Source: https://supreme.justia.com/cases/federal/us/315/185/
Timestamp: 2019-04-23 14:43:37+00:00

Document:
Pursuant to a plan made by indenture bondholders of an insolvent corporation, a new corporation was formed which acquired more than one-half of the bond issue in exchange for shares of its stock issued to bondholder creditors, but none of which was issued to any present or former stockholder of the old corportion for any right of his qua stockholder, and the properties of the old corporation were bought in and acquired by the new corporation at trustee's foreclosure sale. Held, a "reorganization" within the meaning of § 112(i)(1)(A) of the Revenue Act of 1932. Helvering v. Alabama Asphaltic Limestone Co., ante p. 315 U. S. 179. P. 315 U. S. 188.
Certiorari, 314 U. S. 8, to review a judgment sustaining a deficiency assessment which had been sustained in part by the Board of Tax Appeals.
any of the shares, Lacoe agreed to transfer 1,000 shares of the common stock to Pinney, the sole stockholder of the two companies, for his services in the reorganization and as an inducement to him to continue as manager of the hotel. None of the stock of petitioner, however, was issued to any stockholder or former stockholder of either of the companies for any rights any of them had as stockholders. In May, 1932, the indenture trustee declared the principal of the bonds due and payable. Pursuant to the terms of the indenture, the trustee sold all of the properties of the old corporation, including the lease and chattel mortgage, to petitioner, the highest bidder. The bid price was $61,800. It was satisfied by the payment of about $18,700 in cash and by the delivery to the trustee of bonds of a face amount of $292,000 for the balance. Foreclosure proceedings against the old corporation and the operating company were then instituted. At the foreclosure sale, the furniture and fixtures, comprising all of the property of the operating company, were bought in by petitioner.
He used as the basis the cost of the assets to petitioner plus the cost of additions. The Board of Tax Appeals sustained the Commissioner's determination with respect to the personal property but rejected it with respect to the realty. The Circuit Court of Appeals sustained the Commissioner on both points. 119 F.2d 846.
over its property. For the reasons stated in Helvering v. Alabama Asphaltic Limestone Co., supra, the creditors at that time acquired the equivalent of the proprietary interest of the old equity owner. Accordingly, the continuity of interest test is satisfied.
MR. JUSTICE ROBERTS did not participate in the consideration or decision of this case.
"(a) BASIS (UNADJUSTED) OF PROPERTY. -- The basis of property shall be the cost of such property, except that --"
"(7) TRANSFERS TO CORPORATION WHERE CONTROL OF PROPERTY REMAINS IN SAME PERSONS. -- If the property was acquired after December 31, 1917, by a corporation in connection with a reorganization, and immediately after the transfer an interest or control in such property of 50 percentum or more remained in the same persons or any of them, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made."
That provision is applicable here. See § 114(a), § 113(b), 113(a)(12) of the Revenue Act of 1934, 48 Stat. 680. The property here involved was acquired after February 28, 1913, in a taxable year prior to January 1, 1934, as required by § 113(a)(12). Respondent argues that this transaction was not a "reorganization" within the meaning of § 113(a)(7). And he points out that "control" was not in the participating creditors, since the majority of the new common stock had been distributed, for a consideration other than an exchange of bonds, to Lacoe and Pinney. But he does not contend that, assuming there was a "reorganization," an "interest" in the property of 50 percent or more did not remain in the same persons (the bondholders) immediately after the transfer.

References: § 112
 v. 
 v. 
 § 114
 § 113
 § 113
 § 113