At one time, in applying the so-called "business purpose" test of the Gregory case, the Tax Court did distinguish between "shareholder purpose" and "corporate purpose" in closely held corporations. Louis Wellhouse, Jr. v. Com'r, 1944, 3 T.C. 363; Alice H. Bazley v. Com'r, 1945, 4 T.C. 897; Adam A. Adams v. Com'r, 1945, 5 T.C. 351; Marion Heady v. Com'r, 1945, 4 CCH TCM Dec. 14,702(m). We think that the Tax Court has been correctly advised in unequivocally repudiating that distinction here.
Issues are raised by pleadings, not by motions, and the Court has nothing before it for decision such as the motion suggests. Rule 7, Rules of Practice before the Tax Court of the United States; Dixie Manufacturing Co., 1 B.T.A. 641; Producers Oil Corporation, 43 B.T.A. 9; Louis Wellhouse, Jr., 3 T.C. 363; M. C. Parrish & Co., 3 T.C. 119, affirmed on other grounds, 147 Fed. (2d) 284. Furthermore, there is more fundamental reason why the Court can not enter the proposed decision.
This Court, therefore, will not disturb the Commissioner's determination in this respect. Louis Wellhouse, Jr., 3 T.C. 363, 371, and cases cited therein. Though the petitioner also contends in the alternative that the rentals constitute an asset of the incorporators contributing to the petitioner's capital, and did not come to the petitioner as its own income, no facts appear to show that stock was issued for the amount of rentals.
It is true that the courts have held that where a recapitalization serves no legitimate corporate purpose, but is undertaken solely for the individual benefit of the stockholders, an exchange of securities made pursuant thereto is not excepted from taxation. See Arthur S. Kleeman, 35 B.T.A. 17; Gregory v. Helvering, 293 U.S. 465; Royal Marcher, 32 B.T.A. 76; Louis Wellhouse, 3 T.C. 363. Where the sole purpose is to minimize the taxes of the corporation's stockholders this rule would be pertinent. But this case may be sharply distinguished in the essential particular that here, the object sought was the minimizing of the taxes of the corporation itself.
A mere desire to effect a change in the form in which their property interests were held, but in such a manner as to escape the tax consequences otherwise called for, would not under the Gregory case furnish the necessary validating purpose. Louis Wellhouse, Jr., 3 T.C. 363. In that situation it would be of no consequence whether the transaction should be treated in part as an exchange of stock for stock under section 112(b)(2) of the Internal Revenue Code,
Hence:, section 115(g) is inapplicable. South Atlantic Steamship Line, 42 B.T.A. 705, Louis A. Wellhouse, Jr., 3 T.C. 363. Petitioner also relies on section 115(f)(2) of the Revenue Act of 1936.