Drybrough v. Commissioner
United States Court of Appeals for the Sixth Circuit
376 F.2d 350 (1967)
- Written by Matthew Celestin, JD
Facts
F. W. Drybrough (plaintiff) was a real estate investor. In 1953, Drybrough borrowed $700,000 secured by four parcels of land, which Drybrough used to pay off previous loans and purchase $200,000 worth of tax-exempt securities. In June of 1957, Drybrough transferred the four parcels to four separate corporations, each assuming a portion of the $600,000 debt remaining on the initial 1953 loan. In exchange, Drybrough received all stock of the corporations. Later in June of 1957, Drybrough transferred a fifth parcel of land to a fifth corporation, receiving in exchange the corporation’s stock. Drybrough had obtained a $149,000 mortgage for the fifth parcel in March of 1957 in anticipation of the transfer and used that money to purchase tax-exempt securities. Drybrough, relying on § 357(c) of the Internal Revenue Code, reported gains for 1957 equivalent to the amount that the mortgage exceeded his basis for the five parcels. However, the Commissioner of Internal Revenue (the Commissioner) (defendant) assessed a deficiency pursuant to § 357(b), claiming that Drybrough had made the transfers for an improper purpose. The tax court agreed with the Commissioner and sustained the deficiency. Drybrough appealed.
Rule of Law
Issue
Holding and Reasoning (O’Sullivan, J.)
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