Commissioner v. Keystone Consolidated Industries

Keystone Consolidated Industries, Inc. (Keystone) (defendant) maintained several defined-benefit pension plans. Under the Employee Retirement Income Security Act (ERISA), each plan was subject to minimum funding requirements, which Keystone satisfied by contributing to a pension trust. In 1983 and 1984, Keystone contributed unencumbered property to the pension trust, including five truck terminals and land in Key West, Florida. Keystone credited the fair market value of the properties against its funding requirements for those fiscal years. Keystone treated the disposal of the properties as a sale or exchange of capital assets for the purposes of its 1983 and 1984 federal income tax returns. The commissioner of Internal Revenue (plaintiff) ruled that Keystone’s property transfers were sales or exchanges prohibited by § 4975(c)(1)(A) of the Internal Revenue Code and that Keystone owed a significant amount in excise taxes as a result. Keystone filed a petition for redetermination with the United States Tax Court. The tax court ruled in favor of Keystone, finding that the contributions were not sales or exchanges under § 4975 because under § 4975(f)(3), only transfers of encumbered property could be considered sales or exchanges. The tax court additionally stated that the use of the contribution as a sale or exchange for income-tax purposes did not impact the same determination under § 4975. The commissioner appealed to the United States Court of Appeals for the Fifth Circuit, which affirmed the ruling of the tax court. The commissioner petitioned the United States Supreme Court, which granted certiorari.