Court Opinion

ID: 4623729
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:53:37.54006+00
Date Added: 2024-06-11T07:56:25.004957
License: Public Domain

EDISON SECURITIES CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Edison Sec. Corp. v. CommissionerDocket No. 52662.United States Board of Tax Appeals34 B.T.A. 1188; 1936 BTA LEXIS 588; October 21, 1936, Promulgated *588  Where evidence establishes that an agreement to carry out the statutory reorganization ultimately consummated was reached, an exchange made pursuant to and in accordance with the agreement is a part of a plan of statutory reorganization although the agreement had not then been formally expressed in corporate resolution.  James O. Wynn, Esq., and C. J. McGuire, Esq., for the petitioner.  James D. Head, Esq., and Hugh R. Dowling, Esq., for the respondent.  STERNHAGEN *1188  SUPPLEMENTAL REPORT.  STERNHAGEN: Pursuant to the mandate of the Circuit Court of Appeals for the Fourth Circuit, and in accordance with the court's opinion, , a further hearing in this proceeding was held, to receive more accurate and detailed evidence to support findings in respect of *1189  the so-called second transaction which occurred in February 1926, in order to determine whether, as petitioner contends, it constituted an exchange made pursuant to a plan for the reorganization which ultimately occurred.  As to all else in respect of the reorganization question, both facts and*589  the law are taken as settled.  The following additional findings are made as the basis of the only question remaining for decision. FINDINGS OF FACT.  The agreement set forth in the letter of January 29, 1926, was the culmination of a series of conferences beginning January 15, 1926, to frame a plan for the acquisition by Penn-Ohio of the common shares of Republic, the participants in which were representatives of Eastman, Dillon & Co., Penn-Ohio, and Harper & Turner.  On January 29, 1926, an understanding amounting to an agreement was reached by the participants, whereby the demands of Eastman, Dillon & Co. that the preferred shares should be included in any reorganization plan were met.  This conference was attended and the understanding therein reached by a substantial majority of the directors of both Republic and Penn-Ohio.  Pursuant to and in accordance with the agreement of January 29, 1926, petitioner transferred to Penn-Ohio 5,753 shares of Republic common and Penn-Ohio transferred to petitioner in exchange therefor 11,506 shares of Penn-Ohio, then worth $31.67 a share, and Penn-Ohio bonds of face value of $143,825.  The proper certificates covering this exchange were*590  issued and the transaction was recorded by the Bankers Trust Co. as depository and as transfer agent of Penn-Ohio, on February 4, 1926.  Pursuant to the agreement of January 29, the depository was instructed to discontinue the exchange of securities provided by the earlier arrangement of 1925, and on February 4, 1926, the directors of Republic formally met and by resolution approved the agreement which had been theretofore substantially made on January 29, 1926, whereby Penn-Ohio should offer to the Republic preferred shareholders to exchange one share of Penn-Ohio preferred plus $34.50 cash for one share of Republic preferred.  The exchange heretofore described, which was made on February 3, 1926, was made pursuant to the plan of January 29, 1926, to consummate the reorganization which ultimately took place.  OPINION.  The earlier opinion proceeded upon the view that the plan of statutory reorganization which was ultimately carried through first became definitive on February 4, 1926, when the formal corporate *1190  resolution of the directors of Republic was adopted, there being inadequate evidence in the record as then made to establish that the plan was authoritatively*591  adopted at an earlier date.  The Circuit Court of Appeals, however, recognizing that the second transaction was so near in point of time and so similar in purpose to the third that there was ground for entertaining the belief that it too was a part of the plan of ultimate reorganization, remanded the proceeding for an ascertainment of the facts, in order that an accurate determination in this respect could be made.  Thereupon the parties presented a detailed stipulation of facts showing the evidence to be found in the corporate books and records, and the petitioner supplemented this stipulation with the oral testimony of one of the men who participated in the series of conferences.  From this evidence, it is unmistakable that the agreement to carry out the statutory reorganization which was ultimately consummated was reached on January 29, although not formally expressed in corporate resolution until February 4.  The exchange of February 3 was not made, as the Commissioner contends, as an added step in the earlier negotiations of 1925, but was only made because on January 29 the authorized representatives of all parties had reached such an agreement as provided satisfactorily for the*592  rights of the preferred shareholders represented by Eastman, Dillon & Co., together with other details which had theretofore not been provided for.  Thus the transaction of February 3 stands in the same case as the later transactions which have heretofore been held to be part of a plan of statutory reorganization.  It results that the exchange on February 3 by petitioner of 5,753 shares of Republic common for 11,506 shares of Penn-Ohio common and $143,825 of Penn-Ohio bonds was a transaction pursuant to a plan of reorganization within the meaning of the statute, and is not to be treated as a nonreorganization exchange as held in the prior opinion of the Board.  In its opinion, the court required that the liquidation dividend of $7,500 in 1926 and the net loss of $51,950.73 in 1925 should be properly considered.  These have been covered by a stipulation of the parties that the petitioner is entitled to no such net loss deduction and that the distribution of $7,500 is not to be included in petitioner's 1926 income.  In accordance with this stipulation and with the holding of the Board upon the matter in issue, Judgment will be entered under Rule 50.