Ford v. United States
| Decision Date | 11 January 1963 |
| Docket Number | No. 383-60,401-60.,400-60,383-60 |
| Citation | 311 F.2d 951 |
| Parties | Frank H. FORD and Amanda T. Ford v. The UNITED STATES. William F. TAYLOR and Gertrude C. Taylor v. The UNITED STATES. Nell Taylor BOGGS v. The UNITED STATES. |
| Court | U.S. Claims Court |
Cynthia Holcomb, Washington, D. C., with whom was Asst. Atty. Gen. Louis F. Oberdorfer, for the defendant. Edward S. Smith, Lyle M. Turner and Philip R. Miller, Washington, D. C., were on the brief.
This case was referred pursuant to Rule 45 to Wilson Cowen, a trial commissioner of this court, with directions to make findings of fact and recommendations for conclusions of law. The commissioner has done so in a report filed March 5, 1962. Briefs were filed by the parties, exceptions to the commissioners' findings of fact and recommended conclusion of law were filed by the plaintiffs and the cases were submitted to the court on oral argument of counsel. Since the court is in agreement with the findings and recommendation of the trial commissioner, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in these cases. Plaintiffs are entitled to recover and judgment is entered for plaintiffs in each case with the amount of recovery to be determined pursuant to Rule 38(c).
These three suits, which were consolidated for trial because they involve the same facts and the same legal issue, were brought to recover alleged overpayment of income taxes for the calendar years 1955 and 1956.
The plaintiffs and Mrs. Genevieve G. Taylor were stockholders in the W. F. Taylor Company, Inc., which owned the Free State Plantation (hereinafter referred to as the plantation) and other assets.
On December 30, 1936, the corporation was liquidated and thereupon one-half of the assets were distributed to the plaintiffs and one-half of the assets were distributed to Mrs. Taylor. The liabilities of the corporation, aggregating $145,766.45, were assumed pro rata by the plaintiffs and Mrs. Taylor.
As a result of the liquidation, the shareholders paid a capital gains tax in accordance with section 115(c) of the Revenue Act of 1936, 49 Stat 1648. The tax was computed on the difference between the shareholders' basis of their stock in the corporation and the market value of the assets received, less the assumed liabilities of $145,766.45, all as determined by the Commissioner of Internal Revenue. Thus, the amount of the corporate liabilities assumed by the plaintiffs and Mrs. Taylor served in each case to decrease the amount of gain they realized on the liquidation and therefore the amount of their individual income tax liabilities.
When the Taylor Company was liquidated, the plantation had a fair market value of $96,494, which was also the value indicated on the company's books.
In 1938 the plaintiffs purchased Mrs. Taylor's one-half interest in the plantation, and a dispute arose as to the amount of her personal tax liability on the sale. A suit filed in the Tax Court was settled, and by concurrent agreement among Mrs. Taylor, the plaintiffs, and the Commissioner of Internal Revenue, it was decided that plaintiffs' basis for this one-half interest in the plantation for income taxes for all future years would not exceed $58,187.74. There is no dispute among the parties to these actions about the basis of this part of the plantation.
No improvements were added nor was depreciation allowed or allowable on the plantation since December 31, 1936. Sales of small tracts of the plantation were made in 1950, 1951, and 1954. The parties are agreed that these sales reduced the basis for the remainder of the plantation by $5,297.14.
Among the assets distributed upon the liquidation of the corporation, there were six parcels of tracts of real estate, including the plantation. In addition to the sale of the small tracts from the plantation in the years 1950 to 1954, all of these parcels, except the bulk of the plantation and the Silver Lake real estate, were sold between 1939 and 1955. In reporting capital gains or losses on the sale of such real estate, plaintiffs in each instance used the fair market value as of December 30, 1936, as the basis of each parcel. Plaintiffs did not claim and the Commissioner did not allow any part of the indebtedness of $145,766.45 assumed by the stockholders on the liquidation of the corporation as a part of the basis for computing capital gains or losses on the sales.
On March 1, 1955, plaintiffs sold the plantation (except the small tracts which had been previously disposed of) for $748,800 of which $196,200 was paid in cash and the balance in mortgage notes aggregating $588,600. Cash payments were made on the notes in 1956, and therefore that taxable year is involved in these suits. At the time of the sale, each of the plaintiffs owned a one-third interest in the plantation. Prior to the sale, the liabilities of the corporation which plaintiffs and Mrs. Taylor had assumed upon its liquidation were discharged.
In reporting the capital gains realized from the sale of the plantation in their income tax returns for 1955 and 1956, plaintiffs used the figure of $149,341.19 as the basis of the plantation. This amount was arrived at by adding to their claimed cost for the plantation a portion of the indebtedness assumed at the time of liquidation of the corporation. The Commissioner asserted deficiencies against the plaintiffs upon his determination that their total adjusted basis for the plantation was $98,122.26, a figure which was computed by using the market value of the portion (a 15/32 interest according to the Commissioner) of the plantation that was distributed to plaintiffs when the corporation was liquidated, plus other items that are not in dispute. Plaintiffs' timely claims for refund of taxes paid for the years 1955 and 1956 were disallowed and these actions were instituted.
Plaintiffs' contention as to the correct basis of the plantation at the time of its sale has varied from time to time since the controversy arose.1 However, the question to be decided is unchanged since, in each instance, plaintiffs seek to increase the basis of the assets distributed to them when the corporation was liquidated by adding a portion of the liabilities they assumed in 1936 and paid sometime prior to 1955.
There is no dispute about the basis of the one-half interest in the plantation conveyed to plaintiffs by Mrs. Taylor, nor as to the effect of the sale of the small tracts from the plantation prior to 1955. Eliminating these uncontroverted matters, the question before the court may be simplified by assuming that upon the liquidation of the corporation, all of the assets (including the plantation) were distributed to plaintiffs and all the corporate liabilities were then assumed by them and paid several years after the corporation was liquidated.
As thus simplified, the sole issue is whether the basis of the plantation, which was distributed to plaintiffs upon the complete liquidation of the Taylor Company and upon which a gain was recognized at the time they received such property, should be computed by adding to the fair market value of the plantation on the date of liquidation a portion of the corporate liabilities which they then assumed and discharged prior to their sale of the property in 1955.
The Internal Revenue Code of 1954 states that the gain from the sale of properties shall be the excess of the amount realized from the sale over the adjusted basis of the property sold, 26 U.S.C. (I.R.C.1954) § 1001 (1958 Ed.). Generally, cost is the basis but corporate distributions are an exception. 26 U.S. C. (I.R.C.1954) § 1012 (1958 Ed.)2
The exception to the basis-shall-be-the-cost rule with respect to corporate distributions of the type involved here is 26 U.S.C. (I.R.C.1954) § 334(a) (1958 Ed.), which states:
While neither section...
To continue reading
Request your trial
-
Boecking v. Commissioner
...only the net amount received by the respective shareholders is taxable. Ford v. United States [63-1 USTC ¶ 9193], 160 Ct. Cl. 417, 424, 311 F.2d 951, 954 (1963); Petersen v. Commissioner [Dec. 30,630(M)], T.C. Memo. Notwithstanding the numerous arguments advanced by each party, resolution o......
-
Textron, Inc. v. U.S., 76-1446
...354 F.2d 997 (9th Cir. 1965); Missouri Pacific Railroad Co. v. United States, 337 F.2d 637, 167 Ct.Cl. 725 (1964); Ford v. United States, 311 F.2d 951, 160 Ct.Cl. 417 (1963); Candy Bros. Mfg. Co. v. Commissioner of Internal Revenue, 198 F.2d 330 (8th Cir. 1952); Robinson v. Commissioner of ......
-
State Dept. of Assessments and Taxation v. Loyola Federal Sav. & Loan Ass'n
...998-99 (9th Cir.1965); Missouri Pacific Railroad Co. v. United States, 167 Ct.Cl. 725, 337 F.2d 637, 640 (1964); Ford v. United States, 160 Ct.Cl. 417, 311 F.2d 951, 955 (1963); Candy Bros. Mfg. Co. v. Commissioner of Internal Revenue, 198 F.2d 330, 333 (8th Cir.1952); Comar Oil Co. v. Helv......
-
Petersen v. Commissioner
...determining whether those liabilities should be taken into account in determining basis under section 344(c). Compare Ford v. United States, 311 F. 2d 951 (Ct. Cl. 1963); sec. 1.334-2 Income Tax Regs.; Rev. Rul. 95, 1953-1 C. B. 162; see 3A Mertens, Law of Federal Income Taxation (1968 revi......
-
Understanding the tax consequences of liquidation to an S shareholder.
...subject to a liability (such as the distribution of mortgaged land), the amount realized is reduced by the amount of the liability (Ford, 311 F2d 951 (Ct. Cl. The general rule is that a shareholder's stock basis is determined as of the end of the S corporation's tax year. It appears that th......