HORT V. COMMISSIONER
313 U.S. 28 (1941)
NATURE OF THE CASE: This was a dispute over the characterization of monies received.
FACTS: P got by devise a ten-story office building from his father in 1928. At that time,
the premises were leased to a firm that had sublet the main floor to Irving Trust. In 1927,
Irving Trust and P's father executed a contract in which P's father agreed to lease the main
floor and basement to Irving for 15 years with annual rent of $25,000 with that term to
commence at the expiration of the head lease. In 1933, Irving found it unprofitable to stay
at that location. The lease was cancelled by mutual agreement in consideration of payment of
$140,000. P did not include this amount in his gross income for 1933. He reported a loss of
$21,494.75 based on the theory that the cancellation was $21,494.75 less than the difference
between the present value of the unmatured rental payments and the fair value of the main
floor and basement for the unexpired term of the lease. The IRS disallowed the loss and
taxed the $140,000 as ordinary income. P contends that the amount received for cancellation
of the lease was capital rather than ordinary income and even if he is wrong he still
sustained a loss under ordinary income.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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