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U.S. Supreme Court

New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435 (1934)

New Colonial Ice Co., Inc. v. Helvering

No. 547

Argued March 5, 6, 1934

Decided May 28, 1934

292 U.S. 435


1. Whether and to what extent deductions of losses shall be allowed in computing income taxes depends upon legislative grace, and only as there is clear statutory provision therefor can any particular deduction be allowed. P. 292 U. S. 440.

2. The statutes pertaining to the determination of taxable income have proceeded generally on the principle that there shall be a computation of gains and losses on the basis of a distinct accounting for each taxable year, and only in exceptional situations, clearly chanroblesvirtualawlibrary

Page 292 U. S. 436

defined, has there been provision for an allowance for losses suffered in an earlier year. P. 292 U. S. 440.

3. The statutes also have disclosed a general purpose to confine allowable losses to the taxpayer sustaining them -- i.e., to treat them as personal to him, and not transferable to or usable by another. P. 292 U. S. 440.

4. In order to overcome financial difficulties, all the assets, liabilities and business of a corporation were taken over by a new corporation specially organized for the purpose and having substantially the same capital structure, in exchange for a portion of its stock, which was distributed by the older corporation among its stockholders, share for share, thereby retiring the old shares. Creditors were given a supervising management of the new corporation through a stock voting trust until their claims should be paid. The corporate existence of the older corporation continued. Held that the two corporations were distinct entities, and that the new corporation, in the computation of the tax on its net income for succeeding year, was not entitled to deduct earlier losses of the old corporation, under § 204(b) of the Revenue Act of 1921, which provides that, where any "taxpayer" has sustained a net loss, the amount may be deducted from the net income of "the taxpayer" for succeeding tax years. P. 292 U. S. 440.

5. As a general rule a corporation and its stockholders are deemed separate entities, and this is true in respect of tax problems. P. 292 U. S. 442.

66 F.2d 480 affirmed.

Certiorari, 290 U.S. 621, to review the affirmance of a decision of the Board of Tax Appeals, 24 B.T.A. 886, upholding deficiency assessments of income taxes.

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