George L. Riggs, Inc. v. Commissioner Presented by Michele Nisbett TX 8020

George L. Riggs, Inc. v. Commissioner Citation: 64 T.C. 474 (1975) Justice: Drennen Code Sec: 332

FACTS The petitioner, George L. Riggs is a corporation which owned approx. 72% of the common stock of Standard Electric Time Co. December 13, 1967: The president of both the petitioner and Standard wrote to the shareholders of Standard to seek authorization of the sale of Standard to a subsidiary of Johnson Service Company. December 27, 1967: The shareholders of Standard voted in favor of the sale of assets to the subsidiary. April 26, 1968: The president of the subsidiary wrote to the shareholders of the subsidiary offering the redemption of all if its common stock, except those shares held by the petitioner.

FACTS May 9, 1968: Sufficient shares of subsidiary’s common stock were redeemed to give the petitioner at least 80% of the subsidiary’s common stock. June 20, 1968: The board of directors and shareholders of the subsidiary voted to adopt a complete liquidation and dissolution of the corporation.

FACTS The petitioner realized a gain of approx $2m from the liquidation of the subsidiary. The gain was reported on the petitioner’s federal income tax return, but not recognized under the provision of sec. 332(a), I.R.C. 1954. The IRS argued that the liquidation was informally adopted between December 1967 and June 1968 (before petitioner owned at least 80%) because the shareholders at that time intended to approve not only the sale of the assets, but also the liquidation of the subsidiary.

George L. Riggs, Inc. v. Commissioner The Issue Did the petitioner own at least 80% of the subsidiary’s outstanding common stock at the time the subsidiary adopted a plan of liquidation within the meaning of Sec 332, so that the gain is not to be recognized by virtue of that section? The Holding Yes, the petitioner was the owner of at least 80 percent of the stock of the subsidiary on the date of the adoption of the plan of liquidation. The Reasoning A mere intent by a taxpayer-corporation to liquidate a subsidiary prior to meeting the 80-percent requirement of section 332 should not be tantamount to the adoption of a plan of liquidation for the subsidiary.