Manassas Airport Indus. Park, Inc. v. Comm'r of Internal Revenue
| Decision Date | 24 June 1976 |
| Docket Number | Docket No. 9166-72. |
| Parties | MANASSAS AIRPORT INDUSTRIAL PARK, INC., A DISSOLVED CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Fred R. Tansill and Paul S. Richter, for the petitioner.
J. Doyle Tumbleson, for the respondent.
Petitioner purchased farmland and buildings which it held primarily for sale to customers in the ordinary course of its business. Petitioner constructed roads on the property and contemplated liquidation while construction of a road was in progress. Held: The collapsible corporation provisions of sec. 341 I.R.C. 1954, apply to real property not subject to depreciation. Petitioner realized only 9.3 percent of its total taxable income from the property prior to forming the intent to liquidate which is not a ‘substantial’ part of the taxable income to be derived from the property. Accordingly, petitioner was a collapsible corporation within the meaning of sec. 341(b)(1) and must recognize the gain it realized from the sale of assets after adoption of its plan for complete liquidation. Sec. 337(c)(1)(A).
The Commissioner determined a $143,064.22 deficiency in petitioner's Federal income tax for its taxable year ended March 31, 1969. The issues for decision are:
(1) The proper method of allocating the cost of constructing a road between three parcels of land adjacent to the road;
(2) Whether petitioner is a collapsible corporation as defined by section 341(b) of the Internal Revenue Code of 1954 and precluded thereby from the nonrecognition benefits of section 337(a) by section 337(c)(1)(A); 1
(3) If petitioner is not a collapsible corporation, whether it sold substantially all of its property held primarily for sale to customers in the ordinary course of its trade or business ‘to one person in one transaction’ as provided for in section 337(b)(2) and is therefore entitled to the nonrecognition benefits of section 337(a).
Some of the facts have been stipulated. The stipulation of facts and exhibits are incorporated by this reference.
Petitioner Manassas Airport Industrial Park, Inc. (hereinafter petitioner), was a Virginia corporation organized on November 27, 1964, and dissolved by the Virginia Corporation Commission on February 5, 1970. At the time of the filing of their petition, the principal place of business of petitioner's successors in dissolution was Manassas, Va. Petitioner employed the accrual method of accounting in maintaining its books and records and in filing its corporate Federal income tax returns which covered taxable years ending March 31.
Early in 1964, E. W. Hurst, Jr., approached the ultimate shareholders of petitioner to interest them in the purchase of a parcel of real estate known as the Hurst Farm. The Hurst Farm consisted of 165.8 acres of land on which several farm buildings and a farmhouse were located. It was operated as a general dairy farm and the land was unimproved pastureland zoned for agricultural use. In May 1964, petitioner's eventual shareholders entered into a contract to purchase the farm. The contract was conditioned upon rezoning the property for industrial use which was accomplished in June of 1964. Petitioner was organized in the latter part of 1964 and the contract rights to the farm were assigned to it along with cash in exchange for its stock. Petitioner's charter authorized capital stock of 15,000 shares at $10 per share. The initial shares were issued for the following cash consideration:
+---------------------------------------------------+
¦ ¦ ¦ ¦Percentage of ¦
+------------------+--------+-------+---------------¦
¦ ¦No. of ¦ ¦total stock ¦
+------------------+--------+-------+---------------¦
¦Shareholder ¦shares ¦Cost ¦outstanding ¦
+------------------+--------+-------+---------------¦
¦ ¦ ¦ ¦ ¦
+------------------+--------+-------+---------------¦
¦Rueben B. Hicks ¦1,320 ¦$13,200¦30.00 ¦
+------------------+--------+-------+---------------¦
¦Lillian H. Burke ¦1,320 ¦13,200 ¦30.00 ¦
+------------------+--------+-------+---------------¦
¦J. Dennis Baker ¦660 ¦6,600 ¦15.00 ¦
+------------------+--------+-------+---------------¦
¦Howard Luck ¦440 ¦4,400 ¦10.00 ¦
+------------------+--------+-------+---------------¦
¦Earl W. Hurst, Jr.¦330 ¦3,300 ¦7.50 ¦
+------------------+--------+-------+---------------¦
¦Franklin A. Holmes¦330 ¦3,300 ¦7.50 ¦
+------------------+--------+-------+---------------¦
¦Total ¦4,400 ¦44,000 ¦100.00 ¦
+---------------------------------------------------+
Subsequently, on October 13, 1966, additional shares of stock were issued to the shareholders for cash, thereby increasing the number of shares outstanding as follows:
+------------------------------------------------------+
¦ ¦ ¦ ¦Percentage of ¦
+------------------+-----------+-------+---------------¦
¦ ¦Number of ¦ ¦total stock ¦
+------------------+-----------+-------+---------------¦
¦Shareholder ¦shares ¦Cost ¦outstanding ¦
+------------------+-----------+-------+---------------¦
¦ ¦ ¦ ¦ ¦
+------------------+-----------+-------+---------------¦
¦Rueben B. Hicks ¦1,539 ¦$15,390¦30.00 ¦
+------------------+-----------+-------+---------------¦
¦Lillian H. Burke ¦1,539 ¦15,390 ¦30.00 ¦
+------------------+-----------+-------+---------------¦
¦J. Dennis Baker ¦770 ¦7,700 ¦15.00 ¦
+------------------+-----------+-------+---------------¦
¦Howard Luck ¦513 ¦5,130 ¦10.00 ¦
+------------------+-----------+-------+---------------¦
¦Earl W. Hurst, Jr.¦385 ¦3,850 ¦7.50 ¦
+------------------+-----------+-------+---------------¦
¦Franklin A. Holmes¦385 ¦3,850 ¦7.50 ¦
+------------------+-----------+-------+---------------¦
¦Total ¦5,131 ¦51,310 ¦100.00 ¦
+------------------------------------------------------+
The ownership of petitioner's stock remained unchanged from October 13, 1966, until dissolution. Petitioner's shareholders were also its directors. Throughout petitioner's existence, its officers were as follows:
+---------------------------------+
¦President ¦Reuben B. Hicks ¦
+--------------+------------------¦
¦Vice president¦Howard Luck ¦
+--------------+------------------¦
¦Secretary ¦Franklin A. Holmes¦
+--------------+------------------¦
¦Treasurer ¦Earl W. Hurst, Jr.¦
+---------------------------------+
On or about February 9, 1965, petitioner purchased the Hurst Farm property for $198.951.60. The farm property was the only land ever purchased by petitioner.
The Hurst Farm was purchased initially with the intention of being a long-term investment. Upon recovery of its initial investment and expenses, petitioner intended to hold the remaining property for appreciation in value but, nevertheless, for eventual sale to customers in the ordinary course of business.
Between February 9, 1965, and July 31, 1968, petitioner sold the following parcels:
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Manassas Airport Indus. Park, Inc. v. C. I. R., 76-2311
...under 26 U.S.C. § 337 (1954). We think that the Tax Court correctly held that it was and we affirm on its opinion. Manassas Airport Industrial Park, Inc., 66 T.C. 566 (1976). ...