UNITED STATES V. PARKER
376 F.2d 402 (5th Cir. 1967)
NATURE OF THE CASE: This was a dispute over the characterization of income. United States
(D) sought review of a decision granting Parker (P) summary judgment in P's suit challenging
three years' worth of tax deficiencies assessed by D on gains Ps realized from selling
depreciable assets to a closely-held corporation.
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 good will 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.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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