Blake v. Commissioner

697 F.2d 473 (1982)

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Blake v. Commissioner

United States Court of Appeals for the Second Circuit
697 F.2d 473 (1982)

SC

Facts

S. Prestley Blake (plaintiff) was a cofounder of the Friendly Ice Cream Corporation (Friendly’s). Blake owned a yacht but wanted to get rid of it due to the expense and hassle of the upkeep. Blake agreed to donate the yacht to Kings Point Fund, Inc. (the fund), a charitable organization. Minutes from a meeting of the fund’s board of directors at which the donation was discussed stated that further negotiations regarding the donation were forthcoming. Soon after, Blake transferred 35,000 shares of Friendly’s stock to the fund. In Blake’s possession, the stock had an adjusted tax basis of $98. In the fund’s possession, the stock was worth $686,875. Upon receiving the stock, the fund sold it for over $700,000. A portion of those funds were then used to buy Blake’s yacht for $675,000. Soon after, the fund sold the yacht for $250,000. The Internal Revenue Service (IRS) (defendant) determined for tax purposes that the transactions would constitute a contribution of the yacht to the fund and a sale of the stock. Accordingly, the IRS assessed capital gains on Blake for the value above $98 he gained from the transactions. The United States Tax Court affirmed, holding that the transactions were linked and should be construed for tax purposes as a sale of the Friendly’s stock and a contribution of the yacht. Blake appealed.

Rule of Law

Issue

Holding and Reasoning (Oakes, J.)

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