The Piedmont Corporation v. Commissioner of Internal Revenue

WINTER, Circuit Judge:

The essential question we must decide is whether the assignment to the taxpayer of certain option rights held by its sole, stockholders in return for $10,000 cash and $160,000 in unsecured promissory notes constituted a bona fide sale or a contribution to capital. 1 The Tax Court concluded that the successive transfers of the option were in effect a contribution of capital and that the promissory notes must be regarded as evidencing an equity investment, with the interest paid thereon regarded as a non-deductible dividend on preferred stock. The Piedmont Corporation, jf…