## Facts

- Cherry-Burrell Corp., an accrual-basis Delaware corporation, sought a refund of corporate income taxes for fiscal years ending October 31, 1955 and 1956.
- Cherry-Burrell owned all of its English subsidiary’s preference shares and 80% of its ordinary shares; the remaining 20% ordinary shares were initially held by the subsidiary’s managing director and later sold to an unrelated English company.
- The subsidiary adopted a plan to sell its assets and voluntarily wind up under English law; most liquidation proceeds were distributed relatively soon after winding-up began.
- After the liquidation plan commenced, litigation in England resulted in restrictions that required certain assets to be retained until the litigation concluded.
- The litigation lasted more than six years, delaying the final distribution beyond the three-year period stated in Internal Revenue Code of 1939 § 112(b)(6)(D).
- The IRS treated the delayed final distribution as taxable because the liquidation was not completed within the statutory three-year period; Cherry-Burrell paid and sued for a refund.

## Issues

1. Whether § 112(b)(6)(D)’s requirement that the transfer of all property in a subsidiary liquidation be completed within three years allows an implied exception when completion is delayed by intervening litigation beyond the taxpayer’s control.
2. Whether a distribution received after the three-year period can be treated as part of a tax-free “complete liquidation” under § 112(b)(6).

## Decision

- The Eighth Circuit affirmed judgment for the United States.
- The court held that § 112(b)(6)(D)’s three-year completion requirement is mandatory and leaves no room for an implied exception based on litigation delay or hardship.
- Because the liquidation was not completed within the prescribed period, the distributions were not treated as distributions “in complete liquidation” under § 112(b)(6), and the disputed distribution was taxable.

## Legal Principles

- Nonrecognition under Internal Revenue Code of 1939 § 112(b)(6) applies only if all statutory conditions are satisfied; it is an exception to the general rule of recognition.
- Section 112(b)(6)(D) requires a plan under which the transfer of all property in liquidation is to be completed within three years from the close of the taxable year of the first distribution; if not completed within that period, “no distribution under the plan” is treated as a distribution in complete liquidation.
- Courts will not read a “reasonable cause,” “impossibility,” or equitable exception into § 112(b)(6)(D) where Congress specified both the condition and the consequence of noncompliance.
- Statutory provisions authorizing administrative protections (such as bonds or waivers) do not create substantive taxpayer relief from the three-year completion condition.

## Conclusion

The court treated § 112(b)(6)(D)’s three-year liquidation-completion requirement as a strict condition of nonrecognition, and held that delays caused by foreign litigation did not prevent the statute’s disqualifying consequence; the parent’s delayed liquidation distribution was taxable.


Cherry-Burrell Corp. v. United States, 367 F.2d 669 (8th Cir. 1966)