Donald E. Clark Peggy S. Clark v. Commissioner of Internal Revenue

WILKINSON, Circuit Judge:

In April 1979, Donald Clark sold his company to N.L. Industries for 300,000 shares of N.L. stock and $3,250,000 in a transaction that qualified as a reorganization. The issue in this case is whether the cash payment, commonly called boot, should be taxed as a capital gain or as ordinary income. The Commissioner treated the boot as ordinary income, characterizing it as a dividend paid by Clark’s company immediately before the reorganization. This characterization, however, fails to recognize that the cash was an integral part of the reorganization. Rather than…