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Law School Case Brief

Helvering v. Bruun - 309 U.S. 461, 60 S. Ct. 631 (1940)


While economic gain is not always taxable as income, the realization of gain need not, in order to constitute income, be in cash derived from the sale of an asset; and the fact that the gain is a portion of the value of property received by the taxpayer in the transaction does not negative its realization.


The landlord leased out land and a building on it for a 99-year term. The tenant removed the existing building and erected a new one. The lease was terminated due to the tenant's default, and it was determined that, as of the cancellation date, the fair market value of the new building exceeded that of the old one by more than $ 50,000. The Commissioner determined that this amount represented realization of a gain subject to income tax in the year of the lease cancellation. This determination was reversed by the Board of Tax Appeals, whose judgment was affirmed by the court of appeals. 


Did the respondent realize a taxable gain from the building in the year of cancellation? 




The Court posited that upon the cancellation of a lease, during which the tenant had erected a new building on the land more valuable than the previously existing one, respondent realized a taxable gain in the year of cancellation. The Supreme Court rejected the landlord's contention that the new building was an improvement that became indistinguishably blended with the realty and therefore no gain could be realized until the realty was sold. Rather, the Court held that realization of a gain did not have to be in cash derived from the sale of an asset but rather could include profit realized from the completion of a transaction. Here, as the result of a business transaction, the landlord received back his land with a building on it that increased its value, and gain was thus realized.

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