Academic Commentary
The emphasis in Cottage Savings on realization as an administrative requirement makes evident the capricious role that realization plays in the tax field.
- If the realization requirement can be met at a very low threshold, as the decision implies, then "realization" virtually becomes elective with the taxpayer.
- The hazard of elective or voluntary realization arises in connection with much investment activity.
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- To prevent an investor from selling underwater assets to deduct realized losses from gross income without restriction, the Code permits the investor to offset so-called capital losses only against his realized capital gains. (Unused losses may be carried forward to subsequent years.) Investment losses are thus confined by the Code to a separate schedule, and so isolated from other kinds of taxable income.
Read more about this topic: Cottage Savings Association V. Commissioner
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