Fireoved v. United States

Eugene Fireoved (plaintiff) was the majority shareholder of Fireoved and Company, Inc, a company in the business of printing and selling business forms. At one point, Fireoved learned that his nephew was going to leave the company. As a result, Fireoved engaged Karl Edelmayer and Kenneth Craver, the partners of Girard Business Forms, in discussions to combine with Fireoved’s company and form a new business. Ultimately, the three men agreed to go into business together. After a series of transactions, the businesses were reorganized, Fireoved and Company changed its name to Girard Business Forms, and stock was distributed among the three men. After the reorganization, Fireoved held 600 shares of preferred stock in the company in addition to his 100 shares of common stock. Eventually, the company redeemed 451 shares of Fireoved’s preferred stock. Fireoved received over $47,000 for the redemption and reported the gain as a long-term capital gain on his tax return. The commissioner of the Internal Revenue Service (IRS) (defendant) assessed a deficiency against Fireoved because the proceeds from the redemption of preferred stock should have been treated as ordinary income under Internal Revenue Code (I.R.C.) § 306. The case was tried without a jury in district court. The district court found that Fireoved was entitled to a partial refund. Both parties appealed to the United States Court of Appeals for the Third Circuit.