United States v. Davis, 370 U.S. 65 (1962) is a federal income tax case argued before the United States Supreme Court in 1962. It is notable (and thus appears frequently in law school casebooks) for the following holding:
- Husband's transfer of appreciated stock to his wife, pursuant to property settlement agreement executed prior to divorce, constituted a taxable event; the husband's taxable gain was measured by the stock's value at the date of its transfer.
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- This applies the general rule, that a taxpayer recognizes a gain on the transfer of appreciated property in satisfaction of a legal obligation.
In 1984, "having heard criticism of the Davis/Farid rule for many years," Congress overruled the main holding: Under §1041(a), no gain or loss shall be recognized by the transferor-spouse (or former spouse, but "only if the transfer is incident to divorce"); as a corollary, §1041(b) provides that transferor's basis shall carry over into the hands of the transferee-spouse. (Thus, for transfers between spouses, §1041(b) overrules the lower-of-cost-or-market rule for determining loss on subsequent sale of a gift, in §1015.)
- While this statute overrules the specific holding of Davis, it does not change the general rule—that "a taxpayer recognizes a gain on the transfer of appreciated property in satisfaction of a legal obligation."
Read more about United States V. Davis: Facts, Holding, Overruled By Congress, See Also
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