Every evening, Wilmington daily commercial., 1921-11-23


bonds ............... 100000
ah per cent 30-year
bonds .............,.. l4,lbb,ooo
| Preferred stock (s100
shafeSD ............... lb,otS,ooo
Common Stock (s100
shares) ........,... 2a,421,loo
|
Total ........... s60.S91. roo
II had an excess of assets over
liabilities showing n large surplus of
accumulated profits: the precise
amount is not important, except that
il should he stated that il was suf
| iCient To cover the dividend distribu-
tion presently to be mentioned. In
that month reorganization and fl
nancial adjustment of the business
vas resolved upon and carried into
effect with the asset of a sufficient
proportion of the stockholders, in
which a new corporation was formed
under the laws OF Delaware with an
authorized capital stock of S240.00o,-
00o To consist i'm part of debenture
stock hearing 6 per cent cumulative
dividends, i'm part Of common stock:
assets and good will of the New Jersey
company Were transferred as an en-
tiroty and as going coucern. as Of
u October !. 1915, at a valuation OF
Si2o .0O0 600. the new company assum-
ing all the obligations of the old ex-
b Ccpt its capital stock and funded debt.
In payment of the consideration, the
old company retained s1.4S4.100 in
cash 10 he used i'm redemption OF it's
, outstanding ler cent mortgage
bonds. and received $50, ,66l,700 par
! value in Cebenture stock OF the new
/ company (of which sSo,234. COO was to
, b. used In taking up. share for share
and dollcr for dollar, the preferred
stock of the old company and redeem
ing its SO-year bonds), and s5S,S5i,-
200 par value of the common stock of
. the new company which was 10 be and
was immc cdiately distributed among
the common Stockholders of the old
company as a dividend, paying them
two shares Of the new stock for each
share they held I'm the old company
! This plan was carried out by ap-
propriate corporate action; the new
r company took over all the assets OF
l. ;hc old company, and that company
: hesides paying Oft it's ; per cent bond:
2 acquired debenture stock OF the new
company sufficient 10 liquidate its a..
sO-year bonds and retire its preferred
Z stock. additional debenture stccl
j. equal I'm amount at par' 10 its owr
: outstanding common stock. and also
: two shares of common stock Of tn,
Delaware corporation for each shar,
J. of the outstanding common stock G
. the New Jersey corporation. Eaci
j. holder of The New Jersey company
= common stock dnclud,ng claimanD
retained his old stock and besides re
n ccived a dividend of two shares 70
one In common stock cf the Delawar
l. company. and the Now Jersey cor
b roration retained in it's treasury
: per cent debenture stock Of the Del
aware corporation equivalent to in
par value Of it's own outstanding com
a mon stock. The personnel of tn
stockholders and officers Of the tw
= corporations was on October l, 1915
identical. the new company haVin
y ,lccted the same officers as the old
! and the holders OF common stock /
both corporations had the same pro
rortionate stockholding in each. Afte
the reorganization and the distribu
r ton of the stock of the Delaware cor
ruration. tho New Jersey corporatio
- continued as going concern. an
still exists. hut except for the redemp
tion Of its outstanding bonds. the eS
change Of debenture stock for its pre-
ferred stock. and the holding of de
w henture stock TO an amount equiva
!" lent to its own outstanding commo
= and the collection and disposition 3,
:, dividends thereon, 1t had done 7
business. 1t is not, however in pr,
81, cess of LIQUIDATION. 1t has receive
a as income upon the Delaware con
panys debenture stock held by
dividends 10 the amount of 6 per ce
per annum. which il has paid out
. it's own Stockholders including Il
y claimant. The cair market value
the stock of the New Jersey corpor
tion on September 80. 1915. prior
the reorga MIA tiOn. was s795 per shai
and its fair market value, after 4
exr cution OF the contracts betwe
L W
Der !. 1915. s400 per share. The "a
market value Of the stock of the ID
awarc e, c,rporation distributed as afcr
said was on October !, 1915. S3i7
, per share. The Commissioner of /
u tcrnal Revenue held that the
Y shares of Delaware company sto
& acquired by claimant In the distrib
IS ton was income of the value of S34
Y so per share and assessed the additio
n al tax accordingly.
The Court Of Claims. observing II
X from the facts as found claimants :
vi shares of stock I'm the New Jers
N coruoration were worth on the mark
q prior &C. the transfer and divide
81 precisely .he same that the sa
u shares plus the Delaware compan
q shares received by him were wol
thereafter. and that he did not Il
any increase In the value Of his /;
gregat, holdings by the operati
4 held that the whole transaction y
~ To Da regarded as merely a nlano
rvorga nization If the business of
company producing TO him no pm
and hence M income. and that
g. distribution was i'm effect st,
s.. dividend nontaSable AZ irc1me un
the authority " Eisn,r V. Maccmi
- 252 t. $. lS9, and not within the r
~ OF Peabody v Eisner, 247 L. S. 347
- w recognize the Importance OF
81 garding matters Of substance
y disregarding forms I'm applying
x provisions of the sixteenth Anne
mvnt and income tax laws c:ac