William M. Lynch and Mima W. Lynch v. Commissioner of Internal Revenue

CYNTHIA HOLCOMB HALL, Circuit Judge:

The Commissioner of the Internal Revenue Service (Commissioner) petitions for review of a Tax Court decision holding that a corporate redemption of a taxpayer’s stock was a sale or exchange subject to capital gains treatment. The Commissioner argues that the taxpayer held a prohibited interest in the corporation after the redemption and therefore the transaction should be characterized as a dividend distribution taxable as ordinary income. We agree with the Commissioner and reverse the Tax Court.

I

Taxpayers, William and Mima Lynch, formed the W.M. Lynch Co.…