Merrill Lynch & Co. v. Commissioner
United States Tax Court
131 T.C. 293 (2008)
- Written by Kelli Lanski, JD
Facts
Merrill Lynch & Co. (Merrill) (plaintiff) was the parent corporation to a number of corporations filing a consolidated tax return. Merrill wanted to sell one of its subsidiaries, ML Capital Resources (MLCR), while retaining some of MLCR’s assets. To facilitate the sale, MLCR first sold some of its subsidiaries’ stock to other Merrill subsidiaries for cash, which Merrill kept. Merrill then sold MLCR’s stock to an unaffiliated buyer. Merrill took the position that the cash it received from the sale of MLCR’s subsidiaries’ stock was a dividend under the Internal Revenue Code because all the companies involved were affiliated and should be viewed as one corporation. The United States Tax Court rejected Merrill’s argument, holding that the cash payments were distributions under I.R.C. § 302 because at the time MLCR sold its subsidiaries’ stock, Merrill had a firm plan to terminate MLCR’s interest in the issuing subsidiaries. Merrill appealed and claimed that it had retained constructive ownership over all of MLCR’s stock that was sold to a Merrill subsidiary, which supported Merrill’s claim that the cash was a dividend. The Second Circuit affirmed the tax court’s ruling but remanded the case to consider whether Merrill and not MLCR was the relevant shareholder for purposes of I.R.C. § 302(b) analysis.
Rule of Law
Issue
Holding and Reasoning (Marvel, J.)
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