Smothers v. United States
United States Court of Appeals for the Fifth Circuit
642 F.2d 894 (1981)
- Written by Robert Cane, JD
Facts
J. E. and Doris Smothers (plaintiffs) owned two corporations, Texas Industrial Laundries of San Antonio, Inc. (Texas) and Industrial Uniform Services, Inc. (Industrial). Industrial was to be liquidated, and Industrial sold $23,000 of its operating assets to Texas. Industrial then distributed its remaining assets, which were $149,000 in cash and receivables, to the Smotherses. After Industrial liquidated, Texas rehired Industrial’s three employees and continued serving Industrial’s former customers. The Smotherses reported a $148,000 long-term capital gain on their taxes. The Internal Revenue Service (IRS) (defendant) treated the distribution from Industrial as equivalent to a dividend and taxed it as ordinary income. The Smotherses filed a suit for a refund in a district court. The district court found for the IRS and held that the Industrial liquidation was taxable as a dividend as part of a Type D reorganization. The Smotherses appealed to the United States Court of Appeals for the Fifth Circuit.
Rule of Law
Issue
Holding and Reasoning (Wisdom, J.)
Dissent (Garza, J.)
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