Court Opinion

ID: 9636521
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:31:55.375111+00
Date Added: 2024-06-11T18:09:46.692686
License: Public Domain

L. HAND, Circuit Judge
(dissenting).
I tried to state in E. R. Squibb & Sons Co. v. Helvering, 2 Cir., 98 F.2d 69, why I thought that a corporation which dealt in its own shares could never be said to make a profit or loss except as the price paid or received did not represent the true value of the shares when they were bought or sold. That, as I understand it, is the almost unanimous opinion of accountants, and I have not yet seen how the reasoning can be escaped. But the Commissioner has seen fit to rule otherwise, and I understand Helvering v. R. J. Reynolds Tobacco Co., 306 U.S. 110, 114, 59 S.Ct. 423, 83 L.Ed. 536, to hold that the long-standing convention which thinks of such shares as “property” of the corporation like shares in another corporation, will support the regulation. However, although I find it very hard to extract any general test capable of application from the language chosen, as to the shares issued to the taxpayer’s officers, I should not have been in doubt that the Board was right, were it not for my brothers’ contrary conclusion. Even now, I cannot imagine how a corporation can deal in its own shares in a way less “as it might in the shares of another corporation,” than when it offers them to its own officers as an inducement to give them an interest in the business; surely the shares of another corporation would not serve that purpose.
It is a closer question as to the purchase of the Pure Chemical shares from the United States Alcohol Company. It is possible to say that, just as the taxpayer used cash to buy the 14,771 shares, so it used “treasury” shares to buy the 22,347 shares. But if the meaning of the regulation is that any transaction is to figure in a gain or loss when “treasury” shares are used in a purchase as a consideration of value, hardly anything will be excluded, except transactions like the issue to the officers I have just considered. By the reissue the Alcohol Company exchanged an interest in the Pure Chemical' Company for an interest in- the taxpayer; and since *149the taxpayer became in this way the only shareholder of the Pure Chemical Company, the upshot of the transaction was that the Alcohol Company reduced its proportionate interest in the assets of the Pure Chemical Company in exchange for an interest in the other assets of the taxpayer. Intangible and impalpable as the test is, it seems to me that in such a transaction the taxpayer was not dealing with its shares “in the same manner as though” they were “the shares of another.” If it had used another’s shares the Alcohol Company would not have become a member of the taxpayer’s own group of shareholders. I should think that the regulation was meant primarily to cover buying and selling “treasury” shares for profit. Perhaps it covers more, but a transaction so close to a consolidation I think it does not cover. So it seems to me that the Board was right on both points.