In 1928, Hort (plaintiff) acquired an office building from his father. At the time, Irving Trust Co. (Irving) was renting the first floor of the building. Irving had been renting the first floor in a lease set to expire in 1932. However, in 1927, Irving entered into a new lease with Hort’s father for a fifteen-year term set to begin upon expiration of the original lease, at an annual rental fee of $25,000. In 1933, Irving decided to close its branch in Hort’s building. Hort agreed to cancel the lease in return for a payment of $140,000. Hort did not include the payment as income in 1933. Instead, he reported a loss of $21,494.75, the amount he relinquished by releasing Irving for less than the full value of the lease. The Commissioner (defendant) included the $140,000 in Hort’s gross income for that year and disallowed Hort’s claimed loss. The Board of Tax Appeals and the Court of Appeals affirmed. The United States Supreme Court granted certiorari.