Bell Lines, Inc. v. United States

Bell Lines (plaintiff), a trucking company, wanted new trucks and to dispose of its old ones. It turned down Mack Trucks' offer to simply trade old trucks for new ones, instead separately contracting to pay cash for Mack's new trucks and, in an unrelated contract, to sell its old trucks for cash to Horner Service Corporation. Unbeknownst to Bell, Mack and Horner had privately arranged for Mack to buy Bell's old trucks from Horner, and Mack recorded the whole affair on its own books as a trade-in. Bell's books, by contrast, recorded the purchase and sale as two separate cash transactions, and Bell claimed tax depreciation based on the full cash price it paid for the new trucks. The IRS Commissioner (defendant) determined the transaction was, in substance, a nonrecognizable like-kind exchange under section 1031(a), meaning Bell's depreciation basis should instead reflect the old trucks' value, to Bell's tax disadvantage, and assessed a deficiency. Bell paid and sued for a refund; the district court ruled for Bell, and the Commissioner appealed.