## Facts

- King Enterprises, Inc. (formerly Fleetwood Coffee Company), a Tennessee corporation, was one of eleven shareholders of Tenco, Inc., an instant coffee producer.
- Minute Maid Corporation negotiated to acquire all Tenco stock from the shareholders.
- Tenco shareholders exchanged their Tenco shares for a package of Minute Maid common stock plus cash and promissory notes.
- After the acquisition, Tenco was merged into Minute Maid as a later step; although the contract did not expressly require the merger, the merger was treated as contemplated as part of the overall plan.
- For its fiscal year ending June 30, 1960, King:
  - Reported the cash and notes as dividend income and claimed the 85% intercorporate dividends-received deduction.
  - Treated the Minute Maid stock as received in a nontaxable corporate reorganization and did not report its value as income.
- The IRS assessed a deficiency, characterizing the total consideration (cash, notes, and stock) as capital-gain proceeds from a taxable sale of Tenco stock and treating the later merger as unrelated.
- King paid the deficiency and sued for a refund in the Court of Claims.

## Issues

1. Whether the exchange of Tenco stock for Minute Maid stock, cash, and notes, followed by Tenco’s merger into Minute Maid, should be treated as an integrated Type A reorganization under I.R.C. § 368(a)(1)(A) rather than a taxable stock sale followed by a separate merger.
2. If the transaction qualified as a reorganization, whether the cash and notes (“boot”) received by King were dividend-equivalent (eligible for the intercorporate dividends-received deduction) rather than capital gain.

## Decision

- The Court of Claims entered judgment for King and awarded a tax refund (amount to be determined under court rules).
- The court adopted the trial commissioner’s findings and legal conclusions.
- The court held the stock acquisition and subsequent merger were steps in a single, unified transaction qualifying as a Type A reorganization under § 368(a)(1)(A).
- The Minute Maid stock received was treated as received pursuant to the reorganization plan and was nonrecognition property.
- The cash and promissory notes were treated as a dividend-equivalent distribution, allowing the 85% intercorporate dividends-received deduction.

## Legal Principles

- Under the step transaction doctrine, formally separate steps may be collapsed when they are parts of a single plan; a stock acquisition followed by a merger may be treated as one reorganization transaction.
- A transaction can qualify as a Type A reorganization under I.R.C. § 368(a)(1)(A) when the overall substance is a statutory merger or consolidation accomplished through planned intermediate steps.
- In a qualifying reorganization, stock received pursuant to the plan generally receives nonrecognition treatment.
- “Boot” received in a reorganization may be taxed as dividend-equivalent to the extent attributable to earnings and profits, permitting an intercorporate dividends-received deduction where applicable, rather than taxing the entire gain as capital gain from a sale.

## Conclusion

The Court of Claims treated Minute Maid’s acquisition of Tenco stock and the later merger of Tenco into Minute Maid as a single Type A reorganization, allowing nonrecognition for the acquiring corporation’s stock and treating the cash and notes as dividend-equivalent boot eligible for the intercorporate dividends-received deduction.


King Enters., Inc. v. United States, 418 F.2d 511 (Ct. Cl. 1969)