Crane V. Commissioner - Holding and Rationale

Holding and Rationale

The Court first sided with the Commissioner, agreeing with its construction of the relevant statutory provision that addresses the basis of "property" inherited. The Court found no basis to think "equity" was a synonym for "property." In addition, the Court was troubled by the administrative complications that would be caused by replacing "property" with "equity" when determining depreciation, and by turning over administrative rules that had existed for some time.

Second, the Court determined that the amount Mrs. Crane realized from the sale of the "property" should be driven by the conclusion on the first issue. The Court sided with cases repudiating the claim that there must be an actual receipt of money or other property for a taxable gain to result from a transaction. Finally, the Court determined that a mortgagor who transfers a property subject to the mortgage benefits as if the purchaser had paid the mortgage on the property.

"We are ... concerned with the reality that an owner of property, mortgaged at a figure less than that at which the property will sell, must and will treat the conditions of the mortgage exactly as if they were his personal obligations. If he transfers subject to the mortgage, the benefit to him is as real and substantial as if the mortgage were discharged, or as if a personal debt in an equal amount had been assumed by another."