- 12 - contingently liable only to the secured creditors of Seggerman Farms, namely Minonk State Bank. Although the Court of Appeals for the Seventh Circuit, to which these cases are appealable, has not decided a case squarely on point, that court refused to give a restrictive interpretation to the statute and denied relief to a taxpayer with a section 357(c) gain in Testor v. Commissioner, 327 F.2d 788 (7th Cir. 1964), affg. 40 T.C. 273 (1963). In Testor, a taxpayer transferred the assets and the liabilities of his sole proprietorship to a corporation. The liabilities were assumed by the corporation and were in excess of the aggregate book value of the assets that were transferred. None of the assets were specifically encumbered by the liabilities, and for that reason the taxpayer argued that section 357(c) did not apply. In interpreting section 357(c), the Court of Appeals affirmed the decision of the Tax Court and held that “both the language and legislative history indicate that section 357(c) is meant to apply wherever liabilities are assumed or property is transferred subject to liability.” Id. at 790. The taxpayer was liable for tax on the gain under section 357(c). Petitioners contend that their secured creditors insisted that they incorporate in order to restructure their business debt and procure additional credit for the upcoming crop season. Petitioners maintain that they realized no personal net gain andPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011