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International Tax Blog - New and Interesting International Tax Issues

Lower Court Overruling a Higher Court


Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is from Vukasovich v. Commr., 790 F.2d 1409 (9th Cir. 1986), where the Ninth Circuit Court of Appeals held that a prior Supreme Court decision (Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926)) had been implicitly overruled:

[T]he courts of appeal should decide cases according to their reasoned view of the way Supreme Court would decide the pending case today.

As far back as 1954, the First Circuit had indicated that the Kerbaugh-Empire case was “frequently criticized and not easily understood.” Willard Helburn, Inc. v. Commr., 214 F.2d 815 (1st Cir. 1954). However, Kerbaugh-Empire has still not been explicitly overruled by the Supreme Court itself.

The Ninth Circuit in Vukasovich summarized Kerbaugh-Empire as follows:

Kerbaugh-Empire dealt with a corporation that had borrowed German marks, lost money on the underlying transaction, but paid back the loan in a subsequent year with devalued marks that cost less to purchase in American money. The Court held that the difference between the purchase price of the marks and the repayment was not income, but merely a reduction of the loss on the underlying transaction, and so was not taxable.

Tags: 988 Transactions, Other - Famous Tax Quotes