American Potash & Chemical Corp. v. United States

Between September 1954 and November 1955, American Potash & Chemical Corp. (American Potash) (plaintiff) acquired all of the outstanding stock of Western Electrochemical Company (Wecco) in exchange for over 66,000 shares of American Potash voting stock and over $400 paid for fractional shares. The acquisitions were made over a 14-month period. From December 1955 until June 30, 1956, American Potash operated Wecco. On June 30, 1956, Wecco was completely liquidated, with all of its assets distributed to and liabilities assumed by American Potash. During tax years 1957 through 1960, Potash computed its depreciation deduction for depreciable assets from Wecco on an adjusted basis of over $7 million. Prior to the liquidation, Wecco’s basis in these assets was approximately $3.7 million. The Internal Revenue Service audited American Potash’s 1956 and 1957 tax returns and determined that the correct basis for the Wecco assets was approximately $3.7 million. The Commissioner of Internal Revenue (the commissioner) (defendant) reduced the amount of the depreciation deduction taken by American Potash. American Potash paid the 1957 deficiency and adjusted its 1958, 1959, and 1960 tax returns to include the increased taxes determined by the commissioner. American Potash filed claims for the increased taxes paid for all four years and a lawsuit for a refund on income taxes. The commissioner filed a motion for summary judgment arguing that American Potash was limited to the carryover basis of Wecco’s assets because either the transaction was a C reorganization or a liquidation of a wholly owned subsidiary by a parent corporation.