The Story of Hendler: From Pyrrhic Victory to Modern Section 357

BUSINESS TAX STORIES, Foundation Press, 2005

San Diego Legal Studies Paper No. 08-049

27 Pages Posted: 22 Apr 2005 Last revised: 12 Sep 2015

See all articles by Karen C. Burke

Karen C. Burke

University of Florida Levin College of Law

Date Written: 2005


This chapter focuses on the landmark decision in United States v. Hendler, 303 U.S. 564 (1938), involving assumption of liabilities in a corporate reorganization. In Hendler, the Supreme Court held that a corporate transferee's assumption and prompt payment of the corporate transferor's liabilities were equivalent to receipt of cash (boot), triggering gain under the Internal Revenue Act of 1928. Immediately after winning Hendler, the government recognized that the decision potentially affected numerous earlier incorporations and reorganizations and could lead to significant revenue loss.The upshot was that, in 1939, Congress hastily amended the statute to nullify the government's pyrrhic victory.

The anti-Hendler amendments, now embodied in Sections 357, 358 and 362, provided that assumption of liabilities would not be considered boot but required that the transferor's basis be reduced to ensure that the deferred gain would be preserved rather than entirely eliminated. Even though Hendler was decided more than 60 years ago, the precise contours of liability assumptions have yet to be fully clarified. During the 1990's, tax-shelter promoters sought to take advantage of perceived ambiguities in the statutory framework, prompting Congress to overhaul the liability assumption rules in 1999 to more accurately reflect economic reality. Nevertheless, the 1999 amendments may be criticized for ignoring precisely the valuation and administrability concerns foreseen by the 1939 Code drafters. Thus, Hendler and its aftermath remain relevant in understanding contemporary efforts to reform and rationalize the treatment of liability assumptions.

Keywords: Hendler, liability, contingent, corporate, assumption, nonrecognition, tax shelter, Black & Decker, Coltec

JEL Classification: K34

Suggested Citation

Burke, Karen C., The Story of Hendler: From Pyrrhic Victory to Modern Section 357 (2005). BUSINESS TAX STORIES, Foundation Press, 2005, San Diego Legal Studies Paper No. 08-049, Available at SSRN:

Karen C. Burke (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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