John F. Nutt and Eileen M. Nutt v. Commissioner of Internal Revenue

John and Eileen Nutt, husband and wife, residents of Eloy, Arizona, are farmers. They seek review here of twin decisions of the Tax Court adverse to them. In August, 1955, as the cotton harvesting season was approaching they formed two Arizona corporations. One was Rancho Tierra Prieta and the other was Black Land Farms, Inc.

To Tierra Prieta, they promptly transferred about 1,150 acres of land owned in fee as community property under the laws of Arizona. Along with it went the cotton crop. The crop was worth far more than the land because the Nutts retained their wells and well sites upon which the annual crops were dependent for irrigation water. As consideration for the sale, a nominal payment of cash was made and large purchase money notes and mortgages were executed. In due course, the notes were paid and the mortgages discharged. No part of the sale price was represented by corporate stock of Tierra Prieta. However, 152 shares of stock were issued in exchange for new money paid it. Apparently, John Nutt wrote a check for $7,500 and received 75 shares of common stock with par value of $100 per share. Likewise, Eileen Nutt did the same thing and received the same number of…