U.S. Supreme Court HELVERING v. CHESTER N. WEAVER CO., 305 U.S. 293 (1938)

[Page 305 U.S. 293, 296]

to restrict the operation of 115(c) as we have construed it. Section 23( r), like 101 in the 1932 and earlier Acts, speaks of losses resulting only from sales or exchanges. But the one does not more than the other restrict the operation of the provisions of 115 and 112, which accord to losses on liquidation the same recognition accorded by 23(r) to losses upon sales. Congress, in enacting the 1934 Act, recognized that under that of 1932 '... a distribution in liquidation of a corporation is treated in the same manner as a sale of stock.' Report of Senate Committee on Finance, No. 558, 73rd Cong., 2nd Sess., p. 37. To prevent avoidance of surtax through liquidation of corporations with large surpluses, Congress found it necessary to place gains on liquidations on a different basis from gains on sales. It accomplished this by amending 115(c) to provide: 'Despite the provisions of section 117(a) ( corresponding to 101 in the earlier Acts specially taxing capital gains and losses) 100 per centum of the gain so recognized shall be taken into account in computing net income.' 26 U.S.C.A. 115(c).

It follows that the extent to which the taxpayer can deduct the loss is controlled by 23(r)(1), and that since the stock was held for less than two years and there were no gains against which the loss could be offset, it can not be deducted from gross income.

REVERSED.

Mr. Justice McREYNOLDS, Mr. Justice BUTLER and Mr. Justice ROBERTS dissent.