South Tulsa Pathology Laboratory v. Commissioner

118 T.C. 84 (2002)

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South Tulsa Pathology Laboratory v. Commissioner

United States Tax Court
118 T.C. 84 (2002)

Facts

The shareholders of South Tulsa Pathology Laboratory, Inc. (South Tulsa) (plaintiff) negotiated a sale of a portion of South Tulsa’s business to National Health Laboratories, Inc. (NHL). In order to accomplish this sale, the subject assets of South Tulsa were transferred to a newly formed subsidiary corporation, Clinpath, Inc., in exchange for all of Clinpath’s stock. Clinpath stock was immediately distributed to the shareholders of South Tulsa, who then sold this stock to NHL. South Tulsa contended that this transaction was entitled to nonrecognition as a D reorganization under § 368(a)(1)(D) of the Internal Revenue Code. The commissioner of the Internal Revenue Service (defendant) assessed a deficiency, determining that the distribution of Clinpath’s stock to South Tulsa’s shareholders did not qualify for nonrecognition under § 355 because the transaction was a device to distribute earnings and profits. South Tulsa appealed the assessment to the United States Tax Court.

Rule of Law

Issue

Holding and Reasoning (Marvel, J.)

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