Intermountain Lumber

Company V. Commissioner
Sarah K. Bragg
June 18, 2007

Transfer of Property for Stock

Judge

Wilson
United States Tax Court, 1976
Examines Section 351
Issue: Court determination of control as
is requisite in applying Section 351.

S & W Sawmill, Inc. (1 of 3)

Shook

and Wilson partnered to build a

saw mill.
Wilson co-guaranteed a $200,000 loan
to provide financing.
Shook and Wilson created S & W
Sawmill, Inc. and created a contract with
the following stipulations regarding
ownership of stock:

S & W Sawmill, Inc. (2 of 3)

1.

Dee Shook is to sell to Milo E. Wilson

182 shares of stock in S & W for the
agreed price of $500 per share.
2. Wilson is to pay Shook for said stock,
interest only until 1969 at which time
principal payments of $15,000 per year
are to commence.

S & W Sawmill, Inc. (3 of 3)

3.

As each principal payment is made

the proportionate number of shares of
stock are to be transferred on the
corporate records and delivered to
Wilson.
Shook also executed an irrevocable
proxy allowing Wilson voting rights in all
the stock.

Intermountain Lumber Co.

On

July 1, 1967 Intermountain Lumber

Co. bought all outstanding shares of S &
W stock.
An agreement was made to pay Shook
$91,000 more than Wilson.

The Problems Arise

Shook:

my transferred assets into S & W

were non-taxable under Section 351.
Intermountain: the transfers were
taxable because of the lack of pertinent
control
Intermountain wished to use the higher
FMV basis for depreciation purposes.

The Courts Decision

Shook

and Wilson intended to

consummate the sale of the said stock.
Shook relinquished the legal right to
retain stock.
Therefore he did not have the requisite
control of company to take advantage
of Section 351.

Conclusion
Section

351 No Gain or Loss to be

recognized if property is transferred for
stock and that person is then in control.
Simply a transfer of form.
Shooks transaction was a Sale and not
simply a transfer of form.