Cottage Savings Association v. Commissioner, 499 U.S. 554 (1991), was an income tax case before the Supreme Court of the United States.

Like many other S&L's, Cottage Savings had a large number of long-term, low-interest mortgages on its books, which declined in value as interest rates increased during the late 1970s.

[2] Since the transaction was certainly not a sale, the Court identified the main legal issue to be whether the exchange was a "disposition of property."

In an opinion by Justice Marshall, the Court came to three key findings: Material difference is a requirement for a disposition under §1001.

Justice Marshall cited Treasury Regulation §1.1001-1 (26 CFR 1.1001-1), which required that an exchange of materially different properties constitutes a realization under the Tax Code.

Congress delegated to the Commissioner the authority to make rules and regulations to enforce the Internal Revenue Code.

Justice Marshall defined what constituted a "material difference" in property under §1001 by examination at what point "realization" had been found in past case law.

This was a simpler, black letter rule, as compared to what the Commissioner was arguing for, which would have examined not just the underlying substance of the transaction, but also the market and other non-tax regulations.