Covered Wagon, Inc. v. CIR, No. 18320-18323.

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Writing for the CourtVOGEL, , MATTHES, Circuit and DUNCAN, Senior
Citation369 F.2d 629
PartiesThe COVERED WAGON, INC., Grace D. Ryan, Transferee, Mina Benson, Transferee, Fritz W. Benson, Transferee, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. The COVERED WAGON, INC., Grace D. Ryan, Transferee, Mina Benson, Transferee, Fritz W. Benson, Transferee.
Docket NumberNo. 18320-18323.
Decision Date13 December 1966

369 F.2d 629 (1966)

The COVERED WAGON, INC., Grace D. Ryan, Transferee, Mina Benson, Transferee, Fritz W. Benson, Transferee, Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE.

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
v.
The COVERED WAGON, INC., Grace D. Ryan, Transferee, Mina Benson, Transferee, Fritz W. Benson, Transferee.

Nos. 18320-18323.

United States Court of Appeals Eighth Circuit.

December 13, 1966.


369 F.2d 630

Jonathan S. Cohen, Atty., Dept. of Justice, Washington, D. C., for the Commissioner of Internal Revenue. Mitchell Rogovin, Asst. Atty. Gen., Tax Division and Lee A. Jackson and David O. Walter, Attys., Tax Div., Dept. of Justice, Washington, D. C., were with him on the brief.

Gordon D. Simons, Minneapolis, Minn., for The Covered Wagon, and another and filed printed brief.

Before VOGEL, Chief Judge, MATTHES, Circuit Judge and DUNCAN, Senior District Judge.

DUNCAN, Senior District Judge.

This case is before the Court on petitions to review the decision of the Tax Court of the United States involving the application of § 337(a)1 of the Internal Revenue Code of 1954, to the compensation for taking of the corporate petitioner's real property by the United States under Title 40 § 258a2 U.S.C. The facts

369 F.2d 631
are not in dispute and were before the Tax Court on stipulation. The principal questions for review by this Court are

(1) The date of the "sale" within the meaning of the condemnation statute and § 337(a), supra;

(2) The date or dates when the capital gains tax resulting from the "sale" of the real estate became due, if the gain therefrom is outside the purview of § 337(a), supra;

(3) Whether the liquidation of the corporation was fully concluded within 12 months, as required by the statute;

(4) Whether the tax court erred in denying the taxpayer the deduction for the fiscal year, 1957, for depreciation taken with respect to said property sold in that year for an amount in excess of its adjusted basis.

The taxpayer, Covered Wagon, Inc., a Minnesota corporation, was organized in 1934 and operated a tavern in Minneapolis, Minnesota. In 1956, this taxpayer and eight other property owners were informed by the United States that certain property owned by them in Minneapolis would be acquired as a site for an addition to a federal office building. Subsequently, on July 6, 1956, the Government formally instituted condemnation proceedings in the United States District Court for the District of Minnesota, by duly executing a declaration of taking and depositing in the registry of the District Court the sum of $446,501.00, estimated to be the just compensation for all the condemned property. $200,000.00 of this amount was attributable solely to this taxpayer's real property, which was known as Parcel 8.

On August 7, 1956, the Government filed a Notice of Condemnation, and in response thereto, the corporate taxpayer filed an answer contesting only the amount of compensation which should be received by the corporation.

On January 2, 1957, approximately six months after the taking of the property by the United States, the shareholders of

369 F.2d 632
the corporate taxpayer adopted a plan of complete liquidation which provided that the: "transfer of all the property and assets of this corporation shall be completed within one year thereafter or by December 31, 1957."

On January 30, 1957, an appearance, waiver and petition for disbursement of award were filed in the District Court. The Government and the corporate taxpayer agreed to the immediate payment of 90% of the $200,000.00 on deposit, and the District Court ordered the payment of $180,000.00 on January 31, 1957. This amount actually was paid on February 5, 1957.

On April 24, 1957, the value of the condemned property of the petitioner was determined by jury to be $305,500.00. Judgment on the verdict was entered on May 8, 1957, and interest at 6% was added to the award for the period from July 5, 1956, to May 15, 1957. The District Court's judgment in this case provides:

"* * * that upon the filing of the Declaration of Taking on said date, (July 6, 1956) and the deposit into the registry of this court of the sum of $200,000.00 as the estimate of the fair and just compensation for the taking of the land herein condemned, the United States of America was vested with interest and title in full fee simple in and to the lands described therein as Parcel No. 8, a detailed description of which is contained in the Complaint in Condemnation and Declaration of Taking herein."

The period during which interest was to run was later extended to June 26, 1957, and the corporate taxpayer was paid $20,000.00 on May 14, 1957; the final payment of $111,743.40 was made on June 26, 1957.

On September 27, 1957, the shareholders of The Covered Wagon, Inc., duly adopted the following resolution of liquidation:

"BE IT RESOLVED that the corporation be liquidated as of September 30, 1957 and that all property of the corporation, not represented by cash, be transferred to Fritz W. Benson as trustee in liquidation, and that he proceed as soon as practicably possible to convert such assets into cash and to distribute such cash to the former stockholders in proportion to the number of shares owned and cancelled by said stockholders."

Thereafter, certain steps by the corporation were taken to carry out the above proposed resolution. However, liquidation was not completed within the required 12 month period. See discussion infra, (III).

The taxpayer excluded from its income for the years 1956, 1957 and 1958, the gains on the "sale" of its real and personal property. Upon review of the return, the Commissioner ruled that § 337 (a), supra, did not apply to the "sale", and also that the taxpayer had not complied with that section as to the time liquidation should be fully completed. Deficiencies were therefore assessed against the corporation for the fiscal years 1957 and 1958. No deficiency was assessed for fiscal 1956.

In its Memorandum Opinion filed April 5, 1965, and its Supplemental Memorandum Opinion filed May 6, 1965, the Tax Court made the following Findings of Fact and Conclusions of law, which are relevant to the present proceedings:

(1) The Tax Court denied the corporation a claimed deduction for the fiscal year, 1957, for depreciation, taken with respect to certain property sold in that year for an amount in excess of its adjusted basis.
(2) The Tax Court held that the corporation\'s real estate had been sold in condemnation proceedings in 1956, prior to the adoption of a 12 month plan of liquidation, and, therefore, the gain on this sale was ineligible for the non-recognition treatment provided for in Section 337(a) of the Internal Revenue Code of 1954, and was taxable income.
(3) The Tax Court held that the corporation failed to distribute substantially all of its assets to its shareholders
369 F.2d 633
within 12 months from the date of the adoption of the plan of liquidation, and, therefore, the gain upon the sale of these assets was ineligible for the non-recognition treatment provided for in Section 337(a) of the Internal Revenue Code of 1954.
(4) The Tax Court held that the income representing the gain on the condemnation was taxable in 1957, when the District Court ordered payment of the award, rather than in 1956, when $200,000.00 was deposited with the Court.

Based upon the above findings, the corporation's income tax deficiency for the fiscal year, 1957, was determined to be $61,459.82, of which $33,368.05 has been assessed and paid, leaving a balance due from the transferees of $28,091.77 with interest. For the fiscal year, 1958, an income tax deficiency of $4,414.32 was found, none of which has been assessed or paid, leaving this balance due from the individual transferees.

The corporation and the transferees filed petitions for review of the Tax Court's decision in these matters, on January 4, 1966. Jurisdiction is conferred on this Court by Section 7482 of the Internal Revenue Code of 1954. The issues for review will be discussed in the order presented above.

I.

The Commissioner has conceded, for purposes of this review, that the Tax Court erred in denying the taxpayer a deduction in the fiscal year, 1957, for depreciation, taken with respect to certain property sold in that year for an amount in excess of its adjusted basis.

Subsequent to the Tax Court's decision, in this connection, the United States Supreme Court decided the case of Fribourg Navigation Co. v. Commissioner of Internal Revenue, 383 U.S. 272, 86 S.Ct. 862, 15 L.Ed.2d 751 (Decided March 7, 1966), which expressly allowed a year-of-sale depreciation where the sales price exceeded the asset's adjusted basis. In the present instance, the Commissioner's notice of deficiency denied the claimed deduction because depreciation allowed in prior years had reduced the basis for the assets below reasonable salvage value. (Taxpayer had used a salvage value of zero for these assets.) The Commissioner's position...

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16 practice notes
  • Central Tablet Manufacturing Co v. United States 8212 593 25 8212 26, 1974, No. 73
    • United States
    • United States Supreme Court
    • 19 Junio 1974
    ...price has been reached or where the corporation had no advance notice of the proposed taking. Covered Wagon, Inc. v. Commissioner, 369 F.2d 629, 633—635 (CA8 1966); Likins-Foster Honolulu Corp. v. Commissioner, 417 F.2d 285 (CA10 1969), cert. denied, 397 U.S. 987, 90 S.Ct. 1117, 25 L.Ed.2d ......
  • U.S. v. Timmons, No. 80-7860
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • 12 Abril 1982
    ...title which became vested upon compliance with the requirements of 40 U.S.C. § 258a. See note 3 infra; Covered Wagon, Inc. v. C.I.R., 369 F.2d 629 (8th Cir. 1966); United States v. Sunset Cemetery Co., 132 F.2d 163 (7th Cir....
  • Casalina Corp. v. Comm'r of Internal Revenue, Docket No. 6158-70.
    • United States
    • United States Tax Court
    • 13 Agosto 1973
    ...and 1966 withdrawals, are taxable at the times final judgments were entered by the District Court. Covered Wagon, Inc. v. Commissioner, 369 F.2d 629, 636-637 (C.A. 8, 1966), affirming, but remanding for computations, a Memorandum Opinion of this Court; William Justin Petit, 8 T.C. 228, 233 ......
  • Likins-Foster Honolulu Corp. v. CIR, No. 10060-10061.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 16 Octubre 1969
    ...filing of the declarations of taking and the payment into court of the estimated compensation. Covered Wagon, Inc. v. C. I. R., 8 Cir., 369 F.2d 629; Travis v. United States, 287 F.2d 916, 152 Ct.Cl. 739, cert. denied, 368 U.S. 824, 82 S.Ct. 42, 7 L.Ed.2d 28. The nominal character of the in......
  • Request a trial to view additional results
16 cases
  • Central Tablet Manufacturing Co v. United States 8212 593 25 8212 26, 1974, No. 73
    • United States
    • United States Supreme Court
    • 19 Junio 1974
    ...price has been reached or where the corporation had no advance notice of the proposed taking. Covered Wagon, Inc. v. Commissioner, 369 F.2d 629, 633—635 (CA8 1966); Likins-Foster Honolulu Corp. v. Commissioner, 417 F.2d 285 (CA10 1969), cert. denied, 397 U.S. 987, 90 S.Ct. 1117, 25 L.Ed.2d ......
  • U.S. v. Timmons, No. 80-7860
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • 12 Abril 1982
    ...title which became vested upon compliance with the requirements of 40 U.S.C. § 258a. See note 3 infra; Covered Wagon, Inc. v. C.I.R., 369 F.2d 629 (8th Cir. 1966); United States v. Sunset Cemetery Co., 132 F.2d 163 (7th Cir....
  • Casalina Corp. v. Comm'r of Internal Revenue, Docket No. 6158-70.
    • United States
    • United States Tax Court
    • 13 Agosto 1973
    ...and 1966 withdrawals, are taxable at the times final judgments were entered by the District Court. Covered Wagon, Inc. v. Commissioner, 369 F.2d 629, 636-637 (C.A. 8, 1966), affirming, but remanding for computations, a Memorandum Opinion of this Court; William Justin Petit, 8 T.C. 228, 233 ......
  • Likins-Foster Honolulu Corp. v. CIR, No. 10060-10061.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 16 Octubre 1969
    ...filing of the declarations of taking and the payment into court of the estimated compensation. Covered Wagon, Inc. v. C. I. R., 8 Cir., 369 F.2d 629; Travis v. United States, 287 F.2d 916, 152 Ct.Cl. 739, cert. denied, 368 U.S. 824, 82 S.Ct. 42, 7 L.Ed.2d 28. The nominal character of the in......
  • Request a trial to view additional results

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