Commissioner v. Fink

483 U. S. 89

June 22, 1987

Hoping to attract some outside buyers, Mr. and Mrs. Fink, who were majority shareholders in a small Michigan company, gave up thousands of company shares (they still retained majority ownership though). On their tax return, they claimed several thousand dollars worth of deductions due to the surrendered shares. The IRS said that giving up the shares was not a ‘loss’ entitling them to a tax reduction, because it was done with the direct aim to increase the value of their remaining shares.

The Court sided with the IRS in an 8-1 ruling. Powell admitted that for a long time lower courts had allowed the actions taken by the Finks, but found these precedents not controlling. Powell observed that a voluntary infusion of capital into a corporation does not entitle an owner to a deduction, and thought that voluntarily surrendering stock was little different. In both instances, the goal is to realize long term personal monetary gains. As a policy matter, the Fink scheme would encourage owners of failing companies to dump shares en masse.  On the facts of this case, the Court found it especially significant that the Finks remained majority shareholders, and that the surrender was clearly aimed at making the company more profitable.

White’s short concurrence stated his belief that the Fink’s continued status as majority shareholders was completely irrelevant to the legal analysis. Scalia concurred in judgment. He hated the analogy to an infusion of capital, and simply found a deduction inappropriate under the internal revenue code’s literal language. Blackmun concurred in the result without opinion. And thus, left to be the lonely voice of reason was… Justice Stevens!??

Yes, Justice Stevens. He showed that the IRS had allowed deduction for stock surrenders for more than three decades, and only changed its mind after the Finks filed their tax return. This was a paradigmatic case, Stevens demonstrated, where stare decisis is the only fair and just judicial response. The statutory language was ambiguous, and people like the Finks had a right to rely on a longstanding judicial gloss.

One of the biggest surprises for me in reading through all the term’s cases is how often Stevens has the best opinion. He’s still the worst Justice overall, but he truly can get it emphatically right on occasion. I normally dislike stare decisis, but if there’s ever a time when it’s a practical necessity, it’s in cases like this. The majority opinion here was especially horrible because it left the door wide open to legal abuse and harassment of taxpayers by the IRS. Nearly three decades later, ordinary citizens are still reaping the bitter consequences of this decision.


2 thoughts on “Commissioner v. Fink

  1. Pingback: 1986-1987: Mega Colossal Retrospective Bonanza! | Vintage Bracketology

  2. Pingback: Patterson v. McLean Credit Union | Vintage Bracketology

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