Later that same year, the company repurchased the same bonds in the open market for a sum less than par value.

The Court of Claims, however, found in favor of the taxpayer, analogizing the situation in this case to the one in Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1925), a case in which a loan repaid in devalued German marks was not considered to be a taxable gain for the taxpaying company.

In a brief unanimous opinion, Justice Holmes upheld the validity of the Treasury regulations.

He distinguished Bowers v. Kerbaugh-Empire Co. on the grounds that the enterprise in that case had been on the whole a failure, and had lost money.

By paying off its debts for less than the issue price, it had freed up assets to spend on other things.