Bell Lines, Inc. v. United States

480 F.2d 710 (4th Cir. 1973)

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Nature of the Case

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Facts

P operated an interstate trucking line. P decided to replace the major portion of its truck tractors. P decided it would be best to purchase new trucks and sell the old ones themselves. It purchased units from Mack Trucks, Inc. P then accepted an offer of $650,000 from the Horner Service Corporation, an independent used truck dealership. Unknown to P, the Horner offer was prompted by an agreement between Mack and Horner. Horner agreed that it would purchase taxpayer's trucks and attempt to resell them, Horner would keep any profit it made, and Mack guaranteed that Horner would not lose money on any truck. Mack furnished funds to Horner with which to pay for P's used trucks and subsequently took title from Horner of most of the used trucks. Mack, on its books, treated the transaction as a trade-in. P treated the transaction as a purchase and sale. P paid capital gains on the old trucks and depreciated the new trucks from their purchase price. D determined that the transaction was an 'exchange' of tractors for tractors. Under D's view, P could only use for depreciation purposes a transferred basis, computed under §1031(d). Since this was less than the basis used by P, a deficiency was assessed. P paid the deficiency and petitioned for a refund. The district court found that P had entered into a contract with Mack for purchase of new trucks and had entered into a separate agreement with Horner for the sale of old trucks. It found that none of the officials of P knew of the arrangements between Mack and Horner. D appealed. D argues on appeal that the district court was clearly erroneous in finding: (1) that the transactions between P and Mack and between P and Horner were not mutually dependent; and, (2) that P did not have knowledge of the Mack-Horner arrangement.