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Law School Case Brief

Kamborian v. Commissioner - 56 T.C. 847 (1971)


General Rule. -- No gain or loss shall be recognized if property is transferred to a corporation (including, in the case of transfers made on or before June 30, 1967, an investment company) by one or more persons solely in exchange for stock or securities in such corporation and immediately after the exchange such person or persons are in controlimposed by  I.R.C. §§ 351(a) and 368(c) (1954) of the corporation. For purposes of this section, stock or securities issued for services shall not be considered as issued in return for property.


Four stockholders of International Shoe Machine Corp. (International) transferred their stock in Campex to International in return for International's common stock. At the same time, a fifth International stockholder purchased additional shares of theretofore unissued International stock for cash. The Tax Commissioner's position is that only the four stockholders listed, the former owners of Campex, may be considered as transferors of property, but any others, such as these that were accomplished through a trust device, would fail to satisfy the control requirement, and thus, all gain realized on the exchange must be recognized. In particular, the Commissioner urges that International stock issued to a certain Trust in return for $5,016 does not qualify as stock issued for property within the meaning of I.R.C. § 351(a) and that consequently the persons making qualified transfers of property to International in return for its stock held only 77.3 percent of its stock after the exchange. 


Did the gain realized by petitioner taxpayers as a result of a transaction qualify for nonrecognition under I.R.C. § 351 (1954)?




The Court held that in the circumstances of this case, only the transferors of the Campex stock may be considered as transferors of property for purposes of I.R.C. § 351 (1954); that the fifth stockholder may not be so considered; that the control requirement imposed by I.R.C. §§ 351 351(a) and 368(c) (1954), as interpreted by Regs. § 1.351-1 (a)(1) (ii), has consequently not been satisfied; and that therefore all gain realized on the exchange must be recognized.

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