opinion: Mr. Justice Black
  delivered the opinion of the Court.
  This is an income tax controversy growing out of the following facts as shown by findings of the Tax Court. In 1937 two taxpayers, petitioners here, decided to liquidate and divide the proceeds of a corporation in which they had equal stock ownership. Partial distributions made in 1937, 1938, and 1939 were followed by a final one in 1940. Petitioners reported the profits obtained from this transaction, classifying them as capital gains. They thereby' paid less income tax than would have been required had the income been attributed to ordinary business transactions for profit. About the propriety of these 1937-1940 returns, there is no dispute. But in 1944 a judgment was rendered against the old corporation and against Erederick R. Bauer, individually. The two taxpayers were required to and did pay the judgment for the corporation, of whose assets they were transferees. See Phillips-Jones Corp. v. Parmley, 302 U. S. 233, 235-236. Cf. I. R. C., § 311 (a). Classifying the loss as an ordinary business one, each took a tax deduction for 100% of the amount paid. Treatment of the loss as a capital one would have allowed deduction of a much smaller amount. See I. R. C., § 117 (b), (d) (2) and (e). The Commissioner viewed the 1944 payment as part of the original liquidation transaction requiring classification as a capital loss, just as the taxpayers had treated the original dividends as capital gains. Disagreeing with the Commissioner the Tax Court classified the 1944 payment as an ordinary business loss. 15 T. C. 876. Disagreeing with the Tax Court the Court of Appeals reversed, treating the loss as “capital.” 193 F. 2d 734. This latter holding conflicts with the Third Circuit’s holding in Commissioner v. Switlik, 184 F. 2d 299. Because of this conflict, we granted certiorari. 343 U. S. 976.
  I. R. C., § 23 (g) treats losses from sales or exchanges of capital assets as “capital losses” and I. R. C., § 115 (c) requires that liquidation distributions be treated as exchanges. The losses here fall squarely within the definition of “capital losses” contained in these sections. Taxpayers were required to pay the judgment because of liability imposed on them as transferees of liquidation distribution assets. And it is plain that their liability as transferees was not based on any ordinary business transaction of theirs apart from the liquidation proceedings. It is not even denied that had this judgment been paid after liquidation, but during the year 1940, the losses would have been properly treated as capital ones. For payment during 1940 would simply have reduced the amount of capital gains taxpayers received during that year.
  It is contended, however, that this payment which would have been a capital transaction in 1940 was transformed into an ordinary business transaction in 1944 because of the well-established principle that each taxable year is a separate unit for tax accounting purposes. United States v. Lewis, 340 U. S. 590; North American Oil v. Burnet, 286 U. S. 417. But this principle is not breached by considering all the 1937-1944 liquidation transaction events in order properly to classify the nature of the 1944 loss for tax purposes. Such an examination is not an attempt to reopen and readjust the 1937 to 1940 tax returns, an action that would be inconsistent with the annual tax accounting principle.
  The petitioner Bauer’s executor presents an argument for reversal which applies to Bauer alone. He was liable not only by reason of being a transferee of the corporate assets. He was also held liable jointly with the original corporation, on findings that he had secretly profited because of a breach of his fiduciary relationship to the judgment creditor. Trounstine v. Bauer, Pogue & Co., 44 F. Supp. 767, 773; 144 F. 2d 379, 382. The judgment was against both Bauer and the corporation. For this reason it is contended that the nature of Bauer’s tax deduction should be considered on the basis of his liability as an individual who sustained a loss in an ordinary business transaction for profit. We agree with the Court of Appeals that this contention should not be sustained. While there was a liability against him in both capacities, the individual judgment against him was for the whole amount. His payment of only half the judgment indicates that both he and the other transferee were paying in their capacities as such. We see no reason for giving Bauer a preferred tax position.
  Affirmed.
  At dissolution the corporate stock was owned by Frederick P. Bauer and the executor of Davenport Pogue’s estate. The parties here now are Pogue’s widow, Bauer’s widow, and the executor of Bauer’s estate.