Estate of Harry B. Sidles

[Editor’s Note: This case can also be found under the title Monen v. Commissioner of Internal Revenue.] Harry B. Sidles was the sole owner of Bi-State Distributing Corp. (originally incorporated as H.E. Sidles Co., then changed to Bi-State), and, at the time of his death, he owned all outstanding common stock, with an adjusted basis in the shares of $29,701.04. About three and a half months before Sidles’s death, Bi-State’s board of directors adopted a plan of complete liquidation and dissolution and filed a statement of intent to dissolve with the Nebraska Secretary of State. Bi-State owned 11,025 shares of Sidles Co. stock. A month after the dissolution plan, but still over two months before Harry Sidles’s death, Sidles Co. agreed to pay $13,429 in cash and a 20-year, 6% interest-bearing promissory note for $899,000 to purchase that stock. After Sidles’s death, Bi-State resolved to distribute all of its real and personal property to the estate of Harry Sidles. At the time of that distribution, five months after Sidles’s death, the assets had a total net fair-market value of $702,830.85. Articles of dissolution were executed and filed with the secretary of state after that distribution, and the state certificate of dissolution was promptly issued. Bi-State did not recognize any gain on the sale, and although Sidles’s estate tax return included the shares of Bi-State stock, the government subsequently issued a notice of deficiency. The government argued that the gain from liquidation of Bi-State was income in respect of a decedent totaling $673,129.81 (calculated by subtracting Sidles’s basis in the stock from the amounts received in distribution). The government asserted that Sidles had earned the funds in question with his economic activity and had the right to receive the distribution as of his death. Sidles’s estate (plaintiff) disputed this point, arguing that the estate was not entitled to the proceeds of liquidation until the distribution had been authorized by the Bi-State Board of Directors, which, of course, happened after Sidles’s death. The government (defendant) pointed to Sidles’s status as the lone shareholder as controlling his right to the funds, arguing that any actions to be taken were purely ministerial.