West Coast Marketing Corp. v. Commissioner

Max Cohen was the sole stockholder in and president of West Coast Marketing Corporation (plaintiff). Cohen purchased 12,000 acres of land, which was divided into north, middle, and south tracts. Cohen assigned his interest in the middle tract to West Coast Marketing. Cohen and West Coast Marketing sold one-half of their interests to George Coury. With Cohen’s encouragement, Coury sought to sell the land. Coury negotiated a deal with Louis Wolfen, who was the largest stockholder in Universal Marion Corp. (Universal). Universal executed a formal offer letter to purchase all three tracts for $360 per acre, payable in Universal preferred stock. Coury, Cohen, and West Coast Marketing orally agreed. However, before the sale itself was executed, Cohen formed Manatee Land Co. (Manatee) as a conduit for passing title to Universal. Cohen and West Coast Marketing transferred their interests in the three tracts to Manatee for 769 shares and 645 shares of Manatee stock, respectively. When the sale agreement was executed, Manatee transferred title to Universal, and Cohen and West Coast Marketing transferred their Manatee stock to Universal in exchange for 10,800 shares of Universal’s voting stock. Manatee was then liquidated by Universal. West Coast Marketing reported no taxable income from the transaction. However, the Commissioner of Internal Revenue (the commissioner) (defendant) determined that West Coast Marketing had realized a long-term capital gain on the exchange of Manatee stock for Universal stock. West Coast Marketing challenged this assessment in the United States Tax Court.