Ralphs Grocery Co. & Subsidiaries v. Comm'r, T.C. Memo 2011-25 (T.C. 2011)

Ralphs Grocery Co. & Subsidiaries v. Comm'r, T.C. Memo 2011-25 (T.C. 2011)

In their motions for partial summary judgment, the parties asked the court to decide whether taxpayers made a valid joint election under IRC Section 338(h)(10) with respect to acquisition of all of the outstanding common stock of a grocery store chain. The critical issue was whether the transaction constituted a reorganization under IRC Section 368(a)(1)(B), (C), or (G).

Resolution of that issue depended on whether the transaction satisfied the continuity-of-interest requirement. Based upon the parties' agreed facts, the court rejected the IRS argument that, in determining whether the continuity-of-interest requirement was satisfied in the transaction, the Supreme Court's decision in Alabama Asphaltic required the court to treat as equity owners certain creditors who received 83.75 percent of the outstanding common stock of an insolvent entity. Unlike the situation in Alabama Asphaltic, those creditors did not assume effective command over the insolvent corporation's property. The court therefore held that the continuity-of-interest requirement was not satisfied and the transaction was not a reorganization under IRC Section 368(a)(1)(B), (C), or (G).

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