United States v. Parker
United States Court of Appeals for the Fifth Circuit
376 F.2d 402 (1967)
Curtis Parker (plaintiff) incorporated his oil and gas business, taking 800 of 1,000 outstanding shares while his employee Eaves took 200; Eaves's shares were subject to a right of first refusal and a separate stockholders' agreement letting Parker buy them back if Eaves's employment ended, restrictions noted on Eaves's stock certificates but not Parker's. Parker then sold depreciable business assets to the new corporation and reported the resulting gain as long-term capital gains; the IRS Commissioner recharacterized it as ordinary income under § 1239, which applies when the taxpayer controls more than 80 percent in value of the corporation, and Parker sued for a refund after paying under protest.
Whether the gain upon sale of depreciable property to a controlled corporation constitutes ordinary income if the taxpayer controls over 80 percent of the fair market value of all outstanding stock.