United States v. Kirby Lumber Co.

United States v. Kirby Lumber Co.
Supreme Court of the United States
Argued October 21, 1931 Decided November 2, 1931
Full case name	United States v. Kirby Lumber Company
Citations	284 U.S. 1 (more) 52 S. Ct. 4; 76 L. Ed. 131; 1931 U.S. LEXIS 457; 2 U.S. Tax Cas. (CCH) ¶ 814; 10 A.F.T.R. (P-H) 458
Case history
Prior	Kirby Lumber Co. v. United States, 44 F.2d 885 (Ct. Cl. 1930); Cert. granted, 283 U.S. 814 (1931).
Holding
If a corporation purchases and retires bonds at a price less than their face value or issuing price, the excess amount of the purchase price over the issuing price is a taxable gain.
Court membership
Chief Justice Charles E. Hughes Associate Justices Oliver W. Holmes Jr. · Willis Van Devanter James C. McReynolds · Louis Brandeis George Sutherland · Pierce Butler Harlan F. Stone · Owen Roberts
Case opinion
Majority	Holmes, joined by unanimous
Laws applied
§ 213 of the Revenue Act of 1921

United States v. Kirby Lumber Co., 284 U.S. 1 (1931), was a case in which the United States Supreme Court held that when a corporation settles its debts for less than the face amount, a taxable gain has occurred.^[1]

In 1923, the Kirby Lumber Company issued bonds which had a par value of $12,126,800. Later that same year, the company repurchased the same bonds in the open market for a sum less than par value. The difference between the issue price of the bonds and the price at which the company repurchased them was $137,521.30. The regulations promulgated by the United States Department of the Treasury stated that such a cost savings to a corporation was to be considered taxable income. The Court of Claims, however, found in favor of the taxpayer, analogizing the situation in this case to the one in Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1925), a case in which a loan repaid in devalued German marks was not considered to be a taxable gain for the taxpaying company.

In a brief unanimous opinion, Justice Holmes upheld the validity of the Treasury regulations. He distinguished Bowers v. Kerbaugh-Empire Co. on the grounds that the enterprise in that case had been on the whole a failure, and had lost money. In this case, the taxpayer had made a clear and obvious gain. By paying off its debts for less than the issue price, it had freed up assets to spend on other things. Justice Holmes said nothing about the Treasury's definition of income in his opinion. Later cases before the Court did however address directly the Treasury's definition in connection with related cases.

• List of United States Supreme Court cases, volume 284

• Bittker, Boris I.; Thompson, Barton H. Jr. (1978). "Income from the Discharge of Indebtedness: The Progeny of United States v. Kirby Lumber Co.". California Law Review. 66 (6): 1159–1187. doi:10.2307/3479935. JSTOR 3479935.
• Schenk, Deborah H. (2002). "The Story of Kirby Lumber: The Many Faces of Discharge of Indebtedness Income". In Caron, Paul L. (ed.). Tax stories: An in-depth look at ten leading federal income tax cases. New York: Foundation Press. pp. 97–130. ISBN 978-1-58778-403-3.
• 26 U.S.C. 108 (Section 108 of the Internal Revenue Code) and corresponding regulations, which contain the current rules on income from discharge of indebtedness.

• Works related to United States v. Kirby Lumber Company at Wikisource
• Text of United States v. Kirby Lumber Co., 284 U.S. 1 (1931) is available from: Cornell CourtListener Findlaw Google Scholar Justia Library of Congress