The Service determined a $183,458,981 deficiency in the Chesapeake Corporation's Federal income tax, asserting that Chesapeake owed a $36,691,796 substantial understatement of income tax penalty under section 6662(a) for 1999. Chesapeake's subsidiary's contributed its assets and most of its liabilities to a newly formed limited liability company, simultaneously receiving a $755 million distribution. In Canal Corp. v. Comm'r, 2010 U.S. Tax Ct. LEXIS 25 (T.C. Aug. 5, 2010), the court held that the transaction was a disguised sale, requiring Chesapeake to recognize a $524 million gain for the year of contribution and distribution. Chesapeake was liable also for the substantial understatement penalty under section 6662(a).
LEXIS.com users can view the enhanced version of Canal Corp. v. Comm'r, 2010 U.S. Tax Ct. LEXIS 25 (T.C. Aug. 5, 2010)
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