Source: https://www.legalcrystal.com/case/99985/turnbow-vs-commissioner
Timestamp: 2017-01-17 11:10:09
Document Index: 234181915

Matched Legal Cases: ['§ 112', '§112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 112', '§ 39']

Turnbow Vs Commissioner - Citation 99985 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Turnbow Vs. Commissioner - Court Judgment	LegalCrystal Citationlegalcrystal.com/99985CourtUS Supreme CourtDecided OnDec-18-1961Case Number368 U.S. 337AppellantTurnbowRespondentCommissionerExcerpt:.....connection with the transfer were $21,933.06. petitioner therefore received for his international stock property and money of a value exceeding his basis and expenses by $4,163,691.94.
in his income tax return for 1952, petitioner treated his gain as recognizable only to the extent of the cash he received. the commissioner concluded that the whole of the gain was recognizable, and accordingly proposed a deficiency. on the taxpayer's petition for redetermination, the tax court, following its earlier decision in
bonham v. commissioner,
33 b.t.a. 1100, 1104, [
] and the opinion of the seventh circuit in
howard v. commissioner of internal revenue,
238 f.2d 943, 948, [
] held that the gain
was recognizable only to..... Judgment:
Turnbow v. Commissioner - 368 U.S. 337 (1961)
In the absence of a "reorganization," as that term is defined in § 112(g)(1)(B) and used in §112(b)(3) of the Internal Revenue Code of 1939, the gain on an exchange of stock for stock plus cash is to be recognized in full. The taxpayer is not entitled under § 112(c)(1) to have it recognized only to the extent of the cash. Pp.
368 U. S. 337
This case involves and turns on the proper interpretation and interaction of §§ 112(g)(1)(B), 112(b)(3) and 112(c)(1) of the Internal Revenue Code of 1939. [
] Specifically, the question presented is whether, in the absence of a "reorganization," as that term is defined in § 112(g)(1)(B) and used in § 112(b)(3), the gain on an exchange of stock for stock plus cash is to be recognized in full, or, because of the provisions of § 112(c)(1), is to be recognized only to the extent of the cash.
The facts are simple and undisputed. Petitioner [
] owned all of the 5,000 shares of outstanding stock of International Dairy Supply Company ("International"), a Nevada corporation. In 1952, petitioner transferred all of the International stock to Foremost Dairies, Inc. ("Foremost"), a New York corporation, in exchange for 82,375 shares (a minor percentage) of Foremost's common (voting) stock of the fair market value of $15 per share or $1,235,625
in the amount of $3,000,000. Petitioner's basis in the International stock was $50,000, and his expenses in connection with the transfer were $21,933.06. Petitioner therefore received for his International stock property and money of a value exceeding his basis and expenses by $4,163,691.94.
was recognizable only to the extent of the cash. 32 T.C. 646. On the Commissioner's appeal, the Ninth Circuit disagreed with the Tax Court and with the Seventh Circuit's decision in the
and reversed. 286 F.2d 669. To resolve this conflict on a matter of importance to the proper interpretation and uniform application of the Internal Revenue laws, we granted certiorari. 366 U.S. 923.
Various exceptions, dealing with exchanges solely in kind, are stated in subsections (b)(1) through (b)(6). [
] The exception claimed to be relevant here is contained in subsection (b)(3). It provides:
for all or a part of its voting stock, of at least 80 percentum of the . . . stock of another corporation. [
There is no dispute between the parties about the fact that the transaction involved was not a "reorganization," as defined in § 112(g)(1)(B), because "the acquisition by" Foremost was not "in exchange solely for . . . its voting stock," but was partly for such stock and partly for cash.
. Nor is there any dispute that the transaction was not actually within the terms of § 112(b)(3), because the exchange was not of "stock . . . in . . . a party to a reorganization," "in pursuance of [a] plan of reorganization," nor "for stock . . . in another corporation [which was] a party to the reorganization."
Centering upon this section, and upon the Seventh Circuit's interpretation of it in the
] petitioner argues that, "if it were not for the fact that the property [he] received in [the] exchange" consisted not only of voting stock -- "property permitted [by § 112(b)(3)] to be received [if in a corporation which is a party to a reorganization] without the recognition of gain" -- but also of cash, the exchange would have been a "reorganization," as defined in § 112(g)(1)(B), because, in that case, "the acquisition by" Foremost would have been "in exchange solely for . . . its voting stock"; and the exchange also would have been within the terms of § 112(b)(3) because, in that case, the exchange would have been of "stock . . . in . . . a party to a reorganization," "in pursuance of [a] plan of reorganization," and "for stock . . . in another corporation [which was] a party to the reorganization." Petitioner then argues that, inasmuch as his transaction would have been a "reorganization," as defined in § 112(g)(1)(B) and
§ 112(c)(1) does not apply to postpone recognition of petitioner's gain from the Foremost stock. [
"that, but for the cash received by petitioner . . . , the exchange would have met the 'solely' requirement of section 112(g)(1)(B) and fallen within section 112(b)(3).
Howard v. Commissioner, supra,
at 948. Therefore, under section 112(c)(1), the gain to petitioner may not be recognized in an amount in excess of [the cash received]."
the acquiring corporation obtained 80.19% of the stock of the acquired corporation by transferring to the holders, including petitioners, a part of its voting stock in exchange for their stock in the acquired corporation, and acquired the remaining 19.81% of the acquired corporation's stock from other holders for an agreed price in cash. As stated, petitioners received only stock, and no cash. The Commissioner determined that the gain realized by petitioners on their exchange solely of stock for stock should be recognized under the general rule of § 112(a) of the Code. The Seventh Circuit, following this Court's decision in
§ 112(l), which provides a similar exception in respect to the exchange of stock or securities "solely" for stock or securities of a successor corporation pursuant to a court-approved plan in debtor or insolvency proceedings.
The legislative history, much of which is set forth in the opinion of the Court of Appeals, though tending to support our decision, is inconclusive, and no more can fairly be said of the Commissioner's Regulations.
Treas.Reg. 118, §§ 39.112(c)-1(e), 39.112(g)-4, 39.112(g)-1(c).