Telephone Answering Service Co. v. Commissioner of Internal Revenue

Telephone Answering Service Company, Inc. (TASCO) (plaintiff) operated telephone answering services and provided managerial services to two subsidiaries, Houston and North American, which also provided telephone answering services. In 1966, TASCO entered into an agreement to sell the stock of Houston to a third party for cash for a gain of $270,000. The board of directors approved the contract and also adopted a plan of complete liquidation. In 1967, TASCO transferred all the assets of its answering and managerial services to New TASCO in exchange for stock. TASCO retained the cash from the sale of Houston, stock of North American, and stock of New TASCO. TASCO then distributed these assets to shareholders and filed articles of dissolution. Redemption of the shares of a 15.7 percent shareholder of New TASCO also occurred at the same time through distribution of assets of North American. New TASCO changed its name to TASCO and continued the telephone answering and management business with the same customers, employees, and offices. TASCO claimed that the sale of Houston was part of its liquidation and thus entitled to nonrecognition under § 337 of the Internal Revenue Code. The commissioner of the Internal Revenue Service (defendant) sent a notice of deficiency to tax the gain on the sale of Houston. TASCO appealed to the United States Tax Court.