## Facts

- Mrs. Carter owned all stock of a corporation that dissolved on December 31, 1942.
- In the complete liquidation, she received all corporate assets in kind and assumed all corporate liabilities.
- The distributed property had a fair market value about $20,000 above her stock basis; she reported that excess as capital gain on her 1942 return.
- Among the distributed assets were 32 oil-brokerage contracts calling for future commission payments on oil deliveries between specified buyers and sellers.
- No further services were required from the corporation or from Mrs. Carter under the contracts; payments depended on future contingencies affecting timing and amount.
- The parties stipulated the contracts had no ascertainable fair market value when distributed.
- In 1943, Mrs. Carter collected $34,992.20 in commissions under the contracts and reported the receipts as long-term capital gain.
- The Commissioner treated the 1943 receipts as ordinary income and determined a deficiency; the Tax Court held for Mrs. Carter, and the Commissioner appealed.

## Issues

1. Whether commissions received in 1943 under contingent oil-brokerage contracts distributed in a 1942 complete liquidation were taxable as long-term capital gain from the liquidation exchange or as ordinary income when received.

## Decision

- The Second Circuit affirmed the Tax Court.
- The 1943 commissions were taxable as long-term capital gain, not ordinary income.
- The court treated the commissions as part of the liquidation “amount realized” attributable to the stock-for-assets exchange, despite the contracts’ lack of ascertainable value at distribution.

## Legal Principles

- In a complete corporate liquidation, a shareholder’s surrender of stock in exchange for corporate assets is treated as a sale or exchange, with gain determined under the “amount realized” framework and generally characterized under the capital-gain provisions when the stock is a capital asset.
- Consideration received in a liquidation exchange includes contingent contract rights received for the stock; if such rights lack an ascertainable fair market value at distribution, later collections under those rights may constitute further realization of the exchange consideration rather than new ordinary income.
- Where post-liquidation receipts arise from contract rights requiring no additional services by the shareholder, the receipts are treated as proceeds of the original capital transaction rather than compensation or other ordinary income from current activity.

## Conclusion

The court held that contingent commission payments collected after a complete liquidation were long-term capital gain because they represented later realization of consideration received for the shareholder’s stock, and the absence of an ascertainable value at distribution did not convert those proceeds into ordinary income.


Commissioner v. Carter, 170 F.2d 911 (2d Cir. 1948)