UNITED STATES
v.
KAPLAN
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Kaplan sold stock in 1929 for $240,000, receiving $26,000 cash and a promise of monthly installments, and reported the full $194,000 profit on his 1929 tax return; he later claimed he should have reported the sale on the installment basis because the deferred payments were worth less than their face value. The Supreme Court reversed the Court of Claims and held that Kaplan was not entitled to use the installment method for reporting the sale, establishing that taxpayers cannot retroactively switch to installment basis reporting when deferred payments prove to be worth less than originally anticipated.
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Mr. Justice Butler delivered the opinion of the Court.
Respondent and his wife in a joint return of income tax for 1929 reported a profit of $194,000 from the sale of 25 shares of the stock of “No. 1100 Park Avenue,” and disclosed tax of $2,084.20, which was paid. The taxable income was less than the profit in question. It resulted from the sale by him, April 11, 1929, for a net price of $240,000 of stock bought in 1928 for $46,000. The buyer agreed to pay $26,000 cash and the balance in installments of $1,875 a month. For 1930, respondent and his wife filed a return showing no taxable income. For 1931 and 1932, respondent filed no returns. In 1932 he filed a claim for refund of the entire 1929 income tax. The ground for the claim was that he was entitled to report the sale on the installment basis. The findings indicate that the deferred payments were worth less than face value; after respondent and his wife (to whom he assigned the contract) had received $55,000, they agreed to accept $75,000 more as full payment. The commissioner rejected the claim and this suit followed. The Court of Claims gave respondent judgment.. 18 F. Supp.
965. This Court granted a writ of certiorari because of conflict between the decision and that of the circuit court of appeals for the ninth circuit in Pacific National Co. v. Welch, 91 F. (2d) 590, this day affirmed, ante, p.
191. The question here presented is the same as the one decided in that case. The judgment of the court below must be
Reversed.
Mr. Justice Cardozo and Mr. Justice Reed took no part in the consideration or decision of this case.
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Cummins Engine Co., Inc. v. The United States, 923 F.2d 826 (Fed. Cir. 1991)…ortunity to later recalculate this tax liability according to an alternative method even though the original computation method did not minimize the taxes. Pacific Nat’l Co., 304 U.S. at 194-195, 58 S.Ct. at 858-59. See also United States v. Kaplan, 304 U.S. 195, 58 S.Ct. 859, 82 L.Ed. 1285 (1938). In Pacific Nat’l Co., the taxpayer was not permitted to recalculate its tax liability on the gain from sales of property according to the installment method, when it had elected in its original return to use the…
Authorities Cited
- Pac. Nat. Co. v. Welch, 91 F.2d 590 (9th Cir. 1937)