Gregory v. Helvering

Holding

A transaction that fits the literal words of the reorganization statute but lacks any real business or corporate purpose apart from tax avoidance is not respected as a tax-free reorganization.

Facts

The taxpayer caused a corporation to create and use another corporation to transfer appreciated stock to her and then quickly liquidated the new entity, arguing that the steps qualified as a tax-free corporate reorganization rather than a taxable dividend.

Reasoning

The Court held that the statute must be read in light of the kind of corporate reorganization Congress intended to protect. Because the newly created corporation served no business function and existed only as a conduit for a preplanned stock transfer, the transaction was a formal shell rather than a real reorganization.