Court Opinion

ID: 4499367
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:25.442449+00
Date Added: 2024-06-11T14:54:17.362016
License: Public Domain

*278OPINION.
MoRRis:
On the facts, as hereinabove set forth, the question is raised whether the Commissioner’s action in reducing the petitioner’s invested capital by $321,300 for the taxable years in question was correct. There is no doubt but that there was a reduction of $321,300 in the actual value of the property turned in to the new corporation. Under section 326 of the Revenue Act of 1918, invested capital includes the actual cash value of tangible property paid in for stock at the time of such payment.
Counsel for the petitioner contends, however, that the invested capital of the new corporation should be the same as that of the old, in that the reorganization was merely one in form, and that the substance of the transaction, rather than the form, should be determinative of the issue. He argues that after the reorganization the net value of the stockholders’ interest was neither more nor less than before, nor, in fact, were the assets of the corporation itself greater or less; that there was no segregation of a loss to the stockholders, and, there being no loss to the stockholders, and the loss not being of such a nature as to reduce invested capital, invested capital stands as before. This argument reduces itself to the proposition that, for the purposes of invested capital, the petitioner should not be considered a new corporation but a continuation of the old. With that conclusion we can not agree. The Supreme Court, in Marr v. United States, 268 U. S. 536, 541, after commenting on the case of Weiss v. Stearn, 265 U. S. 242, said:
In the case at bar, the new corporation is essentially different from the old. A corporation organized under the laws of Delaware does not have the same rights and powers as one organized under the laws of New Jersey. Because, of these inherent differences in rights and powers, both the preferred *279and the common stock of the old corporation is an essentially different thing from stock of the same general kind in the new.
The petitioner was not only incorporated under the laws of a different State, but there was a change in the amount of its authorized capital stock. In view of the above opinion and section 326 of the Revenue Act of 1918, we are satisfied that the action of the Commissioner in reducing the petitioner’s invested capital by $321,300 was correct.

Judgment will he entered for the Commissioner.