Taxation-Federal Income Tax-Corporation Held Not Collapsible Where View to Sell Arose After Construction Completed

Petitioners had formed a corporation for the purpose of building and operating a housing project. After the construction was completed and most of the apartments rented, small cracks were discovered in the buildings. Without soliciting engineering or other technical opinion, petitioners sold their stock in the corporation. The Tax Court upheld respondent-commissioner’s taxing the profit from the sale of stock as ordinary income rather than capital gain, on the theory that the corporation was “collapsible” under section 117 (m) of the Internal Revenue Code of 1939. On appeal, held, reversed. Since the view to the sale of stock did not exist before construction was completed, the corporation was not within the contemplation of section 117 (m). Jacobson v. Comm’r, 281 F.2d 703 (3d Cir. 1960).