Helvering v. Gregory
United States Court of Appeals for the Second Circuit
69 F.2d 809 (1934)
- Written by Heather Ryfa, JD
Facts
Gregory (plaintiff) was the sole shareholder of United Mortgage Corporation (United), which in turn owned shares of Monitor Securities Corporation (Monitor). In order to avoid taxes to both United and Gregory upon the sale of the Monitor shares and distribution of the proceeds to Gregory, United organized a new corporation, Averill Corporation. Under an agreement, Averill issued all of its shares to Gregory, and United transferred all of its Monitor shares to Averill. Averill then liquidated and transferred all of the Monitor shares to Gregory, who then sold the shares and reported the sale as a capital gain using a portion of Gregory’s basis in United. The transfer of the Monitor shares to Averill was reported as a corporate reorganization subject to nonrecognition for tax purposes under § 112 of the Internal Revenue Code. The commissioner of the Internal Revenue Service (defendant) issued a tax assessment, contending that the transfer of Monitor shares to Averill was not a corporate reorganization but instead a dividend from United to Gregory and thus fully taxable as ordinary income. Gregory appealed the assessment to the Board of Tax Appeals, which found in favor of Gregory. The commissioner appealed to the Second Circuit Court of Appeals.
Rule of Law
Issue
Holding and Reasoning (Hand, J.)
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