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Income Tax Keyed to Bankman
Burnet v. Logan
Citation:
283 U.S. 404 (1931)Facts
In 1916, Respondent sold 1,000 shares of stock in which she had a basis of $180,000 in exchange for $120,000 in cash and the right to receive future payments from earnings of an iron mine. The parties were considerably uncertain as to what the future payments would amount to but the Commissioner of Internal Revenue estimated a value of $100,000. The Commissioner asserted that the exchange of stock for the cash payment and future iron ore earnings constituted a “closed transaction” wherein Respondent realized a gain of $40,000: the difference between the value of the cash payment ($120,000), plus the estimated future payments ($100,000), minus her basis in the stock ($180,000). Respondent argued that the deal be considered an “open transaction” due to the unascertainable nature of what the future iron ore payments will be worth. Under the “open transaction” scheme, Respondent would not realize any gain until the iron ore payments actually received by her exceeded her basis in the stock.
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