Tax Legal Services · Primary-source case analysis

Higgins: A Sale to a Wholly Owned Corporation Did Not Create a Deductible Loss

By Aneeta Mishra and Timothy Chan

Published May 20, 2026

Higgins v. Smith involved securities transferred at market value to a corporation created and wholly controlled by the taxpayer, who claimed the difference from his basis as a deductible loss.

Corporate existence did not answer realization

The corporation was real and kept separate accounts, but a valid entity alone did not establish that the shareholder had relinquished the economic position needed for a loss.

Control remained with the taxpayer

Through complete ownership and direction of the corporation, the taxpayer could still command the securities and their economic benefits.

The transfer lacked sufficient substance

Moving assets between the taxpayer and his corporate instrument did not create the completed economic separation contemplated by the deduction statute.

Later legislation did not imply an earlier deduction

Congress’s subsequent express related-party loss rule did not establish that equivalent losses had been deductible under the prior act.

Key takeaways

• Identify ownership and practical control on both sides of the sale.
• Trace whether risk, benefit, and disposition authority truly changed.
• Apply current related-party rules before relying on general loss provisions.
• Document non-tax purpose and independent conduct when related entities transact.