Warren E. And Marion F. Fletcher v. United States

The Fletchers appeal from a district court judgment awarding them only a partial refund for personal holding company (PHC) taxes for tax years 1971-76. We affirm in part and reverse in part.

I

The Fletchers were the sole shareholders of Fletcher Enterprises, Inc. In 1976, the corporation adopted a 12-month plan of liquidation, and in January 1977, made a final distribution of $50,000 to the Fletchers.

In May 1977, the IRS notified the Fletchers that the liquidated corporation had been a personal holding company and that it had $32,800 of undistributed and untaxed PHC income for tax years 1971 76. In January 1978, as sole directors of the liquidated corporation, the Fletchers retroactively designated $32,800 of the corporation’s final distribution as a dividend pursuant to l.R.C. § 316(b)(2)(B)(ii). The Fletch-ers hoped thereby to avoid the PHC tax, which is applied to undistributed PHC income.

The Commissioner assessed a deficiency of $29,855 against the Fletchers as transferees of the corporation. That amount represents a 70% PHC tax on the $32,800 PHC income, plus interest and penalties. The Fletchers paid the deficiency and sued for a refund. On summary judgment,…