## Facts

- Court Holding Co. was a corporation formed to buy and hold a single apartment building, its only asset.
- The corporation’s only shareholders were Minnie Miller and her husband.
- While the corporation still held title, it negotiated with the lessees (and related parties) from October 1939 to February 1940 for sale of the building.
- An oral agreement on sale terms was reached; on February 22, 1940, the parties met to reduce the deal to writing.
- The purchaser was told by the corporation’s attorney that the sale could not be completed because it would trigger a large corporate income tax.
- The next day, the corporation declared a “liquidating dividend,” liquidated its assets, and the shareholders surrendered their stock; the building was deeded to the Millers.
- A sales contract was then prepared naming the Millers as sellers and the lessees’ sister as purchaser on substantially the same terms previously negotiated.
- A $1,000 payment previously made to the corporation by the lessees was credited toward the purchase price under the shareholder contract.
- Three days later, the property was conveyed to the purchaser.
- The Tax Court found the liquidation and transfers were formal steps intended to make the transaction appear different to avoid tax, and that the corporation had not abandoned the sale.

## Issues

1. Whether the gain from the building’s disposition was taxable to the corporation as a corporate sale, despite a liquidating distribution followed by a shareholder-form sale on the same terms.
2. Whether an appellate court may reject the Tax Court’s characterization of the transaction when the Tax Court’s findings are supported by evidence.

## Decision

- The Supreme Court reversed the court of appeals and reinstated the Tax Court’s determination.
- The Court held there was evidence supporting the Tax Court’s finding that, in substance, the transaction was a sale by the corporation.
- The gain was therefore taxable to the corporation under § 22 of the Internal Revenue Code.
- The absence of a written corporate sales contract, and the unenforceability of any oral real-estate agreement under state law, did not change the federal tax result given the Tax Court’s supported finding as to substance.

## Legal Principles

- Federal income tax consequences depend on the substance of a transaction rather than formal steps arranged to alter tax incidence.
- A corporation that has effectively negotiated and arranged a sale cannot shift corporate-level tax by interposing a last-minute liquidation and a shareholder sale on substantially identical terms.
- Tax Court findings on the transaction’s substantive character are binding on appellate review when supported by evidence, even if the record contains conflicting proof.
- State-law enforceability of intermediate agreements does not control when the executed transaction, viewed as a whole, reflects a corporate sale for federal tax purposes.

## Conclusion

The Court treated the rapid liquidation-and-sale sequence as a corporate sale because the corporation had negotiated and carried out the disposition in substance, and it required appellate deference to the Tax Court’s supported fact findings that the formal restructuring was designed to avoid corporate tax.


Commissioner v. Court Holding Co., 324 U.S. 331 (1945)