Case Name: CITIZENS & SOUTHERN NAT. BANK v. COMMISSIONER OF INTERNAL REVENUE
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1943-06-15
Citations: 136 F.2d 406
Docket Number: No. 10616
Parties: CITIZENS & SOUTHERN NAT. BANK v. COMMISSIONER OF INTERNAL REVENUE.
Judges: Before HUTCHESON, HOLMES, and WALLER, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 136
Pages: 406–408

Head Matter:
CITIZENS & SOUTHERN NAT. BANK v. COMMISSIONER OF INTERNAL REVENUE.
No. 10616.
Circuit Court of Appeals, Fifth Circuit.
June 15, 1943.
William C. Turpin, Jr., and Charles J. Bloch, both of Macon, Ga., for petitioner.
Joseph M. Jones, Sewall Key, Sp. Assts. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. P. Wenchel, Chief ■Counsel, Bureau of Internal Revenue, and Rollin II. Transite, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
Before HUTCHESON, HOLMES, and WALLER, Circuit Judges.

Opinion:
HOLMES, Circuit Judge.
The petitioner, as trustee of a trust estate created by the will of Emanuel Ulman, upon the death of the testator, became the titular owner of 100 shares of common stock in the Coca-Cola International Corporation. Being of the opinion that such stock was not an investment available to a trustee under the laws of Georgia, where the trust had its situs, negotiations were entered upon to convert the stock into cash. On September 5, 1936, a brokerage firm was employed to sell the stock, but its value per share was so great that no purchasers were readily found. Consequently, the trustee exchanged the 100 shares for 800 shares of common stock in the Coca-Cola Company, and sold the 800 shares thus acquired. Our problem is to determine the tax consequences of the transaction whereby the exchange was effected.
The Coca-Cola International Corporation was a holding company organized in 1922 by holders of a majority of the common stock of- the Coca-Cola Company. Originally, one share of International stock was equivalent to one share of Coca-Cola stock, but successive stock dividends by the Coca-Cola Company while t'he stock of International remained constant caused one share of International to be the equivalent of eight shares of Coca-Cola when the exchange in question was effected. In 1926 International passed an irrevocable resolution providing that its stockholders might at any time surrender the capital stock of International to it and receive in exchange shares of Coca-Cola stock of an equivalent value, and that the International stock so surrendered should be retired and cancelled. The exchange was made pursuant to the resolution, and the 100 shares of International stock were retired and cancelled.
The 800 shares of Coca-Cola stock had a market value on the date of the exchange of $96,926.02, which was a gain of $67,-551.02 over the adjusted basis of the International shares. Petitioner contends that, since its sole purpose was to sell for cash its trust holdings of International stock, and since the exchange was effected only to facilitate that sale, the exchange and sale were in substance but one transaction for tax purposes, i.e., a sale of International stock; and that, under the long-term-capital-gains statute, only 40% of the recognized gain of $67,551.02 was subject to tax. The Board of Tax Appeals sustained the Commissioner's view that the exchange was a transaction too substantial to be overlooked, that its consummation under the resolution resulted in a distribution in partial liquidation of the International Corporation and that 100% of the gain was taxable under Section 115(c) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 868.
In two recent decisions, in cases involving exchanges of stock under the resolution here involved, the court has set at rest each issue here presented. In Dodd v. Commissioner, 5 Cir., 131 F.2d 382, and Woodruff v. Commissioner, 5 Cir., 131 F.2d 429, we held that such1 exchanges were in fact distributions in partial liquidation and possessed substance for tax purposes irrespective of the intent and purpose of the taxpayer in negotiating the exchange. On the authority of these decisions, the decision of the Board of Tax Appeals is affirmed.