Weyl-Zuckerman & Company v. Commissioner of Internal Revenue

This is a petition to review a decision of the Tax Court reported at 23 T.C. 841 which sets forth the salient facts in the case. The decision turns upon that court’s finding and conclusion as to the purpose and effect of a series of transactions whereby the petitioner corporation, which held certain lands, conveyed those lands together with the mineral rights thereunder to its wholly owned subsidiary at its original cost. This transfer which occurred on June 27, 1946, was by standard form of bargain and sale deed. At that time the mineral rights under the land had a zero basis to petitioner. In December, 1946, after a sale of the company’s mineral rights under this and other land had been arranged by petitioner, the mineral rights under the tract conveyed June 27, 1946, were declared as a dividend by the subsidiary and reconveyed to the petitioner. As the value of these gas rights at that time was $230,-000, and as the sale was consummated thereafter, petitioner asserts that the reacquisition of the mineral rights in this manner gave it a stepped-up basis equal to $230,000 with the result that no gain was realized on the sale.

The Tax Court found that when petitioner made the…