Escolar Documentos
Profissional Documentos
Cultura Documentos
___________________
I
_
-2-
to Mr. Johnson
and 49 shares
to Ms. Lyon.
The corporation
Trust.
consulting work
he accepted a
tapered off.
Late in 1986, with PAJA
salaried position at a hospital and his
Lyon decided to
until 1985, when
shareholders.
liquidate the company and distribute its assets
later sold 8 more shares to an entity known as PAJA
to the
Pension
At
the time, the tax laws
offered a choice
331, they could recognize all of the distributed assets
their
income
tax
returns
liquidation occurred,
but pay
for
the
year
in
taxes on the
which
to
on
the
distribution at
the capital gains rate, which was lower than the rate applied
to
could
wages or dividends.
Or, they
Section
333
distributed
required
assets
the
portion
the
to
two
shareholders
to
allocate
the
categories:
(1)
earnings
and
other assets.
of
333.
The shareholders
the distribution
that
came
had to
from
the
the distribution
corporation's other
recognizing any
Roughly
tax rate.
However, with
that took the
respect to
form of
the
could postpone
sold the assets.
shareholders of
or no earnings
appreciated property
and profits . .
. ."
B.
had
at
11.62
(5th
significant
better
ed.
earnings
shareholders
were
off
recognizing a
gain immediately on
1987).
If
the
and
profits,
the
electing
Section
331,
the entire
distribution,
-3-
but
avoiding
taxation of
the earnings
and profits
at the
case concerns
the
appellants' election
to treat
PAJA's
distributed
dissolved
knew
that
assets
under
January 1, 1987.
had
333
end of 1986.
repealed
Section
when
they
Mr. Johnson
333,
effective
intervened,
Section
631(e)(3),
down to the
28, 1986.
Mr. Johnson and Ms. Lyon
on December 28.
Corporation
showed
Income
for
earnings"
amount
The
constituted
of earnings --
PAJA.
a "Short-Form
This
document
$96,311.
With
such a
significant
would have to
capital gain
under Section
331 --
liquidation under
the appellants
explained,
profits" at zero
or Section 333.
shareholder
made
Mr. Johnson
it.
For reasons
figured PAJA's
never
"earnings and
resolution
to liquidate
-4-
the
corporation under
Section 333.
Form 964,
which bears
under Section
and
filed,
captioned
333 Liquidation."
on
behalf
"Corporate
of
Section 333
which the
corporation is
Mr.
Johnson then
that
$63,632
or
to be
Form
of the
966,
which
Code under
dissolved or liquidated."
on PAJA's
than $137,000
to Ms.
Liquidation,"
the "Section
wrote checks
distributed more
himself,
as
also executed
corporation,
Dissolution
identified
of Shareholder
Mr. Johnson
the
the IRS a
Lyon, and
corporate account
in assets:
$9,622 to
$64,607 to
PAJA Pension
Trust.
Four months later,
their joint
income tax
for 1986,
6(a)(5), and
pursuant
treated their
they should
have
26 C.F.R.
share of the
distributed assets
do.
income tax
They
return contained
no mention of
fact, their
the liquidation.
It
liquidation as
treated
proceeds
the entire
of
"sale" of
distribution as
PAJA
stock,
a capital
and
gain.
This
-5-
calculation
under
would
Section
unaccompanied
Section
have been
331,
or
consistent with
with
simple
a liquidation
sale
of
stock
333 election
the appellants
had made
the previous
December.
The
further
IRS accepted
action
the
until
an
appellants' return
audit
treatment
return.
The
revoke their
liability
given
IRS then
the
to take
distribution
election,
the election
1988
revealed
no
the
rejected the
Section 333
in
and took
in the
appellants'
appellants' efforts
to
recalculated their
tax
into account,
determined a
owed.
The
day trial
and
sustained
the IRS'
actions.
This
appeal
followed.
II
__
Mr.
for
taxes
according
to
Section
333
for
two
-6-
while attempting
(or in
statute.
This
compliance
elect Section
333 and
requirements
benefits
to
is
necessary
this case,
is
needed
not
to
in
suffer the
completely
make
order
valid
liquidate
all of Section
enjoy
the
detriments) of
the
true.
tax
to
The
level
election
of
varies
according
to the nature of
the requirement.
statute, but
[the Tax
Court
has] held
that substantial
been fulfilled."
Commissioner, 81 T.C.
____________
See also Dunavant
________ ________
709, 719
omitted).
of the
violated
provide
26
--
regulations which
26 C.F.R.
the appellants
1.333-6, which
C.F.R.
1.333-3, which
say they
required
them to
required them to
file a copy of
of election --
not go to
therefore "procedural"
the "essence" of
the statute
-7-
above.
and are
Their
The
other asserted
defects
redemption of
333(a)(1), because
some
discussion.
cancellation or
U.S.C.
require
their
all the
Forms 964
not "in
stock," 26
inaccurately
record
causes us
to believe
that,
Nothing in
in return
for the
Trust) actually
gave
shares in PAJA.
"in complete
cancellation or
Putting
wrong count
substance
the
less
than all
redemption of all
on the
forms
did not
of
their
the stock."
affect the
Section 333(d)
to make a
[of the
written
of
adoption of
the
the plan
of
liquidation."
is an "essential" requirement.
The cases
Shull v.
_____
T.C.M. 143,
146 (1951).
However, whether
-8-
at 684,
error in
clearly
establishes December
finding that
28,
"the
1986 [when
the
Mr. Johnson
testified
that he
and
It is true
Ms. Lyon
made
in November 1986.
a
It
plan
the
shareholders
Shull,
_____
statute
to
the Fourth
"adopted" a
does
by
"adopt" some
Circuit
its
"plan"
held that
plan of liquidation
terms
require
the
liquidation.
In
the shareholders
had
of
before they
______
made a
formal
resolution to
other than
far in
liquidation. . . ."
this sort
December 28
happened
was the
here.
corroborate Mr.
Nothing
resolution executed
first manifestation of
of
the appellants'
In the absence of
Johnson's testimony,
on
any evidence
the Tax
Court was
-9-
that the
not "adopt"
appellants did
a plan
of liquidation
the
appellants
contend
that
PAJA
failed
to
violating
Section
333(a)(2),
which
says
that
the
the property
under liquidation
calendar month."
his
transaction
wife
had
and
to
calendar month."
was
some one
occurs within
of
PAJA
be
Pension
completed
during
not completed
until March
Trust,
the
that
entire
same
"one
1987, when
Spriggs,
Bode &
$6,727 for
"services
rendered during
November 1,
1986
that
some
agree
with
"indeterminate"
the
portion
Tax
of
attributable to services
this
Court
payment
only
--
the
part
dissolved
be
considered
shareholders.
"distribution" from
PAJA
to
its
-10-
dissolution
was
money that
Mr. Johnson
earned on
his own
behalf.1
The late distribution of
-- something less
PAJA's
assets
election.
tax
-- does
not
affect
that
require
accomplished within
corporate
specific
(Blackmun,
J.).
distribution
certain period in
Thus, when
of
all
order to
to dispose of a
tax
of the
of
qualify for a
minor portion of
to
(8th Cir.
1966)
on its
assets
face
within
tax benefit,
(calling
Meyer
_____
grounds
_______
this the
v.
Commissioner, 35
____________
"de minimis
v. Commissioner, 15
____________
200 F.2d 592
a
the
be
Cherry-Burrell
______________
statute
corporate
the
respect to
liquidations
time limits.
failure
the legitimacy
statutes
requires
T.C.
418
See
___
(1960)
T.C. 850
out of
____________________
1.
For the same reason, a check
client in March 1987 was not part
distributed assets
useful authority
revenue rulings
this proposition.
they cite
question whether
first place.
for
Their belated
involved the
occurred in the
other
In this case,
than
a tax
to
deficiency (and
escape
the
v.
the record
had determined
reason
(1974).
the appellants
successful pursuit of a
IRS
cases and
They supply
The
by the
in the
liquidation.
done after the
for no
consequences
apparent
of
that
v.
Commissioner, 96
____________
of their election.
F.2d
177,
178-89 (5th
See
___
Cir.
1938).
B
_
Even
if
their
election was
procedurally
valid,
the
and profits"
Although
(with
one
to
distribute to
exception
not
PAJA had no
its shareholders.
relevant
here)
the
-12-
regulations
written
implementing
Section
333
say
flatly
that
withdrawn
appellants
or
revoked,"
believe that
26
C.F.R.
a taxpayer may
1.333-2(b)(1),
the
nevertheless obtain
elections.
Meyer's Estate
_______________
v.
Commissioner,
____________
200
Wilkinson, 36
_________
Commissioner, 47
____________
Section 333).
F.2d 592
(5th
1952); McIntosh
________
1929);
However,
Cir.
v.
DiAndrea, Inc. v.
_______________
the taxpayer
In
v. United States, 643 F.2d 234, 238 (5th Cir. 1981); Shull v.
_____________
_____
Commissioner, 271 F.2d 447,
____________
v.
United States, 269 F.2d 181, 183 (6th Cir. 1959); Grynberg v.
_____________
________
Commissioner,
____________
83
T.C.
255,
of
unawareness of
miscalculation,
been
the
law,
the tax
(1984);
of
consequences of making
to
subsequent
mitigate the
-13-
Cohen
_____
v.
misunderstanding
and unexpected
held insufficient
261-63
the
law,
an election,
events have
all
binding effect
of
Code."
Estate of Stamos v.
_________________
Commissioner, 55 T.C.
____________
appellants
distinction,
but
do
not
argue
question the
that
the
Tax
wisdom
Court
of
this
erroneously
Court.
Mr. Johnson's
The
mistake in
stated
belief that PAJA had no "earnings and profits," and thus that
the
shareholders
distribution
could
defer
under Section
333.
of
Depending on
the
entire
its source,
recognition
of law.
not exist
States, 603 F.2d 850, 855 (C.C.P.A. 1979). If Mr. Johnson had
______
decided that PAJA
had no "earnings
he
executed a
company
had more
wrote checks
return indicating
than $96,000
to himself, Ms.
as president of
in "retained
Lyon and
that the
earnings," and
PAJA Pension
Trust,
-14-
drawn
on
the corporate
bank
account,
totaling more
than
$137,000.
Since the appellants knew how much money the corporation
had
in
the
bank when
they
made
the
that
subject
See
___
the
money
to taxation
constituted
as ordinary
election, the
only
"earnings
income under
and
profits"
Section 333.
1974) (corporation's
"exact
relation"
to
as
determined
not bear an
by
"normal
is
a tax,
mistake
their
not an
economic concept").
Thus, they
made a
different than
at 855 (emphasis
IRS made
liability.
First,
6653(a)(1),
.
of
tax
negligence
two
"additions" to
it
added
the appellants'
$1,240
under
26
tax
U.S.C.
to
be shown
(or disregard
of
on
rules or
return
is
due to
regulations),
there
-15-
underpayment."
care
or
prudent
failure to
person
Commissioner's
would
do
what
do
imposition
reasonable and
under
of
the
a
ordinarily
circumstances.
negligence
addition
The
is
presumptively
burden
correct,
of proving
negligent
leaving
that
the
[appellants]
their underpayment
or intentional
rules
negligence
for
due to
McMurray
________
slip op. at 13
issues only
was not
violations."
with the
v.
(1st
Court's findings
clear error.
Leuhsler v.
________
no error.
occurred because
The
"underpayment" in
this case
in December
elected
Section
331
or
April as if
made
unaccompanied by a liquidation.
simple
of
stock
absent a compelling explanation to the contrary, one might -as the Tax
Court appears
Memorandum
Opinion
deliberate, since
--
to have done
infer
in its
that the
making it promised to
Supplemental
"switch"
here
was
of
distribution as
neglecting
to
their
previous
a "sale" rather
attach Form
election
than a liquidation,
964 to
-16-
by describing
their
return.
the
and by
But the
negligence
penalty was
accidental;
like the
about a
appropriate even
Tax Court,
if the
we see
switch was
nothing reasonable
failure to
calculate
his tax liability in accordance with his own election and the
Code's explicit instructions.2
The IRS
under 26
U.S.C.
year."
understatement
the tax for the
Section
tax treatment
6661(a).
of
an
Section 6661(b)(2)(B)
item
if there
was
"substantial
appellants
which was
____________________
understated their
almost
50% of
the
taxes
by more
tax for
the
than
year.
However,
they
requirement
claim
with
to
respect
have
satisfied
to
the
two reasons.
on a
1.6661-4(a)
of
entire
First,
understatement
this "disclosure"
it was not
to the
Second, filing
liquidation, nearly
disclosure
But
statement attached
and (b).
the
four months
made on
return.
26
a Form 964 at
before a
tax
the item,
amount,
and
the
concerning
the
item."
controversy
its
4(b)(1)(iv) and
1.6661-4(b)(4).
nature
26
of the identity
of
the
C.F.R.
of
potential
1.6661-
the
regulations require the shareholder to file Form 964 twice -once upon making the
return.
26 C.F.R.
to waive
all or
"on a showing
part of
by the taxpayer
6661(c).
acted in
"the extent
tax
the authority
income tax
good faith."
factor in waiver
law . .
. ."
26
U.S.C.
decisions is
C.F.R.
1.6661-
6(b).
-18-
We review the
discretion.
Cir. 1990);
(1988).
that
For
IRS' waiver
decision only
for abuse
of
Commissioner, 91 T.C.
____________
stated, we
1079, 1083-84
are confident
reasonable
they were, in
(b) fail
election.
The appellants' Motion for Oral Argument is denied.
The judgment of the Tax Court is affirmed.
________
-19-