Trust Company of Georgia v. Ross

Carling Dinkler Sr. owned a chain of hotels throughout the south known as Dinkler Hotels. In August 1960, Carling Sr. entered into a complex agreement with Associated Hotels Corporation for the sale of the Dinkler Hotel chain. The total purchase price for all assets and properties was almost $11 million, with the stock in the Dinkler-Tutweiler Corporation ultimately selling for $3,539,948. The various procedures and processes of the sale were very complex, including obtaining a Treasury Department ruling that no gain or loss would apply to the sale or assets of Dinkler Hotels Company, Inc. A closing date of January 3, 1961, was rescheduled to on or before March 1, 1961, to complete the various events needed to finalize the sale. Meanwhile, on January 30, 1961, Carling Sr. died. On February 23, 1961, the sale was finally completed, with payment to the estate of Carling Sr. of $3,539.948. In the fiduciary income-tax return, the executor of the estate of Carling Sr., the Trust Company of Georgia (plaintiff), reflected a basis of $3,539,948 for the estate in the Dinkler-Tutweiler Corporation stock. No gain was reported by the executor or any of the beneficiaries of the estate for the 1961 taxable year. The government, in the person of Aubrey Ross (defendant), District Director of Internal Revenue, found that the sale proceeds of the stock were income in respect of a decedent and that a long-term capital gain of $3,454,863.56 was realized on the sale. The various beneficiaries of Carling Sr. paid the deficiency and then filed this suit, seeking a refund. The case then turned on whether the gain from the stock sale was considered income in respect of a decedent and thus was taxable to the beneficiaries of Carling Sr.’s estate or if it was simply estate property.