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Cherry-Burrell Corp. v. United States

367 F.2d 669 (1966)

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Cherry-Burrell Corp. v. United States

United States Court of Appeals for the Eighth Circuit

367 F.2d 669 (1966)

Facts

Cherry-Burrell Corporation (CBC) (plaintiff) owned all the preferred stock and the majority of the common stock of Cherry-Burrell Limited (Limited), an English corporation. CBC sought to liquidate Limited and formed a plan to do so. CBC secured a letter ruling from the Internal Revenue Service (IRS) (defendant) finding that Limited’s liquidation did not have a principal purpose of avoiding taxes and so could be liquidated tax-free if all statutory requirements were met. One statutory requirement was that a liquidation be completed within three years of the date on which the first distribution according to the plan of liquidation was made. Shortly after Limited began the process of liquidating, it was sued in England for claims of which CBC was not aware. The British courts required that some of Limited’s assets be held until resolution of the lawsuit. The lawsuit was not ultimately settled until more than six years later. Within a month of settlement, Limited was able to distribute the last of its assets, completing its liquidation. The IRS treated the final distribution as taxable to CBC, finding that Limited did not satisfy the three-year requirement for a tax-free liquidation. CBC disagreed and sued for a refund in district court. The district court agreed with the IRS, and CBC appealed.

Rule of Law

Issue

Holding and Reasoning (Blackmun, J.)

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