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United States v. Midland-Ross Corp.

381 U.S. 54 (1965)

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United States v. Midland-Ross Corp.

United States Supreme Court

381 U.S. 54 (1965)

Facts

In a typical original-issue-discount transaction, Midland-Ross Corporation (Midland) (plaintiff) bought noninterest-bearing promissory notes at a price below face value. Midland then sold the notes at a higher price later in the same year, before the notes reached maturity. Midland reported its gains from this resale as capital gains. The commissioner of internal revenue (commissioner) determined that Midland’s gains were a form of interest and thus taxable as ordinary income. The commissioner issued a deficiency notice against Midland. Midland paid the deficiency and then sued the United States government (government) (defendant) for a refund in the United States District Court for the Northern District of Ohio. The district court ruled in Midland’s favor. The government appealed to the United States Court of Appeals for the Sixth Circuit, which affirmed. The United States Supreme Court granted certiorari to resolve a circuit split.

Rule of Law

Issue

Holding and Reasoning (Brennan, J.)

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