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J. E. Smothers and Doris Smothers v. United States Case Brief
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Case Brief Summary & Legal Analysis
tl;dr: A corporation sold only 15% of its assets to a sister corporation before liquidating. The court held this was a “D” reorganization, not a liquidation, because the “substantially all assets” test focuses on the transfer of the core business enterprise, including intangibles, not just balance-sheet assets.
Legal Significance: Establishes that for a “D” reorganization, the “substantially all assets” test is qualitative, focusing on the transfer of the continuing business enterprise, including operating and intangible assets, rather than a quantitative percentage of total assets.
J. E. Smothers and Doris Smothers v. United States Law School Study Guide
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Case Facts & Court Holding
Key Facts & Case Background
J.E. and Doris Smothers wholly owned two corporations: Texas Industrial Laundries (TIL) and Industrial Uniform Services (IUS). IUS, a service-based business, adopted a plan of liquidation. It sold its non-liquid, tangible assets—representing only 15% of its net worth—to TIL for cash. The parties stipulated these assets were not necessary to IUS’s business operations. IUS then distributed its remaining assets, primarily cash and notes receivable, to the Smotherses. Following the transaction, TIL hired all of IUS’s employees and continued to serve most of its customers. The Smotherses reported the distribution as a liquidating distribution taxable at capital gain rates under I.R.C. § 331. The IRS recharacterized the transaction as a § 368(a)(1)(D) reorganization, treating the distribution as a dividend taxable at ordinary income rates under § 356.
Court Holding & Legal Precedent
Issue: In a liquidation-reincorporation transaction, does the transfer of only 15% of a corporation’s total assets to a commonly controlled corporation satisfy the “substantially all of the assets” requirement for a “D” reorganization under I.R.C. § 354(b)(1)(A)?
Yes. The transaction constituted a “D” reorganization because the transfer of the Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
IRAC Legal Analysis
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Legal Issue
In a liquidation-reincorporation transaction, does the transfer of only 15% of a corporation’s total assets to a commonly controlled corporation satisfy the “substantially all of the assets” requirement for a “D” reorganization under I.R.C. § 354(b)(1)(A)?
Conclusion
This case is a key precedent for the substance-over-form doctrine in tax Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud ex
Legal Rule
For purposes of a "D" reorganization under I.R.C. § 368(a)(1)(D), the "substantially Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla
Legal Analysis
The court analyzed the transaction as a classic "liquidation-reincorporation," designed to bail Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate
Flash-to-Full Case Opinions
Flash Summary
- A liquidation-reincorporation can be a D reorganization even if a small