Court Opinion

ID: 4482656
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:37.018426+00
Date Added: 2024-06-11T14:19:46.540089
License: Public Domain

SimpsoN, J., dissenting: With due respect to my colleagues, I suggest that they have allowed the trees to obscure their view of the forest in this case. They have concluded that because there was a partial liquidation of the petitioner, all the expenses of carrying out the plan are deductible. In my opinion, we should not allow the form of that transaction to determine the tax consequences of the entire plan (Gregory v. Helvering, 293 U.S. 465 (1935)); nor should we look only to that step in what is a series of steps to determine the character of the expenses (Commissioner v. Court Holding Co., 324 U.S. 331 (1945); American Manufacturing Co., 55 T.C. 204 (1970)). The Court recognizes that tire partial liquidation of the petitioner was merely one step in tbe accomplishment of the whole plan. A new corporation was formed, the petitioner transferred assets to it and received its stock in exchange therefor, and the petitioner then distributed that stock to one of its shareholders in redemption of his stock in the petitioner. Each step in the series was interdependent on the other steps, and they were all integral parts of the ultimate plan. Before these events took place, there was one corporation, conducting the business of manufacturing tools and dies, owned by two shareholders. After the completion of all steps in the plan, the business was divided into two parts — each business was owned by a separate corporation, and each corporation was owned by a single shareholder. There was not a mere liquidation of part of the business; the businesses continued to be operated, but in different corporate form with different ownership. In my judgment, any realistic analysis of these facts demonstrates that the ultimate purpose and effect of the various steps in the plan were to bring about a reorganization of the form and operations of the businesses. American Manufacturing Co., supra at 222-224; compare Standard Realization Co., 10 T.C. 708 (1948); George D. Graham, 37 B.T.A. 623 (1938). In Mills Estate v. Commissioner, 206 F. 2d 244 (C.A. 2, 1953), reversing in part and remanding 17 T.C. 910 (1951), the court held that there is a reorganization and the expenses are not deductible when the changes in the corporate structure are made for the benefit of the continued conduct of the business. See also United States v. General Bancshares Corporation, 388 F. 2d 184, 191 (C.A. 8, 1968); Gravois Planing Mill Co. v. Commissioner, 299 F. 2d 199, 208 (C.A. 8, 1962), reversing a Memorandum Opinion of this Court. When I apply that test to the facts of this case, I reach the same conclusion as the court did in Mills Estate. There were changes in the corporate structure — before the plan, there were two shareholders, but after the plan, there was only one shareholder of each corporation. These changes were made because of the friction that existed between the shareholders, and they were made so that the businesses could continue to be operated without such friction. Cf. James Kuper, 61 T.C. 624, 632-633 (1974). Finally, by its opinion in this case, the Court has gone further than other decisions by allowing a deduction for expenditures that were clearly capital in nature. Here, we have allowed a deduction for the expenses of organizing the new corporation, although similar expenses were not allowed in United States v. General Bancshares Corporation, supra at 192, where the court bifurcated the transaction and denied a deduction for the capital expenses of the “unrelated” plan and in United States v. Transamerica Corporation, 392 F. 2d 522 (C.A. 9, 1968), where such expenses were not claimed as deductions by the taxpayer. The courts in both cases clearly indicated that capital expenditures incurred in the transaction were not deductible. To allow a deduction for expenditures that are clearly capital in nature merely because they are part of a liquidation is contrary to the well-established principles of tax law and the position of this Court (Of Course, Inc., 59 T.C. 146 (1972), on appeal (C.A. 4, Mar. 15, 1973)), and cannot be justified by the apparent stipulation of the parties. Estate of Sanford v. Commissioner, 308 U.S. 39, 51 (1939); Estate of Viola F. Saia, 61 T.C. 515, 519-520 (1974); Bloomfield Steamship Co., 33 T.C. 75, 85-86 (1959), affirmed per curiam 285 F. 2d 431 (C.A. 5, 1961); Lucius N. Littauer et al., Executors, 24 B.T.A. 983, 988-989 (1931), rehearing 25 B.T.A. 21, 25-26 (1931); Ohio Clover Leaf Dairy Co., 8 B.T.A. 1249 (1927), affirmed per curiam 34 F. 2d 1022 (C.A. 6, 1929), certiorari denied 280 U.S. 588 (1929). Dawson, FORRESTER, IrwtN, and Quealy, JJ., agree with this dissent.