William H. Bateman v. Commissioner
United States Tax Court
40 T.C. 408 (1963)
In March 1958, as part of a corporate reorganization, William Bateman (plaintiff) received common stock and common stock warrants of the Symington Wayne Corporation (Symington) in exchange for Bateman’s common stock of the Wayne Pump Company (Wayne Pump). Later in 1958, Bateman sold 4,000 of his Symington common stock warrants. On Bateman’s 1958 income tax return, he did not report a taxable gain on the exchange of his Wayne Pump stock for the Symington stock and common stock warrants. Additionally, Bateman reported a long-term capital gain on the sale of the Symington common stock warrants. The Commissioner of Internal Revenue (the commissioner) (defendant) determined that a gain from the acquisition of the common stock warrants must be recognized because common stock warrants are not the same as stock. The commissioner concluded that the common stock warrants must be considered dividends and taxed as ordinary income. The commissioner identified a deficiency in Bateman’s income tax of over $11,000. Bateman filed a lawsuit in United States Tax Court contesting the deficiency. Bateman argued that the stock warrants were stock, and, therefore, no gain must be recognized. Alternatively, Bateman argued that even if a taxable gain was recognized, the gain must be taxed as a long-term capital gain.
Rule of Law
Holding and Reasoning (Scott, J.)
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