The Realization Requirement and Tax Avoidance

Consider, for a moment, the plight of G. E. Hall. During 1947 Hall incurred a gambling debt to the Las Vegas Club variously estimated at between 145,000 and 478,000 dollars. The debt came into the sole ownership of one Binion, a partner in the club, and was eventually settled by Hall transferring to Binion an undivided one-half interest in certain cattle located in Arizona and Montana. Thereafter, Hall and Binion engaged in the ranching business as partners.

At this point the Internal Revenue Service came forward with a claim that Hall, in the course of this disastrous chain of events, had realized a substantial amount of taxable income.