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Koshland v. Helvering

United States Supreme Court
298 U.S. 441 (1936)

Written by Daniel Clark, JD

Facts

Ms. Koshland (plaintiff) purchased preferred shares in the Columbia Steel Corporation (corporation) and took a cost basis in the shares. The preferred shares paid annual dividends in the form of either cash or common shares at the election of the corporation. The corporation elected to pay the dividends on the preferred shares in the form of common shares. The corporation later redeemed Koshland’s preferred shares for cash. The Internal Revenue Service (IRS) (defendant), pursuant to United States Department of Treasury regulations, computed Koshland’s gain on the redemption as if her basis in the preferred shares had been proportionately reallocated to the common shares, because Koshland had received them as dividends. Koshland filed a petition at the Board of Tax Appeals challenging the IRS’s determination. Koshland argued that the common shares had been income to her upon receipt, and so she still had her full cost basis in the preferred shares when they were redeemed. The United States Board of Tax Appeals reversed the IRS’s determination. The circuit court of appeals reversed the United States Board of Tax Appeals, and Koshland appealed to the United States Supreme Court.

Rule of Law

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Holding and Reasoning (Roberts, J.)

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Dissent (Stone, J.)

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