Cerone v. Commissioner
United States Tax Court
87 T.C. 1 (1986)
Michael N. Cerone (Cerone) (plaintiff) and his son, Michael L. Cerone (Mick) each owned 50 percent of the stock of the Stockade Cafe (Stockade), which they operated together. Cerone and Mick had a contentious relationship, and Stockade eventually redeemed Cerone’s stock, leaving Mick as the sole owner. Following the redemption, Cerone continued to work at Stockade but did not exercise any control. Cerone sought to recognize the redemption payments as capital gains pursuant to § 302(a) of the Internal Revenue Code and argued that § 318(a)(1) was not applicable due to the contentious nature of Cerone’s relationship with Mick. Section 318(a)(1) provides family-attribution rules under which some individuals are treated as constructive owners of stock that is directly owned by a related individual. The Commissioner of Internal Revenue (the Commissioner) (defendant) classified the redemption payments as dividends pursuant to §§ 301(a) and 316 and therefore considered them taxable as ordinary income. The Commissioner argued that, because Cerone maintained an employee interest in Stockade pursuant to § 302(c)(2)(A)(i) following the redemption, § 318(a)(1) applied and made Cerone the constructive owner of 100 percent of Stockade’s shares both before and after the redemption.
Rule of Law
Holding and Reasoning (Parker, J.)
What to do next…
Unlock this case brief with a free (no-commitment) trial membership of Quimbee.
You’ll be in good company: Quimbee is one of the most widely used and trusted sites for law students, serving more than 710,000 law students since 2011. Some law schools—such as Yale, Berkeley, and Northwestern—even subscribe directly to Quimbee for all their law students.Unlock this case briefRead our student testimonials
Learn more about Quimbee’s unique (and proven) approach to achieving great grades at law school.
Quimbee is a company hell-bent on one thing: helping you get an “A” in every course you take in law school, so you can graduate at the top of your class and get a high-paying law job. We’re not just a study aid for law students; we’re the study aid for law students.Learn about our approachRead more about Quimbee
Here's why 710,000 law students have relied on our case briefs:
- Written by law professors and practitioners, not other law students. 44,600 briefs, keyed to 983 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.