Berghash v. Commissioner
United States Tax Court
43 T.C. 743 (1965)
- Written by Eric Miller, JD
Facts
Hyman Berghash (plaintiff) owned all 200 shares of common stock in Delavan-Bailey Drug Co., Inc. (Delavan-Bailey) (plaintiff). Sidney Lettman, a manager for Delavan-Bailey, expressed a desire to leave Delavan-Bailey unless he acquired a 50 percent interest in Delavan-Bailey. However, Lettman had only $25,000 in capital—an insufficient amount to purchase 100 shares. Berghash and Lettman entered into a contract under which they agreed to form a new corporation, Dorn’s Drugs, Inc. (Dorn’s), in which Lettman would own half of the 200 shares of common stock. Pursuant to the contract, Lettman paid $25,000 for 100 shares of Dorn’s common stock. Meanwhile, Delavan-Bailey sold the entirety of its assets—including fixtures, inventory, and goodwill—to Dorn’s, which paid Delavan-Bailey with a promissory note for $96,101.64 and the other 100 shares of its common stock. Delavan-Bailey then made a distribution in liquidation to Berghash. This distribution included the 100 shares of Dorn’s stock, the promissory note, and $49,313.17 in cash. Delavan-Bailey was dissolved, at which point it had accumulated earnings and profits of $122,050.11. The corporate name of Dorn’s was subsequently changed to Delavan-Bailey Drug Co., Inc. Berghash reported a long-term capital gain on the old Delavan-Bailey liquidation. However, the Commissioner of Internal Revenue (the commissioner) (defendant) determined that Berghash had realized dividend income in the amount of the old Delavan-Bailey’s earnings and profits. The commissioner also assessed a deficiency against Delavan-Bailey for the capital gain realized on the sale of its fixtures and goodwill. Berghash and Delavan-Bailey challenged the assessments in the United States Tax Court.
Rule of Law
Issue
Holding and Reasoning (Withey, J.)
What to do next…
Here's why 832,000 law students have relied on our case briefs:
- Written by law professors and practitioners, not other law students. 46,500 briefs, keyed to 994 casebooks. Top-notch customer support.
- The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
- Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
- Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.