Huffman v. Commissioner, 1924 BTA LEXIS 263

Huffman v. Commissioner

1924 BTA LEXIS 263 | B.T.A. | 1924

Lead Opinion

OPINION.

Steenhagen:

This was a business reorganization whereby the Fayetteville Milling Co., a corporation, became the Fayetteville Milling Co., a general partnership. Since all of the assets remained in the business and nothing was actually distributed, the taxpayer, a former stockholder and later partner, claims that he received no taxable income. To him it appears that his financial interest was precisely the same after the reorganization as before. But as a matter of law, this is not so. As a stockholder of the former corporation he was not directly an owner of its assets; as a member of *54the partnership he was. This legal distinction is a matter of substance and not merely of form. The Supreme Court has left no room for doubt that a corporation must be regarded for purposes of the income tax law as an entity separate and distinct from its shareholders. Eisner v. Macomber, 252 U. S. 189, 214; United States v. Phellis, 257 U. S. 156; Cullinan v. Walker, 262 U. S. 134. A general partnership existing as in this case merely by virtue of articles of agreement is expressly regarded by the Revenue Act of 1918 (sec. 218) and subsequent statutes as having no independent taxable status. When, therefore, the corporation dissolved there came immediately, in contemplation of law, into the possession and control of the stockholders all of the corporation’s assets. At that moment the individual stockholder must be regarded as having received his share of these assets with whatever gain or loss their receipt entailed.

We are referred to Lynch v. Turrish, 247 U. S. 221. But in that case the Supreme Court held that under the 1913 Act a stockholder receiving a liquidation distribution in an amount no greater than the value of his stock on March 1, 1913, realized no taxable income. In the case at bar it is not contended that the amount received by the taxpayer is no more than the 1913 value of his stock. The taxpayer relies entirely upon the proposition that since there was no distribution in fact he did not in law realize income. This we think is erroneous.