfy test. derived made obligors homes, embodied legally distinct entitlements. Thus, at point exchange, time position mortgages' status FHLBB's criteria bearing conclusion, mortgage FHLBB still exhibit "differences" "material" Code. 566-567. 2. within meaning apparent argument rejected, there contention transaction conducted arm's length retained de facto ownership traded. Higgins Smith, 308 473, 60 355, 84 406, distinguished. 567-568. 890 F.2d 848 (CA6 1989), reversed remanded. MARSHALL, J., delivered opinion Court, REHNQUIST, C.J., STEVENS, O'CONNOR, SCALIA, KENNEDY, SOUTER, JJ., joined. BLACKMUN, filed dissenting opinion, WHITE, joined, post, p. ----. Dennis L. Manes, Cincinnati, Ohio, petitioner. John G. Roberts, Jr., Washington, D.C., respondent. Justice MARSHALL Court. 1 issue case financial institution exchanges one group residential another lender's loans. We hold such does give rise 2 * (Cottage Savings) association (S & L) formerly regulated (FHLBB).1 Like many S L's, numerous long-term, low-interest declined interest rates surged late 1970's. These institutions benefited selling devalued realize However, they deterred doing so regulations, required record books. Reporting then-effective regulations placed L's risk closure FHLBB. 3 responded situation relaxing requirements reporting directive known "Memorandum R-49," dated June 27, 1980, need report associated lenders.2 acknowledged purpose Memorandum R-49 facilitate generate affect economic L's. 4 involves typical transaction. December 31, "90% participation" It interests" L's.3 involved most Cincinnati area. See 90 T.C. 372, 378-382 (1988). 5 $2,447,091, represented permitted R-49, did After disallowed sought redetermination 372 6 appeal Commissioner, reversed. 1989). agreed determination id., 852. court "actually" during year 26 U.S.C. 165(a). F.2d, 855. 7 Because importance L industry conflict among Circuits over produce deductible losses,4 we granted certiorari. 498 808, 40, 112 17 (1990). now reverse. II 8 Rather than assessing liability basis annual fluctuations taxpayer's property, "realizes" loss. implicit 1001(a), defines "[t]he [or loss] sale "the amount realized" "adjusted basis." recognized, "founded convenience." Helvering Horst, 311 112, 116, 61 144, 147, 85 75 (1940). Under appreciation-based system taxation, taxpayers undertake "cumbersome, task" value. B. Bittker Lokken, Taxation Income, Estates Gifts ¶ 5.2, 5-16 (2d ed. contrast, "[a] investment officer." R. Magill, Taxable Income 79 (rev. 1945). 9 Section 1001(a)'s language provides straightforward test realization: must engage parties agree cannot characterized "sale" 1001(a); before us argues "disposition" further submits that, essentially substitutes, those received Savings, hand, maintains any regardless Alternatively, contends properties. 10 therefore principle incorporates "material difference" requirement. If does, decide what amounts how case. questions turn. A. 11 Neither nor indicates differ count Nonetheless, readily gives event "materially different." himself construed embody requirement: 12 "Except otherwise provided . conversion into cash, differing either extent, sustained." Treas.Reg. 1.1001-1, CFR (1990) (emphasis added). 13 delegated power promulgate "all needful rules enforcement [the Code]," 7805(a), defer his interpretations reasonable, see National Muffler Dealers Assn., Inc. 440 472, 476-477, 99 1304, 1306-1307, 59 519 (1979). 14 conclude first employed comprises 202(a) Act 1924, ch. 234, 43 Stat. 253; remained unchanged various reenactments.5 And 1934, statutory term include requirement.6 " 'Treasury continued change, applying unamended statutes, approval effect law.' Correll, 389 299, 305-306, 88 445, 449, 19 537 (1967), quoting Winmill, 79, 83, 45, 46, 83 52 (1938). 15 our realization. series early decisions involving effects exchanges, 180 (1921); 491-492, 1001 (1924); 1079 (1925); Eisner Macomber, 189, 207-212, 40 193-195, 64 521 (1920) (recognizing requirement). "contemporary context" enacted 1924 Act, Cannon University Chicago, 441 677, 698-699, 1946, 1958-1959, 560 (1979), reenactments established cases, may presume Pierce Underwood, 487 552, 567, 108 2541, 2551, 101 490 (1988); Lorillard Pons, 434 580-581, 98 866, 869-870, 55 (1978). construction incorporate certainly reasonable. B 16 Precisely more complicated question. different" substance. To sense, argues, look attitudes evaluation secondary views embodies much less demanding complex Unlike question contains requirement, Commissioner. issued authoritative, prelitigation requirement.7 test, law derives believe enacting reenacting supra, S.Ct., 869-870. 18 start classic treatment supra. who owned 2,200 shares stock company 1,100 pro rata dividend meant reflect company's growth At constituted income. not, realized. U.S., 193-195. reasoned merely reflected increased worth stock, 211-212, 194-195, receiving "something exchangeable proceeding property," 207, 193. three decisions—United supra; supra refined Macomber's conception exchanges. case, itsac quisition. corporation reorganized new corporation, assuming business old corporation. While corporations Phellis changed New Jersey Delaware corporations, original successor incorporated Ohio. following reorganization, stockholders equal proportional 20 accumulated return representing equivalent corporations. Marr, events. State "different rights powers" State, acquired previously had. 169-173, 65-67; 576-577 (using phrase "essentially ). occurred Weiss. By exchanging predecessor newly receive "a thing really he theretofore had." 254, 492. explained "really turned fact companies same State. (outlining distinction cases). 21 Obviously, predecessors minimal. Taken together, stand "different" sense separate groups confer character corporation." 540, 577. 541, 597; "differen[t] 541. No standard necessary 146-47. For, 22 find difference. According said (in market), FHLBB) material. Nothing suggests subjective trigger 23 underlies apply principled fashion, identify establish agency whose taken account, then assess participants view failure explain inquiries calls workability 24 Finally, structure 1001(c) Title "shall recognized" unless nonrecognition provisions applies. One provision withholds recognition appear substitutes provision, commonly "like kind" exception, "on productive use trade like investment." 1031(a)(1). expected similar events reason bar transactions. C 25 different"—that is, here Consequently, exchange. anomalous treat anomaly, however, semantic; identical gave up, put event, R-49. III 27 found realized, ground states shall allowed "any compensated insurance otherwise." 165(a), 28 "To allowable section evidenced closed completed transactions, fixed identifiable events, and, except 165(h) 1.165-11, relating disaster losses, year. Only allowable. Substance mere govern determining loss." 1.165-1(b), 1.165-1(b) 29 offers minimal defense Appeals' conclusion. lacked substance," seems mean fide. say "seems" sentence footnote brief offering explanation. Brief Respondent 34-35, n. 39. authority cites 406 (1939). 89-1926, 16, 11. 30 Higgins, sustain securities below cost sole shareholder. benefit wholly 475-476, 356-357. length, reciprocating inapposite. advance arguments ruling respect IV 31 reasons set forth above, judgment remanded proceedings opinion. 32 So ordered. abolished 1989. 401 Financial Institutions Reform, Recovery, Enforcement 1989, Pub.L. 101-73, 103 354. listed classifying identical. "The must: "1. involve mortgages, "2. type (e.g., conventionals conventionals), "3. stated terms maturity years), "4. rates, "5. seasoning (i.e., remaining maturity), "6. aggregate principal lesser 21/2% $100,000 (plus minus) sides additional consideration being paid "7. recourse, "8. values, "9. loan-to-value ratios reciprocal sale, "10. all security state." Record, Exh. 72-BT. rather themselves, party relationship individual obligors. service transferred monthly payments participation-interest holders. 381 two Courts considered do Nat. Mortgage Assn. 283 U.S.App.D.C. 53, 56-58, 896 580, 583-584 (1990); San Antonio 887 577 (CA5 provided: hereinafter section, excess therefrom subdivision 204, realized." essence 111(a) 277, 48 703; 1939, 1, 53 37; finally 1954, 591, 68A 295. What originated 86, Art. 111-1, promulgated pursuant 1934. That provided, regards sustained, extent" Centennial FSB, Rulings sales 25, (citing Rev.Rul. 85-125, 1985-2 Cum.Bull. 81-204, 1981-2 157). Perhaps postdate purport define "differ materially" argued rulings deference. Compare, e.g., 483-484, nn. 16-19, 1310-1311, (1979) (deferring longstanding consistently adhering variety patterns). generally Udall Tallman, 380 16-17, 792, 801-802, 616 (1965) (agency's own deference).

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