Commissioner of Internal Revenue v. Marne S. Wilson, Marjorie M. Wilson, Lyle C. Wilson and Peggy Wilson

The Commissioner of Internal Revenue seeks review and reversal by this court of a decision of the Tax Court of the United States setting aside income tax deficiencies which the Commissioner had assessed agáinst these taxpayers. No problem relating to the jurisdiction of the Tax Court or of this court is involved.

Our question is whether the Tax Court was right in concluding that when a corporation in which the taxpayers were the sole stockholders formed another corporation, transferred certain assets of the existing corporation to it, and then transferred the stock in the second corporation to the taxpayers, that was not a distribution taxable to the taxpayers as a dividend paid by the first corporation, but was a tax-free transaction pursuant to Section 355 of the Internal Revenue Code of 1954, 26 U.S.Code, 1958 ed., § 355.

One William C. Wilson operated a furniture store business. He died in 1950. His widow and his two sons, who are the taxpayers in this litigation, continued the business as a partnership. In 1955 Wilson’s Furniture, Inc., hereinafter called Wilson’s Inc., was formed. The assets of the partnership were transferred to the corporation, and all of the stock of…