Commissioner v. Court Holding Co.

Holding

When a corporation negotiates a sale and then liquidates, distributing the asset to its shareholders who promptly close the same sale, the sale is properly attributed to the corporation for tax purposes under the substance-over-form doctrine.

Facts

Court Holding Co. negotiated the sale of its sole apartment-building asset. To avoid corporate-level tax, the corporation liquidated and distributed the building to its two shareholders, who then completed the sale to the original purchaser on the same terms. The Commissioner taxed the gain at the corporate level.

Reasoning

The Court held that the incidence of taxation depends on the substance of a transaction. The negotiation was conducted at the corporate level and the formal change of seller was used to avoid corporate tax. Tax cannot be escaped by mere formalities that do not alter the economic reality of the deal.