Zimmerman v. Commissioner

49 T.C.M. 1616 (1985)

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Zimmerman v. Commissioner

United States Tax Court

49 T.C.M. 1616 (1985)

Facts

[Editor’s Note: This case can also be found under the title “Estate of Donald Zimmerman v. Commissioner.”] Donald Zimmerman (plaintiff) owned approximately 67 percent and his son Jonathan owned approximately 33 percent of Custom Met, Inc. Also, Donald Zimmerman owned 80 percent and his son owned 5 percent of Rogers Metal Processing, Ltd. (Rogers Metal). In 1980, the directors of Rogers Metal adopted a resolution to acquire 100 percent of the outstanding stock of Custom Met for approximately $35,800. On their 1980 federal income tax returns, Donald Zimmerman and his son treated the proceeds of the sale of Custom Met stock to Rogers Metal as a stock redemption subject to federal tax as a long-term capital gain. The Zimmermans contended that the transaction was motivated by strong business reasons and not to avoid or minimize tax liability. Although the Commissioner of Internal Revenue (the commissioner) (defendant) agreed that the transaction was a stock redemption, the commissioner concluded that the proceeds from the redemption of the Custom Met stock must be treated as a taxable dividend. The Zimmermans sought a redetermination from United States Tax Court that the proceeds from the sale should be taxed as long-term capital gains.

Rule of Law

Issue

Holding and Reasoning (Panuthos, J.)

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Federal Income Tax

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