SCOTUS Reports

Tag: Collapsible Corporations

  • Gerber v. Commissioner, 32 T.C. 1199 (1959): Collapsible Corporations and Gain Attributable to Land Value

    32 T.C. 1199 (1959)

    Under Internal Revenue Code of 1939 §117(m)(3)(B), the collapsible corporation provisions apply unless more than 70% of the gain realized is attributable to the property manufactured or constructed, and any increase in land value due to the building project is included in the gain attributable to the property constructed.

    Summary

    The case involved a tax dispute over whether gains from the sale of stock in real estate corporations should be taxed as ordinary income or capital gains. The Commissioner determined that the corporations were “collapsible” under the Internal Revenue Code of 1939, leading to ordinary income tax treatment. The taxpayers argued that a significant portion of the gain was attributable to increases in land value independent of the apartment houses constructed, thus qualifying for capital gains treatment under an exception in the code. The Tax Court sided with the Commissioner, ruling that the taxpayers failed to prove that more than 30% of the gain was attributable to land value and that any increase in land value due to the building projects must be included in the gain “attributable to” the property constructed.

    Facts

    Erwin and Ruth Gerber, husband and wife, organized three corporations in 1948 to construct apartment houses in East Orange, New Jersey. The corporations acquired land and built apartment buildings. The Gerbers sold their stock in these corporations in 1950, realizing gains. The Commissioner determined that the corporations were “collapsible” corporations, and that the gain realized from the sale of the stock was to be taxed as ordinary income under section 117(m) of the Internal Revenue Code of 1939.

    Procedural History

    The Gerbers filed a joint income tax return for 1950, reporting the gain as long-term capital gain. The Commissioner determined a deficiency, treating the gain as ordinary income. The Gerbers challenged the determination in the United States Tax Court. The trial was delayed multiple times pending decisions in other cases involving similar issues. The Tax Court ruled in favor of the Commissioner, which led to this case brief.

    Issue(s)

    1. Whether the corporations were “collapsible” within the meaning of section 117(m)(2)(A) of the Internal Revenue Code of 1939.

    2. Whether more than 70% of the gain realized was attributable to the property so manufactured, constructed, produced, or purchased under section 117(m)(3)(B) of the Internal Revenue Code of 1939.

    3. Whether the increase in land value due to the building projects should be included in the gain attributable to the property constructed under section 117(m)(3)(B).

    Holding

    1. Yes, because the taxpayers did not deny that each of the three corporations were collapsible.

    2. No, because the Tax Court found that the Gerbers failed to bring themselves within the exception in section 117(m)(3)(B).

    3. Yes, because any increase in the land’s value brought about by an apartment house development on such land must be included in the gain attributable to the property constructed.

    Court’s Reasoning

    The court primarily focused on the application of section 117(m) of the 1939 Internal Revenue Code, dealing with “collapsible corporations.” The taxpayers conceded that the corporations met the definition of collapsible corporations. However, they argued that an exception under section 117(m)(3)(B) applied because more than 30% of their gain was attributable to the increase in value of the underlying land, separate from the apartment houses constructed on it. The court found that the taxpayers failed to meet their burden of proving this, primarily due to the weakness of their expert’s valuation of the land and the fact that any value increase in land due to construction must be included in the total gain. The court noted that under §117(m)(3)(B) the collapsible corporation provisions “shall not apply to the gain * * * unless more than 70 per cent of such gain is attributable to the property so manufactured, constructed, produced, or purchased.”

    Practical Implications

    This case underscores the importance of precise valuation in tax disputes related to real estate development. It emphasizes that taxpayers seeking to invoke the exception under section 117(m)(3)(B) bear the burden of proving that a sufficient portion of the gain is attributable to the property constructed and not to the appreciation in value of the land itself. Furthermore, this case provides a practical understanding of the meaning of “attributable to” in cases where there are improvements to land and how the increase in land value directly related to the project cannot be excluded. This case is important for attorneys and real estate developers as it informs tax planning and litigation concerning collapsible corporations. Taxpayers should ensure that expert testimony and supporting evidence clearly delineate the sources of gain to meet the requirements to properly file and defend their taxes.

  • Jacobson v. Commissioner, 28 T.C. 1171 (1957): Collapsible Corporations and Tax Treatment of Stock Sales

    Jacobson v. Commissioner, 28 T.C. 1171 (1957)

    A corporation formed to construct property with the intent to sell the stock before realizing substantial income from the constructed property can be classified as a “collapsible corporation,” and the resulting gain from the stock sale will be taxed as ordinary income rather than capital gains.

    Summary

    The case concerns the tax treatment of gains realized from the sale of stock in Hudson Towers, Inc., a corporation formed to build apartment buildings. The IRS determined that the corporation was a “collapsible corporation” under Section 117(m) of the 1939 Internal Revenue Code. This meant the shareholders’ gains from selling their stock should be taxed as ordinary income, not capital gains. The court agreed, finding that the shareholders had the required “view” of selling their stock before the corporation realized substantial income from the project. The court also addressed a dispute over whether the 10% stock ownership limitation in Section 117(m)(3)(A) applied to Rose M. Jacobson. The court held that this limitation did not apply to her, as she owned more than 10% of the stock when her husband’s stock was attributed to her.

    Facts

    Morris Winograd purchased land with the intent to build apartment buildings. He, along with Joseph Facher, Morris Kanengiser, Lewis S. Jacobson, and William Schmitz, formed Hudson Towers, Inc. The corporation was created on April 29, 1949. Hudson Towers, Inc. then entered into agreements to construct five apartment buildings. The construction was completed by June 16, 1950. After construction was finished, an alleged crack appeared in one of the buildings. The shareholders decided to sell their stock in Hudson Towers, Inc. on November 14, 1950, with the sale consummated on February 28, 1951. The shareholders reported their gains as long-term capital gains. The Commissioner of Internal Revenue determined that the gains should be reported as ordinary income.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in the petitioners’ income tax, asserting that the gains from the sale of stock in Hudson Towers, Inc., should have been taxed as ordinary income instead of capital gains, due to the collapsible corporation rules. The petitioners challenged this determination in the Tax Court.

    Issue(s)

    1. Whether Hudson Towers, Inc., was a “collapsible corporation” under section 117(m) of the Internal Revenue Code of 1939, so that the gain realized by the petitioners upon the sale of stock was ordinary income rather than capital gains.

    2. If Hudson Towers, Inc. was a collapsible corporation, whether the 10 percent stock ownership limitation of section 117(m)(3)(A) applied to petitioner Rose M. Jacobson.

    Holding

    1. Yes, because the court found that the corporation was formed with the “view” to sell the stock before the corporation realized substantial income.

    2. No, because the limitation did not apply, and the court found Rose Jacobson’s ownership exceeded the 10% threshold.

    Court’s Reasoning

    The court applied Section 117(m) of the Internal Revenue Code of 1939, which deals with collapsible corporations. The court stated that a corporation will be considered collapsible when it is formed for construction, and the construction is followed by a shareholder’s sale of stock before the corporation realizes a substantial portion of the income from the construction, resulting in a gain for the shareholder. The court found that the petitioners had the “view” of selling their stock before the corporation earned substantial income, and the timing of the sale was a key factor. The court dismissed the petitioners’ claims that an unforeseen crack in one of the buildings motivated the sale. The court found the testimony to be unconvincing because it did not hold any independent verification and contradicted the prior statements made by the petitioners. The court found that the taxpayers intended to profit from the stock sale. Regarding the ownership limitation, the court determined that since Lewis Jacobson owned more than 10% of the company’s stock via attribution, and Rose Jacobson owned 7% directly, the 10% ownership limitation did not apply to Rose, since her husband’s shares are attributable to her.

    Practical Implications

    This case highlights the importance of the “view” requirement in determining if a corporation is collapsible. Tax practitioners must carefully consider the intent of the shareholders at the time of the corporation’s formation and throughout its existence. A change of plans after construction does not automatically shield a corporation from collapsible status if the original intent was to sell the stock. This case emphasizes that the IRS and the courts will look closely at the timing of stock sales relative to the corporation’s income and the shareholders’ motivations. It is important to document reasons for stock sales and any potential changes in intent. The case also underscores the importance of how stock ownership is attributed for purposes of the tax code. The case serves as a reminder of the complexity of tax law and the need for thorough analysis of the facts and applicable regulations.

  • Braunstein v. Commissioner, 30 T.C. 1131 (1958): Collapsible Corporations and Taxation of Gains

    Braunstein v. Commissioner, 30 T.C. 1131 (1958)

    Gains from distributions and sales of stock in a corporation formed to construct and own an apartment complex are taxable as ordinary income, not capital gains, if the corporation is deemed “collapsible” under the Internal Revenue Code.

    Summary

    The case concerns whether gains from cash distributions and the sale of stock in Kingsway Developments, Inc., a corporation formed to build an apartment complex, should be taxed as ordinary income or capital gains. The IRS determined that Kingsway was a “collapsible corporation,” thus triggering ordinary income tax treatment for the taxpayers. The Tax Court agreed with the IRS, finding that the taxpayers’ gains were attributable to the construction of the apartment project and that the corporation was formed with the requisite view to collapse before realizing substantial income. The court rejected several arguments by the taxpayers regarding the timing of the distributions, the definition of construction, and the calculation of income derived from the property.

    Facts

    Petitioners (Braunstein et al.) formed Kingsway to construct and own an apartment house development. The project received financing under the National Housing Act. Cash distributions were made to shareholders before the project was fully completed. The taxpayers later sold their stock in Kingsway, realizing substantial gains. The IRS contended that Kingsway was a “collapsible corporation,” and therefore the gains were taxable as ordinary income under Section 117(m) of the Internal Revenue Code of 1939.

    Procedural History

    The Commissioner of Internal Revenue determined that the gains from the distributions and stock sales were taxable as ordinary income. The taxpayers contested this decision in the U.S. Tax Court. The Tax Court ruled in favor of the Commissioner.

    Issue(s)

    1. Whether the taxpayers’ gains were subject to ordinary income tax under Section 117(m) of the Internal Revenue Code of 1939, due to Kingsway being a “collapsible corporation.”
    2. Whether the distributions and sales took place before the realization of a substantial portion of the net income to be derived from the property.
    3. Whether more than 70 percent of the gain was attributable to the property constructed.

    Holding

    1. Yes, because Kingsway was a collapsible corporation, the gains were subject to ordinary income tax.
    2. No, the distributions and sales did not occur after the realization of a substantial part of the net income.
    3. No, more than 70% of the gain was attributable to the property constructed.

    Court’s Reasoning

    The court found that Kingsway met the definition of a collapsible corporation under the statute because the distributions and stock sales occurred before Kingsway realized substantial income from the apartment project. The court rejected the taxpayers’ arguments based on a “post-construction motive” because the “view” to collapse existed before the project was completed. The court also determined that the project was not fully completed before the events that triggered the tax liability.

    The court reasoned that the distribution of excess mortgage proceeds was a key factor. The court stated that the regulations defined the required “view” as existing if the sale of stock or the distribution to shareholders is contemplated “unconditionally, conditionally, or as a recognized possibility” and, further, that the view exists during construction if the sale or distribution is attributable to “circumstances which reasonably could be anticipated at the time of such * * * construction.”

    The court further held that net income should not include the mortgage premium and that early years of apartment operation should not be used to determine the substantiality of income. Regarding the allocation of gain to the property constructed, the court found that the increase in land value attributable to its use in the apartment project was part of the profit relating to the property. The court emphasized that the distribution of funds closely matched the excess mortgage proceeds, strongly indicating the source of the gain. The court cited previous cases to support its conclusions.

    Practical Implications

    This case reinforces the importance of understanding the “collapsible corporation” rules and the implications for real estate development ventures. It clarifies that a “view” to collapse can exist even if the specific timing is not entirely fixed and emphasizes the importance of the construction phase. The case serves as a warning to taxpayers and their advisors to carefully plan the timing of distributions and sales in relation to the completion of a project and the realization of income. It highlights that the source of gains is scrutinized to determine the proper tax treatment, especially when excess mortgage proceeds are involved.

    The decision has practical implications for: (1) Tax planning: Developers must understand how distributions and sales affect tax liability; (2) Business structuring: The form of entity (corporation, LLC, etc.) is important. (3) Legal analysis: Attorneys must evaluate the timing and source of gains in their cases, and analyze the net income expectation. The court cited multiple other cases which should also be evaluated.

  • Sorin v. Commissioner, 29 T.C. 975 (1958): Burden of Proof in Tax Deficiency Cases

    Sorin v. Commissioner, 29 T.C. 975 (1958)

    When the Commissioner’s deficiency notice is sufficiently general, the taxpayer bears the burden of proving that a specific tax provision (like Section 117(m) of the Internal Revenue Code of 1939, concerning collapsible corporations) does not apply, especially when the underlying facts suggest the provision’s relevance.

    Summary

    The Tax Court addressed the issue of burden of proof in a tax deficiency case involving the application of Section 117(m), concerning collapsible corporations. The Commissioner issued a general deficiency notice, asserting that distributions to the taxpayers were taxable at ordinary income tax rates. The taxpayers argued that the Commissioner needed to specifically invoke Section 117(m) and bear the burden of proving its applicability. The court held that since the Commissioner’s notice was broad enough to encompass potential application of Section 117(m) and the underlying facts of the case supported this, the taxpayers were required to demonstrate that Section 117(m) did not apply. Because they failed to present sufficient evidence to negate the application of Section 117(m), the Court found in favor of the Commissioner. This decision underscores the importance of a taxpayer’s responsibility to provide evidence to rebut the presumptive correctness of a tax deficiency, particularly when the initial notice is not overly specific but is consistent with the government’s ultimate theory.

    Facts

    Henrietta A. Sorin received a $50,000 distribution from Garden Hills, Inc. The Sorins reported the distribution as a capital gain on their 1950 tax return. The Commissioner issued a deficiency notice stating the distribution was “taxable at ordinary income tax rates.” The notice did not explicitly cite a specific section of the Internal Revenue Code. At trial, the Commissioner asserted that Section 117(m), concerning collapsible corporations, applied to the distribution. The Sorins contended that the Commissioner had the burden of proving Section 117(m)’s applicability. Evidence presented included stipulations about the basis of the stock and the nature of the corporation’s activities.

    Procedural History

    The case was heard by the Tax Court, where the central issue was the allocation of the burden of proof. The Sorins contended that the Commissioner had the burden of proving that Section 117(m) applied. The Tax Court ultimately found that the burden rested on the Sorins to show that Section 117(m) was inapplicable. The Court sided with the Commissioner.

    Issue(s)

    1. Whether the Commissioner’s deficiency notice, stating that the distribution was taxable at ordinary income tax rates, was sufficiently specific to place the burden of proof on the Commissioner to demonstrate the applicability of Section 117(m), concerning collapsible corporations.

    2. Whether the Sorins had the burden to prove that Section 117(m) did not apply.

    Holding

    1. No, because the deficiency notice was general enough, and the underlying facts presented at trial supported the applicability of Section 117(m), the burden did not shift to the Commissioner.

    2. Yes, because the Commissioner’s initial notice was broad enough to allow reliance on Section 117(m), the burden fell on the Sorins to demonstrate that Section 117(m) was inapplicable.

    Court’s Reasoning

    The Court distinguished the case from prior cases where the Commissioner’s deficiency notice specifically referenced a particular provision (like Section 22(a)). In those situations, the Court noted that the Commissioner would bear the burden of proof if they later attempted to assert a different, undisclosed, or previously unmentioned, basis for the deficiency. The Court stated, “It is one thing for respondent to pinpoint the basis of his determination as he did in the Wilson and Weaver cases. In that situation it is not reasonable to permit him, without notice, to rely on some different and previously undisclosed ground.” However, where, as here, the deficiency notice was broadly stated and consistent with multiple potential tax code provisions, the presumptive correctness of the Commissioner’s determination remained, shifting the burden to the taxpayer. The court found the language was appropriate for a controversy under Section 117(m), meaning the Sorins needed to prove that it didn’t apply. The court emphasized that the Commissioner’s notice stated the distribution was taxable at ordinary income tax rates, which was consistent with Section 117(m) and the taxpayers’ failure to prove their basis.

    Practical Implications

    This case emphasizes the importance of taxpayers carefully reviewing tax deficiency notices and the underlying facts of their case to determine the appropriate allocation of the burden of proof. Taxpayers should be prepared to rebut the presumption of correctness that attaches to the Commissioner’s determination, especially where the notice is not narrowly tailored. The case highlights that if the Commissioner’s initial notice is broadly worded, taxpayers bear the burden of proving the inapplicability of specific tax provisions. Legal practitioners must advise clients about the strategic importance of presenting sufficient evidence to counter the Commissioner’s assertions, and it also underscores the need to analyze the implications of a tax deficiency notice. If a taxpayer believes a notice is too vague, it is better to seek clarification before trial, as the Court emphasized in this case.

  • Jacob M. Kaplan v. Commissioner, 26 T.C. 98 (1956): Taxation of Stock Compensation, Corporate Distributions, and Collapsible Corporations

    Jacob M. Kaplan v. Commissioner, 26 T.C. 98 (1956)

    Stock issued to an individual as compensation for services is taxable at its fair market value when received, and corporate distributions are taxed as dividends only if they are out of earnings or profits.

    Summary

    This case concerns the tax treatment of stock received by a promoter, redemptions of stock, and the application of the collapsible corporation provisions of the Internal Revenue Code. The Tax Court addressed whether stock received by the petitioner as compensation for services should be taxed at the time of receipt or later, and whether stock redemptions were essentially equivalent to taxable dividends. The court also examined the applicability of the collapsible corporation rules to the sales and redemptions of the petitioner’s stock. The court held that the stock was taxable when received, the redemptions were not equivalent to dividends due to a lack of earnings and profits, and the Commissioner failed to prove the applicability of the collapsible corporation provisions.

    Facts

    Jacob M. Kaplan, the petitioner, was a promoter who hired an architect for building projects. As part of the architect’s compensation, the corporations issued stock to the architect, which was immediately assigned to Kaplan. The Commissioner determined that the stock constituted compensation for services. The stock was issued in four controlled building corporations. Kaplan sold and redeemed some of the stock. The key factual dispute concerned the value of the stock, whether the redemptions were essentially equivalent to dividends, and whether the corporation was a collapsible corporation.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in Kaplan’s income tax for 1949. The case was brought before the Tax Court. The Commissioner asserted that the stock was compensation, the redemptions were taxable dividends, and that the collapsible corporation provisions applied. The Tax Court ruled in favor of the taxpayer on all the primary issues, rejecting the Commissioner’s assessments.

    Issue(s)

    1. Whether the stock received by Kaplan constituted taxable income at the time of receipt.

    2. Whether the redemptions of Kaplan’s stock were essentially equivalent to a taxable dividend.

    3. Whether the corporation was a collapsible corporation under Section 117(m) of the 1939 Internal Revenue Code.

    Holding

    1. Yes, because the stock represented ordinary income to Kaplan as compensation for services, valued at par when received.

    2. No, because the distributions were not made out of earnings or profits.

    3. No, because the Commissioner failed to prove that more than 70 percent of the gain was attributable to the construction of property as required under section 117(m).

    Court’s Reasoning

    The Court determined that the stock received by Kaplan was income when received, representing payment for services rendered. The court found the stock had a fair market value at the time it was received, and the restrictions on its redemption did not diminish its value to a nominal amount. The court cited to Robert Lehman, 17 T. C. 652, which supported the holding that the stock was income when received.

    Regarding the redemptions, the court found that the distributions were not taxable dividends because the corporations did not have sufficient earnings and profits. The court emphasized that the absence of earnings and profits was a critical consideration. The court noted that Section 115(a) requires that a distribution must come out of “earnings or profits” to be considered a dividend. The court further stated that Section 22(a) is qualified by section 22(e), which references section 115 for the taxation of corporate distributions. The court stated, “[A]bsence of the latter is hence a critical consideration.”

    The court addressed the collapsible corporation issue. The court found that the Commissioner had the burden of proving that the conditions of section 117(m) were met. The court determined that the Commissioner had not provided sufficient evidence to establish that more than 70% of the gain was attributable to the property constructed by the corporation. As the court pointed out, “[W]e can only say that respondent has not, in our view, performed the requisite task of showing here that section 117(m) is applicable.” The court noted that while Kaplan would ordinarily have the burden of disproving the fact, the court could not assume that here.

    Practical Implications

    This case is important for tax practitioners as it clarifies the tax treatment of stock compensation and the importance of earnings and profits in determining whether a corporate distribution is a dividend. The case emphasizes the timing of when compensation is taxed (at receipt, not when it is sold or redeemed). The decision also underscores the Commissioner’s burden of proof in applying the collapsible corporation rules. Practitioners should carefully analyze the facts to determine when stock is income to the taxpayer and whether a distribution comes out of earnings and profits.

    Practitioners should take note of the court’s discussion regarding the burden of proof and the specific requirements of section 117(m). The case illustrates the need to have proper documentation when it comes to the attribution of gain to constructed property. This case could influence how the IRS and courts analyze similar situations where stock is received for services, particularly in real estate or construction contexts. It reinforces the necessity for corporations and shareholders to maintain accurate records of earnings and profits to determine the tax consequences of distributions and redemptions.

    Later cases continue to cite to Kaplan on the proper timing of when compensation is taxed.

  • Weaver v. Commissioner, 25 T.C. 1067 (1956): Taxation of Stock Received for Services and Corporate Distributions

    25 T.C. 1067 (1956)

    Stock received for services is taxable as ordinary income at the time of receipt, and distributions from a corporation are taxable as dividends only to the extent of accumulated earnings and profits.

    Summary

    In Weaver v. Commissioner, the U.S. Tax Court addressed several issues related to the taxation of income and corporate distributions. The Weavers, a husband and wife, were involved in the construction of low-cost housing projects. The court considered whether stock issued to an architect and then transferred to Mr. Weaver was taxable as compensation, and when. It also examined whether the redemptions and sales of stock in their controlled corporations should be treated as taxable dividends or as capital gains. Finally, it determined whether the gains were from collapsible corporations. The court found that the stock was taxable as compensation when received and that the redemptions were not taxable dividends because the corporations lacked sufficient earnings and profits. The court also held that the Commissioner did not prove the corporations were collapsible.

    Facts

    W.H. Weaver, a construction business owner, organized several corporations to construct low-cost housing projects. Weaver would contract with an architect, who was to receive a cash payment plus shares of stock. The architect would immediately endorse and transfer the stock to Weaver in exchange for additional cash from Weaver. These corporations were formed under FHA guidelines, and the cost of the architect’s fee was reflected in project analyses submitted to the FHA. Weaver Construction Company, owned by W.H. Weaver, also provided the construction services. The corporations redeemed and Weaver sold some of the stock. The IRS determined deficiencies in the Weavers’ income taxes for the years 1949 and 1950, asserting that Weaver had received compensation income related to stock transfers and that the stock redemptions were taxable dividends.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in the Weavers’ income tax for the years 1949 and 1950. The Weavers filed a petition with the U.S. Tax Court to challenge the deficiencies. The Commissioner subsequently amended the answer to include additional deficiencies based on alternative legal theories. The Tax Court heard the case and issued its opinion.

    Issue(s)

    1. Whether the stock received by Weaver from the corporations, through the architect, constituted taxable compensation, and if so, when it was taxable and at what value.

    2. Whether amounts received by the Weavers from the redemption and sale of stock were taxable as dividends.

    3. Whether the gains from the stock transactions should be treated as ordinary income as a result of the corporations being “collapsible corporations” under section 117(m) of the Internal Revenue Code.

    Holding

    1. Yes, the stock was compensation to Weaver when he received it from the architect, and its fair market value at the time was includible in Weaver’s income.

    2. No, because the corporations did not have sufficient earnings and profits.

    3. No, the Commissioner failed to prove the corporations were “collapsible corporations.”

    Court’s Reasoning

    The court reasoned that the stock transferred to Weaver was compensation for services and thus taxable as ordinary income. The fact that Weaver received the stock indirectly through the architect did not change the nature of the transaction. The court found the restrictions on the stock’s redemption did not prevent the stock from having a fair market value equal to par. The court determined that, in order to treat distributions as dividends, there must be earnings and profits, and the Commissioner had conceded there were not sufficient earnings. The Court cited George M. Gross, 23 T.C. 756, as precedent. The court held that the Weavers’ receipt of cash in the transactions did not constitute compensation. The court also ruled that the IRS had the burden of proof to show that a corporation was “collapsible,” and the IRS had failed to meet this burden by offering no evidence of what part of the capital gain realized was connected to construction activities.

    Practical Implications

    This case is essential for tax attorneys and practitioners because it clarifies how stock received for services is treated for tax purposes. It underscores the importance of recognizing income at the time of receipt, even if there are restrictions on the asset. It highlights the specific requirements for classifying corporate distributions as taxable dividends and provides insight into the limited application of collapsible corporation rules when the IRS fails to meet its burden of proof. The case establishes that when a corporation lacks accumulated earnings and profits, distributions are not taxable as dividends. Tax advisors must understand how the IRS views compensation, redemptions, and the “collapsible corporation” rules when structuring business transactions, particularly for construction and real estate development companies. Later cases have cited Weaver for its holding on how to calculate the value of stock.