## Facts

- Harry B. Sidles, a cash-basis taxpayer, died on June 12, 1968; his estate filed fiduciary income tax returns for years ending May 31, 1969 and May 31, 1970.
- Sidles owned 100% (500 shares) of Bi-State Distributing Corp.; his adjusted basis in the shares was $29,701.04.
- About three and a half months before Sidles’s death, Bi-State adopted a plan of complete liquidation and filed a statement of intent to dissolve under Nebraska law.
- Before Sidles’s death, Bi-State agreed to sell 11,025 shares of another corporation’s stock for $13,429 cash and a 20-year, 6% promissory note with a face amount of $899,000.
- After Sidles’s death, Bi-State’s directors resolved to distribute all corporate real and personal property to the estate; the distributed assets had a net fair market value of $702,830.85 at the time of distribution.
- Bi-State then completed dissolution under Nebraska procedures.
- The Commissioner asserted income tax deficiencies, treating $673,129.81 of liquidation gain (assets distributed minus Sidles’s stock basis) as income in respect of a decedent (IRD) under I.R.C. § 691(a)(1).

## Issues

1. Whether the liquidating distribution to the estate constituted IRD under I.R.C. § 691(a)(1) as an amount to which the decedent was entitled at death.
2. If the distribution was IRD, whether the I.R.C. § 691(c) deduction for estate tax attributable to IRD is limited to offsetting only § 691(a) income.

## Decision

- The Tax Court held that the liquidating distribution was not IRD under § 691(a)(1).
- The court rejected the Commissioner’s position that Sidles’s sole ownership made post-death corporate actions merely ministerial for IRD purposes.
- Because there was no IRD, the court did not decide the § 691(c) limitation issue as a necessary holding.
- Deficiencies were to be recomputed under Tax Court Rule 155.

## Legal Principles

- IRD under § 691(a)(1) requires a right to income that is fixed and enforceable in the decedent at death; a mere expectancy or ability to cause later payment is insufficient.
- Corporate separateness is respected for federal income tax purposes even in a wholly owned corporation; ownership and control alone do not convert post-death corporate distributions into the decedent’s IRD.
- Adoption of a plan of liquidation and preliminary dissolution filings do not, by themselves, create a corporate obligation to make a specific liquidating distribution to a shareholder.

## Conclusion

The estate’s receipt of assets in corporate liquidation was taxable, if at all, under the estate’s own realization rules because Sidles did not possess a vested right to a liquidating distribution at death; therefore, the liquidation proceeds were not IRD under § 691(a)(1).


Estate of Sidles v. Comm’r, 65 T.C. 873 (1976)