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dividend". The shareholders then sold the apartment building on
the same conditions and terms previously agreed upon to the same
purchaser, and the prior payment received by the corporation was
applied in part payment of the purchase price. The Supreme Court
affirmed the finding of the Tax Court that the transaction, in
substance, was a sale by the corporation, and that the
shareholders were mere conduits whose formal participation in the
closing with the buyer was to be ignored for Federal income tax
purposes. The corporation was therefore liable for a corporate
level tax on the gain recognized on the sale of the apartment
building.
Any analysis of Court Holding would be incomplete without an
examination of United States v. Cumberland Pub. Serv. Co., 338
U.S. 451, 455 (1950). In Cumberland Pub. Serv., corporate assets
were distributed in liquidation and thereafter sold by the
corporation's shareholders. Unlike Court Holding, the
corporation at no time entered into negotiations to make the sale
itself. Instead the shareholders first offered to sell the buyer
their stock; after the buyer rejected their offer, they conducted
on their own behalf all the negotiations to sell the assets to
the buyer. The Supreme Court concluded that the shareholders
were the sellers of the assets and refused to find that, in
substance, the corporation was the actual seller.
Court Holding and Cumberland Pub. Serv. together support a
narrow rule or holding on the genuineness of corporate
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