Legal Document

338 U.S. 451 70 Supreme Court Reporter 280 94 L.Ed. 251 UNITED STATESv.CUMBERLAND PUBLIC SERVICE CO. Number 214. Argued Dec. 12, 1949. Decided Jan. 9, 1950. Mr. Hilbert Pacific KF135 P2 Zarky, Washington, D.C., for petitioner. Cornelius W. Grafton, Louisville, Ky., respondent. Justice BLACK delivered the opinion of Court. 1 A corporation selling its physical properties is taxed on capital gains resulting from sale.1 There no corporate tax, however, distribution assets in kind to shareholders as part a genuine liquidation.2 The respondent transferred property liquidating dividend kind. it purchaser. question whether, despite contrary findings by Claims, this record requires holding that transaction was fact sale subjecting tax. 2 Details are follows. respondent, closely held corporation, long engaged business generating and distributing electric power three Kentucky counties. In 1936 local cooperative began distribute Tennessee Valley Authority area served It soon became obvious respondent's Dieselgenerated could not compete with TVA power, which had been unable obtain. Respondent's shareholders, realizing must get out unless obtained accordingly offered sell all stock cooperative, receiving such power. refused buy stock, but countered an offer transmission equipment. rejected because would have compelled pay heavy At same time desiring save payment acquire equipment then cooperative. accepted. systems partial liquidation. remaining were sold dissolved. executed previously contemplated 3 Upon Commissioner assessed collected $17,000 tax theory used mere conduit effectuating what really sale. Respondent brought action recover amount Claims found method stockholders disposed avowedly chosen order reduce taxes, liquidation dissolution genuinely ended corporation's activities existence. court also at did plan make itself. Accordingly made rather than entered judgment One judge dissented, believing our Com'r versus Holding Co., 324 331, 65 707, 708, 89 567, required finding corporation. Certiorari granted, 846, 88, clear up doubts arising company case. 4 Our decision rested Tax realized taxpayer negotiated reached oral agreement When consequences belatedly recognized, purported 'call off' last minute distributed stockholders. They promptly conveyed these persons who terms purchase substantially those previous agreement. thousand dollars already paid applied price. never abandoned sales negotiations, dissolve, sole purpose so-called disguise through use formalisms avoid liability. Circuit Appeals took different view evidence. Government contended whether or merely sham traditionally fact. We agreed contention, reinstated Court's judgment. Discussing evidence supported fact, we went say 'the incidence taxation depends upon substance transaction' regardless 'mere formalisms,' taxes cannot be avoided using 'conduit pass title.' 5 This language does mean can even when has following dissolution.3 While distinction between compared followed shareholder may particularly shadowy artificial held, Congress recognize purposes. thus aimed primarily profits going concern. true taxed, perhaps prevent evasions, where cash proceeds once liquidation.4 But imposed distributions dissolution, whatever motive Consequently, liquidate dissolve without itself though primary burden taxation. 6 Here, basis adequate subsidiary findings, Government's argument acted 'conduit' fall before finding. major bar conclusion. Whatever however relevant determining real sham, attributed 7 oddities emerge provisions here controlling appear inherent present pattern. For if sells distributes dividends, yet shareholders. both instances interest Again, succeeded their original effort purchasers just effectively. Yet taxable gain. 8 having determined shall flow methods dispose property, accept mandate. trial court, consideration entire transaction, determine factual category particular belongs. Here case ultimate tribunal. affirmed. 9 Affirmed. 10 DOUGLAS 26 United States Code KF62 § 22(a), Annotated KF65 U5 22(a); Treas.Reg. 103, 19.22(a)—19. '* * No gain loss complete liquidation, they appreciated depreciated value since acquisition. *' 19.22(a) 21. What said approval looking beyond papers there actually emphasizing established principle resolving questions sale, fact-finding tribunals cases consider motives, intent, conduct addition appears written instruments parties control rights among themselves. See, e.g., Helvering Clifford, 309 335—337, 60 554, 556—557, 84 788; Internal Revenue Tower, 327 280, 66 532, 90 670, 164 American Law Reports 1135. liquidations effected trustees agents, First national Bank Greeley, Colorado States, Cir., 86 Federal Reporter, 2nd Series 938, 941; Treas. Reg. 19.22(a)—21.

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