Perry v. Commissioner
United States Tax Court
Held: The partially tax motivated transactions between petitioner and a small business corporation controlled by him, in which petitioner's demand notes were issued to the corporation in exchange for its long-term notes in like amounts, were not sufficient to create "indebtedness" within the meaning of sec. 1374(c)(2)(B). Accordingly, the portion of petitioner's sec. 1374(a) deduction attributable to such "indebtedness" was properly disallowed by respondent.
1Opinion of the Court
OPINION
The question before us is whether a shareholder in a small business corporation can create corporate indebtedness within the purview of section 1374(c) (2) (B)2 by a partially tax-motivated transaction in which the shareholder’s demand note is issued to the corporation in exchange for its long-term note in a like amount. We hold that this question must be answered in the negative.
Viewed from our vantage point, the facts of this case yield an aroma of alchemist’s brew. Cf. Knetsch v. United States, 364 U.S. 361 (1960). As we see matters, the transactions in this case amounted to little…
2Cases cited8 opinions
- Knetsch v. United StatesSupreme Court of the United States · 1960
- Old Colony Railroad v. CommissionerSupreme Court of the United States · 1932
- Raynor v. CommissionerUnited States Tax Court · 1968
- Shoenberg v. Commissioner of Internal RevenueCourt of Appeals for the Eighth Circuit · 1935
- Horne v. CommissionerUnited States Tax Court · 1945
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3Cited by45 opinions
- Morris G. Underwood and Jackie Underwood, Individuals v. Commissioner of Internal RevenueCourt of Appeals for the Fifth Circuit · 1976
- Underwood v. CommissionerUnited States Tax Court · 1975
- Estate of Leavitt v. CommissionerUnited States Tax Court · 1988
- Edward M. Selfe and Jane B. Selfe v. United StatesCourt of Appeals for the Eleventh Circuit · 1985
- Pike v. CommissionerUnited States Tax Court · 1982
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