United States v. McNair Realty Company

Certain real property originally belonging to the appellee corporation was sold. In form the transaction involved the transfer of a partial interest in the property to one of the corporate stockholders in complete liquidation of that stockholder’s interest in the corporation, followed by a sale to a third party of their respective interests in the property by the stockholder and the corporation. If the transaction was in fact what it purported to be the appellee corporation was subject to tax only on the capital gain resulting from the sale of its partial interest in the property. United States v. Cumberland Public Service Co., 338 U.S. 451 , 70 S.Ct. 280 , 94 L.Ed. 251 (1950). If, on the other hand, the sale was in reality a sale by the corporation and the distribution to the stockholder merely a sham, utilizing the stockholder as a conduit through which to pass title from the corporation to the purchaser, the corporation was subject to tax on the capital gains realized from the sale of the whole property. Commissioner of Internal Revenue v. Court Holding Co., 324 U.S. 331 , 65 S.Ct. 707 , 89 L.Ed. 981 (1945).

Taken together, the decisions in Commissioner of Internal Revenue v.…