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Where the essential nature of a transaction is the acquisition of property, it will be viewed as a whole, and closely related steps will not be separated either at the instance of the taxpayer or the taxing authority.
Petitioner Kimbell-Diamond Milling Company was a corporation engaged in manufacturing grain products. In 1942, it sustained a fire, which resulted in the destruction of a mill property. Petitioner collected insurance for the loss. It then acquired the stock of an elevator company, which was comparable to the property destroyed. It subsequently dissolved that company and its assets were distributed to the petitioner. After the petitioner filed its return, the Commissioner found deficiencies in income, declared value excess profits, and excess profits taxes primarily due to Commissioner's reduction of its basis in assets acquired by it in 1942, through the liquidation of the company. The petitioner filed a petition challenging the determination.
Was the Commissioner’s determination of deficiencies in petitioner’s income proper?
The court entered judgment for the Commissioner, holding that in a prior petition by the petitioner, it did not decide the issue of whether the basis of the petitioner's assets acquired from the company was other than the basis in the hands of company. The purchase of the company's stock and its later liquidation had to be treated as one transaction for tax purposes. Therefore, the petitioner's basis for the assets was its cost. Its excess profits tax credit was also properly based on equity invested capital.