Liftin v. Commissioner
United States Tax Court
Petitioner purchased monthly payment notes, secured by second deeds of trust, at substantial discounts. His investments therein were speculative and the amount of realizable discount income therefrom was uncertain. He treated all of the monthly payments on principal as recovery of cost.
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Petitioner purchased monthly payment notes, secured by second deeds of trust, at substantial discounts. His investments therein were speculative and the amount of realizable discount income therefrom was uncertain. He treated all of the monthly payments on principal as recovery of cost. Held, petitioner was not required to report a pro rata portion of each payment of principal, measured by the percentage of discount, as ordinary income prior to the recovery of his cost of such notes.
1Opinion of the Court
OPINION.
Kern, Judge:
The parties agree that where note obligations are purchased at a discount the receipt of the discount is ordinary income. The question here relates to the time when such discount income is realized and should be reported. Respondent contends that each payment on the principal should be allocated, part to a return of cost and part to discount income. Thus, if a note was purchased at a discount of 25 percent of face, 75 percent of each monthly payment on principal would, under respondent’s method, represent return of cost, and 25 percent discount or ordinary income.…
2Cases cited10 opinions
- Hatch v. Commissioner of Internal RevenueCourt of Appeals for the Second Circuit · 1951
- Hatch v. CommissionerUnited States Tax Court · 1950
- Shafpa Realty Corp. v. CommissionerUnited States Board of Tax Appeals · 1927
- Gilbert v. CommissionerUnited States Tax Court · 1946
- Atwell v. CommissionerUnited States Tax Court · 1952
5 more not listed; retrieve them via the Exa API.
3Cited by33 opinions
- McShain v. CommissionerUnited States Tax Court · 1979
- Underhill v. CommissionerUnited States Tax Court · 1966
- Eleanor M. Willhoit and John D. Willhoit v. Commissioner of Internal RevenueCourt of Appeals for the Ninth Circuit · 1962
- Inter-City Television Film Corp. v. CommissionerUnited States Tax Court · 1964
- Potter v. CommissionerUnited States Tax Court · 1965
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