Braddock Land Co. v. Commissioner
United States Tax Court
After adopting a plan of complete liquidation under sec. 337, I.R.C. 1954, two of the petitioners, both shareholder-employees, purportedly "forgave" accrued salaries, bonuses, and interest owed to them by their corporation. Held, the "forgiveness" is disregarded as it lacks economic reality and is a sham. Held, further: Amounts paid to petitioners during the process of liquidation constitute ordinary income to the extent of the salaries, bonuses, and interest due them.
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After adopting a plan of complete liquidation under sec. 337, I.R.C. 1954, two of the petitioners, both shareholder-employees, purportedly "forgave" accrued salaries, bonuses, and interest owed to them by their corporation. Held, the "forgiveness" is disregarded as it lacks economic reality and is a sham. Held, further: Amounts paid to petitioners during the process of liquidation constitute ordinary income to the extent of the salaries, bonuses, and interest due them. Only the excess received is a distribution in complete liquidation under sec. 331(a).
1Opinion of the Court
Wilbur, Judge:
Respondent has determined the following deficiencies in petitioners’ Federal income taxes:
Taxable Docket No. Petitioneds) period Deficiency
3812-77 Braddock Land Co., Inc. 11973 $47,091.66
3813-77 Rothwell J. Lillard and 1973 Anne E. Lillard 13,419.00
3814-77 Loy H. Kelley and Ima A. 1973 Kelley 11,700.00
These consolidated cases present the following issues for our decision:(1) Whether the forgiveness of accrued salaries, bonuses, and interest by Mr. Lillard and Mr. Kelley when the corporation they owned was in the process of a section 337 liquidation should be disregarded as…
2Cases cited24 opinions
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