Using Shareholder Notes to Eliminate Section 357(c) Gain: Lessinger v. Commissioner, 872 F.2d 519 (2d Cir. 1989), Correct Result, Wrong Reason

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Memphis State University Law Review


Despite the rather specific statutory framework of Subchapter C of the Internal Revenue Code, which addresses the tax consequences of corporate formation, the courts have repeatedly been called upon to provide a "gloss" to the statutes to address situations not contemplated by Congress.' In Lessinger v. Commissioner, the Second Circuit encountered a factual situation that compelled the court to again gloss over the plain meaning of the words in the applicable Internal Revenue Code sections to reach the appropriate result." This Article examines the action taken by the Second Circuit in Lessinger and addresses the propriety of the judicial manipulation of statutory language. Further, it examines whether the court arrived at the correct result by using an incorrect approach. Lastly, the author proposes an alternative to the currently accepted interpretation of the statutory language that would make the Second Circuit's approach in Lessinger unnecessary and would not necessitate further legislative action to bring the factual pattern presented by Lessinger within the ambit of the existing statutory objective.

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Spring 1990