Bruce v. Helvering

76 F.2d 442 (1935)

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Bruce v. Helvering

District of Columbia Court of Appeals
76 F.2d 442 (1935)

Facts

Elizabeth Bruce (plaintiff) owned 700 shares of E. E. Bruce & Company (Bruce Co.); Bruce’s sister also owned 700 shares, with the remainder owned by current and former employees of the company. The sisters desired to reduce their investments in Bruce Co. The sisters were approached by Churchill Drug Company (Churchill), which offered to purchase 200 shares from each of the sisters for $96,000 cash. The offer was accepted. Immediately after the sale, the president of Churchill informed the sisters that Churchill intended to merge the two corporations and offered to exchange 2,400 shares of its stock for the sisters’ remaining stock in Bruce Co. The sisters had not been aware of the merger plan, but after consideration, they accepted the offer, which was completed on the same day as the initial purchase. Bruce reported the first transaction as a sale of stock and the second transaction as a separate tax-exempt exchange on her tax return. The commissioner of the Internal Revenue Service (defendant) issued a notice of deficiency for $4,000 based on combining the two transactions into one. Bruce appealed.

Rule of Law

Issue

Holding and Reasoning (Groner, J.)

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