Rudolph Vs. Hardman Inc. Case Study
Citation
Rudolph A. Hardman, Frances N. Hardman and Hardman, Inc. Appellants, v. United States of America, Appellee, 827 F.2d 1409 (9th Cir. 1987)
Facts
Rudolph, Frances Hardman and Hardman, Inc. sought review of the lower court’s decision upholding tax deficiencies assessed by the Internal Revenue Service. Hardmans characterized a payment by a corporation as a part consideration for the purchase of property from Frances Hardman, treated the payment as a capital gain and the corporation added the payment to its basis in the property. IRS characterized the payment as a dividend, taxable as ordinary income and improperly added it to the corporation basis on resale. The appellate court identified eleven factors, which to varying degree influenced …show more content…
was an ongoing, viable corporation with assets other than the property acquired from Mrs. Hardman. Presumably Hardman, Inc. could easily obtain financing from other sources. This factor weighs in favor of a finding that the obligation accompanying the transfer of the property to Hardman, Inc. was a bona fide indebtedness. Lastly, the court identified that the transaction between Mrs. Hardman and Hardman Inc. created a debtor-creditor correlation and should be regarded as such. Since Mrs. Hardman received money only in connection of sale of Hale Field which did not change Mrs. Hardman's percentage of ownership and control in the corporation.
Court analysis of this transaction in light of these eleven factors lead to conclusion that Mrs. Hardman's transfer of the Hale Field property to Hardman, Inc. was a sale rather than a contribution to capital. Since the trial court erred in relying on a sole factor and neglecting to consider fully the several other factors, all of which point to the opposite conclusion. Therefore, the decision of the district court was reversed and the case is remanded for a determination of the amount of excess taxes paid by the Hardmans and Hardman,
Rudolph A. Hardman, Frances N. Hardman and Hardman, Inc. Appellants, v. United States of America, Appellee, 827 F.2d 1409 (9th Cir. 1987)
Facts
Rudolph, Frances Hardman and Hardman, Inc. sought review of the lower court’s decision upholding tax deficiencies assessed by the Internal Revenue Service. Hardmans characterized a payment by a corporation as a part consideration for the purchase of property from Frances Hardman, treated the payment as a capital gain and the corporation added the payment to its basis in the property. IRS characterized the payment as a dividend, taxable as ordinary income and improperly added it to the corporation basis on resale. The appellate court identified eleven factors, which to varying degree influenced …show more content…
was an ongoing, viable corporation with assets other than the property acquired from Mrs. Hardman. Presumably Hardman, Inc. could easily obtain financing from other sources. This factor weighs in favor of a finding that the obligation accompanying the transfer of the property to Hardman, Inc. was a bona fide indebtedness. Lastly, the court identified that the transaction between Mrs. Hardman and Hardman Inc. created a debtor-creditor correlation and should be regarded as such. Since Mrs. Hardman received money only in connection of sale of Hale Field which did not change Mrs. Hardman's percentage of ownership and control in the corporation.
Court analysis of this transaction in light of these eleven factors lead to conclusion that Mrs. Hardman's transfer of the Hale Field property to Hardman, Inc. was a sale rather than a contribution to capital. Since the trial court erred in relying on a sole factor and neglecting to consider fully the several other factors, all of which point to the opposite conclusion. Therefore, the decision of the district court was reversed and the case is remanded for a determination of the amount of excess taxes paid by the Hardmans and Hardman,