White v. United States

Background

Investors (here, decedents whose estates are now taxpayers) bought corporate stock and held it for more than two years. When the corporation later liquidated, the total liquidating payments were less than what the investors paid. The estates deducted the full losses as ordinary losses on 1929 returns. The Commissioner ruled those losses were capital losses and limited the tax benefit under §101, the taxpayers paid the deficiencies, sued to recover, and the lower courts denied recovery.

Reasoning

The central question was whether a loss on a complete corporate liquidation counts as an ordinary loss or as a capital loss under the Revenue Act of 1928. The Court explained that §115(c) treats liquidating distributions as payment in exchange for stock and ties the resulting gain or loss to the same rules used for sales or exchanges of property. Reading that provision with §§23 and 101, the Court found that liquidation losses are governed by the capital-gain/loss rules. The Court relied on the statute’s structure, prior Treasury regulations, legislative history, and earlier decisions to conclude liquidation losses must be handled like sales losses and are therefore subject to §101’s limits.

Real world impact

Shareholders and estates who receive liquidating payments after holding stock more than two years cannot claim full ordinary-loss deductions for shortfalls; they must follow capital-loss rules, which limit tax relief. The decision enforces the existing tax scheme as written and signals that any broader relief for worthless stock must come from Congress.

Dissents or concurrances

Three Justices dissented, indicating disagreement, but the opinion excerpt provides only their names and not their reasons.