Federal Oil Company v. Commissioner of Internal Revenue

Third Circuit

Federal Oil Company v. Commissioner of Internal Revenue

385 F.2d 127, 20 A.F.T.R.2d (RIA) 5526, 1967 U.S. App. LEXIS 5022

CourtCourt of Appeals for the Third Circuit

DecidedSeptember 27, 1967

Docket16326_1

StatusPublished

Cited by2 cases

This text of 385 F.2d 127 (Federal Oil Company v. Commissioner of Internal Revenue) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Federal Oil Company v. Commissioner of Internal Revenue, 385 F.2d 127, 20 A.F.T.R.2d (RIA) 5526, 1967 U.S. App. LEXIS 5022 (3d Cir. 1967).

Pincite

Opinion

OPINION OF THE COURT

PER CURIAM.

The taxpayer, a wholesale gasoline and retail fuel oil distributor, sold its fuel oil business to Sinclair Refining Company under a contract which allocated a substantial amount of the purchase price to taxpayer’s five year covenant not to compete. The Commissioner and the Tax Court accepted this allocation and taxed yearly payments made pursuant thereto as ordinary income. If the allocation is accepted this is admittedly the appropriate tax treatment. Taxpayer, however, challenges the allocation on the ground that it does not accord with the economic reality of the transaction. It urges that the allocation to the covenant was in fact for good will and should be taxed as long term capital gain.

In Commissioner of Internal Revenue v. Danielson, 378 F.2d 771, 775 (3rd Cir. *128 1967), this Court, sitting en banc, adopted the following rule: “[A] party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake, undue influence, fraud, duress, etc.” No such proof has been offered or adduced in the instant case.

The decision of the Tax Court will be affirmed.

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OPINION OF THE COURT

PER CURIAM.

The taxpayer, a wholesale gasoline and retail fuel oil distributor, sold its fuel oil business to Sinclair Refining Company under a contract which allocated a substantial amount of the purchase price to taxpayer’s five year covenant not to compete. The Commissioner and the Tax Court accepted this allocation and taxed yearly payments made pursuant thereto as ordinary income. If the allocation is accepted this is admittedly the appropriate tax treatment. Taxpayer, however, challenges the allocation on the ground that it does not accord with the economic reality of the transaction. It urges that the allocation to the covenant was in fact for good will and should be taxed as long term capital gain.

In Commissioner of Internal Revenue v. Danielson, 378 F.2d 771, 775 (3rd Cir. *128 1967), this Court, sitting en banc, adopted the following rule: “[A] party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake, undue influence, fraud, duress, etc.” No such proof has been offered or adduced in the instant case.

The decision of the Tax Court will be affirmed.

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Bluebook (online)

385 F.2d 127, 20 A.F.T.R.2d (RIA) 5526, 1967 U.S. App. LEXIS 5022, Counsel Stack Legal Research, https://law.counselstack.com/opinion/federal-oil-company-v-commissioner-of-internal-revenue-ca3-1967.

Opinion

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