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Levin v. Commissioner

385 F.2d 521 (1967)

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Levin v. Commissioner

United States Court of Appeals for the Second Circuit
385 F.2d 521 (1967)

Facts

Beatrice Levin (plaintiff) owned 484 shares and served as an officer of a closely held corporation, Connecticut Novelty Corporation, Inc. Levin’s brother and son owned the remaining 485 and 331 shares, respectively. Levin’s son, Jerome, who also owned stock and participated in the management of the business, wished to take over ownership of the corporation from his mother and her brother. Consequently, Levin and her brother each entered into an agreement with the corporation for redemption of their stock. Pursuant to the agreement, Levin would receive $96,800 paid with no interest accruing in installments of $7,000 per year; the corporation had the option to pay off the full amount in advance. Levin retained her position as a director and officer, for which she performed services for the corporation and received a salary. Levin reported the $7,000 payments on her tax returns as long-term capital gains. The commissioner of the Internal Revenue Service (defendant) assessed additional taxes on the payments, treating them as constructive dividends taxable as ordinary income. The United States Tax Court ruled in favor of the commissioner. Levin petitioned the Second Circuit for review of that decision.

Rule of Law

Issue

Holding and Reasoning (Kaufman, J.)

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Casebooks

Corporate and Partnership Tax

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