Cottage Savings Association v. Commissioner of Internal Revenue (1990)
- Docket
- 89-1965
- Decided
- 1990-01-01
Summary
Question: Can the exchange of properties considered "substantially identical" for accounting purposes under Federal Home Loan Bank Board regulations be considered a "disposition of property" for IRS tax purposes, given that properties exchanged must be materially different to constitute a "disposition" under section 1001(a) of Title 26 of the tax code? Conclusion: Yes. In a 7-to-2 decision, the Supreme Court held that the definition of "substantially identical" under the FHLBB regulations was intentionally flexible and broad enough to include even properties that were "materially different" for IRS purposes. Justice Thurgood Marshall, in the majority opinion, wrote that exchanged properties are "materially different" if they "embody legally distinct entitlements." The properties involved in this exchange clearly satisfied that test. "Because the participation interests exchanged by Cottage Savings and the other S & L's derived from loans that were made to different obligors and secured by different homes, the exchanged interests did embody legally distinct entitlements. Consequently, we conclude that Cottage Savings realized its losses at the point of exchange."