Francis L. Rooney and Irene Rooney v. United States

This appeal raises two major issues: (1) the application of section 482 of the Internal Revenue Code of 1954 [26 U.S. C.A. § 482], which allows the Commissioner to reallocate expenses of the taxpayer, to the fact situation in this case, and (2) an interpretation of section 351 of the Internal Revenue Code of 1954 [ 26 U.S.C.A. § 351 ], which allows the taxpayer to transfer property to a corporation in exchange for stock, without recognition of gain or loss, and the effect that this section has on our controversy.

Appellants, husband and wife, are hop farmers. They raised and sold at a profit, crops in the years 1952 and 1953.

On July 31, 1954, the appellants transferred a crop, which had been planted, together with other assets of their farm, to F. L. Rooney Inc., hereinafter called “Corporation”. This transfer was made in exchange for all of the stock of the Corporation. Prior thereto on Jan. 22, 1954, appellants had entered into a contract for the sale of the crop.

The appellants reported the expense of raising the crop, until July 31, 1954, on their individual income tax returns. As a result of this crop expense, appellants suffered a net operating loss for 1954, and…