# Crane v. Commissioner > Mediated Wiki article. Canonical URL: https://mediated.wiki/source/Crane_v._Commissioner > Markdown URL: https://mediated.wiki/source/Crane_v._Commissioner.md > Source: https://en.wikipedia.org/wiki/Crane_v._Commissioner > Source revision: 1351967219 > License: Creative Commons Attribution-ShareAlike 4.0 International (https://creativecommons.org/licenses/by-sa/4.0/) 1947 United States Supreme Court case Crane v. Commissioner Supreme Court of the United States Argued December 11, 1946 Decided April 14, 1947 Full case name Crane v. Commissioner of Internal Revenue Citations 331 U.S. 1 (more) 67 S. Ct. 1047; 91 L. Ed. 1301 Case history Prior 3 T.C. 585 (1944); reversed, 153 F.2d 504 (2d Cir. 1945); cert. granted, 328 U.S. 826 (1946). Holding The amount of a nonrecourse mortgage securing property is included in the basis of that property and — upon disposition of the property — the entire remaining balance of the mortgage must be included in the taxpayer's amounts realized. Court membership Chief Justice Fred M. Vinson Associate Justices Hugo Black · Stanley F. Reed Felix Frankfurter · William O. Douglas Frank Murphy · Robert H. Jackson Wiley B. Rutledge · Harold H. Burton Case opinions Majority Vinson, joined by Black, Reed, Murphy, Rutledge, Burton Dissent Jackson, joined by Frankfurter, Douglas English [Wikisource](/source/Wikisource) has original text related to this article: **[Crane v. Commissioner of Internal Revenue](https://en.wikisource.org/wiki/en:Crane_v._Commissioner_of_Internal_Revenue)** ***Crane v. Commissioner***, 331 U.S. 1 (1947), was a case heard before the [United States Supreme Court](/source/United_States_Supreme_Court) concerning the value, for [tax](/source/Tax) purposes, of [inherited](/source/Inheritance) [property](/source/Property) with a [nonrecourse](/source/Nonrecourse_debt) [mortgage](/source/Mortgage_law) encumbering it.[1] According to [Boris I. Bittker](/source/Boris_I._Bittker), *Crane* "laid the foundation stone of most tax shelters." Chief Justice [Fred M. Vinson](/source/Fred_M._Vinson) wrote the opinion. ## Facts Petitioner, Crane, was the sole beneficiary and executrix of her husband's estate. She inherited an apartment building and land, which secured a principal debt of $255,000 and interest in default of $7,042. The property was for estate tax purposes at a value equal to the mortgage encumbrance. Six years later, with [foreclosure](/source/Foreclosure) imminent, the property was sold for $3,000 subject to the mortgage and Crane incurred $500 in expenses to complete the sale. Crane reported $2,500.00 of taxable gain from the sale of the apartment. ## Issue 1 Did the original [basis](/source/Cost_basis) in the hands of Mrs. Crane include the full value of the property inherited, undiminished by the loan debt? ## Issue 2 Should the amount of the debt assumed by the purchaser of the apartment building have been included in Mrs. Crane's calculation of the amount realized on the sale? ## Arguments Crane argued that the "property" she acquired upon her husband's death was simply the equity in the land and building, which was the excess of the value of the land and building over the then-existing mortgage (i.e. the equity was zero based on the facts). As a result, she argued that the amount she realized on the sale of the building was her net cash received: $2,500. The [Commissioner of the IRS](/source/Commissioner_of_Internal_Revenue) claimed that the property inherited by Crane was the building and land itself, not merely the equity in the building and land. This position had the merit of comporting with the facts at hand: prior to selling the property, Mrs. Crane had been allowed [depreciation deductions](/source/Depreciation_deduction) in excess of $25,000 on the building. Correspondingly, the Commissioner argued that Crane, through the sale of the building and land, received an amount equal to the net of the cash received in addition to the amount of debt assumed by the purchaser. ## Holding and rationale The Court first sided with the Commissioner, agreeing with its construction of the relevant statutory provision that addresses the basis of "property" inherited. The Court found no basis to think "equity" was a synonym for "property." In addition, the Court was troubled by the administrative complications that would be caused by replacing "property" with "equity" when determining depreciation, and by turning over administrative rules that had existed for some time. Second, the Court determined that the amount Mrs. Crane realized from the sale of the "property" should be driven by the conclusion on the first issue. The Court sided with cases repudiating the claim that there must be an actual receipt of money or other property for a taxable gain to result from a transaction. Finally, the Court determined that a mortgagor who transfers a property subject to the mortgage benefits as if the purchaser had paid the mortgage on the property. "We are ... concerned with the reality that an owner of property, mortgaged at a figure less than that at which the property will sell, must and will treat the conditions of the mortgage exactly as if they were his personal obligations. If he transfers subject to the mortgage, the benefit to him is as real and substantial as if the mortgage were discharged, or as if a personal debt in an equal amount had been assumed by another." ## Importance This case supports the doctrine of U.S. income tax law that a seller of property subject to a [nonrecourse debt](/source/Nonrecourse_debt) (as opposed to a recourse debt where the seller may remain liable for any unsatisfied balance remaining after the transfer) realizes an amount that includes the debt assumed by the purchaser. This is an important concept because a large percentage of real property is held subject to a mortgage or other debt and, therefore, the debt must be dealt with as a part of the sale of such property. As a result, when property encumbered by debt is sold, the tax consequences of the passing of the debt have a significant effect on the overall tax consequences of the sale. For example, in this case, a taxpayer who sold an apartment building for $3,000 was forced to recognize taxable income of over $24,000. Of course, the case also had the unintended collateral effect of legitimizing the idea that a taxpayer can purchase depreciable property with nonrecourse debt, a purchase the risk of which is largely borne by the lender, and (possibly) of realizing the interim tax benefit associated with increased depreciation and amortization deductions. The result in Crane is specifically limited to situations where the property mortgage was less than the value of the property mortgaged. See footnotes 37 and 42. The reasoning cited, that the taxpayer will treat the property as his own in order to protect his equity investment, has been called the "Crane Economic Benefit Rule." That reasoning was turned on its head 36 years later in the case *[Commissioner v. Tufts](/source/Commissioner_v._Tufts)*, 461 U.S. 300 (1983), which addressed the situation that Crane had left unresolved. ## See also - [List of United States Supreme Court cases, volume 331](/source/List_of_United_States_Supreme_Court_cases%2C_volume_331) ## References 1. **[^](#cite_ref-1)** *Crane v. Commissioner*, [331](/source/List_of_United_States_Supreme_Court_cases%2C_volume_331) [U.S.](/source/United_States_Reports) [1](https://supreme.justia.com/cases/federal/us/331/1/) (1947) ## Further reading - Bittker, Boris I. (1978). "Tax Shelters, Nonrecourse Debt, and the *Crane* Case". *Tax Law Review*. **33**: 277. [ISSN](/source/ISSN_(identifier)) [0040-0041](https://search.worldcat.org/issn/0040-0041). - Prendergast, Angela (1982). "The *Crane* Controversy Continues—*Tufts v. Commissioner*". *Chicago-Kent Law Review*. **59**: 731. [ISSN](/source/ISSN_(identifier)) [0009-3599](https://search.worldcat.org/issn/0009-3599). - Yin, George K. (2002). ["The Story of *Crane*: How a Widow's Misfortune Led to Tax Shelters"](https://archive.org/details/taxstoriesindept0000unse/page/207). In Caron, Paul L. (ed.). *Tax stories: An in-depth look at ten leading federal income tax cases*. New York: Foundation Press. pp. [207–258](https://archive.org/details/taxstoriesindept0000unse/page/207). [ISBN](/source/ISBN_(identifier)) [1-58778-403-3](https://en.wikipedia.org/wiki/Special:BookSources/1-58778-403-3). ## External links - Text of *Crane v. Commissioner*, [331](/source/List_of_United_States_Supreme_Court_cases%2C_volume_331) [U.S.](/source/United_States_Reports) 1 (1947) is available from: [CourtListener](https://www.courtlistener.com/opinion/104412/crane-v-commissioner/) [Findlaw](https://caselaw.findlaw.com/us-supreme-court/331/1.html) [Google Scholar](https://scholar.google.com/scholar_case?case=9435537986588523387) [Internet Archive (docket files)](https://archive.org/details/micro_IA40386450_0207) [Justia](https://supreme.justia.com/cases/federal/us/331/1/) [Library of Congress](https://cdn.loc.gov/service/ll/usrep/usrep331/usrep331001/usrep331001.pdf) [OpenJurist](https://openjurist.org/331/us/1) v t e United States Sixteenth Amendment case law Scope Brushaber v. Union Pacific Railroad (1916) Stanton v. Baltic Mining Company (1916) Tyee Realty Co. v. Anderson (1916) Income Stratton's Independence, Ltd. v. Howbert (1913) Towne v. Eisner (1918) Eisner v. Macomber (1920) Bowers v. Kerbaugh-Empire Co. (1926) Moore v. United States (2024) Taxable corporate dividends Lynch v. Turrish (1918) Southern Pacific Co. v. Lowe (1918) Lynch v. Hornby (1918) Peabody v. Eisner (1918) Eisner v. Macomber (1920) United States v. Phellis (1921) Rockefeller v. United States (1921) Merchants' Loan & Trust v. Smietanka (1921) Miles v. Safe Deposit Co. (1922) Cullinan v. Walker (1923) Weiss v. Stearn (1924) Marr v. United States (1925) Koshland v. Helvering (1936) Helvering v. Gowran (1937) Taxable corporate earnings Edwards v. Cuba Railroad (1925) Burk-Waggoner Assoc. v. Hopkins (1925) Texas & Pacific Railway Co. v. United States (1932) Continental Tie & Lumber Co. v. United States (1932) Helvering v. Mitchell (1938) Helvering v. National Grocery (1938) Helvering v. Northwest Steel Mills (1940) Crane-Johnson Co. v. Helvering (1940) Commissioner v. Glenshaw Glass Co. (1955) General American Investors Co. v. Commissioner (1955) Commissioner v. Gillette Motor Co. (1960) Taxable gains Goodrich v. Edwards (1921) Walsh v. Brewster (1921) Taft v. Bowers (1929) Lucas v. Alexander (1929) Burnet v. Harmel (1932) United States v. Safety Car Heating Co. (1936) Helvering v. Bruun (1940) Helvering v. Horst (1940) Crane v. Commissioner (1947) United States v. Davis (1962) Commissioner v. Tufts (1983) Unlawful income United States v. Sullivan (1927) Rutkin v. United States (1952) Commissioner v. Sullivan (1958) James v. United States (1961) Deductions and exemptions Brushaber v. Union Pacific Railroad (1915) Burnet v. Sanford & Brooks Co. (1931) McLaughlin v. Alliance Ins. Co. (1932) Helvering v. Independent Life Ins. Co. (1934) Helvering v. Winmill (1938) Millinery Corp. v. Commissioner (1956) Tank Truck Rentals v. Commissioner (1958) Hoover Express Co. v. United States (1958) Cammarano v. United States (1959) United States v. General Dynamics Corp. (1987) Diminution of loss Bowers v. Kerbaugh-Empire Co. (1926) --- Adapted from the Wikipedia article [Crane v. Commissioner](https://en.wikipedia.org/wiki/Crane_v._Commissioner) by Wikipedia contributors ([contributor history](https://en.wikipedia.org/wiki/Crane_v._Commissioner?action=history)). Available under [Creative Commons Attribution-ShareAlike 4.0 International](https://creativecommons.org/licenses/by-sa/4.0/). Changes may have been made.