Woodsam Associates, Inc. v. Commissioner

Mrs. Wood bought property in 1922 for $296,400, financed with a recourse mortgage; she later refinanced various mortgages into a single $400,000 nonrecourse mortgage in 1931, receiving a cash payment and extinguishing her personal liability. In 1934 she transferred the property to her family's holding company, Woodsam Associates (plaintiff). After a 1943 foreclosure, Woodsam sought a tax refund, arguing its basis in the property should be calculated using the higher $400,000 nonrecourse mortgage amount rather than Mrs. Wood's original $296,400 purchase price. The Tax Court sided with the Commissioner (defendant), rejecting the higher basis.

Whether, under federal tax law, refinancing a mortgage is a taxable event.