Legal Document

331 U.S. 737 67 Supreme Court Reporter 1489 91 L.Ed. 1782 BAZLEYv.COMMISSIONER OF INTERNAL REVENUE. ADAMS versus SAME. Nos. 287 and 209. Argued Jan. 9, 10, 1947. Decided June 16, As Amended on Denial of Rehearing Oct. 13, Mr. Henry S. Drinker, Philadelphia, Pa., for petitioner bazley. Sydney Atlantic Gutkin, Newark, N.J., Adams. Judge Louis Monarch, Washington, D.C., respondent. Justice FRANKFURTER delivered the opinion Court. 1 The proper construction provisions Internal Revenue Code relating to corporate reorganizations is involved in both these cases. Their importance Treasury as well enterprise led us grant certiorari, 329 695, 62; 701, 77. While there are differences detail which we shall refer, two cases may be disposed one opinion. 2 In Bazley case, Number 287, Commissioner assessed an income tax deficiency against taxpayer year 1939. Its validity depends legal significance recapitalization that a family corporation his wife owned all but Company's thousand shares. These had par value $100. Under plan reorganization taxpayer, wife, holder additional share were turn their old shares receive exchange each five new no value, stated $60, debenture bonds, having total face $400,000, payable ten years callable at any time. Accordingly, received 3,990 stock 798 holding debentures amount $319,200. At time transactions earned surplus was $855,783.82. 3 charged full debentures. Th Tax affirmed Commissioner's determination, taxpayer's contention 'recapitalization' transaction tax-free 'reorganization' 'securities party reorganization,' 'exchanged solely or securities such corporation' 'in pursuance recognization,' gain recognized purposes. Code, §§ 112(g)(1)(E) 112(b)(3), 26 U.S.C.A.Int.Rev.Code § 112(g)(1)(E), (b)(3). found 'no legitimate business purpose' therefore not within statute. distribution debentures, it concluded, desguised dividend, taxable under 22(a) 115(a) (g). 4 United States Reports KF6280 A2 U55 897. Circuit Appeals Third Circuit, sitting en banc, affirmed, judges dissenting. 155 Federal Reporter, 2nd Series 237. Unless contemplated by 112(g), 'stock securities' connection with transaction, cannot reorganization' 112(b)(3). 112(g) informs means, among other things, 'a recapitalization,' does inform what means. 'Recapitalization' has been part revenue laws since 1921. 42 Statutes-at-Large 227, 230, 202(c)(2). Congress never defined Regulations shed only limited light. Treas. Reg. 103, 19.112(g). One thing certain. did incorporate some technical concept, whether accountants specialists, into assuming agreement specialists meaning recapitalization. And so, used must draw its from function section. It forms obtains privileges afforded 112(g). Therefore, construed reference presuppositions purpose provision exempt payment practical matter realized gain. Normally, corporation, whatever form takes, definite rather unambiguous event. furnishes occasion determination taxation But circumstances where formal distribution, directly through securities, represents merely previous participation enterprise, involving change substance rights relations interested parties another assets. these, said they deemed significant occasions determining 5 considerations underlie should dominate scope given various sections, converge toward common purpose. Application language exercise framing abstract definitions. series this withheld benefits situations might have satisfied section treated inert language, because kind 112, particulars, concerns itself. See Pinellas Ice & Cold Storage company Commissioner, 462, 53 257, 77 428; Gregory Helvering, 293 465, 55 266, 79 596, 97 American Law 1355; Le Tulle Scefield, 308 415, 60 313, 84 355. 6 attempted definition follow example. search relevant often futile attempt pricking line concrete applications. Meaning frequently built up assured recognition come concept content controvery. Since 112 aspect reorganization, nothing can unless partakes those characteristics postponing liability. 7 No doubt recaptilization sense symbols represented capital changed, so fiscal basis operations would appear very differently books. reflected correct accounting opens questions application taxing statute; close them. Corporate represent correspondence between structure essential identity fact essence relieved reorganization. What controlling arrangement intrinsically partake elements Congressional exemption give appearance accomplish earnings. case undistributed earnings, creation obligations transferred stockholders relation former holdings, produce, purposes, same result cash earnings equivalent obtain immunity cast recapitalization-reorganization. governing rule hardly more narrowly. To do challenge astuteness evading it. hard escape conclusion particular paper than admissible avoid consequences outright turns details affairs, judgment left Dobson 320 489, 64 239, 88 248. 8 here? doubt, if issued without recapitalization, made distribution. Instead, arrangement, ingredient being unrelated modification account. worth least principal amount, virtually will taxpayer. pursue motives behind actions, even ascertainable purpose, find, Court, whole took instead latter undoubtedly whereas done could, show reason, claim sheller 9 Commission, agree accomplished dividend. find misconception law Appeals, choice phrasing, facts stand. A vehicle, however elaborate elegant, conveying accumulations 112. This disposes law, bring them equally sustain imposition Sec. 112(c)(1) (2). Estate Bedford, 325 283, 65 1157, 89 1611. 10 Adams 209, few 5914 outstanding out authorized 6000, alue By reduced half, $295,700, divided $50 per share. cancelled therefor no-par cent 20 bonds $295,700. bond account debited sum $591,400, credited balance $295,700 'Debenture Payable' accumulated available less $164,514.82, unchanged. exchange, $164,208.82. 11 determined treating corporation's sustained 351, affirmed. 246. governed our treatment case. finding achieve unaffected bookkeeping leaving unaffected. 115(b), Wheeler, 324 542, 546, 799, 801, 1166. 12 Other claims raised considered rejection call discussion. 13 Judgments 14 DOUGLAS BURTON dissent reasons joint Judges Maris Goodrich court below. Cir., 237, 244.

Classification Label: 11