Tribune Co. v. Commissioner

Tribune Co. (plaintiff) was the successor-in-interest to Times Mirror Co. (TMC), which owned all of the stock in the legal-publishing company Matthew Bender. Reed Elsevier, another publishing company, acquired all of Matthew Bender’s stock. To complete the acquisition, the companies engineered a complicated series of steps. First, Reed Elsevier created a new merger subsidiary (MergerSub) with $1.375 billion. Reed Elsevier then created another corporation (MB Parent) and transferred some voting stock of MergerSub in exchange for voting stock of MB Parent. MergerSub also purchased additional common stock of MB Parent using its $1.375 billion. MergerSub then merged with Matthew Bender, with Matthew Bender surviving. After the merger, MB Parent transferred the $1.375 billion it received from MergerSub to a wholly owned LLC and designated TMC as the manager, giving TMC control over the $1.375 billion. In addition, TMC owned 100 percent of the common stock of MB Parent, and Reed Elsevier owned 100 percent of the preferred stock of MB Parent. Tribune asserted that the Matthew Bender acquisition qualified as a tax-free corporate reorganization. The commissioner of the Internal Revenue Service (defendant) determined that the transaction was subject to tax because Tribune’s predecessor, TMC, received cash in addition to stock, making the transaction a sale, not a reorganization. Tribune sued in the United States Tax Court.