Esmark, Inc. v. Commissioner
United States Tax Court
90 T.C. 171 (1988)
Esmark, Inc. (plaintiff) sold its wholly owned energy subsidiary, Vickers, in a two-step process designed to minimize taxes. First, Mobil Oil Corporation (Mobil) purchased 50 percent of Esmark’s shares directly from Esmark shareholders. Second, Esmark distributed all of its shares of Vickers in exchange for the Esmark shares owned by Mobil. Esmark received no money from Mobil in the transactions. This distribution was reported on Esmark’s tax returns as a distribution of property and stock redemption entitled to nonrecognition for income tax purposes. The commissioner of the Internal Revenue Service (commissioner) (defendant) determined a deficiency in Esmark’s corporate income taxes for a long-term capital gain on the transfer of Vickers’s stock. The commissioner contended that the step-transaction doctrine, which viewed a series of transactions as a single transaction for tax purposes, should be applied in order to characterize the transaction as the sale of Vickers to Mobil and the subsequent redemption of Esmark stock from Mobil.
Rule of Law
Holding and Reasoning (Cohen, J.)
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