Commissioner v. Sullivan
United States Court of Appeals for the Fifth Circuit
210 F.2d 607 (1954)
- Written by Eric Miller, JD
Facts
The Texon Royalty Company (Texon) incurred a suit for damages resulting from an oil-well blowout. The uncertainty of Texon’s future operations led to a large-scale sale of leases and equipment, reducing the size of the business. Texon effected a redemption and cancellation of 2,000 of its 5,000 shares of capital stock. The 2,000 shares were redeemed at $100 per share, resulting in a payout of $200,000 to Georgia Sullivan and Betty Garnett, Texon’s two sole shareholders (the shareholders) (defendants). The tax treatment of this transaction became the subject of a dispute in the United States Tax Court. The Commissioner of Internal Revenue (the commissioner) (plaintiff) argued that the transaction was equivalent to a dividend, taxable as income. The shareholders argued that the transaction was a payment in exchange for stock, taxable as a capital gain. The court found in favor of the shareholders. The commissioner appealed. The United States Court of Appeals for the Fifth Circuit granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Holmes, J.)
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