Arkansas Best Corp. v. Commissioner

485 U. S. 212

March 7, 1988

A stock buying company (Arkansas Best) bought lots of stock from a successful bank. Later, that bank encountered troubled waters, and the company bought a lot more stock to help the bank stabilize. Finally, the company gave up, and sold most of the bank’s stock. Arkansas Best claimed this selling off was an ordinary loss rather than a capital loss for tax purposes. The IRS disagreed, citing the tax code’s definition of capital assets, and that definition’s short and exhaustive list of exceptions (none of which applied to the stock at issue).

The Supreme Court unanimously backed the IRS (Kennedy did not participate). Marshall rejected the company’s silly attempt to invent a distinction where property acquired for ‘investment’ purposes would be sold for capital loss, but property acquired for ‘business’ purposes would be sold for ordinary loss. The tax code recognized no such distinction. Undaunted, Arkansas Best cited a 1955 decision where corn futures were ruled not a capital asset, even though they fell within none of the statutory exceptions to the general rule. Marshall replied that corn futures were so close to being ‘inventory’ that they fell within the inventory exception, and that, in contrast, the stock was nowhere near any of the exceptions.

I took a course in tax law, and in all honesty, it’s still practically a realm of mystical voodoo to me. It’s comforting that the Supreme Court seems to feel the same way. Their tax cases tend to be unanimous, and very accepting of the lower courts’ logic. While I wish Arkansas Best the best (haha, funny pun, huh?), I can’t really muster an informed opinion about their unanimous loss.


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