LOCATION: Checker Gasoline Station
DOCKET NO.: 87-1168
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Fourth Circuit
CITATION: 489 US 726 (1989)
ARGUED: Nov 07, 1988
DECIDED: Mar 22, 1989
Alan I. Horowitz - on behalf of the Petitioner
Walter B. Slocombe - on behalf of the Respondent
Facts of the case
Media for Commissioner of Internal Revenue v. ClarkAudio Transcription for Oral Argument - November 07, 1988 in Commissioner of Internal Revenue v. Clark
Audio Transcription for Opinion Announcement - March 22, 1989 in Commissioner of Internal Revenue v. Clark
William H. Rehnquist:
The opinions of the Court in two cases will be announced by Justice Stevens.
John Paul Stevens:
In the first case Commission of Internal Revenue against Clark.
The case comes to us from the United States Court of Appeals for the Fourth Circuit.
It requires that we construe Section 356(a)(2) of the Internal Revenue Code.
The Code provides that certain tax-free stock-for-stock exchanges can be made.
However, if such an exchange is accompanied by a cash payment, something the tax practitioners refer to as boot, gain is recognized up to the value of the boot and the question is whether the gain should be treated as capital gain or ordinary income.
In this case, it is treated as ordinary income if it has the effect of the distribution of a dividend.
In the opinion filed with the clerk today, we agree with the Fourth Circuit that the determination of whether an exchange has the effect of a dividend should be made by treating the payment of boot as though it came from the acquiring corporation in the context of a redemption immediately following the corporate reorganization.
Applying this test, we conclude that the cash payment received by the tax payer in this case is not appropriately characterized as a dividend and that he correctly applied a capital gains rate and that the Tax Court and the Court of Appeals properly sustained his position.
The judgment of the Court of Appeals is accordingly affirmed.
Justice Scalia joins all the part three of the Court's opinion, and Justice White has filed a dissenting opinion.