Atlas Tool Co. v. Commissioner

614 F.2d 860 (1980)

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Atlas Tool Co. v. Commissioner

United States Court of Appeals for the Third Circuit
614 F.2d 860 (1980)

Facts

Stephan Schaffan (plaintiff) was the sole shareholder of two corporations, Atlas Tool Company, Inc. (Atlas) (plaintiff) and Fletcher Plastics, Inc. (Fletcher), which was dissolved in 1970 through the sale of all its machinery, equipment, and inventory to Atlas. Atlas hired all of Fletcher’s employees and, after a brief period of time, resumed use of the transferred machinery and equipment to make the same products that Fletcher had previously manufactured. Schaffan received a cash distribution from the transaction of $482,246.82, which he reported on his income tax return as a $390,000 long-term capital gain due to a complete liquidation under § 331 of the Internal Revenue Code. The commissioner of the Internal Revenue Service (defendant) issued a deficiency, asserting that the distribution was a reorganization under § 368 of the Internal Revenue Code and that, therefore, the cash distribution was boot that was taxable as ordinary income. The United States Tax Court held that the transaction was a reorganization, that Fletcher’s earnings of $440,342.56 were a dividend taxable as ordinary income to Schaffan, and that the remainder of the distribution was long-term capital gain. Both Schaffan and the commissioner appealed the decision.

Rule of Law

Issue

Holding and Reasoning (Gibbons, J.)

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