H. J. Heinz Co. v. United States
United States Court of Federal Claims
76 Fed. Cl. 570 (2007)
Facts
H. J. Heinz Credit Company (HCC) was a subsidiary of H. J. Heinz Company (Heinz) (plaintiff). HCC purchased 3.5 million shares of Heinz stock in the public market. HCC transferred 3.325 million of those shares to Heinz in exchange for a convertible note. Heinz treated this redemption as a taxable dividend. HCC sold the remaining stock to a third party and recognized a capital loss using the entire purchase price of the 3.5 million shares as the basis for the sale. In prior years, Heinz had purchased its stock directly on the open market rather than from HCC. The commissioner of the Internal Revenue Service (defendant) assessed a deficiency, claiming that the step-transaction doctrine applied because HCC’s ownership of the 3.325 million shares was transitory and that it served no legitimate business purpose. Under this doctrine, the transaction had to be viewed as Heinz repurchasing its stock directly from the outside shareholders. Heinz paid the assessed tax and then sued for a refund in the United States Court of Federal Claims.
Rule of Law
Issue
Holding and Reasoning (Allegra, J.)
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