Bratton v. Commissioner

The controversy here involves the tax consequences of distributions made to the shareholder-creditors of a closed corporation, upon its dissolution and liquidation. The shareholders were creditors in varying amounts for salaries and commissions owing to them by the corporation.

In the liquidation, the corporation undertook to distribute assets to its shareholders for their capital interests prior to the satisfaction of their claims as creditors. The corporation then handled the shareholders’ claims as creditors by selling its mill and related equipment and certain inventories in exchange for…