Commissioner of Internal Revenue v. South Lake Farms, Inc., Commissioner of Internal Revenue v. South Lake Farms

The Commissioner of Internal Revenue seeks review of a decision of the Tax Court. That decision is reported at 36 T.C. 1027 (1961). The underlying facts are not disputed; most of them were stipulated. They are fully set forth in the findings of the Tax Court and are not attacked by the Commissioner, and we therefore do not repeat them here. We are of the opinion that the decision *838 of the Tax Court is correct for the reasons stated by it. We consider only those contentions made by the Commissioner before us. It is undisputed that the purchase by the new corporation of the stock of the old was an arm’s length transaction between unrelated parties.

The Commissioner asserts here, as he did in the Tax Court, that the fair market value of the unharvested cotton crop planted and cultivated by the old corporation, but harvested by the new corporation, and the fair market value of the barley crop, which was both planted and harvested by the new corporation, were properly included by him in the income of the old corporation for its last taxable period which ended with its complete liquidation on October 3, 1956. He asserts authority to so include these items as income under the…

(dissenting).

I respectfully dissent.

The case presents a question of whether a farm corporation can avoid its liability for tax upon ordinary income earned by it but not actually collected or realized as of the date the corporation is dissolved by another corporation, which purchases all of its stock.

The problem concerns Sections 334 and 336, and the impact thereon of Sections 446 and 482, all in the 1954 Internal Revenue Code; and whether the tax principles of “Assignment of Income” and “Tax Benefit” should apply.

The “Old Corporation” expended large amounts for the making of a cotton crop, ($497,641.93) and the preparation of land for a barley crop, ($215,060.50) and took deductions in its income tax returns. The “Purchasing Corporation” harvested the cotton crop at a cost of $271,505.56 and received gross proceeds of $1,855,-518.68; planted the prepared barley lands and received the income from the crop raised.

The Tax Court and the majority of this Court now hold that the “Old Corporation” may have its deductions for making the cotton crop and preparing the land for the barley crop, and .that the “Purchasing Corporation” may have the proceeds of the crops free from any…

324 F.2d 837 COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SOUTH LAKE FARMS, INC., Respondent. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SOUTH LAKE FARMS, Respondent. No. 18018. No. 18019. United States Court of Appeals Ninth Circuit. November 22, 1963. John B. Jones, Jr., Acting Asst. Atty. Gen., Lee A. Jackson, David O. Walter, and David I. Granger, Attorneys, Department of Justice, Washington, D. C., for petitioner. Henry D. Costigan, Gordon M. Weber, and John B. Lowry, McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for respondents. Before HAMLIN and DUNIWAY, Circuit Judges, and JAMES M. CARTER, District Judge. DUNIWAY, Circuit Judge. 1 The Commissioner of Internal Revenue seeks review of a decision of the Tax Court. That decision is reported at 36 T.C. 1027 (1961). The underlying facts are not disputed; most of them were stipulated. They are fully set forth in the findings of the Tax Court and are not attacked by the Commissioner, and we therefore do not repeat them here. We are of the opinion that the decision of the Tax Court is correct for the reasons stated by it. We consider only those contentions made by the Commissioner before us. It is undisputed…