Question

Explain whether you decided if the Tax Court case, Intermountain LUmber Co. v. Commissioner, 65 T.C. 1025 (1976) was correctly decided.

Answer 1

The judgment has been correctly given, this is because the section 351 does not apply.

Section 351 says that the no gain is to be recognized from such transaction that includes the transfer of property to gain stock of corporation and the party immediately gain a controlling position after the transfer of stock.

The “controlling position” has been defined in the section of 368 C. This means that the controlling means that the person should have at least 80% of the total combined voting power.

In this case the controlling clause does not met because of the below facts.

• Freedom of transfer, the taxpayer was not under the freedom of transfer as there was a predetermined agreement to transfer. Shook has a sawmill and Wilson that is the purchaser had some logs to be processed.

They entered into a contract to transfer shares. So there is no freedom.

• After the transfer the person must be in a controlling position as explained above. Since 50% of the shares are transferred to the Wilson this means that now both of the parties are now having 50% of the controlling rights. This is less than the 80% criteria.

So the decision was correct.