United States v. Kirby Lumber Co.

SCOTUSCase
Litigants=United States v. Kirby Lumber Co.
ArgueDate=October 21
ArgueYear=1931
DecideDate=November 2
DecideYear=1931
FullName=United States v. Kirby Lumber Company
USVol=284
USPage=1
Citation=52 S. Ct. 4; 76 L. Ed. 131; 1931 U.S. LEXIS 457; 2 U.S. Tax Cas. (CCH) P814; 10 A.F.T.R. (P-H) 458
Prior="Cert." to the Court of Claims, 283 U.S. 814, to review a judgment allowing a claim for refund of money collected as income tax. 71 Ct. Cls. 290; 44 F.2d 885
Subsequent=
Holding=If a corporation purchases and retires bonds at a price less than their face value or issuing price, the excess amount of the purchase price over the issuing price is a taxable gain.
SCOTUS=1930-1932
Majority=Holmes
JoinMajority="unanimous court"
LawsApplied=§ 213 of the Revenue Act of 1921

"United States v. Kirby Lumber Co.", 284 U.S. 1 (1931), was a case in which the United States Supreme Court held that when a corporation settles its debts for less than the face amount, a taxable gain has occurred.

Facts & procedural history

In 1923, the Kirby Lumber Company issued bonds which had a par value of $12,126,800. Later that same year, the company repurchased the same bonds in the open market for a sum less than par value. The difference between the issue price of the bonds and the price at which the company repurchased them was $137,521.30. The regulations promulgated by the United States Department of the Treasury stated that such a cost savings to a corporation was to be considered taxable income. The Court of Claims, however, found in favor of the taxpayer, analogizing the situation in this case to the one in "Bowers v. Kerbaugh-Empire Co.", 271 U.S. 170 (1925), a case in which a loan repaid in devalued German marks was not considered to be a taxable gain for the taxpaying company.

Decision

In a brief, concise, unanimous opinion, Justice Holmes upheld the validity of the Treasury regulations. He distinguished "Bowers v. Kerbaugh-Empire Co." on the grounds that the enterprise in that case had been on the whole a failure, and had lost money. In this case, the taxpayer had made a clear and obvious gain. By paying off its debts for less than the issue price, it had freed up assets to spend on other things. Interestingly, Justice Holmes said nothing in his opinion about the Treasury's definition of income.

ee also

* List of United States Supreme Court cases, volume 284

Further reading

*cite journal |last=Bittker |first=Boris I. |authorlink= |coauthors=Thompson, Barton H. Jr. |year=1978 |month= |title=Income from the Discharge of Indebtedness: The Progeny of "United States v. Kirby Lumber Co." |journal=California Law Review |volume=66 |issue=6 |pages=1159–1187 |doi=10.2307/3479935 |url= |accessdate= |quote=
*cite book |title=Tax stories: An in-depth look at ten leading federal income tax cases |chapter=The Story of "Kirby Lumber": The Many Faces of Discharge of Indebtedness Income |last=Schenk |first=Deborah H. |authorlink= |editor=Caron, Paul L. (ed.) |year=2002 |publisher=Foundation Press |location=New York |isbn=1587784033 |pages=97–130

External links

*caselaw source
case="United States v. Kirby Lumber Co.", 284 U.S. 1 (1931)
enfacto=http://www.enfacto.com/case/U.S./284/1/
findlaw=http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=284&page=1