This section contains the nature of the case and procedural background.

Petitioner (P) was the owner of all the stock of United Mortgage. United held 1,000 shares of Monitor Securities Corporation. In order to transfer the shares to herself and to avoid the income tax from a direct transfer by way of dividend, P sought to reorganize under 386(a)(1)(D). P organized the Averill Corporation in Delaware and three days later transferred the 1,000 share of Monitor stock. Averill was then dissolved almost immediately, and the shares were distributed to P. No other business was ever transacted, and P immediately sold the shares for $133,333.33. She reported the gain as capital. The Commissioner held that the reorganization was without substance and held that P was liable for tax as though United had paid her a dividend.

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