United States v. Parker

376 F.2d 402 (5th Cir. 1967)

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Nature of the Case

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Facts

P owned a wholesale and retail oil and gasoline business. P and a long-time employee formed a corporation with authorized capital stock of 1,000 shares. P got his 800 shares by transferring to the corporation certain property valued at $93,400 to be used in the corporation's business. The employee paid $7,500 cash and agreed to pay the balance of $23,350 over five years. During the first meeting of the board, it was agreed that the corporation would get first right of refusal on all sales of shares by the employee. P and the employee also entered into an agreement that if the employee's employment should terminate for any reason, including death, his shares would be purchased by P at fair market excluding any goodwill or any other intangible asset. The value per share was set at $116.75 for the first year of existence and thereafter was to be set by P and the employee with resort to arbitration if they could not agree. P also sold other assets to the corporation for $95,738.70 with payment to be made in ten annual installments with interest of 5%. P elected to treat that sale as a capital transaction and reported the gain as a long-term capital gain. The IRS treated the gain as ordinary income under 1239; P owned more than 80% of the value of all outstanding stock at the time of the sale. P paid the deficiencies and sued. The court granted P summary judgment. The IRS appealed.