Honbarrier v. Commissioner

Archie Honbarrier (plaintiff) was the sole director and stockholder of Colonial Motor Freight Line, Inc. (Colonial), a trucking company that specialized in the transport of furniture manufactured in North Carolina. Colonial held operating authorities issued by the state of North Carolina and the Interstate Commerce Commission (ICC). Following the deregulation of the trucking industry in the 1980s, increased competition caused Colonial to operate at a loss. Colonial ceased trucking operations in 1988. By the end of 1992, Colonial had sold all assets except for its ICC authority, investing the proceeds in tax-exempt bonds. Archie and his wife, Louise (plaintiff), served as directors of another trucking company, Central Transport, Inc. (Central), which transported chemicals in tanker trailers—an area of the industry with much less competition. All stock in Central was owned by Archie, Louise, and their two children, Gary and Linda. Unlike Colonial, Central held liquid investments to help it meet its cash needs. In late 1993, Colonial was merged into Central. Central stock was exchanged for Archie’s Colonial stock, in which he had a basis of $291,506, and a $7 million distribution was divided among the four Central shareholders, with Archie receiving the bulk. The total fair market value of assets received by Archie for his Colonial stock was $7,245,051. However, the Honbarriers treated the event as a nontaxable corporate reorganization. The Commissioner of Internal Revenue (defendant) saw otherwise and assessed a deficiency. The Honbarriers sought a redetermination in the United States Tax Court.