Commissioner of Internal Revenue v. Grover D. Turnbow and Ruth H. Turnbow

This case presents the following question: whether gain realized by a taxpayer upon the transfer of his stock in a wholly owned corporation in consideration for voting stock in another corporation plus cash is recognizable in its entirety or only to the extent of the cash received. The Tax Court, following Howard v. Commissioner of Internal Revenue, 7 Cir., 1956, 238 F.2d 943 , has ruled that the gain is recognizable only to the extent of the cash received. Grover D. Turnbow, 32 T.C. 646 . We have concluded that this was error and that the gain is recognizable in its entirety.

The taxpayer, Turnbow, was the sole stockholder of International Dairy Supply Company, a Nevada corporation which had its principal place of business in San Francisco, California. In 1952, the taxpayer transferred his stock in that company to Foremost Dairies, Inc., a New York corporation which had its principal place of business in Jacksonville, Florida. This transfer was in exchange for 82,375 shares of the common stock of Foremost and $3,000,000.00 cash, so-called “boot.” The Foremost shares were of a value of $1,235,625.00. Thus the shares constituted 29% of the total consideration received, while the…