## Facts

- David L. Miller and Frances A. Miller filed joint federal income tax returns for 1976 and 1977.
- David and his brother, I. Marvin Miller, jointly owned inherited and acquired Philadelphia real estate and stock in Charles Miller, Inc.
- The brothers’ relationship deteriorated, and they were unable to manage the jointly held assets cooperatively.
- The brothers agreed to compulsory, binding arbitration to separate and divide their jointly owned properties and interests.
- Pursuant to the arbitration award, David transferred to Marvin his interests in certain real estate parcels and his stock in Charles Miller, Inc., for consideration determined under the arbitration process.
- David reported losses on the 1976 transfers to Marvin and claimed a long-term capital loss carryover to 1977 attributable to those 1976 losses.
- The Commissioner disallowed the 1976 losses on the transfers to Marvin under I.R.C. § 267 (related-party loss disallowance) and, as a consequence, disallowed the 1977 capital loss carryover derived from those losses.

## Issues

1. Whether losses from David’s arbitration-directed transfers of real estate interests and corporate stock to his brother are disallowed under I.R.C. § 267 as losses from sales or exchanges between brothers.
2. Whether the compelled nature of the arbitration and the brothers’ hostility can remove the transactions from § 267’s related-party loss disallowance.
3. Whether disallowance of the 1976 losses requires disallowance of the claimed 1977 long-term capital loss carryover.

## Decision

- The Tax Court sustained the Commissioner’s determinations on the disputed items.
- The court held that David and Marvin were “brothers” within the meaning of § 267, and personal hostility did not change that statutory relationship.
- The court treated the arbitration-directed transfers as “sales or exchanges” for purposes of § 267, despite being compelled by a binding separation process.
- The court disallowed the 1976 losses on the transfers to Marvin under § 267.
- The court also disallowed the 1977 long-term capital loss carryover to the extent it depended on the disallowed 1976 losses.

## Legal Principles

- I.R.C. § 267 disallows deductions for losses from sales or exchanges of property, directly or indirectly, between related persons, including brothers.
- The statutory relationship categories in § 267 are objective and do not depend on the quality of the family relationship or on estrangement or hostility.
- A compelled disposition between related parties, including one imposed through binding arbitration to separate jointly held interests, may still constitute a “sale or exchange” subject to § 267.
- A capital loss carryover is not allowable if it is derived from losses that are disallowed in the year incurred.

## Conclusion

The Tax Court held that § 267 barred loss deductions on arbitration-directed transfers of property and stock from a taxpayer to his brother, and it rejected arguments based on hostility and compulsion; because the 1976 losses were disallowed, the related 1977 capital loss carryover was also disallowed.


Miller v. Commissioner, 75 T.C. 182 (1980)