YOC Heating Corp. v. Commissioner

The Nassau Utilities Fuel Corporation (Old Nassau) sold fuel oil. In 1961, Reliance Fuel Oil Corporation (Reliance) began negotiations with Old Nassau to acquire Old Nassau’s assets. A sale agreement was negotiated in which Old Nassau would sell all of its assets to Reliance for cash and notes. The assets of Old Nassau would be transferred to a new corporation organized and owned by Reliance. Before the proposal could be executed, Old Nassau warned Reliance that opposition was expected from Old Nassau’s minority shareholders. As an alternative to an asset purchase, a group of Old Nassau shareholders who owned over 84 percent of Old Nassau’s common stock offered to sell their stock to Reliance. In September 1961, Reliance purchased 84.8 percent of Old Nassau’s common stock for cash and Old Nassau’s notes. Later, Reliance purchased a small number of additional shares of Old Nassau and formed a subsidiary, New Nassau. New Nassau offered to purchase the assets of Old Nassau by offering Old Nassau shareholders (who included Reliance shareholders) cash or stock in New Nassau. Reliance opted to receive stock in New Nassau. The minority shareholders elected to receive cash. New Nassau completed its acquisition of Old Nassau’s assets nine months after Reliance made its first purchase of Old Nassau shares. In subsequent years, New Nassau (later known as YOC Heating Corporation) (plaintiff) filed its income taxes and claimed the higher basis in the assets of Old Nassau based on the value of the stock of Old Nassau that New Nassau purchased. The Commissioner of Internal Revenue (the commissioner) (defendant) identified tax deficiencies over multiple years, arguing that New Nassau’s basis must be the same as Old Nassau’s because the transaction was a reorganization. New Nassau appealed the deficiency to United States Tax Court.