TAXATION - FEDERAL INCOME TAX - DEDUCTIONS - LOSS UPON SALE TO CORPORATION WHOLLY OWNED BY TAXPAYER

In 1932 the taxpayer sold to the X corporation, which he wholly owned and controlled, certain shares of stock in partial payment of a debt which he owed to X corporation. The selling price, which was the market value of the stock, was less than the stock had cost the taxpayer. It was found that the sale was entered into with the intent of creating a deductible loss and thus reducing the taxpayer\u27s taxable income. In computing his taxable income for 1932, the taxpayer deducted the amount of the loss on the sale of this particular stock to his wholly owned corporation. The deduction was not allowed. The taxpayer, after paying the full tax, brought suit in the federal district court, where judgment went against him. The circuit court of appeals reversed and on appeal to the Supreme Court, held, deduction not allowed since the sale was not an actual sale within the meaning of the taxing statute. Two justices dissented. Higgins v. Smith, 308 U. S. 473, 60 S. Ct. 355 (1940)