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corporationadoptionrespondent
corporation

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George L. Riggs, Inc. v. Commissioner of Internal Revenue, 64 T.C. 474

Facts

George L. Riggs, Inc. owned 80% of the stock of its subsidiary, Riggs-Young Corp., at the time of the adoption of the plan of liquidation. The petitioner filed its Federal income tax returns for the years ending March 31, 1968, and March 31, 1969, reporting a gain from the liquidation of Riggs-Young. The case involved the determination of whether the plan of liquidation was adopted prior to the petitioner achieving the 80% ownership threshold required for non-recognition of gain under section 332 of the Internal Revenue Code.

The petitioner, George L. Riggs, Inc. (hereinafter Riggs), is a corporation incorporated in 1927 under the laws of the State of Connecticut with its principal office at the time the petition herein was filed at 89 Logan Street, Springfield, Mass.

Issue

Whether the plan of liquidation of Riggs-Young Corp. was adopted after George L. Riggs, Inc. owned at least 80% of the outstanding stock, thus making section 332 applicable to avoid recognition of gain.

The only question for decision is whether petitioner owned at least 80 percent of the outstanding stock of its subsidiary, Riggs-Young Corp., at the time Riggs-Young Corp. adopted a plan of liquidation within the meaning of section 332, I.R.C. 1954.

Rule

Section 332 of the Internal Revenue Code provides that no gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation, provided certain ownership requirements are met.

Section 332(a) of the Code provides as a general rule: ‘No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.’

Analysis

The court analyzed the timeline of events leading to the adoption of the liquidation plan, determining that the plan was formally adopted on June 20, 1968, after the petitioner had achieved the necessary 80% ownership. The court rejected the respondent's argument that earlier actions constituted an informal adoption of the plan, emphasizing that a mere intent to liquidate does not equate to an adoption of a plan.

Based on the evidence introduced in the case at bar, we must conclude that a plan for the liquidation of Riggs-Young had not been adopted prior to the critical date of May 9, 1968.

Conclusion

The court held that the petitioner was the owner of at least 80% of the stock of Riggs-Young at the time the plan of liquidation was adopted, thus allowing for non-recognition of gain under section 332.

We believe petitioner's explanations of why the actions were taken and the statements were made are true and that the considerations mentioned were taken into account in making the decisions that followed.

Who won?

George L. Riggs, Inc. prevailed because the court found that it met the ownership requirement for non-recognition of gain under section 332 at the time the liquidation plan was adopted.

Petitioner realized a gain of $2,168,975.03 from the liquidation of Riggs-Young, the difference between liquidating distributions in the total amount of $2,211,440.03 and petitioner's basis in the stock of Riggs-Young of $42,465.

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