Commissioner of Internal Revenue v. Fink

Summary

The Supreme Court held that a dominant shareholder who voluntarily surrenders part of the corporation's shares while retaining control does not sustain an immediately deductible loss. Instead, the shareholder must reallocate the basis of the surrendered shares to the shares retained, with any loss recognized upon later disposition. The Court reversed the judgment of the United States Court of Appeals for the Sixth Circuit.

Holdings

1. A dominant shareholder who voluntarily surrenders a portion of the shareholder's shares to the corporation, but retains control, does not sustain an immediate loss deductible from taxable income.
2. The shareholder must reallocate the basis of the surrendered shares to the shares retained, with any loss recognized when the remaining shares are later disposed of.

Questions Presented

1. Whether a dominant shareholder who voluntarily surrenders part of the shareholder's stock to the corporation, but retains control, sustains an immediately deductible loss.
2. Whether the basis of voluntarily surrendered shares must instead be reallocated to the shareholder's remaining shares.

Disposition

reversed