Fender v. United States
United States Court of Appeals for the Fifth Circuit
577 F.2d 934 (1978)
Fender (plaintiff) sold bonds from his sons' trusts to Longview Bank for $225,000, well below their $435,017 purchase price, to generate a tax-deductible loss offsetting the trusts' 1969 capital gains. Fender owned the largest block of Longview's stock (40.7%, later 50.15%) and had recently helped the bank through financial troubles. About six weeks later, Longview resold the bonds back to the trusts for almost the same price. The IRS disallowed the loss deduction; the district court sided with Fender, and the IRS appealed.
Whether a taxpayer suffers a genuine, deductible loss from selling securities when he was never exposed to real economic risk because his influence over the buyer let him repurchase the securities shortly afterward.