Commissioner v. Court Holding Co.

Court Holding Co. (plaintiff) owned an apartment building. Minnie Miller and her husband owned all of the outstanding stock of Court Holding. Court Holding entered into negotiations for the sale of its apartment building with a prospective buyer. The parties orally agreed on terms and conditions of the sale. However, when the parties met to reduce the agreement to writing, Court Holding’s attorney advised that the sale should not proceed because it would create a large tax liability for Court Holding. Instead, Court Holding declared a liquidating dividend. The Millers received the deed to the apartment building in exchange for the surrender of all outstanding stock. Then, the Millers made a written sale agreement with essentially the same terms as the oral agreement between Court Holding and the buyer. Payment was accounted for, and the property was conveyed to the buyer. The tax court found that the company had not abandoned sale negotiations and that the liquidating dividend and subsequent transactions were simply formalities designed to avoid tax liability. Court Holding appealed the tax court decision. The appellate court found that Court Holding had called off the sale and treated the Miller’s sale as individual owners as a separate transaction from Court Holding’s negotiations. The commissioner of the Internal Revenue Service (IRS) (defendant) appealed to the United States Supreme Court.