Intangibles were shareholder's assets, not corporate property.

• Author: Zinn, Michele R.

In 1945, the Supreme Court held that a sale by a shareholder of property that had been distributed to him in a liquidating distribution should be treated as a sale by the distributing corporation. The Court reasoned that the corporation had in fact conducted all the negotiations and the terms of the sale had been agreed on prior to the distribution of the property (Court Holding Co., 324 US 331 (1945)). Recently, in Martin Ice Cream Company, 110 TC No. 18 (1998), the Tax Court reminded the IRS of the narrow scope of the Court Holding decision.

Arnold Strassberg and his son Martin were the shareholders of Martin Ice Cream Co. (MIC), a corporation that distributed Haagen-Dazs products to supermarket chains, independent grocery stores and food-service establishments. The distribution rights were based on an oral agreement with the founder of Haagen-Dazs. Even before the incorporation of MIC, Arnold had developed and maintained close personal relationships with the owners and managers of supermarket chains, and these relationships were largely the reason for MIC's success.

Following the acquisition of Haagen-Dazs by Pillsbury, Haagen-Dazs approached the Strassbergs about acquiring direct access to Arnold's relationships with the supermarkets and removing him as the middleman in the chain of distribution. Arnold, on his own behalf as well as for MIC, began negotiations for the sale of distribution rights in January 1988. On May 4, 1988, MIC adopted corporate resolutions authorizing the creation of a wholly owned subsidiary, Strassberg Ice Cream (SIC). Over the following weeks, Arnold, his attorney (Hewit) and representatives of Haagen-Dazs continued to negotiate the price and sale of distribution rights by MIC to Haagen-Dazs. On May 31,1988, SIC was formed. On June 6, 1988, in response to the first draft of a purchase agreement prepared by Haagen-Dazs providing for the sale of the distribution rights, Hewit informed Haagen-Dazs that Martin and MIC would not be parties to the sale transaction. In a letter sent to Hewit, a Haagen-Dazs representative stated that Haagen-Dazs would eliminate any references to Martin and MIC from the purchase agreement, but insisted that Haagen-Dazs had to acquire any and all distribution rights owned by Martin, Arnold and their respective companies.

On June 15, 1988, MIC executed documents providing for the transfer of supermarket chain and food-service distribution rights (and related business records) from MIC to...