Sullivan v. United States

363 F.2d 724 (1966)

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Sullivan v. United States

United States Court of Appeals for the Eighth Circuit
363 F.2d 724 (1966)

  • Written by Heather Whittemore, JD
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Facts

William Sullivan (plaintiff) purchased a car dealership (the dealership) in 1941. The dealership issued 300 shares of outstanding stock. Sullivan owned 180 shares, and Loy Eich, the dealership’s manager, owned 120 shares. In 1948 Eich left the dealership, and Sullivan purchased his shares. Later that year, Frank Nelson became the manager of the dealership. As part of his employment agreement, Nelson was authorized to purchase up to 40 percent of the dealership’s outstanding stock, and Sullivan promised to repurchase the stock after Nelson left the company. Nelson purchased 114 shares in the dealership. In 1956 Nelson left the dealership, and the dealership redeemed his shares. The Commissioner of Internal Revenue (Commissioner) (defendant) determined that the redemption of stock by the dealership was a dividend to Sullivan because it relieved Sullivan of his obligation to purchase the stock from Nelson. The district court held that the redemption was a taxable dividend to Sullivan. Sullivan appealed.

Rule of Law

Issue

Holding and Reasoning (Stephenson, J.)

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