MCCAUGHN, COLLECTOR OF INTERNAL REVENUE,
v.
LUDINGTON
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Ludington purchased corporate stock before March 1, 1913, for $32,500 and sold it in 1919 for $3,866.91, claiming a deductible loss based on the difference between the stock's March 1, 1913 market value ($37,050) and the selling price. The Supreme Court held that under the Revenue Act of 1918, a taxpayer could only deduct losses measured by the difference between the original purchase price and the actual sale price, not the difference between the property's value on the statutory date and the sale price, affirming that Ludington's deductible loss was $28,633.09 rather than $33,183.09.
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Mr. Justice Sanford delivered the' opinion of the Court.
This case arises under the income tax provisions of the Revenue Act of 1918,1 and presents another aspect of the question relating to deductible losses sustained from the sale of property acquired before March 1, 1913, which was involved in United States v. Flannery, just decided, ante, p. 98.
Ludington bought, prior to March 1, 1913, certain corporate stock for $32,500. Its market value on March 1, 1913, was $37,050. He sold it in 1919 for $3,866.91, which was $28,633.09 less than its purchase price, and $33,- 183.09 less than its market value on March 1, 1913. In his income tax return he deducted the latter sum as the amount of his loss on the sale of the stock. The . Commissioner of Internal Revenue reduced the amount of the deduction to the actual loss of $28,633.09, and assessed an additional tax against him.- He paid this-tax under protest, and, after the usual preliminary procedure, brought this suit against the Collector in a federal District Court in Pennsylvania to recover the amount so paid. Judgment was entered for the defendant. 290 Fed. 604. This was reversed by the Court of Appeals. 1 Fed. (2d) 689. And this writ of certiorari was granted. 266 U. S. 599.
The case is governed by the decision in United States v. Flannery, supra. It was there, held, on the authority of Goodrich v. Edwards, 255 U. S. 527, and Walsh v. Brewster, 255 U. S. 536, that the Act allowed a deduction to the extent only that an actual loss was sustained from the investment, as measured by the difference between the purchase and sale prices of the property. It follows that, as the actual loss to Ludington in the entire transaction was the difference between the purchase and selling-prices, that-is, $28,633.09, he was only entitled to-deduct this amount, and not the difference of-$33,183.09 between the market value on March 1, 1913 and the selling price. This is in exact correspondence with the decision in Walsh v. Brewster, supra, in reference to the second transaction there involved, in which it was held that the taxable gain deriyed from the sale of property was only the difference between the purchase and selling prices, and not the difference between the market value on March 1, 1913 and the selling price.
So under the Income Tax Law of New York, which, as pointed out in United States v. Flannery, is a substantial transcript of the Revenue Act of 1918, except that January 1, 1919 is substituted for March 1, 19 3, it was specifically held, in a case precisely similar to the present, that the loss deductible by the taxpayer was limited to the difference between the purchase and selling prices, although on January 1, 1919 the property had a higher value than when it was purchased, .and the loss if computed from that date would have been greater than when computed from the purchase price. People, ex rel. Keim v. Wendell, 200 App. Div. 388.
The judgment of the District Court is accordingly affirmed, and that of the Circuit Court of Appeals
Reversed.
Mr. Justice McReynolds and Mr. Justice Sutherland dissent.
Act of Feb. 24, 1919, c. 18, Title II, 40 Stat. 1057.
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Heiner v. Tindle, 276 U.S. 582 (U.S. 1928)…arger than the value of March 1, 1913, the deduction made below should be allowed; if less, only the difference, if any, between its then value and the sale price should be allowed. See United States v. Flannery, 268 U. S. 98; McCaughn v. Ludington, 268 U. S. 106. Reversed.…
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Pfleghar Hardware Specialty Co. v. Blair, 30 F.2d 614 (2d Cir. 1929)…ention that it was necessary for the taxpayer to prove, not only the 1913 value, but the cost, of its good will. Coneededly it did not prove the latter. United States v. Flannery, 268 U. S. 98, 45 S. CL 420, 69 L. Ed. 865, and McCaughn v. Ludington, 268 U. S. 106, 45 S. Ct. 423, 69 L. Ed. 868, are relied upon to show that it must do so. These cases hold that the cost, rather than the 1913 value, must be proven when a loss by reason of sale is to be deducted. In the case at bar the taxpayer seeks to deduct no…1 / 2
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Shoenberg v. Commissioner of Internal Revenue, 77 F.2d 446 (8th Cir. 1935)…es to be actual and real (Gregory v. Helvering, 293 U. S. 465, 55 S. Ct. 266, 79 L. Ed.-; Burnet v. Huff, 288 U. S. 156, 161, 53 S. Ct. 330, 77 L. Ed. 670; United States v. Flannery, 268 U. S. 98, 45 S. Ct. 420, 69 L. Ed. 865; McCaughn v. Ludington, 268 U. S. 106, 45 S. Ct. 423, 69 L. Ed. 868). Among the “transactions” or “identifiable events” which may operate to realize and fix a loss, the most commonly occurring is a sale of the property. Here there was an actual sale of these shares, and, if our examina…1 / 2
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Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- Goodrich v. Edwards, 255 U.S. 527 (U.S. 1921)
- Walsh v. Brewster, 255 U.S. 536 (U.S. 1921)
- Sovereign Camp of the Woodmen of the World v. Shelton, 266 U.S. 599 (U.S. 1924)
- Virginian Ry. Co. v. Mullens, 266 U.S. 599 (U.S. 1924)