Intermountain Lumber Company V. Commissioner

1
Intermountain Lumber Company V. Commissioner

• Sarah K. Bragg
• June 18, 2007

2
Transfer of Property for Stock

• Judge Wilson
• United States Tax Court, 1976
• Examines Section 351
• Issue Court determination of control as is
  requisite in applying Section 351.

3
S W Sawmill, Inc. (1 of 3)

• Shook and Wilson partnered to build a saw mill.
• Wilson co-guaranteed a 200,000 loan to provide
  financing.
• Shook and Wilson created S W Sawmill, Inc. and
  created a contract with the following
  stipulations regarding ownership of stock

4
S W Sawmill, Inc. (2 of 3)

• 1. Dee Shook is to sell to Milo E. Wilson 182
  shares of stock in S W for the agreed price of
  500 per share.
• 2. Wilson is to pay Shook for said stock,
  interest only until 1969 at which time principal
  payments of 15,000 per year are to commence.

5
S W Sawmill, Inc. (3 of 3)

• 3. As each principal payment is made the
  proportionate number of shares of stock are to be
  transferred on the corporate records and
  delivered to Wilson.
• Shook also executed an irrevocable proxy allowing
  Wilson voting rights in all the stock.

6
Intermountain Lumber Co.

• On July 1, 1967 Intermountain Lumber Co. bought
  all outstanding shares of S W stock.
• An agreement was made to pay Shook 91,000 more
  than Wilson.

7
The Problems Arise

• Shook my transferred assets into S W were
  non-taxable under Section 351.
• Intermountain the transfers were taxable
  because of the lack of pertinent control
• Intermountain wished to use the higher FMV basis
  for depreciation purposes.

8
The Courts Decision

• Shook and Wilson intended to consummate the sale
  of the said stock.
• Shook relinquished the legal right to retain
  stock.
• Therefore he did not have the requisite control
  of company to take advantage of Section 351.

9
Conclusion

• Section 351 No Gain or Loss to be recognized if
  property is transferred for stock and that person
  is then in control.
• Simply a transfer of form.
• Shooks transaction was a Sale and not simply a
  transfer of form.