Court Opinion

ID: 4479089
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:27.833192+00
Date Added: 2024-06-11T15:03:32.009293
License: Public Domain

Drennen, J., dissenting: I respectfully dissent on the collapsible corporation issue. Eespondent has chosen to attack Eagle Mount as a collapsible corporation. The maj ority opinion treats Eagle Mount and Eagle Garden as two unrelated corporations with no agency existing between them. Thus, in order to find that Eagle Mount qualified as a collapsible corporation, we must look only to petitioner’s activities with respect to Eagle Mount and Eagle Mount’s activities with respect to the property. So limited, to find Eagle Mount qualified as a collapsible corporation, in my opinion, requires stretching the language of section 117 (m) beyond reasonable limits. The statute read as a whole and applied here would require that Eagle Mount was formed or availed of principally for the construction of property with, a view to the sale of its stock by petitioner prior to the realization aby the corporation” (Eagle Mount) of a substantial part of the net income to be derived from the property, that petitioner did realize a gain attributable to the property constructed, and that more than 70 per centum of such gain was attributable to the property so constructed. There is nothing to indicate that petitioner had the proscribed view at the time Eagle Mount was formed. It is apparent that at the time Eagle Mount was “availed of” by petitioner, presumably when he sold his stock, there was no prospect that Eagle Mount would realize any more income from construction of the property. So Eagle Mount could not have been availed of with a view to sale of its stock prior to realization by it of a substantial part of the net income from its activities with respect to the property. And it also seems clear that 70 percent of the gain realized by petitioner was not attributable to the property constructed by Eagle Mount. It seems to me that petitioner’s gain must have been attributable either to increment in value of the property or, as seems more likely, to construction to be performed by Eagle Garden in the future. To find that Eagle Mount was a collapsible corporation, I believe we would have to interpret the statute to mean that any corporation is a collapsible corporation which is formed to construct property and whose stock is sold at a gain prior to the time a substantial part of the net income from the property is realized, regardless of who performs the construction which gives rise to the gain, who realizes the gain, and whether the gain is attributable to construction activities of the corporation whose stock is sold. I do not think such would be a permissible interpretation or construction of the statute. I think the effort of the majority opinion to attribute the increase in value of petitioner’s stock in Eagle Mount to the preliminary construction activities carried on by Eagle Mount reaches an unreasonable conclusion but that the effort itself supports my views expressed above. While petitioner may have converted what would ordinarily be ordinary income to capital gain, I do not think his efforts should be successfully attacked in this manner.