Monday, April 29, 2013

Crane v. Commissioner case brief

Crane v. Commissioner case brief
331 U.S. 1, 67 S. Ct.1047,91 L.Ed.1301,1947 U.S.3021

CASE SYNOPSIS: Petitioner taxpayer sought certiorari from a decision of the United States Circuit Court of Appeals for the Second Circuit concerning how a taxpayer who acquired depreciable property subject to an unassumed mortgage, held it for a period, and finally sold it still so encumbered, must compute her taxable gain.

FACTS: Petitioner appealed from a decision reversing a tax court determination that expunged part of a deficiency determined by the tax commissioner on account of the income tax on a gain realized on the sale of an apartment house which had been acquired by petitioner by bequest subject to an unassumed mortgage. Certiorari was granted because of the importance of the questions raised as to proper construction of gain and loss provisions. The Supreme Court sought to determine the gain or loss applying proper interpretation and construction.

The Court concluded the first step was to determine the basis of the property, and found the basis to be the value of the property undiminished by mortgages under I.R.C. § 113 (a) (5) (1938). Second, the Court examined whether depreciation adjustments were proper under § 113 (b) (1) (B) (1938). Third, the Court looked at the amount realized on the sale of the bequeathed property. Section 111 (b) defined "amount realized" from "the sale of property" as "the sum of any money received plus the fair market value of the property," not its equity. The Court affirmed the appeals court judgment finding the tax court's use of equity as a basis was improper.

CONCLUSION: The Court affirmed the judgment of the appeals court, which held that the tax court's use of equity as a basis for the determination of gain or loss was improper.
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