Corporate Liquidations and the Income Tax

Abstract

President Truman has called the attention of Congress to the "collapsible corporation," one more of the perennially alluring contrivances for transmuting ordinary income into capital gain. A motion picture producer and the leading performers organize a corporation to manufacture and market a single film. They invest nominal amounts, receiving the corporation's stock in return, and the corporation borrows enough to defray the costs of production. Since the producer and the key performers receive modest salari~, if any, the costs of production are appreciably less than normal. After the picture has been completed, contracts for its distribution are made by the corporation. Then the corporation is liquidated, the shareholders surrendering their stock in exchange for proportionate interests in the distribution contracts.