Law School Case Briefs
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Taft v. Bowers
Supreme Court of the United States (1929) | 278 U.S. 470; 49 S. Ct. 199; 73 L. Ed. 460; 1929 U.S. LEXIS 17; 1 C.B. 226; 64 A.L.R. 362; 7 A.F.T.R. (P-H) 8852; 1 U.S. Tax Cas. (CCH) 368
TL;DR: A donee sold gifted stock and was taxed on the total appreciation, including the gain that occurred while the donor held it. The Supreme Court upheld the tax, ruling it constitutional to use the donor's original cost as the basis for calculating the donee's taxable gain.
Legal Significance: This case established the constitutionality of the "carryover basis" rule for gifts. It affirmed Congress's power to prevent tax avoidance by treating the donor and donee as a single unit for purposes of taxing the appreciation of capital assets upon realization.