United States v. Cumberland Public Service Co.

Holding

When shareholders, not the corporation, genuinely negotiate the sale of distributed assets after a bona fide liquidation, the gain is recognized at the shareholder level and not attributed back to the corporation.

Facts

Cumberland's shareholders, facing an unsolicited bid for the corporation's facilities, refused to sell stock and instead caused the corporation to liquidate. After liquidation the shareholders negotiated and completed the sale of the distributed assets. The government argued the sale should be attributed to the corporation under Court Holding.

Reasoning

Distinguishing Court Holding, the Court emphasized that the trial court found as fact that the shareholders, not the corporation, conducted the sale negotiations after liquidation. Whether a sale is corporate or shareholder is a question of fact, and on this record the shareholders had genuinely become the sellers.