Goldstone v. Commissioner

Jack and Ursula Goldstone (plaintiffs) filed joint tax returns for 1967, 1969, and 1970 with the Internal Revenue Service (IRS). In 1967, the Goldstones claimed a $1,400 investment credit in connection with property that they purchased that year. Also in 1967, the Goldstones transferred certain assets, including the investment property, to Golden Gate Fashions, Inc. (Fashions), a California corporation, in exchange for Fashions’ capital stock. In 1970, Fashions disposed of the investment property, requiring the Goldstones to recapture the investment credit pursuant to 26 U.S.C. § 47(a). In July 1971 and December 1972, the Goldstones filed amended returns for 1967. On both amended returns, the Goldstones claimed a $4,596.41 refund and attempted to delete the investment credit they claimed on their original 1967 return, which they contended recaptured the credit. The commissioner of the IRS (commissioner) (defendant) denied the Goldstones’ refund claims, stating that the $1,400 credit that the Goldstones deducted on their original 1967 return had to be recaptured on their 1970 return because the relevant property was sold in 1970. The Goldstones challenged the commissioner’s determination in the United States Tax Court. The commissioner responded that the IRS properly exercised its discretion to reject the Goldstones’ amended returns, thereby leaving the original 1967 return as the Goldstones’ operative return. Accordingly, the investment credit had to be recaptured in 1970. The Goldstones countered that they had a right to file amended 1967 returns and that by deleting the investment credit on the amended returns, there was no credit to be recaptured in 1970.