Tax Legal Services · Primary-source case analysis

Burnet v. Logan: Unvalued Contingent Payments Could Remain an Open Transaction Until Basis Was Recovered

By Aneeta Mishra and Timothy Chan

Published May 22, 2026 · Updated October 17, 2026

Decision: Burnet v. Logan, 283 U.S. 404 (1931).

Burnet v. Logan, decided by the Supreme Court on May 18, 1931, concerned stock sold for cash plus a right to receive 60 cents for each ton of ore later apportioned to the buyer. The mining lease required neither a minimum output nor a definite total payment.

The contingent right lacked an established value

The Court found that the promise had no ascertainable fair market value on this record. The Commissioner’s estimate depended on assumptions about future production and payments; the Court declined to treat the promise as the equivalent of cash. Logan, 283 U.S. at 411–413.

The transaction therefore remained open

Without a reliable value for the promise, the seller was not forced to report a closed transaction based on speculation.

Basis was recovered before gain

Receipts first restored the relevant capital amount; later receipts could produce gain. For Mrs. Logan’s own shares, the historical statutes made their March 1, 1913 value material. The inherited payment right presented a separate estate-valuation amount. These are the facts of the 1931 case, not a current basis formula for every earnout. Logan, 283 U.S. at 410–414.

The judgments were affirmed

The Court affirmed the Second Circuit in the consolidated cases. An uncertain price does not by itself entitle a modern seller to recover all basis before reporting gain; the transaction’s current reporting rules must be checked separately.

Key takeaways

• Determine whether contingent rights have an ascertainable market value.
• Document basis before allocating later receipts.
• Track cumulative payments against recovered capital.
• Treat open-transaction reporting as an exceptional, fact-dependent method.