Shea Co. v. Comm'r of Revenue
| Decision Date | 03 November 1969 |
| Docket Number | Docket Nos. 424-66— 429-66. |
| Citation | 53 T.C. 135 |
| Parties | THE SHEA COMPANY, A DISSOLVED CORPORATION, ET AL.,1 PETITIONERS v. COMMISSIONER OF REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Max Thelen, jr., A. Barlow Ferguson, and James R. Bridges, for the petitioners.
Eugene H. Ciranni and Joel A. Sharon, for the respondent.
On Mar. 27, 1957, the Shea Co. and four other corporations, formed a joint venture for the purpose of constructing the Clear Creek Tunnel near Whiskeytown, Calif., under contract with the United States of America, Department of Interior, Bureau of Reclamation. During the construction of the tunnel, the joint venture asserted certain claims against the Bureau of Reclamation for extra compensation due to changed conditions not contemplated in the construction contract. The joint venture also, at the end of the construction, asserted a claim against the Industrial Indemnity Co. for a dividend on the workmen's compensation policies carried with that company. On or before May 16, 1962, all of the assets of the joint venture were distributed to an agent for the venturers to liquidate their interests. Included in these assets were the claims against the Bureau of Reclamation and Industrial Indemnity Co. On June 30, 1962, pursuant to a plan of complete liquidation, the Shea Co. distributed all of its remaining assets to its shareholders. As a part of that distribution, the Shea Co. distributed its undivided 30-percent interest in the claims against the Bureau of Reclamation and Industrial Indemnity Co. The Shea Co. was formally dissolved under the laws of the State of Nevada on Aug. 23, 1962. The entire amount of the claims against the Bureau of Reclamation and Industrial Indemnity Co. were contested on May 16, 1962, on June 30, 1962, and Aug. 23, 1962. Held:
1. The income realized upon the subsequent settlement of the claims is not allocable to the final taxable period of the Shea Co.
2. The shareholders of the dissolved Shea Co. cannot be required to report the income realized upon the settlement of the claims as distributive shares of partnership ordinary income.
3. The shareholders of the dissolved Shea Co. received the claims as part of the consideration in exchange for their stock and properly reported capital gains in regard to the income from the settlements of these claims.
Respondent determined deficiencies in the Federal income taxes of petitioners as follows:
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¦Docket No. ¦Petitioner ¦Year ¦Amount ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦ ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦(1959 ¦$57,144.01¦
+------------+----------------------------------+------------------+----------¦
¦424-66 ¦Shea Co., a dissolved corporation.¦(Jan. 1 to Aug. ¦15,226.66 ¦
¦ ¦ ¦23, ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦( 1962. ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦425-66 ¦Estate of Edmund H. Shea, ¦1962 ¦17,841.30 ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦deceased, Gilbert J. Shea and ¦ ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦Edmund H. Shea, Jr., executors, ¦ ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦and Margaret M. Shea. ¦ ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦426-66 ¦Gilbert J. Shea and Lucile M. ¦1962 ¦68,438.18 ¦
¦ ¦Shea, ¦ ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦husband and wife. ¦ ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦427-66 ¦Estate of Edmund H. Shea, ¦( ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦deceased, Gilbert J. Shea and ¦(1959 ¦57,144.01 ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦Edmund H. Shea, Jr., executors, ¦(Jan. 1 to Aug. ¦15,226.66 ¦
¦ ¦ ¦23, ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦transferee. ¦( 1962. ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦(1959 ¦57,144.01 ¦
+------------+----------------------------------+------------------+----------¦
¦428-66 ¦Gilbert J. Shea, transferee ¦(Jan. 1 to Aug. ¦15,226.66 ¦
¦ ¦ ¦23, ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦( 1962. ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦(1959 ¦57,144.01 ¦
+------------+----------------------------------+------------------+----------¦
¦429-66 ¦Lucile M. Shea, transferee. ¦(Jan. 1 to Aug. ¦15,226.66 ¦
¦ ¦ ¦23, ¦ ¦
+------------+----------------------------------+------------------+----------¦
¦ ¦ ¦( 1962. ¦ ¦
+-----------------------------------------------------------------------------+
Upon the joint motion of the parties, these cases were consolidated for consideration by this Court. Docket Nos. 424-66, 427-66, 428-66, and 429-66 involve deficiencies in income taxes of the Shea Co., a dissolved corporation, and transferee liability, in identical amounts, of the three shareholders of the dissolved corporation. Docket Nos. 425-66 and 426-66 involve determinations as to the characterization of certain amounts received by the shareholders in settlement of certain claims which were outstanding at the time of the effective dissolution of the Shea Co.
In the event that we determine that the Shea Co. is liable for deficiencies in income tax for the taxable year 1959 and for the period from January 1, 1962, to August 23, 1962, the parties have stipulated that Gilbert J. Shea, Lucile M. Shea and the Estate of Edmund H. Shea, deceased, Gilbert J. Shea, and Edmund H. Shea, Jr., executors, are liable for such deficiencies, plus interest thereon, as transferees, of the assets of the Shea Co.
Respondent's statutory notices adopt alternative positions. If judgment is rendered for respondent in docket No. 424-66 and the related transferee cases, docket Nos. 427-66, 428-66, and 429-66, then judgment should be rendered for petitioners in docket Nos. 425-66 and 426-66. Conversely, if judgment is rendered for respondent in docket Nos. 425-66 and 426-66, then judgment should be rendered for petitioners in docket Nos. 424-66, 427-66, 428-66, and 429-66.
The issues in this case involve the tax treatment of amounts received upon the settlement of certain contested claims. The claims originated in a joint venture and were eventually distributed to the members of the joint venture, all of them being corporations. Shortly after this distribution, one of the corporate members liquidated and distributed, among other assets, its share of the contested claims to its shareholders. The issues presented upon these facts are:
(1) Whether the income realized upon the subsequent settlement of the contested claims should be allocated to the final taxable period of the dissolved corporation.
(2) If it is not allocable to the final period of the corporation, whether the shareholders of the dissolved corporation can be required to report the income realized upon the settlement of the claims as distributive shares of partnership ordinary income.
(3) If it is neither allocable to the corporation nor reportable as distributive shares of partnership income, what should be the proper characterization of this income in the hands of the shareholders.
Some of the facts and exhibits have been stipulated and are incorporated herein by this reference.
The Shea Co. was a Nevada corporation and its principal office during the years in issue was located at Alhambra, Calif. The income tax returns of the Shea Co. for the calendar year 1959 and for the period from January 1, 1962 to August 23, 1962, were filed with the Reno, Nev., district director's office.
Petitioners Gilbert J. and Lucile M. Shea reside in the State of California. Their joint income tax return for the calendar year 1962 was filed with the Los Angeles, Calif., district director's office.
During the periods involved herein Edmund H. Shea and petitioner Margaret M. Shea were husband and wife residing in Alhambra, Calif. Margaret M. Shea continues to reside in Alhambra, Calif. Their joint income tax return for the calendar year 1962 was filed with the Los Angeles, Calif., district director's office. Edmund H. Shea died in 1966 and Estate of Edmund H. Shea, Gilbert J. Shea and Edmund T. Shea, Jr., executors, has been substituted as a proper party in place of Edmund H. Shea in...
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