Tribune Publishing Company v. United States

This case involves the tax treatment of settlement proceeds of securities fraud litigation arising out of an I.R.C. § 368 tax-free reorganization.

I

In 1969, Tribune Publishing Co. (Tribune), the taxpayer, owned 6,109 shares, or 7.1 percent, of the outstanding stock of West Tacoma Newsprint Co. (Newsprint), a producer of newsprint. Tribune’s basis in the stock was $619,462. That year, Newsprint was acquired by Boise Cascade Corp. (Boise Cascade) in a tax-free reorganization —specifically, a merger within the scope of I.R.C. § 368(a)(1)(A). Tribune received 41,-476 shares of Boise Cascade stock in the merger in return for its Newsprint shares. At the time, Boise Cascade stock had a market price of $74.50 per share, making the market value of the stock Tribune received in exchange for its Newsprint stock approximately $3.1 million.

After the merger, the market price of Boise Cascade stock fell precipitously following reports that Boise Cascade had failed to disclose material facts about its financial condition. As a result, Tribune and others sued Boise Cascade for securities fraud. In 1977, as part of a settlement of the litigation, Tribune received from Boise Cascade $451,000…