THE ALDERMAN CASE
Velma W. Alderman, 55 TC 662
Case Facts: On February 13, 1963 The Alderman’s transferred the assets of their sole proprietorship, Alderman Trucking Company, to a newly formed corporation, Alderman Corporation. At the time of the transfer, all of their assets were exchanged for 99 shares of the outstanding stock of the corporation as well as the assumption by the corporation of all liabilities pertaining to the sole proprietorship. The liabilities assumed by the corporation included accounts payable of $24,420.14 and notes payable for encumbrances on the trucks and trailers of $47,591.65, totaling $72,011.79. The assets that were transferred from the sole proprietorship were solely of depreciable trucks and trailers used …show more content…
Consequently, the application of section 357(c) is undisturbed by the creation and transfer of the personal note to the corporation. The Tax Court concluded that as the Aldermans incurred no cost in making the note therefore the promissory note had no basis to the transferors or to the transferee corporation. According to the court, it was not clear whether there was any indication of whether the funds had come from personal saving and whether the corporation was liable for the tax that the revenue authority demanded upon the transfer of the property. Under Section 1012 the basis of property is its cost. As a result, the Aldermans recognized a taxable gain of $9,229.59.
THE OWEN CASE
William F. Owen, Jr., TC Memo 1987-375., code sec 38
Case Facts: In 1977, William Owen and Stephen McEachron formed McO Investment as a general partnership, each having 50 percent interest. In the early 1980s, they decided to venture into the seismic drilling operation business known as Western Exploration, Inc. (Western) which was organized as a Subchapter C corporation and equally owned by the partners. They structured the business by placing ownership of equipment in McO and causing Western to conduct the …show more content…
Court of Appeals, Ninth Circuit, Owen, Jr. v. Commissioner, 64 AFTR 2d 89-5386 (881 F. 2d 832), Code Sec(s) 46; 357, (CA9), 08/09/1989, William and Gretchen Owen appealed the initial rulings of the tax court’s decision where they were denied the investment tax credit and also had to recognize a taxable gain on a 1981 transfer of equipment. In the appeal process, the Tax Court agreed with the Owens that the $100,000 certificate of deposit should not be included as a liability. The Owens argued that the Tax Court did not apply the step transaction doctrine to treat post-transfer documents prepared in June or July 1982 to the December 1981 transfer. The Tax Court found that the 1982 agreements were no part of a single, integrated scheme relating back to the December 1981 equipment transfer.
THE LESSINGER CASE
Lessinger v. Commissioner, 85 TC 824, Code Sec 351
Case Facts: The Lessingers solely owned and operated two businesses, Universal Screw & Bolt Co, a sole proprietorship, and Universal Screw & Bolt Co, Inc. At the request of a creditor who provided them loans, the Lessingers consolidated their sole proprietorship and corporation in 1979. Prior to the consolidation, their sole proprietorship had a negative net worth. The creditor required this as a way
Velma W. Alderman, 55 TC 662
Case Facts: On February 13, 1963 The Alderman’s transferred the assets of their sole proprietorship, Alderman Trucking Company, to a newly formed corporation, Alderman Corporation. At the time of the transfer, all of their assets were exchanged for 99 shares of the outstanding stock of the corporation as well as the assumption by the corporation of all liabilities pertaining to the sole proprietorship. The liabilities assumed by the corporation included accounts payable of $24,420.14 and notes payable for encumbrances on the trucks and trailers of $47,591.65, totaling $72,011.79. The assets that were transferred from the sole proprietorship were solely of depreciable trucks and trailers used …show more content…
Consequently, the application of section 357(c) is undisturbed by the creation and transfer of the personal note to the corporation. The Tax Court concluded that as the Aldermans incurred no cost in making the note therefore the promissory note had no basis to the transferors or to the transferee corporation. According to the court, it was not clear whether there was any indication of whether the funds had come from personal saving and whether the corporation was liable for the tax that the revenue authority demanded upon the transfer of the property. Under Section 1012 the basis of property is its cost. As a result, the Aldermans recognized a taxable gain of $9,229.59.
THE OWEN CASE
William F. Owen, Jr., TC Memo 1987-375., code sec 38
Case Facts: In 1977, William Owen and Stephen McEachron formed McO Investment as a general partnership, each having 50 percent interest. In the early 1980s, they decided to venture into the seismic drilling operation business known as Western Exploration, Inc. (Western) which was organized as a Subchapter C corporation and equally owned by the partners. They structured the business by placing ownership of equipment in McO and causing Western to conduct the …show more content…
Court of Appeals, Ninth Circuit, Owen, Jr. v. Commissioner, 64 AFTR 2d 89-5386 (881 F. 2d 832), Code Sec(s) 46; 357, (CA9), 08/09/1989, William and Gretchen Owen appealed the initial rulings of the tax court’s decision where they were denied the investment tax credit and also had to recognize a taxable gain on a 1981 transfer of equipment. In the appeal process, the Tax Court agreed with the Owens that the $100,000 certificate of deposit should not be included as a liability. The Owens argued that the Tax Court did not apply the step transaction doctrine to treat post-transfer documents prepared in June or July 1982 to the December 1981 transfer. The Tax Court found that the 1982 agreements were no part of a single, integrated scheme relating back to the December 1981 equipment transfer.
THE LESSINGER CASE
Lessinger v. Commissioner, 85 TC 824, Code Sec 351
Case Facts: The Lessingers solely owned and operated two businesses, Universal Screw & Bolt Co, a sole proprietorship, and Universal Screw & Bolt Co, Inc. At the request of a creditor who provided them loans, the Lessingers consolidated their sole proprietorship and corporation in 1979. Prior to the consolidation, their sole proprietorship had a negative net worth. The creditor required this as a way