TAXATION-FEDERAL INCOME TAX-STATUS OF PAYMENT OF CORPORATE LIABILITY BY STOCKHOLDER SUBSEQUENT TO LIQUIDATION

Petitioners, from 1937 to 1940, received distributions from the liquidation of a corporation of which they were stockholders and reported the profits thus obtained, classifying them as capital gains pursuant to I.R.C., §115. In 1944, a judgment was rendered against the corporation. Petitioners, as transferees, paid the judgment and took a deduction of 100 per cent, classifying the amount paid as an ordinary business loss. The Commissioner took a contrary position, and held the payment a capital loss. The Tax Court upheld the petitioners\u27 contention but the court of appeals reversed. On appeal, held, affirmed, three Justices dissenting. The payment should be viewed as a part of the original liquidation transaction requiring classification as a capital loss. Arrowsmith and Bauer v. Commissioner of Internal Revenue, (U.S. 1952) 73 S.Ct. 71