Arkansas Best Corp. v. Commissioner
United States Supreme Court
485 U.S. 212 (1988)
Arkansas Best Corporation (ABC) (plaintiff) was in the business of investing in and gaining control of other firms. ABC became the majority stockholder of a successful bank. In 1975, the bank’s business was declining, and ABC sold most of its bank stock, incurring a loss of almost $10 million on the sale. ABC deducted this amount from its 1975 federal taxes as an ordinary loss. Section 1221 of the federal tax code defined most property as capital assets and limited the amount of capital loss that could be deducted. However, ABC contended that its loss was an ordinary loss because the stock was related to ABC’s investment business. ABC argued that it was therefore entitled to an exception from § 1221 based on this business motive. The commissioner of internal revenue (commissioner) (defendant) determined that ABC’s stock ownership was not entitled to an exception from § 1221, and disallowed ABC’s ordinary-loss deduction. ABC petitioned the tax court for a redetermination, and the tax court ruled for the commissioner. The United States Court of Appeals for the Eighth Circuit reversed. The United States Supreme Court granted certiorari.
Rule of Law
Holding and Reasoning (Marshall, J.)
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