Court Opinion

ID: 4484118
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:31.499148+00
Date Added: 2024-06-11T15:03:45.914719
License: Public Domain

Tannenwald, J., concurring: I agree with the result reached by the majority, but I am concerned that the majority opinion may be read as adopting a rationale that distribution by an ongoing corporation of appreciated property as a dividend in kind coupled with the primary purpose of avoiding tax on the appreciation and the absence of substantial business purpose is, without more, sufficient to impute the subsequent sale of the property to the corporation. It may well be that such a rationale would be salutary, but the equating of purpose of distribution with fact of sale flies in the face of the distinction drawn by the Supreme Court in Commissioner v. Court Holding Co., 324 U.S. 331 (1945), and United States v. Cumberland Pub. Serv. Co., 338 U.S. 451 (1950). I do not regard the reference to “profits of a going concern” in Cumberland as indicating that, in the case of ongoing corporations, it is unnecessary to determine that the sale by the shareholders was in fact made by the corporation. Respondent’s own regulations (see sec. 1.311-1(a), Income Tax Regs.) set that standard and make no distinctions based upon the status of the distributing corporation. If distribution and purpose are, per se, enough to impute a shareholder sale to the corporation, such elements as expectation of shareholder sale, the lapse of time between the distribution and such sale, and the character of the assets involved become irrelevant. See Waltham Netoco Theatres, Inc. v. Commissioner, 49 T.C. 399, 405-406 (1968), affd. 401 F.2d 333 (1st Cir. 1968). Judge Goldberg, in speaking for a unanimous panel of the Fifth Circuit Court of Appeals in Hines v. United States, 477 F.2d 1063 (5th Cir. 1973), stated at pages 1069-1070: We hold that the sine qua non of the imputed income rule is a finding that the corporation actively participated in the transaction that produced the income to be imputed. Only if the corporation in fact participated in the sale transaction, by negotiation, prior agreement, postdistribution activities, or participated in any other significant manner, could the corporation be charged with earning the income sought to be taxed. Any other result would unfairly charge the corporation with tax liability for a transaction in which it had no involvement or control. It may well be that a somewhat less strict standard of participation by the distributing corporation than that which the Fifth Circuit seems to have adopted should be applied. However, on the facts herein, I believe that petitioner participated sufficiently in the sales that the profits therefrom should be imputed to it. Featherston, Fay, Dawson, Simpson, and Irwin, JJ., agree with this concurring opinion.