Frank Lyon Company v. United States

PETITIONER: Frank Lyon Company
RESPONDENT: United States
LOCATION: First Division Circuit Court, Pulaski County

DOCKET NO.: 76-624
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 435 US 561 (1978)
ARGUED: Nov 02, 1977
DECIDED: Apr 18, 1978

Erwin N. Griswold - for petitioner
Stuart A. Smith - for respondent

Facts of the case


Media for Frank Lyon Company v. United States

Audio Transcription for Oral Argument - November 02, 1977 in Frank Lyon Company v. United States

Audio Transcription for Opinion Announcement - April 18, 1978 in Frank Lyon Company v. United States

Warren E. Burger:

The judgment and opinion of the Court in 76-624, Frank Lyon & Company against the United States will be announced by Mr. Justice Blackmun.

Harry A. Blackmun:

Well this case is a Federal income tax case coming to us from the United States Court of Appeals for the Eight Circuit.

The facts are very complicated than few are interested in them, except the litigants and tax council, and little purpose would be served in reviewing them here in much detail.

Suffice it to say that the case arose when the Worthen Bank in Little Rock, Arkansas, desired to build a new banking facility in attendant parking ramp and because it was rather low end capital, it failed to receive the permission of the state and federal regulators to -- itself to borrow money of the kind needed for the accomplishment of its purpose and so what happened after extensive of negotiations was that the bank entered into a sale and leaseback arrangement with the petitioner Frank Lyon & Company whereby Lyon took title to the building and he then leased it back to the bank for a long-term use.

Lyon then obtained both the construction loan and permanent mortgage financing.

In the year when the building was completed then the bank took possession, the Lyon claimed as deductions, depreciation of the building and interest on the construction loan and the mortgage and other expenses.

The Commissioner of Internal Revenue disallowed these deductions on the ground that the petitioner was not the owner of the building for tax purposes and that the sale and leaseback arrangement was a financing transaction in which Lyon merely loaned the bank a sum of money and acted as conduit for the transmission of principal and interest to the mortgagee.

In this refund suit, the District Court for the Eastern District of Arkansas ruled in favor of Lyon, but the Court of Appeals reversed.

In an opinion filed today, we in turn reverse the Court of Appeals and hold that petitioner is entitled to the claimed deductions.

We rule that the transaction was not a sham by which the petitioner was only a conduit, instead this was a genuine multiple party transaction with economic substance and substance that was compelled or encouraged by business or regulatory realities and it therefore was imbued with tax independent considerations and the government we feel should honor the allocations of rights and duties effectuated by the parties.

I am authorized to say that Mr. Justice White has filed a dissenting statement, and Mr. Justice Stevens has filed a dissenting opinion.

Warren E. Burger:

Thank you, Mr. Justice Blackmun.