Case and Source Analysis: Gregory V. Helvering Research Paper

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Total Length: 624 words ( 2 double-spaced pages)

Total Sources: 2

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Case Brief:

In this particular case, Mrs. Gregory, who is in this context the taxpayer, was keen on avoiding double taxation. As the owner of the stocks of United Mortgage Corp., an entity that held some stocks at Monitor Securities Corp, she desired to sell Monitor Securities Corp's securities for a significant profit. However, there was a problem. If done as it should have been done, taxation would occur at two levels, i.e. after the sale of Monitor Securities Corp's stocks and again during the distribution of sale profit, as dividend tax. There was a way around this. To minimize her tax obligation, Mrs. Gregory formed a new entity which then issued its shares to her after they were transferred from United Mortgage Corp to the said entity. Next, she dissolved the new company thus causing Monitor Securities Corp's securities to be accorded to her as liquidating dividend -- with the passage of shares being tax free. Next, she offered the stocks of Monitor Securities Corp's for sale and reported capital gains.

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She then went ahead and asserted that the transfer of stock from United Mortgage Corp to the new entity was tax exempt as per the provisions of the Code. As the Circuit Court of Appeals held at the time, the reorganization that had taken place was not within the statute's meaning. It was for this reason that the Commissioner of Internal Revenue's opinion that the "petitioner was liable for a tax as though the United Corporation had paid her a dividend consisting of the amount realized from the sale of the Monitor shares" was upheld by the Circuit Court of Appeals (Justia, 2013)......

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