Hollywood Baseball Association v. Commissioner

423 F.2d 494 (1970)

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Hollywood Baseball Association v. Commissioner

United States Court of Appeals for the Ninth Circuit
423 F.2d 494 (1970)

Facts

Under the rules of organized professional baseball, baseball teams had to agree to sell their players’ contracts on demand in order to be a part of the league. Hollywood Baseball Association (HBA) (plaintiff) owned and operated a minor-league professional baseball team in the Pacific Coast Baseball League. Between 1948 and 1957, HBA sold 224 player contracts in accordance with the baseball rules. In 1957 and 1958, as part of a liquidation plan adopted in advance of two major-league baseball teams transferring to the same region, HBA sold eight of its players’ contracts to Pittsburgh Athletic Company (Pittsburgh) and a Pittsburgh-affiliated baseball club. HBA reported some of the proceeds from the 1957 and 1958 contract sales on its federal income-tax returns as nontaxable income under § 337 of the Internal Revenue Code. Section 337 provided that no gain or loss would be recognized from the sale or exchange of property in connection with a liquidation. Under § 337(b)(1)(A), the term “property” did not include the corporation’s “stock in trade” and other property held by the corporation principally for sale to customers in the ordinary course of the corporation’s trade or business. The Commissioner of Internal Revenue (the commissioner) (defendant) disputed the applicability of § 337 to the amounts received by HBA for the player contracts, asserting that the contracts were not property under § 337(b)(1)(A). The commissioner thus determined a deficiency in HBA’s tax returns. HBA challenged the commissioner’s determination in tax court, but the tax court agreed with the commissioner that § 337 was inapplicable because the player contracts were HBA’s stock in trade. Citing the United States Supreme Court’s decision in Corn Products Refining Co. v. Commissioner, the tax court stated that profits and losses realized from a business’s everyday operations were not entitled to § 337 relief. The tax court described the player-contract sales as an integral part of HBA’s regular business, noting HBA’s agreement to sell its players’ contracts on demand as a condition of being in the baseball league. HBA appealed.

Rule of Law

Issue

Holding and Reasoning (Duniway, J.)

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