Legal Document

331 U.S. 210 67 Supreme Court Reporter 1175 91 L.Ed. 1441 COMMISSIONER OF INTERNAL REVENUEv.MUNTER. REVENUE versus SAME. Nos. 674 and 675. Argued April 10, 1947. Decided May 5, Mr. Lee Atlantic Jackson, of Washington, D.C., for petitioner. Samuel Kaufman, Pittsburgh, Pa., respondents. Justice BLACK delivered the opinion Court. 1 The Commissioner assessed deficiencies against respondents failure to report as 1940 income dividends paid them on stock Crandall-McKenzie & Henderson, Inc., which had bought earlier in that year.1 These are taxable if corporation out its earnings profits. Int.Rev.Code §§ 22(a), 115(a), (b), 26 United States Code Annotated KF65 U5 Int.Rev.Code, 115(a, b). Since organization 1928, not accumulated profits sufficient pay dividend full.2 But found two old corporations were merged 1928 form this ew corpora tion at time, turned over new corporation, cover these dividends. One corporations, L. Henderson Sons, about $75,000 since 1913; other, Company, $330,000. Liability depends upon whether acquired retained a amount predecessors 2 merger took place under following circumstances. Stockholders certain stockholders agreed together with firm underwriters effect into one. buy cash 52% public sale. In execution agreement was formed, all assets Crandall-McKenzie. six accepted full payment surrendering their company stock. Holders nearly one-half Crandall-McKenize did accept stock, but some $355,000 stock.3 other satisfied only When reorganization complete been distributed follows: 14,607 shares stockholders, 9,524 25,869 general through participating underwriters. 3 Tax there proof 1928. Relying rule Internal Revenue Sansome, Cir., 60 Federal Reporter, 2nd Series 931, which, tax purposes, treats reorganized continuation predecessors, determined Then, without analyzing distribution history after inception prior distribution, concluded corporation's make questioned income. 5 Reports KF6280 A2 U55 108. Circuit Appeals Third reversed, 157 132, folloing ea rlier decision Campbell States, 144 177, narrowly limited Sansome rule. theory decision, so far relevant question directly presented here, change ownership brought by participation investors made such an entirely different entity it could properly be called, even predecessors.4 Thus, concluded, corporation. 4 We granted certiorari because alleged conflict 329 709, 369. state record we find necessary decide no more than distinction case is correct. A basic principle laws has long corporate should taxed when they who own distributing See 22, (b). controlling revenue acts question, however, exempt from taxation distributions money distributions, least part, pursuant transpired here Act § 112(b), (c), (i)(1)(A); 115(c)(h), 45 Statutes-at-Large 791, 816—818, 822, 823, Int.Rev.Acts, pages 377, 378, 379, 385. Thus unless those predecessor deemed have successor it, would escape Congress intended. 112(h), page 379; Murchison's Estate Revenue, 76 641; Kauffmann, 9 62 1045. 6 supra, held implicit exemption understanding subsequently distributed. repeatedly expressed approval so-called correct interpretation purpose governing reorganizations.5 And apparently Treasury Regulations follow doctrine.6 7 Of course, when, case, swap identical proportions new, can doubt distribued passed predecessors' course reorganization, do disappear simply owners addition or corporations. Putnam 149 721, 726. congressional receive cannot frustrated any leaves undistributed whole part. Insofar contemporaneously become distributees, they, said insofar payments actually represent profits, must available 8 It inappropriate us factual analysis trace involved absence determination review Appeals. Helvering Rankin, 295 123, 131, 55 732, 736, 79 1343; Safe Deposit Trust Co., 316 56, 66, 67, 925, 930, 86 1266, 139 American Law 1513; Scottish Investment 323 119, 124, 65 169, 171, 89 113. might conclude distribution. Or may further Crandall-McKenzie's stockholders. connection urged part constituted Court, previously declined consider recipients them. proved taxed, face necessarily reflect received. For example represented capital gain distinguished profits.7 liquidation 115 1928.8 remand, therefore, consider, light 112(c) how much, any, deductible transferred payments. reversed directions cause remanded proceedings inconsistent opinion. 10 So ordered. 11 Reversed directions. incorporated reference fact stipulation parties finding fact. Each 10,000 38,922 then outstanding. declared amounted $35,166.25, each taxpayers received $12,500. At one point indicated 'no December 4, 31, 1939,' year 1940. elsewhere appears $32,000 between resolve contradictory statements. Some $356 plus per share; others $315.53 share $300,000 stockholder another while being transacted. purchase thereupon surrendered his original holdings, recently purchased shares, exchange sbares cash. sale represents transaction separate reorganization. Whatever ultimate significance point, does affect result reach here. There independent grounds case. ground stated expressly rest instant theory. Senate Committee recommending adoption 115(h) 1936, 870, cited approval. described section changing 'existing law.' recommended amendment 'in interest greater clarity.' S.Rep.No.1256, 74th Cong., 2d Sess., (1936) 19. also 1938, 52 447, 1057; H.R.Rep. 2894, 76th 3d Sess. (1940) 41; S.Rep. 2114, 25. U.S.Treas.Reg. 94, art. 115—11 (1936); 103, 19,115—11 (1940). Taft Commissioner, 304 351, 357, 58 891, 895, 82 1393, 116 346; Winmill, 305 79, 83, 59 45, 46, 83 52; Douglas 322 275, 281, 282, 64 988, 992, 88 1271; Boehm 326 287, 291, 292, 66 120, 123. Section 112(c)(1) provides property 'then gain, recipient shall recognized, excess sum fair market value property.' 112(c)(2) makes portion distributee's 115(c) governs taxability liquidation.

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