Blaschka v. United States

Clara Blaschka (plaintiff) owned 92.3 percent of C. & C. Blaschka, Inc. (C&C); her husband owned the remaining 7.7 percent. The Blaschkas were executive officers and on the board of directors. C&C was engaged in the wholesale glove business in the United States and had a wholly owned Canadian subsidiary, Max Mayer & Company, Ltd. (Max Mayer), which sold gloves in Canada. C&C received 3 percent of Max Mayer’s net sales under a management agreement. C&C sold its United States glove business and the name Max Mayer to unrelated third parties. The C&C board of directors conducted several conferences to determine what to do with the funds received. C&C decided to purchase all shares of Clairette Manufacturing Company, Inc. (Clairette), a real estate company, from Clara; the meeting minutes did not mention a partial liquidation. Clara claimed the $115,000 received from C&C as long-term capital gain on the sale of stock. The commissioner of the Internal Revenue Service (defendant) assessed a deficiency, claiming that this amount was a dividend taxable as ordinary income. Clara filed a Notice of Protest, in which she stated that C&C decided to use accumulated earnings to pursue a different business rather than liquidate. After the commissioner denied her protest, Clara paid the tax and then sued for refund in the United States Court of Federal Claims.