The opinion of the court was delivered by: DAWSON
In this action, which was brought by the plaintiff to obtain a tax refund, both parties have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C. The essential facts of the case have been stipulated to by the parties and are not in dispute.
The plaintiff is the transferee of United States Realty Corporation (hereinafter called United), a New York Corporation which was formerly the owner of an undivided five-sixths interest in premises commonly known as 71 Washington Square South in the City of New York (hereinafter called the Washington Square property). On or about January 14, 1955, the City of New York filed a petition in the New York Supreme Court commencing condemnation proceedings against the Washington Square property, pursuant to the provisions of Title B of Chapter 15 of the Administrative Code of the City of New York under the Charter of the City of New York.
On July 18, 1955, at a special meeting of United's Board of Directors, it was reported that by reason of the condemnation proceedings United would probably sustain a substantial liability for capital gain tax and it was proposed that the Board consider the advisability of recommending the dissolution and liquidation of United to enable it to take advantage of Section 337 of the Internal Revenue Code of 1954.
It was thereupon resolved to call a special meeting of stockholders to be held on August 8, 1955 'for the purpose of considering a proposal of dissolution of the corporation and the adoption of a plan of liquidation of its assets.' At the meeting of stockholders, held on August 8, 1955, the stockholders duly adopted a resolution to liquidate United. In the meanwhile, however, on August 5, 1955, three days prior to the stockholders meeting, an ex parte order was entered in the New York Supreme Court proceeding, pursuant to provisions of the above-mentioned Administrative Code, which vested legal title to the Washington Square property in the City of New York. Title to the Washington Square property therefore passed to the City of New York prior to the approval of the plan of liquidation by United's stockholders.
After the adoption of the plan of liquidation by United's stockholders, the directors proceeded to sell United's remaining assets (other than the Washington Square property) which included ten separate parcels of real property and a stock interest in a real estate corporation. On its return for the year 1955 and on the return which it filed covering January 1, 1956 to July 30, 1956, United took the position that the gains from the sale of the foregoing assets were not subject to tax, pursuant to Section 337. This determination by United was apparently not contested by the Government.
With respect to the Washington Square property, which had been condemned by the City of New York on August 5, 1955, United received the sum of $ 225,000 on March 8, 1956 as an advance payment on account of the then undetermined amount of the award to United for its interest in the condemned property. This initial payment exceeded United's cost basis for the Washington Square property by $ 45,532.68. This amount was reported by United on the return it filed for the period January 1, 1956 to July 30, 1956 as a non-taxable gain under Section 337.
On June 28, 1956 United assigned to the Commercial State Bank all of its right, title and interest in any further payments to be made by the City of New York relating to the condemnation of the Washington Square property. Sometime prior to July 30, 1956, United, pursuant to agreement, delivered to the Commercial State Bank all its assets, other than $ 2,436.93 which it retained to pay liabilities.
On September 29, 1956, the New York Supreme Court, by decree entered in the condemnation proceeding fixed the value of this entire property at $ 425,000 and on December 3, 1956 the City of New York delivered to United and to the owner of the other one-sixth interest in the Washington Square property four warrants totaling $ 169,557.81. United's interest in the warrants was $ 141,298.28, of which $ 129,166.67 was attributable to the condemnation of the property and $ 12,131.51 represented interest paid by the City of New York.
On October 14, 1960 the Commissioner of Internal Revenue levied against the plaintiff as transferee of United an assessment of $ 54,874.08 (consisting of a tax of $ 44,302.72 and deficiency interest of $ 10,571.36) based on the gain allegedly realized by United on the condemnation of the Washington Square property. The assessment was paid by the plaintiff in order to avoid having the Government make a deficiency assessment against United's individual stockholders.
The plaintiff contends that the assessment of tax imposed by the Government on the proceeds from the condemnation of the Washington Square property is not authorized because of the provisions of Section 337 of the Internal Revenue Code of 1954. In particular, the plaintiff makes the following three arguments:
(1) The decree entered by the City of New York in its condemnation proceedings on August 5, 1955 did not constitute a 'sale' within the meaning of Section 337 prior to the adoption of the plan of complete liquidation on August 8, 1955, so as to prevent the condemnation from qualifying as a non-recognizable gain under that section.
(2) The assessment is invalid because United was not in existence in December, 1956 when the final proceeds from the condemnation were received and 'recognized' for tax purposes.
(3) The assessment covered only the period from January 1, 1956 to July 30, 1956 and therefore did not include the date when the gain was recognized.
As to the plaintiff's first contention, it seems clear that the 'sale' of the Washington Square property, within the meaning of Section 337, must be considered to have taken place on the date of condemnation, August 5, 1955, which was prior to the adoption of the plan of complete liquidation. Title B of Chapter 15 of the Administrative Code of the City of New York, pursuant to which the Washington Square property was condemned, provides:
' § B15-36.0 Vesting of title; date of; seizin; possession. -- a. The title to any piece or parcel of the real property authorized to be acquired hereunder for any public improvement or for any public purpose shall be vested in the city upon the ...