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Kass v. Commissioner
United States Tax Court
60 T.C. 218 (1973)
Atlantic City Racing Association (the association) operated a racetrack. The association had 506,000 shares of outstanding common stock and 500 shareholders. May Kass (plaintiff) owned 2,000 shares of the association’s stock. Track Associates, Inc. (Track) was formed in 1965 with the primary purpose of acquiring the association. Track’s owners were minority shareholders in the association. Track planned to take control of the association by purchasing at least 80 percent of the association’s stock and merging the association into Track. In December 1965, Track purchased over 424,000 shares of the association’s stock, 84 percent of the outstanding stock, at $22 per share. Approximately 30,000 shares of the association’s stock were not purchased. After Track merged the association into Track, Kass exchanged her 2,000 shares of the association’s stock for Track stock. The other remaining shareholders in the association also exchanged their association stock for Track stock. Taking that stock together with the stock Track’s owners had in the association that they transferred to Track when Track was formed, approximately 16 percent of the association’s stock was exchanged for Track stock. Kass did not report a capital gain from the transaction. Kass argued that the merger of the association into Track was a statutory merger that qualified for nonrecognition. The Commissioner of Internal Revenue (the Commissioner) (defendant) argued that the merger of the association and Track was not a statutory merger that qualified for nonrecognition. As a result, the Commissioner assessed tax deficiencies against Kass in relation to her unrecognized gain stemming from the merger. Kass petitioned the United States Tax Court for a redetermination.
Rule of Law
Holding and Reasoning (Dawson, J.)
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