Court Opinion

ID: 6889100
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:36:50.701166+00
Date Added: 2024-06-11T16:05:47.708128
License: Public Domain

HUTCHESON, Circuit Judge
(dissenting)-
This is another of those border line tax avoidance cases in which it is only by the skin of its teeth, if at all, that a family holding corporation has escaped taxes on- a sale of its property by the device of a deed in liquidation to its two stockholders so that they in turn might deed it to the purchaser. The facts are fairly and fully set out in the opinion of the Tax Court, 2 T.C. 531. I will not restate them here. It is sufficient to say that it was in effect found with full support in the record, (1) that the taxpayer entered into an oral contract with the purchaser, with all of the terms of the sale agreed on, one of them being that a part of the rent already paid should be credited on the purchase price, (2) that, at the last minute, and admittedly for the sole purpose of avoiding taxes, it concluded to consummate the sale not by deeding the property direct to the purchaser, as it had at first planned, but by a deed in pretended liquidation to its two stockholders who were to carry out the corporation’s contract by deeding it to the purchaser, and (3) that, using the stockholders as a conduit, it carried out its sale to the purchaser exactly as it had agreed to do.
Standing not as Falcon1 did, with a finding of the Tax Court in its favor, but as Trippett2 did, with a finding against it, petitioner insists that the undisputed facts established that the sale, which the Tax Court finds was made by the corporation, was in fact made by the stockholders, and that a judgment for the taxpayer is demanded. It points to the fact that though the negotiations for the sale were conducted by its stockholders in its name, and the sale was made to the purchaser on the same terms and conditions as those it had agreed to, no binding agreement for a deed and no deed to the purchaser was executed by taxpayer. Citing Commissioner v. Falcon, 5 Cir., 127 F.2d 277, it insists that the Tax Court has in effect affirmed what the courts have uniformly denied, that the motive of tax avoidance can make taxable a transaction that motive absent would be without tax consequences. Arguing that it had a right, to negotiate for the sale, to come up to the very point of closing, and then, not being legally bound to go forward, to decline to sell, it insists that it did actually decline to sell, and having done so, it was entirely competent for it to transfer the property in liquidation to its stockholders and for them to negotiate with and sell the property to the same purchaser on the same terms and conditions. I agree with petitioner that this could have been done. I cannot agree that the record demands a finding that this was done. I think it fully supports the finding of the Tax Court that Mrs. Miller with her husband, the sole owners of the corporation, arranged for it to make a sale to the purchaser, and that it agreed to do so. As part of that arrangement, it was agreed that part of the money *826which had been paid the taxpayer as rent should be credited on the sale price and though the sale finally took the form of a deed in liquidation to her and her husband and a deed from them, this was not the substance of what occurred. This, as found by the Tax Court, was that the corporation should go ahead with the transaction as agreed, except that, instead of executing its own deed direct to the purchaser, it would make the sale through the medium and agency of its sole stockholders. Thus the title, passing first into them, could go through them as a conduit into the purchaser for the purpose of precisely carrying out the agreement, morally if not legally binding, which the taxpayer had made through their agency, and through their agency carried out.
It is settled law that neither the motive nor the effort to avoid tax consequences will of itself make a taxable transaction out of- one which is not in law taxable, but evasion and avoidance are near allied, and thin partition walls their bounds divide.3 The determination, therefore, whether a transaction of this kind was one of a real refusal of the corporation to sell, a real liquidation, a re-negotiation with the purchaser by the stockholders, or was a sham refusal, and a carrying out of the original plan through the stockholders as agents, presents a field for fact finding, a field in short in which the finding of the Tax Court is controlling. If the evidence showed only that the negotiations had been begun by the Millers on behalf of the corporation and had proceeded to the point of oral agreement, and that then it had been decided that the corporation would not make the deed, the Tax Court might have inferred as a fact that its subsequent action in deeding the property in liquidation and the action of its stockholders in selling to 'its customer was the result of a bona fide and complete abandonment by the corporation of its purpose to sell and a renewal of negotiations followed by a sale by the stockholders, or it might have inferred that these facts exhibited a purpose not to abandon the sale but to proceed with and accomplish it by a tax saving device. By either fact inference, this Court would have been bound, Cf. Dobson v. Commissioner, 320 U.S. 489, 64 S.Ct. 239. But the record shows more than this in support of the inference the Tax Court drew. It shows in addition that, as a part of the terms of the sale, the lease arrangements taxpayer had made were taken into account in the sale and that a part of the money paid to and received by the corporation as rental prior to the consummation of the sale was to be, and was, credited to the purchaser on the purchase price. Mrs. Miller so testified. No one disputed her testimony. Indeed, the testimony of the government agents as to what she told them corroborates it. I think, therefore, that it must be held not only that the evidence sustains the finding of the Tax Court, but that it would be hard under this record to sustain any other finding. I respectfully dissent from the judgment of reversal.

 Commissioner v. Falcon, 5 Cir., 127 F.2d 277.

 Trippett v. Commissioner, 5 Cir., 118 F.2d 764, 765.

 Griffiths v. Commissioner, 308 U.S. 355, 60 S.Ct. 277, 84 L.Ed. 319; Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596, 97 A.L.R. 1355; Taylor Oil & Gas Co. v. Commissioner, 5 Cir., 47 F.2d 108; Embry Realty Co. v. Glenn, 6 Cir., 116 F.2d 682; Trippett v. Commissioner, 5 Cir., 118 F.2d 764.