United States v. General Geophysical Co.
United States Court of Appeals for the Fifth Circuit
296 F.2d 86 (1961)
- Written by Heather Ryfa, JD
Facts
General Geophysical Company (GGC) (plaintiff) negotiated a redemption of the stock of several shareholders who sought to divest their shares in the company. Upon legal advice, the transaction was structured so that the shareholders received corporate depreciable assets in exchange for the stock. The shareholders then sold the assets back to GGC in exchange for corporate notes. The resale was not a binding agreement at the time it was proposed, although it did occur a few hours after the redemption. GGC depreciated the repurchased property with a basis equal to the market value of the assets at the time of the repurchase. The commissioner for the Internal Revenue Service (defendant) disallowed the depreciation deductions, contending that the form of the transaction should be disregarded in favor of its substance—an exchange of shares for notes. GGC successfully appealed to the United States Tax Court, arguing that the transaction was not fraudulent and that the shareholders had complete ownership of the assets before the repurchase. The commissioner appealed to the United States Court of Appeals for the Fifth Circuit.
Rule of Law
Issue
Holding and Reasoning (Wisdom, J.)
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