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42 Okla. L. Rev. 581 (1989)
Mrs. Logan Comes to a Sudden Realization: An Analysis of the Current State of the Open Transaction Doctrine

handle is hein.journals/oklrv42 and id is 591 raw text is: MRS. LOGAN COMES TO A SUDDEN REALIZATION: AN ANALYSIS OF THE CURRENT STATE OF THE OPEN TRANSACTION DOCTRINE MKk rIHw A. LYKKEN* In 1916, Mrs. Logan had a problem. She owned shares of stock in a steel company, which in turn had an interest in a mining company. The problem was that Mrs. Logan could only receive the profits from the mining company in the form of dividends from the steel company, which would be currently taxable in full. She solved this quandary by selling her stock for cash plus an ore royalty contract. In 1931, the United States Supreme Court ruled in Burnet v. Logan' that the result of this sale was that Mrs. Logan's March 1, 1913 basis2 in her stock (minus the cash she received at the time of the sale) Carried over to the royalty contract, and that she could apply 100%0 of the royalty payments received under the contract against that basis until the basis was fully recovered? Thus, she not only was able to subtract her basis in the steel company stock from the proceeds she received, but was also able to defer taxation of her profit in excess of basis until some far future date. Unfortunately, the Court was vague in defining the legal principle that justified this act of generosity. Yet, while the lower courts were uncertain as to what the Court had said, they had a duty to follow the Court. The open transaction doctrine (the Doctrine) thus born flowered into various rather disparate branches, the most pernicious of which were pruned away by the enactment of sections 453 and 483 of the Internal Revenue Code (the IRC).4 Yet, the tree of the Doctrine remains embedded in the tax * B.A., University of Minnesota; J.D., Harvard University. Associate Attorney, Office of Chief Counsel, Internal Revenue Service, Dallas District. The content of this article is the opinion of the writer and does not necessarily represent the position of the Internal Revenue Service. 1. 283 U.S. 404 (1931). 2. The first modern income tax statute, the Tariff Act of 1913 § 2, 38 Stat. 166, imposed a tax on all income derived after March 1, 1913. With regard to capital gains, this initial date was implemented by granting all persons who held property on March 1, 1913, a basis in such property equal to its fair market value on that date. This was incorporated in the Revenue Act of 1918 § 202(a), 40 Stat. 1060. In Logan, this initial basis was estimated by the same discounted income projection that was rejected in estimating Mrs. Logan's gain on the sale of her stock. 3. 283 U.S. at 412. The doctrine that receipt of certain income producing assets having no ascertainable fair market value may not result in current taxation, but rather that the taxpayer may defer taxation until the income from the asset is received, is generally known as the open transaction doctrine. As commonly construed, the doctrine permits taxpayers to further defer the recognition of any gain until their basis has been fully recovered, and to treat the receipts as flowing from the transaction by which the taxpayer acquired the asset. 4. I.R.C. § 453 (1986), applies in general to dispositions of property (other than sales of

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