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c. Acro Manufacturing Co. v. Commissioner
In Acro Manufacturing Co. v. Commissioner, 39 T.C. 377
(1962), the taxpayer, a manufacturer of precision switches and
thermostatic controls, acquired in a tax-free reorganization the
stock of Universal Button Company (Button), a manufacturer of
metal buttons for work clothes. Some 3 months later, the
taxpayer received an offer to buy all of the stock or assets of
Button. Because the taxpayer wished to avoid capital loss on a
sale of the Button stock, the parties to the transaction
negotiated an agreement for the sale of Button’s assets whereby
the taxpayer would liquidate Button and sell its assets to the
purchaser. Pursuant to that agreement, Button adopted a plan of
complete liquidation. On the following day, less than 7 months
after its acquisition by the taxpayer, Button underwent a tax-
free section 332 liquidation, and its assets were sold by the
taxpayer to the purchaser for cash plus the purchaser’s
assumption of the liabilities relating to the business formerly
carried on by Button. Button’s business continued uninterrupted
during the foregoing ownership transfers.
The taxpayer argued that the non-capital asset character of
the assets in Button’s hands should carry over to the taxpayer
after the section 332 liquidation because, under the section
1223(2) holding period “tacking” provisions, the taxpayer is
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