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Ivan Allen Co. v. United States

422 U.S. 617 (1975)

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Ivan Allen Co. v. United States

United Stated Supreme Court
422 U.S. 617 (1975)

Facts

Ivan Allen Company (Ivan) (plaintiff) was a corporation engaged in selling furniture and equipment. Among its various securities, Ivan owned listed common stock and listed convertible debentures of Xerox Corporation that had been purchased with earnings and profits. During 1965 and 1966, the fair market value of both the common stock and debentures increased significantly. Ivan’s undistributed earnings for each of these two years was over $2.2 million. By including the fair market value (which included the cost plus the unrealized appreciation) of the Xerox securities in Ivan’s net liquid assets, the Commissioner of Internal Revenue (the Commissioner) (defendant) determined, pursuant to § 533(a) of the Internal Revenue Code, that Ivan had allowed its earnings and profits in 1965 and 1966 to accumulate beyond its reasonable and reasonably anticipated business needs for the purpose of avoiding income tax with respect to its shareholders. The Commissioner therefore assessed an accumulated-earnings tax. Ivan argued that it was the cost rather than the fair market value of the Xerox securities that should have been used to determine Ivan’s net liquid assets. The district court held in Ivan’s favor, but the court of appeals reversed. Ivan appealed.

Rule of Law

Issue

Holding and Reasoning (Blackmun, J.)

Dissent

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