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U.S. Supreme Court

Arrowsmith v. Commissioner, 344 U.S. 6 (1952)

Arrowsmith v. Commissioner of Internal Revenue

No. 51

Argued October 24, 1952

Decided November 10, 1952

344 U.S. 6


In 1937, two taxpayers decided to liquidate and divide the proceeds of a corporation in which each owned 50% of the stock. Partial distributions were made in 1937, 1938, and 1939, and a final one in 1940, and the profits thereon were reported by the taxpayers in their income tax returns as "capital gains." In 1944, a judgment was rendered against the corporation and against one of the taxpayers individually. Each of the two taxpayers paid half of this judgment and deducted 100% of the amount so paid as an ordinary business loss in his income tax return for 1944.

Held: Under §§ 23(g) and 115(c) of the Internal Revenue Code, these losses should have been treated as "capital losses," since they were paid because of liability imposed on the taxpayers as transferees of liquidation distribution assets. Pp. 344 U. S. 7-9.

(a) A different result is not required because of the principle that each taxable year is a separate unit for tax accounting purposes. Pp. 344 U. S. 8-9.

(b) Nor is a different result required as to one of the taxpayers because the judgment was against him personally, as well as against the corporation. P. 344 U. S. 9.

193 F.2d 734, affirmed.

The Commissioner of Internal Revenue determined that a judgment loss paid by petitioners as transferees of liquidation assets of a corporation were "capital losses" under the Internal Revenue Code. The Tax Court held that they were ordinary business losses. 15 T.C. 876. The Court of Appeals reversed. 193 F.2d 734. This Court granted certiorari. 343 U.S. 976. Affirmed, p. 344 U. S. 9. chanroblesvirtualawlibrary

Page 344 U. S. 7

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