- 26 -
less than 3 years later), and then liquidated. Because the
transferee corporation continued to conduct the old business, the
Court sustained our finding that the transaction had a valid
business purpose and that it qualified as a nondivisive “D”
reorganization under the 1939 Code predecessor of section
368(a)(1)(D). The Court distinguished cases in which the intent
was that the transferee corporation immediately make a
liquidating distribution of the assets received from the
transferor corporation, stating as follows:
But in the present case, petitioners’ plan contemplated
that the new company would carry on the * * *
business, and this was done. Although petitioners’
intention was to dispose of the * * * [business]
eventually, the fact that a going business was
transferred and operated left the new company and
petitioners, its shareholders, in a position where they
stood to gain or lose from operations just as before
the transfer; if business conditions warranted it, the
business could have been continued indefinitely. [Id.
at 649; emphasis added.]
We hold that the reasoning of the First Circuit Court of
Appeals in Lewis v. Commissioner, supra, applies to this case and
that the transfer of the club from 2618 to JKP possessed COBE.
C. Existence of a Distribution Taxable Under Section 356(a)
Respondent argues that, even if 2618's transfer of the club
to JKP constituted a “D” reorganization, petitioner was
nevertheless in receipt of $40,011 of “boot” taxable as long-term
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