Fehrs Finance Co. v. Commissioner

58 T.C. 174 (1972)

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Fehrs Finance Co. v. Commissioner

United States Tax Court
58 T.C. 174 (1972)

Facts

Fehrs Rental Corporation (Rental) was a closely held corporation owned by Edward and Violette Fehrs, their son-in-law, their two daughters, and their grandchildren. The two daughters incorporated another company, Fehrs Finance Company (Finance) (plaintiff). Edward and Violette constructively owned 98.2 percent of the shares of Rental (all but the shares owned by their son-in-law) and 100 percent of Finance (through their daughters). Finance purchased the Rental stock owned by Edward and Violette in exchange for annuities of $70,000 per year for the remainder of their lives. Finance then resold the Rental shares to Rental for $100,000 cash and an unsecured promissory note of $625,000. The commissioner of the Internal Revenue Service (defendant) assessed a deficiency on Finance’s tax return for the capital gain on Finance’s resale of the Rental shares. The matter ended up before the United States Tax Court.

Rule of Law

Issue

Holding and Reasoning (Simpson, J.)

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