Opinion ID: 471026
Heading Depth: 2
Heading Rank: 2

Heading: Revenue Rulings

Text: 18 After finding the legislative history unhelpful in its task of construing acquired, the court then turned for guidance to the Revenue Rulings of the Commissioner. This Court has stated that such rulings are entitled to weight, because [they express] the studied view of the agency whose duty it is to carry out the statute. See Anselmo v. Commissioner, 757 F.2d 1208, 1213 n. 5 (11th Cir.1985); City Gas Co. of Florida v. Commissioner, 689 F.2d 943, 946 n. 5 (11th Cir.1982). See also, Stubbs, Overbeck & Associates v. United States, 445 F.2d 1142, 1146-47 (5th Cir.1971).
19 The court first considered Rev.Rul. 56-171, 1956-1 C.B. 179. This ruling involved the acquisition date of stock acquired in connection with a statutory merger. M corporation merged into N corporation. M corporation stockholders received two shares of N stock for each share of M stock. Pursuant to section 354, M corporation stockholders were not taxed on the transaction. 20 The M corporation stockholders acquired their stock in M corporation before December 31, 1953. They actually received the N stock after that date. The Commission ruled that the acquisition date of the N stock was the same as the acquisition date of the M stock. The Commissioner offered no explanation for this ruling. 21 Appellants offer a broad interpretation of this Rule. According to them, the ruling stands for the proposition that, where shares actually received after 1953 have a substituted basis and holding period that commences prior to 1954, those shares are considered acquired prior to December 31, 1953, for purposes of section 333. 22 The government argues that the obvious, though not articulated, basis for the ruling is that the stock received in the merger was merely a change in form of the stock previously held. Moreover, the government argues the unstated rationale of 56-171 is made explicit in Rev.Rul. 58-92, 1958-1 Cum.Bull. 174.
23 The stock and securities in question were received by a domestic corporation, upon its organization in July, 1955, from its sole shareholder in a transaction nontaxable under Sec. 351. 3 Both the basis and the holding period of the stock as to the corporation was the same as it was in the shareholder's hands. The Commissioner ruled that the stock had been acquired by the corporation when it was received in July, 1955, even though the shareholder had acquired the stock before December 31, 1953. 24 In reaching this result, the Commissioner articulated the general rule that there will be no relation back unless the stock and securities were owned by a corporation existing on December 31, 1953 or were received, with respect to stock or securities owned on that date, in a nontaxable exchange pursuant to a plan of reorganization or as a nontaxable stock dividend. As the stock and securities in question were transferred after December 31, 1953 to a corporation formed after that date, there was no relation back. 25 The Commissioner explained Rev.Rul. 56-171 as not involving an acquisition within the meaning of the statute because such transactions are merely changes in the nature or form of stock already owned by the liquidation corporation.
26 This ruling involved the liquidation of a domestic corporation which had received shares from its foreign corporation predecessor in a nontaxable reorganization. The foreign corporation held the shares prior to 1954. The domestic corporation actually received them in 1957. 27 In disallowing relation back, the Commissioner distinguished Revenue Ruling 56-171 as applicable only to cases involving nontaxable exchanges of stocks or securities already owned by the domestic corporation on December 31, 1953, such corporation being later liquidated under the provisions of Section 333 of the Code. In this case, the domestic corporation acquired the stock for the first time in 1957. 28 Moreover, the Commissioner ruled that this transaction was similar to 58-92. There the prior holder, an individual, could not qualify for Section 333 treatment. In Rev.Ruling 64-257, the foreign corporation could not either, as the section relates to domestic corporations. In the ruling, the Commissioner stated: 29 Under the circumstances of this case the fact that the liquidating corporation acquired the investment stock held by its predecessor on December 31, 1953, in a nontaxable reorganization as defined in Section 368(a)(1) of the Code is not determinative. What is determinative is that the stock was acquired after December 31, 1953 from a foreign corporation, one that could not have qualified for treatment under the provisions of Section 333 of the Code. 30 Appellants seized the quoted language to argue that relation back would have been allowed had the transferor corporation been domestic rather than foreign. 31 We agree with the Tax Court's rejection of this argument by reference to old fashioned logic. According to the court, appellants' logic is flawed in that it assumes that (1) if condition A exists, and consequence B results, then (2) if condition A does not exist, then consequence B will not result. 32 On appeal, the taxpayers argue that there was no ground for denying Section 333 treatment other than the fact that the corporation was foreign rather than domestic, because if there had been the Service most assuredly would have raised it. This is no argument at all. It is comparable to an argument that when this Court reverses a decision of a trial court on a stated ground, we have rejected all of the other grounds that are not dealt with in the opinion. We know of no such jurisprudence.
33 The Commissioner agrees that a relation back acquisition date is appropriate where the acquired shares represent a mere change in the nature or form of stock previously held by the liquidating corporation, as was the case in Revenue Ruling 56-171. Here, we agree with the Tax Court that the present transaction constituted more than a mere change in form. Without surrendering anything, Dunmovin was given 24,950 shares of General Motors stock. Since, of course, Dunmovin's ownership of stock in duPont did not represent ownership of any of the assets of duPont, see Klein v. Board of Tax Supervisors of Jefferson County, Ky., 282 U.S. 19, 24, 51 S.Ct. 15, 16, 75 L.Ed. 140 (1930), it is obvious that after the transaction, Dunmovin owned something quite different than it had before it received the General Motors stock. This was no mere change in form of the stock held by Dunmovin. 34 We therefore conclude, as did the Tax Court, that the General Motors stock was acquired after 1954. 35 (2) Basis Adjustment, A New Issue? 36 Pursuant to Tax Court Rule 155, the court directed each party to recompute the taxpayers' liability in light of the court's opinion after they could not agree on a joint computation. 4 Each party submitted a supporting memorandum. The only difference between the computations was the proper long-term capital gain tax on stock sold in 1978. 37 Appellants argued that the Tax Court's opinion that the GM stock had been acquired after 1953 entitled them to an automatic basis adjustment under Section 334(c)(2). With an increased basis in the 1978 stock, appellants' long-term capital gain tax would have been reduced, as would their deficiency. 38 The Tax Court held that there was nothing in the record to support the contention that the GM stock sold in 1978 was actually the same stock received in liquidation, as would have to be the case under Section 334(c)(2). 39 Moreover, the court pointed out that Rule 155(c) confines argument under Section 155 to computational issues, and specifically forbids the argument of new issues. The court also denied appellants' motion for a hearing on this issue. 40 The standard of review from the Tax Court's handling of this matter is the abuse of discretion standard. We do not find that there was any such abuse. 41 Up until the computation submission by taxpayers, they argued only the question relating to when the GM stock had been acquired. After the Tax Court's opinion, they asserted that the sale of certain General Motors shares sold by them in 1978 involved the shares of GM stock received in liquidation of Dunmovin. They claim that since the Tax Court's opinion required them to recognize long-term capital gain on the receipt of certain GM stock, they were entitled, under Section 334(c)(2) of the Code, to increase their basis in the GM stock sold in 1978. The Tax Court held that the record did not contain evidence indicating that the GM stock sold in 1978 was the stock received in the distribution from Dunmovin. 42 The taxpayers seemed to excuse their failure to introduce this issue previously, because they say in effect that they would have been arguing against their position that the stock had been acquired prior to 1954. Answering this contention, the Tax Court correctly stated: 43 Petitioners could have pleaded and argued their Section 334(c)(2) contention in the alternative and presented evidence of the acquisition date of the stock sold in 1978 at the trial of this case. Instead, we are faced with an incomplete record and an argument for a last minute basis adjustment. 44 We conclude that the Tax Court did not abuse its discretion in refusing to consider this newly raised issue, presented for the first time after the trial and decision of the court dealing with the acquisition of the General Motors stock. 45 The judgment of the Tax Court is AFFIRMED. No. 85-3694 46 The decision in this case is controlled by our previous decision in Sutton, et al. v. Commissioner of Internal Revenue, decided by the Eleventh Circuit, April 16, 1986, 788 F.2d 695. The judgment of the Tax Court is AFFIRMED on the basis of the opinion of the Tax Court, 84 T.C. 210 (1985).