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Income Tax Keyed to Bankman
Arrowsmith v. Commissioner
Citation:
344 U.S. 6 (1952)Facts
In 1937, Petitioners decided to liquidate and divide the proceeds of a corporation in which they had equal stock ownership. Petitioners divided the liquidation distributions over four years, with the last distribution occurring in 1940. Petitioners reported the income from these distributions as capital gains. In 1944, a judgment was rendered against the old corporation, which Petitioners were required to pay. Petitioners both reported payment of the 1944 judgment as an ordinary business loss, allowing them to deduct significantly more than if they had reported the payment as a capital loss. The Commissioner of Internal Revenue asserted a deficiency, finding that the 1944 judgment should have been considered as part of a wider liquidation transaction, lasting from 1937-1944, and thus resulting in a capital loss.
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