- 28 -
Respondent thus concedes that, irrespective of whether a
liquidation of ADDI&C or sale of its assets was planned or
contemplated on the valuation date, "some reduction in value would
be appropriate if, in fact, avoidance of a corporate level capital
gains tax was not available". However, respondent argues that
although ADDI&C would have been required under the Federal income
tax law in effect on the valuation date to recognize gains on its
assets if it had liquidated and distributed those assets, sec.
336(a), made a nonliquidating distribution of one or more of
those assets, sec. 311, or sold or otherwise disposed of those
assets, sec. 1001(c), it could have avoided the tax on such
gains.13 That is because, according to respondent, ADDI&C could
have converted to S corporation status and retained its assets for
10 years from the date of such conversion, see sec. 1374(a),
(d)(7), and petitioner's expert Mr. Pratt acknowledged that
possibility in his expert report.
13 The Tax Reform Act of 1986 (1986 Act), Pub. L. 99-514, sec.
631-633, 100 Stat. 2269-2282, inter alia, modified sec. 336(a) in
effect prior to passage of the 1986 Act, thereby repealing the
doctrine (General Utilities doctrine) that had been established
in General Utils. & Operating Co. v. Helvering, 296 U.S. 200
(1935). Under the General Utilities doctrine, corporations
generally did not recognize gain on certain distributions of
appreciated property to their shareholders and on certain
liquidating sales of property. See H. Rept. 99-426 at 274-275
(1985), 1986-3 C.B. (Vol. 2) 274-275. The change to sec. 336(a)
that was effected by the 1986 Act was intended “to require the
corporate level recognition of gain on a corporation’s sale or
distribution of appreciated property, irrespective of whether it
occurs in a liquidating or nonliquidating context.” H. Conf.
Rept. 99-841, 1986-3 C.B. (Vol. 4) 204.
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