''Gregory v. Helvering'', 293 U.S. 465 (1935), was a landmark decision by the

United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...

concerned with U.S. income tax law. The case is cited as part of the basis for two legal doctrines: the business purpose doctrine and the doctrine of substance over form. The business purpose doctrine is essentially that if a transaction has no substantial business purpose other than the avoidance or reduction of Federal tax, the tax law will not regard the transaction. The doctrine of

substance over form Substance over form is an accounting principle used "to ensure that financial statements give a complete, relevant, and accurate picture of transactions and events". If an entity practices the 'substance over form' concept, then the financial sta ...

is essentially that for Federal tax purposes, a taxpayer is bound by the

economic substance Economic substance is a doctrine in the tax law of the United States under which a transaction must have both a substantial purpose aside from reduction of tax liability and an economic effect aside from the tax effect in order to qualify for any t ...

of a transaction if the economic substance varies from its legal form.

Facts

Evelyn Gregory was the owner of all the shares of a company called United Mortgage Company ("United"). United Mortgage in turn owned 1,000 shares of stock of a company called Monitor Securities Corporation ("Monitor"). On September 18, 1928, she created Averill Corp and, three days after, transferred the 1000 shares in Monitor to Averill. On September 24, she dissolved Averill and distributed the 1000 shares in Monitor to herself, and on the same day sold the shares for $133,333.33. She claimed there was a cost of $57,325.45, and she should be taxed on a capital net gain on $76,007.88. On her 1928 federal income tax return, Gregory treated the transaction as a tax free corporate reorganization, under the Revenue Act of 1928 section 112. The

Commissioner of Internal Revenue The Commissioner of Internal Revenue is the head of the Internal Revenue Service (IRS), an agency within the United States Department of the Treasury. The office of Commissioner was created by Congress as part of the Revenue Act of 1862. Section ...

, Guy T. Helvering, argued in economic substance there was no business reorganization, that Gregory owned all three corporations and was simply following a legal form to make it appear like a reorganization so she could dispose of the Monitor shares without paying substantial income tax. Accordingly, she understated her liability by $10,000.

Judgment

In the ensuing litigation, the Board of Tax Appeals (a predecessor to today's

United States Tax Court The United States Tax Court (in case citations, T.C.) is a federal trial court of record established by Congress under Article I of the U.S. Constitution, section 8 of which provides (in part) that the Congress has the power to "constitute Tr ...

) ruled in favor of the taxpayer. See ''Gregory v. Commissioner'', 27 B.T.A. 223 (1932).

Second Circuit

On appeal, the

United States Court of Appeals for the Second Circuit The United States Court of Appeals for the Second Circuit (in case citations, 2d Cir.) is one of the thirteen United States Courts of Appeals. Its territory comprises the states of Connecticut, New York and Vermont. The court has appellate ju ...

reversed the Board of Tax Appeals, ruling in favor of the Commissioner. Learned Hand J said the following in the course of his judgment.

Supreme Court

The Supreme Court of the United States also ruled in favor of the Commissioner. Although the letter of the law might arguably have been complied with, the intention of the Act was not to allow reorganizations merely for the purpose of tax avoidance. In the course of its judgment, the Court said the following.''Gregory v. Helvering'', 293 U.S. at 468-470

References

External links

* * {{DEFAULTSORT:Gregory V. Helvering 1935 in United States case law United States Supreme Court cases United States Supreme Court cases of the Hughes Court United States taxation and revenue case law Tax evasion in the United States