United States v.

Kirby Lumber Co
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Citation. 284 U.S. 1, 52 S. Ct. 4;76 L. Ed. 131, 1931 U.S. 457

Brief Fact Summary. Plaintiff, Kirby Lumber Co., issued bonds in a large amount and retired a
portion of these by purchasing in the open market at below par value.

Synopsis of Rule of Law. If bonds are purchased and retired at a price less than the issuing
price or face value, then the excess of the issuing price or face value is gain or income for the
taxable year.

Facts. Kirby Lumber, Plaintiff, issued bonds for $12,126,800 and received par value. Later the
same year it purchased some of the same bonds at less than par in the open market, with a
difference of $137,521.30.

Issue. Is the difference taxable gain or income for the Plaintiff?

Held. Justice Holmes issued the opinion for the Supreme Court of the United States in holding
that the difference should be considered as taxable gain or income.

Discussion. The Supreme Court notes that in this case there was no shrinking of the assets
and taxpayer had a clear gain. Taxpayer gains assets by offsetting the bonds.