Lessinger v. Commissioner
United States Court of Appeals for the Second Circuit
872 F.2d 519 (1989)
- Written by Eric Miller, JD
Facts
Sol Lessinger (plaintiff) operated his business, Universal Screw and Bolt Co. (Universal), as a sole proprietorship. Universal’s liabilities exceeded its assets by $259,000. Because New York law allowed corporations to be subject to higher interest rates, a lender successfully pressured Lessinger to make the proprietorship into a corporation. The Universal proprietorship was consolidated into the Universal corporation. No new stock was issued. In its corporate form, Universal expressly assumed the existing $259,000 in liabilities. Lessinger made a $62,210 payment on the debt to the corporation, reducing it to $196,790. A bank that served as the corporation’s principal creditor asked Lessinger to execute a promissory note for the debt, which was used as collateral. However, no interest was paid on the debt, which rose to $237,044. The Commissioner of Internal Revenue (defendant) determined that the corporation’s assumption of the debt constituted a taxable gain for Lessinger. Lessinger challenged the assessment in the United States Tax Court. The court recognized a taxable gain. Lessinger appealed. The United States Court of Appeals for the Second Circuit granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Oakes, C.J.)
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