Lamark Shipping Agency, Inc. v. Commissioner of Internal Revenue
United States Tax Court
42 T.C.M. (CCH) 38 (1981)
- Written by Kelly Simon, JD
Facts
Lamark Shipping Agency, Inc. (Lamark Shipping) was organized in 1966, with all shares held by Victor Lamark. In the years that followed, Lamark transferred a small number of shares to his brother, nephew, and sister while retaining over 92 percent of the company’s outstanding shares. In 1976, Lamark Shipping redeemed all but one of the shares held by Lamark, as well as all the shares owned by his brother and his sister. As part of the transaction, Lamark received over $283,000, which he reported on his income-tax return as qualifying for a long-term capital-gain treatment. Lamark’s treating the money as a capital gain on the stock and not an ordinary income dividend saved Lamark over $63,000 is taxes. The value of the assets distributed by Lamark Shipping in the redemption of Victor Lamark’s stock exceeded the company’s current earnings and profits. Contemporaneously, Lamark sold his final remaining share to his nephew for $60,000. The Commissioner of Internal Revenue (the commissioner) (defendant) determined that Lamark Shipping had accumulated earnings more than the reasonable needs of the business for purposes of avoiding income-tax liabilities on behalf of its shareholders and notified Lamark Shipping of the deficiency. Lamark Shipping appealed to the United States Tax Court.
Rule of Law
Issue
Holding and Reasoning (Dawson, J.)
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