Rendina v. Commissioner

1
Rendina v. Commissioner

• Biying Huang
• TX 8020
• 06/25/2007

2
Related Information

• Citation Rendina V. Commissioner, TC Memo
  1996-392, RIA TC Memo P 96392, 72 CCH TCM 474.
• Judge Beghe, J.
• History Decision for Taxpayers in part and
  for Commissioner in part

3
Facts

• Petitioner and Ackerman formed WSAI which
  operated as a C corporation in 1986.
• In 1987 and 1988, WSAI constructed condominium
  units for sale financed partly by the
  petitioners personal fund and loans from his
  clients.
• Toward the end of 1988, WSAI transferred the last
  two unsold condominiums to petitioner for the
  debt he assumed and his recovering of investment.
  Petitioner did not report any income or gain on
  that taxable year.
• After the transfer, WSAI held no business assets
  and ceased doing business. However, it was not
  formally dissolved.

4
Issue

• Are the condominiums received by the petitioner
  qualified as a liquidating distribution?

Yes
5
Holding

• Petitioner received the condominium units as a
  distribution in de facto liquidation of his
  shares of WSAI, thereby he could reduce his
  realized gain by the amount of his basis in the
  shares and by the amount of certain liabilities
  to third parties that he assumed.

6
Reasoning

• According to the de facto liquidation theory,
  as long as
• a corporation shows manifest intent to liquidate
• theres a continuing purpose to terminate
  corporate affairs
• and the activities of the corporation and its
  shareholders are directed toward that objective
• even the corporation is not formally
  dissolved, the distribution of corporate property
  can be deemed de facto liquidation. Thus such
  property received is a distribution upon
  liquidation rather than dividend.