Arkansas Best Corp. v. Commissioner, 485 U.S. 212 (1988) (U.S. Supreme Court)
Arkansas Best Corp. v.
Whether losses from the sale of corporate stock acquired and held to protect or promote a taxpayer's business interests, rather than for investment, are capital losses under I.R.C. § 1221 or may be treated as ordinary losses based on the taxpayer's business motive.
Under I.R.C. § 1221, a capital asset is property held by the taxpayer (whether or not connected with the taxpayer's trade or business) except for the statute's specific exclusions (e.g., inventory, property held primarily for sale to customers, depreciable business property, accounts or notes receivable, certain supplies, and, as later codified, certain hedging transactions). The taxpayer's motive for acquiring or holding the property does not determine capital-asset status; characterization turns on whether the property falls within one of § 1221's enumerated exceptions. Corn Products is limited to its context: hedging transactions that are an integral part of a business's inventory-purchase system fall within the inventory-related exclusions and therefore can produce ordinary gain or loss, but that narrow principle does not create a general business-motive exception.
Losses from the sale of corporate stock are capital losses unless the stock falls within one of § 1221's specific exclusions. A taxpayer's business purpose or motive for acquiring or holding the stock is irrelevant to capital-asset characterization. Accordingly, Arkansas Best's losses on the sale of bank stock were capital, not ordinary.
Arkansas Best restores a bright-line, text-driven approach to capital-asset classification. It rejects motive-based characterizations and clarifies that Corn Products is limited to true hedging transactions that fall within § 1221's exclusions. For students and practitioners, the case underscores the primacy of statutory text in tax characterization questions, the limits of judicial gloss on tax statutes, and the policy reasons (administrability and predictability) for adhering to categorical rules. Practically, the case instructs that losses on stock and similar property will generally be capital unless a specific statutory provision—such as the inventory exclusions, dealer rules, § 1231, § 1244 small business stock, or the later codified hedging exclusion—applies.