United States v. Davis

In 1945, taxpayer 1 and E. B. Bradley organized a corporation. In exchange for property transferred to the new company, Bradley received 500 shares of common stock, and taxpayer and his wife similarly each received 250 such shares. Shortly thereafter, taxpayer made an additional contribution to the corporation, purchasing 1,000 shares of preferred stock at a par value of $25 per share.

The purpose of this latter transaction was to increase the company’s working capital and thereby to qualify for a loan previously negotiated through the Reconstruction Einance Corporation. It was understood that…