Court Opinion

ID: 4495289
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:15.235504+00
Date Added: 2024-06-11T14:54:12.505842
License: Public Domain

Adams,
dissenting: I am unable to agree -with the conclusion reached in the prevailing opinion. I believe that J. M. Harrison, the petitioner, received stock of the Ross Industries Corporation in liquidation of his stock in J. M. Harrison, Inc., and that under the circumstances the transaction is one in which gain or loss must be recognized in so far as this petitioner is concerned.
We held in J. M. Harrison, Inc., 30 B.T.A. 455, that under the facts presented there was a statutory reorganization between J. M. Harrison, Inc., and the Ross Industries Corporation. That holding is not controlling here, we having before us in that case the two corporations; here, an individual stockholder of one of them. Petitioner contends in his brief that gain to him in this transaction cannot be recognized by reason of section 112 (g) of the Revenue Act of 1928, and he says in the alternative that if this section of the statute does not exempt him from taxation, then section 112 (b) (3) applies.
*971I am of the opinion that the facts here do not bring this case within the meaning of provisions of section 112 (g).
The plan of reorganization as proposed and carried out by the parties included the transfer of the Boss Co. stock to the Harrison Co. in exchange for substantially all of its assets and the dissolution of the Harrison Co. It is immaterial that the stockholders of the Harrison Co. did not surrender their certificates of stock immediately upon the receipt of the Boss Co. stock distributed to them. The Boss Co. stock was distributed in complete liquidation of the Harrison Co., and with this distribution the Boss Co. had nothing to do. Under this state of facts, it becomes immaterial whether the mere physical process of surrender and cancellation of the certificates of stock is accomplished. The mere retention of stock in a dissolved corporation that has been completely liquidated means nothing. It is of no value. A distribution in complete liquidation necessarily has the effect of rendering the certificate of stock valueless, and, in such case, we think it must be regarded as having been surrendered within the meaning of section 112 (g) of the statute. That section allows an exception to a transaction which, without such exception, would give rise to gain or loss under the statute. In order to avail himself of the benefit of that statute, petitioner must bring himself clearly within its intendment. This we think the facts of this case fail to do. To say that petitioner comes within the exception of that paragraph of the statute would be to recognize the shadow while the substance escapes our attention.
I think the distribution here results in a transaction from which gain or loss to the petitioner must be recognized in the amount of the difference between the cost of the Harrison Co. stock and the fair market value of the Boss Co. stock distributed to him in liquidation and dissolution of the Harrison Co.
Section 112 (b) (3) applies only where stock or securities in a corporation a party to a reorganization are, in fwrsuanee of a flam, of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization. Here, there was no exchange of stock between the Boss Co. and the Harrison Co. It was not contemplated in the plan of reorganization that the Boss Co. should exchange its stock or securities for stock or securities in the Harrison Co., and it would appear that the Boss Co. deliberately refrained from taking the Harrison Co. stock.
The prevailing opinion says:
* * * In the case of J. M. Harrison, Inc., we held that this transaction constituted a reorganization to which the two corporations were parties, the property was exchanged solely for stock pursuant to a plan of reorganization, and no gain or loss to the Harrison Co. was recognized under section 112 of the Revenue Act of 1928. The Harrison Co. had agreed, as a part of the plan of reor-*972ganination, to distribute to its stockholders the shares of preferred stock which it received in exchange for its assets, to wind up its affairs and to dissolve. * * * [italics supplied.]
I do not believe that the opinion in the case quoted justifies this statement. It, as I understand it, was not held there that the plm of reorganization included a provision that the stock received by the Harrison Co. was to be distributed to its stockholders. An inspection of the record together with the opinion in that case, I think, will demonstrate that this statement is erroneous. The record shows that on March 15, 1929, at a meeting of the board of directors of the Harrison Co. the following resolution was adopted:
In view of the fact that this company will receive from Ross Industries Corporation, in pursuance of the plan of reorganization, stock in Ross Industries Corporation, the following resolution was on motion duly made, seconded, put and unanimously carried, adopted:
Resolved: That in event the merger of this company with Ross Industries Corporation is completed, along the lines authorized in the foregoing resolution, such stock of Ross Industries Corporation as may be received by this company, in effectuating the said merger, shall as soon after the transaction is completed as is convenient, be distributed among the various stockholders of this company, in proportion to the stockholdings of each stockholder.
The reorganization was accomplished by a contract entered into by and between the Boss Co. and the Harrison Co., the agreement being dated March 21, 1929, and executed by the officers of the two corporations on that date. This agreement, being Exhibit H, a part of the stipulation of fact in this case, is made a part hereof by reference. It provides for the transfer of part of the assets of the Harrison Co. to the Boss Co. in consideration of the issuance to the Harrison Co. of $100,000 par value of 7 percent preferred stock of the Boss Co. It further provides that the Harrison Co. will dissolve not later than six months from and after March 21, 1929. There is no reference to or agreement about what disposition shall be made of the Boss Co. stock which is to be transferred to the Harrison Co. by the Boss Co. The resolution of March 15, 1929, passed by the directors of the Harrison Co. was not made a part of that contract and was not referred to by it. There is no circumstance indicating that the Boss Co. had any knowledge of such resolution. What disposition was to be made of this stock by the Harrison Co. was not the subject of contract or agreement between the two corporations. The resolution of March 15 relative to the, distribution of such stock, if and when it should be received, was purely a matter of concern to the Harrison Co. and its stockholders. It was not a part of the plan of reorganization and the reorganization was not effected with relation to what disposition the Harrison Co. would make of such stock.
*973The prevailing opinion states that the respondent here has not argued that the petitioner would be taxable if there was a reorganization of the two corporations within the meaning of the statute. I understand it to be the duty of this Board to redetermine proposed deficiencies by the Commissioner of Internal Revenue where the same are properly brought before us and I do not understand that we are limited in that determination to the questions either of law or fact raised or relied upon by either of the parties; nor are we to be controlled in our determination by the construction placed upon the law by either of the parties. If the record before us presents a question which we believe should be controlling, I believe it to be our province to deal with that question where properly raised by the pleadings whether it is insisted upon or not.
I do not believe that the Ross Co. stock was distributed to petitioner in pursuance of the plan of reorganization between the two corporations.
It is said in the prevailing opinion that the things done by petitioner and the corporations were not done to avoid tax, but had some other purpose. I think this statement is at most dictum. The prevailing opinion cites Winston Bros. Co., 29 B.T.A. 905. I think that case is distinguishable from this in that there we had before us one of two corporations. Here we do not have the corporation, but an individual stockholder.
Entertaining these views, I feel the determination of the Commissioner as to the receipt of the Ross Co. stock by the petitioner should be sustained.