West Los Angeles Institute for Cancer Research v. Ward Mayer

In August 1951, Ward Mayer and his wife and son — who, with D. F. Kinder, were the stockholders of Timber Structures, Inc. — contracted to sell the business to the West Los Angeles Institute for Cancer Research, a tax-exempt entity. The transaction was patterned after the sale and leaseback agreements described in the opinions in Commissioner of Internal Revenue v. Brown, 380 U.S. 563 , 85 S.Ct. 1162 , 14 L.Ed.2d 75 (1965) and 325 F.2d 313 (9th Cir. 1963). In March 1960, the Mayers brought this action to recover the property. The district court granted the relief sought, and we affirm, on the ground that the sale and leaseback arrangement was frustrated by Revenue Ruling 54-420, 1954-2 Cum.Bull. 128, issued in September 1954, which rejected the tax premises upon which the transaction was based.

Under the plan, the Mayers sold the stock in Timber Structures to the Institute for $2,500,000 — $10,000 down, the balance payable under the following arrangement. It was agreed that the Institute would lease the business to a newly-formed operating company for a five-year period; that the operating company would pay 80 per cent of the operating profits to the Institute as rent; and that…