United States v. S.S. White Dental Manufacturing Co.

Prior to 1918, S. S. White Dental Manufacturing Co. (S.S. Dental) (plaintiff), a corporation in Pennsylvania, controlled and owned all capital stock of the German corporation S.S. White Dental Manufacturing Co., m.b.h. of Berlin, Germany (the German corporation). In 1918 S.S. Dental invested more than $130,000 in the German corporation. This investment was represented by both the capital stock owned and the open account between the two corporations. In March 1918, the German government appointed a sequestrator to take over the German corporation, including the property and management of its business. The business was relinquished to the German corporation in 1920. However, due to the mismanagement of affairs and investment of funds in German war loans by the sequestrator, the value of the German corporation’s assets was seriously impaired. In 1922 the German corporation’s tangible assets and its lease were sold for $6,000, which S.S. Dental included on its tax return for that year. Subsequently, S.S. Dental filed a claim with the Mixed Claims Commission, which was allowed in 1924 to the extent of $70,000. Due to the sustained losses, in 1918 S.S. Dental claimed a deduction for the amount of its investment in the German corporation. The commissioner of the Internal Revenue Service (defendant) disallowed the deduction on the basis that the loss was not evidenced by a closed and complete transaction in 1918. The tax was paid under protest by S.S. Dental, which sued the commissioner. The Court of Claims issued a judgment in favor of S.S. Dental.