Reef Corp. v. Commissioner
United States Court of Appeals for the Fifth Circuit
368 F.2d 125 (1966)
- Written by Matthew Celestin, JD
Facts
Reef Fields Gasoline Corp. (Reef Fields) was owned by the Butler group and the Favrot group. The Butler group, which operated Reef Fields and owned a slight majority of its stock, made a plan to buy out the Favrot group. Under the plan, the Favrot group transferred its assets to a new corporation called New Reef (plaintiff), which the Butler group owned and operated, in exchange for cash and promissory notes of New Reef. Also, to avoid reorganization status under § 368(a)(1)(D) of the Internal Revenue Code—which requires that at least one of the shareholders of the transferring corporation be in control of the corporation to which the assets are transferred—New Reef used a straw man, who briefly held all stock of Reef Fields and New Reef. At the straw man’s direction, New Reef purchased Reef Fields’ operating assets prior to Reef Fields’ liquidation. Because no stepped-up basis on assets is available in a corporate reorganization pursuant to § 362(b), New Reef sought to treat the transfer as a sale rather than a corporate reorganization in order to obtain a stepped-up basis on Reef Fields’ operating assets. However, the tax court disregarded the straw man and held that the transfer was a reorganization pursuant to § 368(a)(1)(D). New Reef appealed.
Rule of Law
Issue
Holding and Reasoning (Bell, J.)
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