Court Opinion

ID: 4477335
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:28.956502+00
Date Added: 2024-06-11T14:53:55.043392
License: Public Domain

Murdock and Raum, JJ., dissenting: We cannot agree with the holding that the basis of the after-acquired stock, obtained by the investment of fresh capital, must be reduced instantly by net operating losses sustained during earlier years. Losses of a subsidiary in prior years were absorbed by other income on consolidated returns. The limits of the tax effects of those losses on the basis of the stock of the subsidiary which the parent then owned (or even subsequently, acquired as the result of a split-up of such stock) were fixed. Yet the prevailing opinion holds that the basis of entirely new stock of the subsidiary, subsequently purchased by the parent, is not the cost thereof to the parent, but that it is the cost as simultaneously reduced by old losses of the subsidiary which produced tax benefits in the consolidated return. In effect, the investment of new money is penalized since the investor is required to wipe out past tax benefits which are wholly unrelated to the investment in the new stock. The result is extraordinary ; it is not called for by the statute; and the regulations do not focus upon the problem one way or the other.