United States v. Davis

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United States v. Davis
Supreme Court of the United States
Argued March 28, 1962 Decided June 4, 1962
Full case name: United States v. Davis et al. Citations: 370 U.S. 65; 82 S.Ct. 1190, 8 L.Ed.2d 335
Holding
A taxpayer recognizes a gain on the transfer of appreciated property in satisfaction of a legal obligation
Court membership
Chief Justice: Earl Warren Associate Justices: Hugo Black, Felix Frankfurter, William O. Douglas, Tom C. Clark, John Marshall Harlan II, William J. Brennan, Jr., Potter Stewart, Byron White
Case opinions
Majority by: Tom C. Clark Joined by: unanimous court Frankfurter and White took no part in the consideration or decision of the case.

United States v. Davis is a case argued before the United States Supreme Court in 1962.

Contents 1 Facts 2 Holding 3 Further Reasoning 4 Overruled by Congress 5 Notes 6 See also

[edit] Facts

Pursuant to a separation agreement, the taxpayer, Thomas Crawley Davis, transferred 500 shares of stock in the E.I. du Pont de Nemours & Co. to his spouse. In exchange, his spouse relinquished any claims or marital rights she may have had against the taxpayer.

The 500 shares of stock had cost the taxpayer approximately $75,000, but they were valued at $82,000 when they were transferred.

The taxpayer argued that the $7,000 appreciation of this stock should not count as gross income, since the transfer was more like a division of property between co-owners than a sale that resulted in gain. The government argued that the transfer of property was in exchange for the release of an independent legal obligation and thus the appreciation should be included in the taxpayer's gross income.^[1]

[edit] Holding

The Supreme Court held that the $7,000 appreciation should count as gross income, as "the 'amount realized' from the exchange is the fair market value of the released marital rights, which in this case would be equal to the value of the stock transferred."^[2][3]

[edit] Further Reasoning

The court bolstered its position by arguing that the lower court's ruling (that the value of the released marital rights is indeterminable and therefore, not included in gross income) could prejudice the spouse of the taxpayer, as her basis in the shares would not include the $7,000 appreciation, and she would have to include this in her gross income if she decided to sell the shares.

[edit] Overruled by Congress

In response to this decision, Congress enacted IRC § 1041. This statute provides that, generally, "no gain or loss shall be recognized on a transfer of property from an individual to...(2) a former spouse, but only if the transfer is incident to divorce." While this statute overrules the specific holding of Davis, it does not change the general rule- that "a taxpayer recognizes a gain on the transfer of appreciated property in satisfaction of a legal obligation."^[4]

[edit] Notes

[edit] See also

• List of United States Supreme Court cases, volume 370