United States v. C. T. Loo, Trustee in Dissolution for the Creditors and Stockholders of C. & M. McCarthy Ltd., a Dissolved Corporation

A sale of real estate by an Hawaiian trustee (of a corporation) in dissolution for the benefit of creditors is made at a gain over the late corporation’s cost basis. Is this “profit” taxable income (a capital gain) to the trustee or should the transaction be treated as that of a sale by the stockholders in their individual right as if they had finally received the property in distribution on liquidation? That is our question here when the trustee has paid the taxes under protest and sued in district court to recover the amount which he has paid. The district court ruled in favor of the trustee and the United States appeals.

C. & M. McCarthy, Ltd., was a corporation organized under the laws of the Territory of Hawaii. In 1944 it owned (and presumably operated) in Honolulu the Donna Hotel and the Waikiki Apartments. Over three-fourths of the value of the two was in the Donna, but our primary concern here is with the Waikiki on which,- in 1944, there was an appreciation in value over the company’s cost basis.

It seems reasonable to say that purchasers and sellers probably had tax consequences in mind when they tailored the forms of their transactions here under review.

Late in…