© steven j. willis and uf college of law 2007 all rights reserved 1 i ntroduction to t ax s chool...
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© Steven J. Willis and UF College of Law 2007 All Rights Reserved1
INTRODUCTION TO TAX SCHOOL
Top 100 Cases
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
INTRODUCTION TO TAX SCHOOL
Top 100 Cases
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
Edited Case Unedited Case Slides ListTop 100 Cases List Top 33 Doctrine List
Edited Case Unedited Case Slides ListTop 100 Cases List Top 33 Doctrine List
© Steven J. Willis and UF College of Law 2007 All Rights Reserved2
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved3
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved4
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
This is a significant exception to the general
rule that:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved5
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
This is a significant exception to the general
rule that:
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved6
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
This is a significant exception to the general
rule that:
Every year stands alone.Every year stands alone.
The rule arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved7
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
This is a significant exception to the general
rule that:
Every year stands alone.Every year stands alone.
The rule arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved8
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
This is a significant exception to the general
rule that:
Every year stands alone.Every year stands alone.
The rule arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved9
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
This is a significant exception to the general
rule that:
Every year stands alone.Every year stands alone.
The rule arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved10
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• Arrowsmith is famous for one important proposition:
Transactional consistency of character.
Transactional consistency of character.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
This is a significant exception to the general
rule that:
Every year stands alone.Every year stands alone.
The rule arose from three cases:
Each is a Top 100 case.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved11
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved12
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved13
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved14
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved15
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved16
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved17
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
Because this payment was not part of the liquidation
distributions, the taxpayers considered it as an
ordinary loss.
Because this payment was not part of the liquidation
distributions, the taxpayers considered it as an
ordinary loss.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved18
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
Because this payment was not part of the liquidation
distributions, the taxpayers considered it as an
ordinary loss.
Because this payment was not part of the liquidation
distributions, the taxpayers considered it as an
ordinary loss.
It did not involve a sale or exchange and no code section
provided that payment of such a debt resulted in a capital loss.
It did not involve a sale or exchange and no code section
provided that payment of such a debt resulted in a capital loss.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved19
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved20
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved21
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
But, because it occurred in a later year, taxpayers wanted to deduct it at up
to an 87% rate.
But, because it occurred in a later year, taxpayers wanted to deduct it at up
to an 87% rate.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved22
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
But the government argued, this was part of a
capital transaction. It would have reduced capital gains (taxed at only 25%) if
it had occurred earlier.
But, because it occurred in a later year, taxpayers wanted to deduct it at up
to an 87% rate.
But, because it occurred in a later year, taxpayers wanted to deduct it at up
to an 87% rate.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved23
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved24
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved25
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against them as transferees from the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved26
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
• FACTS:– From 1937 to 1940, taxpayers received corporate distributions
as part of a liquidation.• They properly treated them as capital transactions, resulting in a
net capital gain.
• The top Capital gains rate was 25%.
• The top Ordinary Income rate was 87%.
– In 1944, taxpayers correctly paid a judgment against the corporation, rendered in 1944.
• ISSUE:– Was the 1944 deduction an ordinary or capital loss?
• HOLDING:– Capital loss.– This was part of the continuing transaction and required
transactional consistency.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved27
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
© Steven J. Willis and UF College of Law 2007 All Rights Reserved28
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
Let’s parse this language.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved29
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
© Steven J. Willis and UF College of Law 2007 All Rights Reserved30
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
The 1937-1940 distributions were properly treated as
capital transactions.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved31
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
The 1937-1940 distributions were properly treated as
capital transactions.
Had the liability at issue become evident and paid in
1940, it, too would have been a capital transaction
(resulting in a capital loss).
© Steven J. Willis and UF College of Law 2007 All Rights Reserved32
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
The 1937-1940 distributions were properly treated as
capital transactions.
Had the liability at issue become evident and paid in
1940, it, too would have been a capital transaction
(resulting in a capital loss).
At a 25% tax rate.At a 25% tax rate.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved33
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
© Steven J. Willis and UF College of Law 2007 All Rights Reserved34
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is the argument of the taxpayer (and the
Tax Court and one other Circuit Court).
© Steven J. Willis and UF College of Law 2007 All Rights Reserved35
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is the argument of the taxpayer (and the
Tax Court and one other Circuit Court).
This would be ordinary because it would lack sale or
exchange treatment.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved36
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is the argument of the taxpayer (and the
Tax Court and one other Circuit Court.
This would be ordinary because it would lack sale or
exchange treatment.
Per current section 1222, sale or exchange treatment is a prerequisite for capital
treatment.
Per current section 1222, sale or exchange treatment is a prerequisite for capital
treatment.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved37
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is the argument of the taxpayer (and the
Tax Court and one other Circuit Court.
This would be ordinary because it would lack sale or
exchange treatment.
Per current section 1222, sale or exchange treatment is a prerequisite for capital
treatment.
Per current section 1222, sale or exchange treatment is a prerequisite for capital
treatment.
Section 1222 is on the Top 100 Sections List.
Section 1222 is on the Top 100 Sections List.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved38
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is the argument of the taxpayer (and the
Tax Court and one other Circuit Court.
This would be ordinary because it would lack sale or
exchange treatment.
But it would have been deductible at up to an 87%
rate . . . even though the related income was taxed
at only 25%.
But it would have been deductible at up to an 87%
rate . . . even though the related income was taxed
at only 25%.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved39
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
© Steven J. Willis and UF College of Law 2007 All Rights Reserved40
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is a basic principle of tax law:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved41
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is a basic principle of tax law:
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved42
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is a basic principle of tax law:
Every year stands alone.Every year stands alone.
The doctrine arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved43
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is a basic principle of tax law:
Every year stands alone.Every year stands alone.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
The doctrine arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved44
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is a basic principle of tax law:
Every year stands alone.Every year stands alone.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
The doctrine arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved45
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
This is a basic principle of tax law:
Every year stands alone.Every year stands alone.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
The doctrine arose from three cases:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved46
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
This is a basic principle of tax law:
Every year stands alone.Every year stands alone.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
•Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
•U.S. v. Lewis, 340 U.S. 590 (1951).
•North American Oil v. Burnet, 286 U.S. 417.
The doctrine arose from three cases:
Each of these cases is on the Top 100 List.
Each of these cases is on the Top 100 List.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved47
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
© Steven J. Willis and UF College of Law 2007 All Rights Reserved48
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
We may consider the character of an entire transaction, even if it
involves multiple years.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved49
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
We may consider the character of an entire transaction, even if it
involves multiple years.
This exception to the principle of:
Does not violate the general rule.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved50
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
We may consider the character of an entire transaction, even if it
involves multiple years.
This exception to the principle of:
Does not violate the general rule.
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved51
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The famous language of the Doctrine.
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
“It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U.S. 590; North American Oil v. Burnet, 286 U.S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.”
We may consider the character of an entire transaction, even if it
involves multiple years.
This exception to the principle of:
Does not violate the general rule.
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved52
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The three dissents disagreed sharply with the majority.
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
© Steven J. Willis and UF College of Law 2007 All Rights Reserved53
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The three dissents disagreed sharply with the majority.
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
They argued the Court should uphold the rule
that:
They argued the Court should uphold the rule
that:
© Steven J. Willis and UF College of Law 2007 All Rights Reserved54
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The three dissents disagreed sharply with the majority.
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
They argued the Court should uphold the rule
that:
They argued the Court should uphold the rule
that:
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved55
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The three dissents disagreed sharply with the majority.
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
They argued the Court should uphold the rule
that:
They argued the Court should uphold the rule
that:
They questioned . . . but did not answer . . .
whether the Arrowsmith Doctrine would apply to subsequent gains . . . or whether it is limited to
losses.
They questioned . . . but did not answer . . .
whether the Arrowsmith Doctrine would apply to subsequent gains . . . or whether it is limited to
losses.
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved56
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The three dissents disagreed sharply with the majority.
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
They argued the Court should uphold the rule
that:
They argued the Court should uphold the rule
that:
They questioned . . . but did not answer . . .
whether the Arrowsmith Doctrine would apply to subsequent gains . . . or whether it is limited to
losses.
They questioned . . . but did not answer . . .
whether the Arrowsmith Doctrine would apply to subsequent gains . . . or whether it is limited to
losses.
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved57
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• The three dissents disagreed sharply with the majority.
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
They argued the Court should uphold the rule
that:
They argued the Court should uphold the rule
that:
They questioned . . . but did not answer . . .
whether the Arrowsmith Doctrine would apply to subsequent gains . . . or whether it is limited to
losses.
They questioned . . . but did not answer . . .
whether the Arrowsmith Doctrine would apply to subsequent gains . . . or whether it is limited to
losses.
Every year stands alone.Every year stands alone.
© Steven J. Willis and UF College of Law 2007 All Rights Reserved58
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• To summarize:
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
© Steven J. Willis and UF College of Law 2007 All Rights Reserved59
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• To summarize:
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
© Steven J. Willis and UF College of Law 2007 All Rights Reserved60
Arrowsmith v. Commissioner, 344 U.S. 6 (1952)
• To summarize:
– When you hear of “Arrowsmith,” you should think of:
• The Claim of Right Doctrine
– You should also associate the case with transactional accounting and the notion that every year stands alone.• Ideally, you would also associate the case with
– Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) – U.S. v. Lewis, 340 U.S. 590 (1951).
Transactional consistency of character.
Transactional consistency of character.