ARKANSAS BEST CORP. V. COMMISSIONER 485 U.S. 212 (1988) CASE BRIEF

ARKANSAS BEST CORP. V. COMMISSIONER

485 U.S. 212 (1988)

NATURE OF THE CASE: This was a dispute over the characterization of capital stock.

FACTS: P acquired 65% of the stock of National Bank Commerce in 1968. Until 1972, the bank appeared to be prosperous and growing but the Dallas real estate market went south and so too did the fortunes of the bank, which had a heavy concentration of loans in local real estate. The bank was classified as a problem bank in 1972 by federal examiners. P sold the bulk of its stock on June 30, 1975 leaving it with a 14.7% stake in the bank. P then took an ordinary loss of $9,995,668 from the sale of the stock. The IRS determined that the loss was a capital loss and disallowed the deduction. The Tax Court found a bi-level characterization of the purchases of the stock into pre and post 1972 purposes. Prior to 1972 it was characterized as a capital gain and post 1972 it was characterized as an ordinary loss or gain. This was because the stock, although acquired for capital gain pre-1972, purchase after 1972 was purchased exclusively for business purposes. The post 1972 acquisitions were designed to preserve P's business reputation and without the added capital the bank would have probably failed; thus those losses were an ordinary loss. The Eight Circuit reversed the post 1972 characterization and held that all stock was subject to capital treatment under 1221 as the stock did not fall into any of the specific statutory exceptions to the definition of a capital asset. As such the court held that P's purpose in acquiring or holding the stock was irrelevant to the determination that the stock was a capital asset. The Supreme Court granted certiorari.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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