Ethel M. Schmidt v. Commissioner
United States Tax Court
55 T.C. 335 (1970)
Ethel M. Schmidt (plaintiff) owned 812 of the 1,353 shares of common stock in the Highland Co. (the company). As of early 1965, Schmidt’s tax basis in those shares was $62,440. Around that time, the stockholders adopted a resolution for the dissolution of the company and the liquidation of its assets. All outstanding shares were sold, resulting in liquidating $26,406.51 of dividends to Schmidt. The $26,406.51 of dividends left an unrecovered basis of $36,033.49. Meanwhile, Schmidt sold the property on which the business had been conducted, which she owned in her name, for a long-term capital gain of $24,059.50. On her federal income-tax return for 1965, Schmidt claimed a long-term capital loss on her stock of $10,440.36—the difference between her unrecovered basis in the stock ($36,033.49) and her $25,593.13 proportionate interest in the maximum value of the company’s remaining unliquidated assets. The $10,440.36 capital loss was applied against the $24,059.50 capital gain. This capital-loss deduction was then disallowed by the Commissioner of Internal Revenue (the commissioner) (defendant) because the company was still in the process of liquidation as of the end of 1965, making any ultimate loss uncertain.
Rule of Law
Holding and Reasoning (Bruce, J.)
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