## Facts

- Jacob S. Kamborian founded and served as president of International Shoe Machine Corp. (International); Michael M. Becka was vice president and general manager.
- Petitioners and the Elizabeth Kamborian Trust owned International stock; the individual petitioners (but not the trust) also owned Campex stock.
- In 1965, four International shareholders transferred Campex stock to International in exchange for newly issued International common stock.
- At about the same time, the Elizabeth Kamborian Trust purchased additional newly issued International stock for cash.
- The trust’s cash purchase was arranged to increase the post-transaction ownership of the participating shareholders to meet the 80% “control” requirement for nonrecognition under I.R.C. §§ 351(a) and 368(c).
- Petitioners reported no gain on the Campex-for-International stock exchange, claiming the transfers qualified for § 351 nonrecognition.
- The Commissioner issued deficiency notices, treating the trust’s purchase as an accommodation transaction under Treas. Reg. § 1.351-1(a)(1)(ii) and asserting § 351 did not apply.
- For 1966, Jacob and Elizabeth also claimed a $50,000 short-term capital loss deduction, which the Commissioner disallowed.

## Issues

1. Whether the Campex stock-for-International stock exchange qualified for nonrecognition under I.R.C. § 351, including whether the trust’s cash purchase could be counted toward the 80% control requirement under §§ 351(a) and 368(c) as interpreted by Treas. Reg. § 1.351-1(a)(1)(ii).
2. Whether Jacob and Elizabeth proved entitlement to a $50,000 short-term capital loss deduction in 1966 under I.R.C. §§ 166(d)(1)(B) and 165(f), (g).

## Decision

- The Tax Court held that only the Campex stock transferors were transferors of “property” for § 351 purposes and the trust could not be included in the transferor group.
- Because the control requirement was not satisfied without the trust, § 351 nonrecognition was unavailable and all gain realized on the exchange had to be recognized.
- The court sustained the Commissioner’s disallowance of Jacob and Elizabeth’s claimed $50,000 short-term capital loss deduction for 1966 for failure of proof.

## Legal Principles

- For § 351, the control requirement in §§ 351(a) and 368(c) is applied by counting only persons who transfer property to the corporation as part of the exchange.
- A contemporaneous stock acquisition structured as an accommodation purchase for cash, within Treas. Reg. § 1.351-1(a)(1)(ii), is excluded from the § 351 transferor group for measuring control.
- Taxpayers bear the burden to substantiate entitlement to capital loss or nonbusiness bad debt treatment under I.R.C. §§ 165 and 166, including the character and deductibility of the claimed loss.

## Conclusion

The Tax Court treated the trust’s cash stock purchase as an accommodation step that could not be used to satisfy § 351’s control requirement, required recognition of gain on the stock exchange, and disallowed the separate 1966 short-term capital loss deduction for lack of proof.


Kamborian v. Commissioner, 56 T.C. 847 (1971)