United States v. Parker 376 F.2d 402 (5th Cir. 1967) Parker and his wife owned a gas station. They formed a corporation with an employee named Eaves. The Parkers got 80% of the stock and Eaves got 20% of the stock. Technically, Eaves didn't get the 20% right away, he only paid for about 6.5%. The rest of the shares were held by the corporation until such time that Eaves could afford to buy them. In addition, the Parkers sold the corporation a bunch of depreciable property (furniture, equipment, etc.) for about $96k. When he filed his taxes, Parker reported the $96k as a sale of a capital gain. The IRS disagreed. Parker argued that it was a capital gain under 26 U.S.C. §1231. The IRS argued that under 26 U.S.C. §1239 the transaction should be considered ordinary income because the Parkers owned 80% of the corporation at the time. §1239 prevents sales or exchanges of depreciable property to be considered capital gains when they are made to a corporation if the taxpayer (or spouse) owns "more than 80% in value" of the corporation. Parker argued that he didn't own more than 80% of the corporation, he only owned exactly 80%, therefore §1239 doesn't apply. The Trial Court found for Parker. The IRS appealed. The Appellate Court reversed and found the sale to be ordinary income. The Appellate Court looked to the specific wording of §1239 and found that the term "in value" must mean something different than "shares" or "voting power." The Court found that (for several reasons) the Parkers' shares were worth more than Eaves' shares. Eaves was restricted on who he could transfer his stock to, and the Parkers controlled a voting majority so Eaves had little actual power in the corporation's business decisions. The Court found that since Parker owned 80% of the stock, and his shares were worth more than Eaves, that Parker owned more than 80% of the value of the corporation. Therefore, the §1239 restriction applies and the sale cannot be treated as a capital gain. The Court chose not to speculate on exactly how much value Parker had, they only knew that it was something greater than 80%. Had Parker only owned 79% of the stock, would he have still had more than 80% of the value? Who knows?