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Central Tablet Mfg. Co. v. United States, 417 U.S. 673 (1974)

Central Tablet Mfg. Co. v. United States

No. 73-593

Argued March 25-26, 1974

Decided June 19, 1974

417 U.S. 673


When a fire destroys insured corporate property prior to the corporation's adoption of a complete plan of liquidation but the fire insurance proceeds are received within 12 months after the plan's adoption, the gain realized from the excess of such proceeds over the corporate taxpayer's adjusted income tax basis in the insured property must be recognized and taxed to the corporation, and is not entitled to nonrecognition under § 337(a) of the Internal Revenue Code of 1954, which provides, with certain exceptions, for nonrecognition of gain or loss from a corporation's "sale or exchange" of property that takes place during the 12-month period following the corporation's adoption of a plan for complete liquidation effectuated within that period. Pp. 417 U. S. 677-691.

(a) The involuntary conversion by fire, recognized as a "sale or exchange" under § 337(a), takes place when the fire occurs prior to the adoption of the liquidation plan, and not at some post-plan point, such as the subsequent settlement of the insurance claims or their payment, since the fire is the single irrevocable event that fixes the contractual obligation precipitating the transformation of the property, over which the corporation possesses all incidents of ownership, into a chose in action against the insurer. Pp. 417 U. S. 683-685.

(b) Section 337(a) was enacted in order to eliminate technical and formalistic determinations as to the identity of the vendor, as between the liquidating corporation and its shareholders, and, therefore, the reasons for applying § 337(a) are not present in a situation where the conversion takes place prior to the adoption of the plan when there is no question as to the identity of the owner. Pp. 417 U. S. 686-687.

481 F.2d 954, affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, MARSHALL, and REHNQUIST, JJ., joined. WHITE, J., filed a dissenting opinion, in which DOUGLAS, BRENNAN, and POWELL, JJ., joined, post, p. 417 U. S. 691.

Page 417 U. S. 674

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