- 52 -
Instead, it examined the nature of the transaction in order to
decide if it was, in substance, a dividend distribution or a
sale. The Court of Appeals held that the redemption was not
essentially equivalent to the distribution of a dividend because
the taxpayer intended “to bring about a complete liquidation of
her holdings and to become separated from all interest in the
corporation”, and the redemption completely terminated her
interest in the corporation. Id. at 917.
2. Niedermeyer v. Commissioner
Twenty years after Zenz v. Quinlivan, supra, was decided,
this Court decided the tax effect of a sale in the context of
section 304. In Niedermeyer v. Commissioner, 62 T.C. 280 (1974),
the relevant issues were whether the taxpayers’ sale of all of
their common stock in American Timber & Trading Co., Inc. (AT&T)
to Lents Industries, Inc. (Lents) was a redemption involving a
related corporation under section 304(a)(1) of the Internal
Revenue Code of 1954 and, if so, whether the redemption should be
treated as a distribution in exchange for the redeemed stock
under section 302(a) or as a distribution to which section 301
applies. The taxpayers in Niedermeyer sold all of their common
stock but not their preferred stock in AT&T to Lents on September
8, 1966. On the date of the sale, the majority of Lents’ stock
was owned by the taxpayers’ sons. On December 28, 1966, the
taxpayers contributed their AT&T preferred stock to the
Page: Previous 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 NextLast modified: May 25, 2011