United States V. Kirby Lumber Co. - Facts & Procedural History

Facts & Procedural History

In 1923, the Kirby Lumber Company issued bonds which had a par value of $12,126,800. Later that same year, the company repurchased the same bonds in the open market for a sum less than par value. The difference between the issue price of the bonds and the price at which the company repurchased them was $137,521.30. The regulations promulgated by the United States Department of the Treasury stated that such a cost savings to a corporation was to be considered taxable income. The Court of Claims, however, found in favor of the taxpayer, analogizing the situation in this case to the one in Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1925), a case in which a loan repaid in devalued German marks was not considered to be a taxable gain for the taxpaying company.