Rushing v. Commissioner, 441 F.2d 593 (5th Cir. 1971)

> Official source: https://law.resource.org/pub/us/case/reporter/F2/441/441.F2d.593.30151.html — public-domain court opinion text (public-domain reporter copy hosted by Public.Resource.Org), retrieved 2026-09-16. Headnotes and editorial syllabi are not included. Verify quotations against the official reporter before citing in a filing.

> Why it matters: Sale to independent trusts followed by the trusts' liquidation of the corporations; the Fifth Circuit respected installment reporting because the seller did not control the trusts or the proceeds. Decided before Congress added IRC 453(e) (related-person second dispositions) in 1980 — read together with 453(e) and 453(f)(1).

441 F.2d 593 441 F.2d 593 71-1 USTC P 9339 W. B. RUSHING et al., Petitioners-Appellees, v.

COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant. No. 30151.

United States Court of Appeals, Fifth Circuit. April 19, 1971.

Johnnie M. Walters, Asst. Atty. Gen., Tax Div., U.S. Dept. of Justice, Meyer Rothwacks, Harry Baum, Attys., K. Martin Worthy, Chief Counsel, I.R.S., Leonard J. Henzke, Jr., Atty., Dept. of Justice, Tax Div., Washington, D.C., for respondent-appellant. Edward R. Smith, Smith & Baker, Lubbock, Tex., for petitioners-appellees. Before GOLDBERG and DYER, Circuit Judges, and GROOMS, District Judge. GOLDBERG, Circuit Judge. 1 Here we exhume a transaction which in the government's post mortem analysis imposes a different tax consequence than that asserted by the taxpayers. 2 The taxpayers, W. B. Rushing and Max Tidmore,1 each owned 50 percent of the stock in two corporations. In 1962 the taxpayers as directors voted to adopt a plan of liquidation for both corporations in accordance with the provisions of Internal Revenue Code 337.2 Shortly after the decision to liquidate, substantially all of the assets of both corporations were sold. Immediately before the end of the statutory twelve month period allowed for liquidation under 337 both taxpayers created irrevocable trusts for each of their children and sold their stock in the two corporations to these trusts. The trustee, Lubbock Citizens National Bank, purchased the stock by paying part cash and executing notes for the remainder, payable to the taxpayers over a period of years. These notes were to be secured by the general assets of the trusts.3 In each case the total purchase price payable by the trusts was an amount equal to the anticipated liquidation dividend to be paid on the stock purchased. Shortly thereafter, and still within the twelve month statutory period, the trustee, as sole shareholder of the two corporations, liquidated the corporations and collected the distribution proceeds. 3 In their tax returns for 1963, the year of liquidation, the taxpayers did not report their gain from the liquidation of the two corporations, but claimed instead that they had sold their stock to the trusts which were to make payments on the installment basis. Accordingly, the taxpayers contended that the gain need be reported only as the payments were received from the trusts in succeeding years under Int.Rev.Code 453.4 The Commissioner, refusing to allow taxpayers the benefit of the installment sales section, determined that each taxpayer was taxable in 1963 on his gain of $301,310, 310, representing the difference between the proceeds received in liquidation and his basis in the stock. The Commissioner determined their income tax deficiencies accordingly.