The Commissioner disagreed, and, instead, attributed the amount, as a long term capital gain, to taxpayer. The Tax Court upheld the Commissioner's determination. Palmer v. Commissioner of Internal Revenue, April 22, 1965, 44 T.C. 92. The government concedes that if taxpayer had, without more, sold the property to the company for $5,000, he would have realized no gain, regardless of the property's market value; and if the company had then made a contract and sold it for more, the gain would have been the company's.
Repeatedly, taxpayers have sought to obtain advantageous tax consequences through the manipulation of controlled entities. See, e.g., Higgins v. Smith, supra; Griffiths v. Commissioner, 308 U.S. 355 (1939); Decon Corp. v. Commissioner, supra; Palmer v. Commissioner, 44 T.C. 92 (1965), affd. per curiam 354 F.2d 974 (1st Cir. 1965). In the instant case, Reilly was the general partner of Aragon and owned all the capital stock of HPC.
We note that when V Bar was formed there was no commitment on the part of Standard to enter into a stock exchange. John E. Palmer, 44 T.C. 92, 95 (1965). The mere fact that the creation of V Bar and the stock exchange occurred close in time does not mean they are interrelated steps.
In such cases the transferee has commonly been referred to as a ‘conduit’ through which the transferor has passed title to the property sold. See, e.g., Commissioner v. Court Holding Co., 324 U.S. 331; Griffiths v. Commissioner, 308 U.S. 355; Minnesota Tea Co. v. Helvering, 302 U.S. 609; United States v. Lynch, 192 F.2d 718 (C.A. 9), certiorari denied 434 U.S. 934; Waltham Netoco Theatres, Inc. v. Commissioner, 401 F.2d 333 (C.A. 1), affirming 49 T.C. 399; Palmer v. Commissioner, 354 F.2d 974 (C.A. 1), affirming per curiam 44 T.C. 92; Abbott v. Commissioner, 342 F.2d 997 (C.A. 5), affirming per curiam a Memorandum Opinion of this Court; Harry C. Usher, Sr., 45 T.C. 205; Arnold Malkan, 54 T.C. 1305. Many of these cases involve a corporate distribution of property to the corporation's shareholders, followed by a sale of such property formally carried out by the shareholders.
Accordingly, the Commissioner did not err in including in petitioner's taxable income, the long-term capital gain which it realized in that transaction. Gregory v. Helvering, 293 U.S. 465; Commissioner v. Court Holding Co., 324 U.S. 331; John E. Palmer, 44 T.C. 92; Virginia W. Stettinius Dudley, 32 T.C. 564, affirmed per curiam 279 F.2d 219 (C.A. 2); Nicholas Jacobs, 21 T.C. 165, affirmed 224 F.2d 412 (C.A. 9); Electrical Securities Corporation, 34 B.T.A. 988, affirmed 92 F.2d 593 (C.A. 2). Decision will be entered for the respondent.
To permit the true nature of a transaction to be distinguished by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress. See also John E. Palmer, 44 T.C. 92. Under the circumstances here presented, it is our conclusion that the sale of the Sarong stock to Ten Kenton must be attributed to the petitioner Myrtis C. Usher and that she is taxable in 1960 upon the full amount of the gain realized upon such sale.