The Ninth Circuit Court of Appeals returned again to the case of Sloan v. Commissioner, CA 9, No. 16-73349, and again disagreed with the Tax Court’s finding in favor of the taxpayer.

This case began with the Tax Court’s opinion in the case of Slone v. Commissioner, TC Memo 2012-57, vacated and remanded,  CA9, 2015 TNT 110-18, No. 12-72464, 12-72495, 12-72496, and 12-72497 where the Tax Court rejected the IRS’s argument of substance over form in attempting to recast a sale of a corporation’s stock, following the sale of its assets, as a liquidating distribution to which transferee liability could attach under IRC §6901.  But, on appeal, the Ninth Circuit found that Tax Court had not properly considered the issue and sent the matter back to the Tax Court. 

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Not heeding the advice of both an attorney and CPA firm proved costly to the taxpayers in the case of the Estate of Richard L. Marshall et al. v. Commissioner, T.C. Memo. 2016-119. The case involved a situation where the taxpayers were shareholders in a corporation whose major business activity became the pursuit of a claim against the U.S. Bureau of Reclamation. The corporation had previously been involved in construction jobs, but that activity ended when one of key shareholders was permanently disabled following a stroke.

In the case of Slone v. Commissioner, TC Memo 2012-57, vacated and remanded,  CA9, 2015 TNT 110-18, No. 12-72464, 12-72495, 12-72496, and 12-72497 the Tax Court rejected the IRS’s argument of substance over form in attempting to recast a sale of a corporation’s stock, following the sale of its assets, as a liquidating distribution to which transferee liability could attach under IRC §6901.  But, on appeal, the Ninth Circuit found that Tax Court had not properly considered the issue and sent the matter back to the Tax Court.

In the case in question the corporation had sold the assets of the corporation to a third party.  Following that sale of assets, the corporation was contacted by another entity that expressed an interest in buying the stock of the corporation.  The sale of the stock to that entity was completed prior to the corporation making any distribution to the old shareholders and before the year end for a the tax return that would have been filed for the year of the sale of the assets.