Court Opinion

ID: 9462565
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:44:02.848686+00
Date Added: 2024-06-11T17:37:39.038407
License: Public Domain

LIVELY, Circuit Judge
(dissenting).
I respectfully dissent. In reversing the district court the majority opinion relies primarily on the decisions of the Eighth Circuit in Hudspeth v. United States, 471 F.2d 275 (1972), and the Second Circuit in Kinsey v. Commissioner of Internal Revenue, 477 F.2d 1058 (1973). The District Judge considered both of these decisions in his opinion in the present case and found them to be distinguishable. An examination of the two cases leads me to the same conclusion.
In Hudspeth the taxpayer owned 81.5% of the outstanding stock in a corporation and his two sons owned the remainder. After a plan of liquidation was adopted by the directors of the corporation, who consisted solely of members of the taxpayer’s immediate family, he transferred some of his stock to exempt donees. After these gifts had been made the taxpayer continued to own 74.8% of the outstanding stock. Looking at the “realities and substance of the events” the court concluded that the taxpayer’s continued control over the corporation after the gift of the stock was critical to its decision. It is clear from reading the Hudspeth opinion that the corporation was *1347nothing more than the alter ego of the taxpayer who controlled it before and after the charitable gifts.
In Kinsey the corporation which was being liquidated was also a closely held one. The taxpayer owned 74% of the outstanding stock and the remainder was owned by his wife and three employees, two of whom were directors. His gift of stock to De-Pauw University came not only after adoption of the plan of liquidation, but also after the corporation “had already made distributions in liquidation of a major portion of its assets, and had taken steps to dispose of the rest.” 477 F.2d at 1059.
In the present case the taxpayer owned less than ten percent of the outstanding stock in the corporation at the time the plan of liquidation was adopted. Though her husband and children owned substantial interests, the corporation had 694 shareholders and a majority of the stock was owned by persons who were not related to the taxpayer or her husband. Plans of liquidation and dissolution were adopted by the shareholders on February 15, 1965. Taxpayer made gifts of stock to tax exempt donees on June 17,1965 before any distribution in liquidation had been made.
It is apparent that the decisive factor in Hudspeth v. United States, supra, is not present in this case. The taxpayer never had control of the corporation, either before or after the plan of liquidation was adopted. If for any reason it had been determined that the decision to liquidate was imprudent neither she nor the donees would have had the power to prevent a reversal of that decision. The total domination of a closely held corporation by the donor taxpayer who had committed himself to a plan of liquidation presented to the Hudspeth court a case with “realities and substance” that are not present in this case.
While the donor taxpayer in Kinsey v. Commissioner of Internal Revenue, supra, did not continue to have sufficient stock to dictate the course of events after he had made a gift of stock, that case is distinguishable from the present one because of the fact that a major portion of the assets had been distributed in liquidation prior to the date of the gift. As a practical matter this made the decision to liquidate irreversible. The donor taxpayer, who continued to hold more than 50% of the stock during liquidation, would have suffered adverse tax consequences if the plan of liquidation had been abandoned because the distributions he had already received when he made the gifts of stock would be taxed as ordinary income. Again the realities of events led the court to conclude that the possibility of reversing the decision to liquidate was so remote as to be non-existent. In the present case, however, though a plan of complete liquidation had been adopted, no distributions occurred until more than three months after the gifts to the charitable organizations were made.
The court should not adopt a per se rule that a gift of stock of a corporation in the process of liquidation will always be treated as an anticipatory assignment of income. This is the effect of the majority opinion, however, because it is difficult to imagine a case with facts more favorable to the claim of a taxpayer than the present one.
The taxpayer had made other gifts of stock of this corporation in years prior to the one in which the liquidation and dissolution were voted. The gifts which came after the plan of liquidation had been voted did not result from a “one-shot” tax avoidance scheme designed to take advantage of the liquidation. The taxpayer testified that she believed that the gifts of stock she made after the plan was adopted were no different for tax purposes than the ones made before. The charitable donees were actual stockholders after the gifts were made, receiving notices of meetings and voting by proxy on issues which arose before the final dissolution of the corporation. The gifts did not involve stock in a closely held family corporation. Though her husband was president and the owner of 19% of the outstanding stock, none of the gift stock had come to the taxpayer from her husband. She and her husband filed sepa*1348rate income tax returns and taxpayer testified that her husband did not advise her with respect to the liquidation or gift of stock.
The district court properly applied the rule of this circuit as stated in Jacobs v. United States, 280 F.Supp. 437 (S.D.Ohio 1966), aff’d, 390 F.2d 877 (6th Cir. 1968), and I would affirm the judgment.
PHILLIPS, Chief Judge, and JOHN W. PECK, Circuit Judge, concur.