Court Opinion

ID: 4476349
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:58.587527+00
Date Added: 2024-06-11T14:53:54.020940
License: Public Domain

Turner, J., dissenting: I find myself unable to agree with the conclusion expressed in the preceding opinion. There is no denying that the Schacht shares were acquired by the petitioner through the issuance of its own shares, and it is section 113 (a) (7), not section 113 (a) (6), that is applicable where the property, the basis for which is being sought, was acquired by a corporation in a reorganization, as this admittedly was, and through the issuance of its own shares. The tenor of the reasoning used seems to be that, since the issuance here was a reissuance, it was not an issuance within the meaning of the statute. Neither the statute, its legislative history, nor the regulations, so far as I have been able to discover, offer any basis for the conclusion that Congress in using the word “issuance” in sections 113 (a) (6)1 and 113 (a) (7)2 was in aDy way limiting it to first or original issuances of stock only. The reason for concluding that the term “issuance” is to be so limited in its application seems 'to be that since a definite sum was paid to the prior holders for the shares used in acquiring the Schacht stock the said shares had or retained a basis equal to the sum paid to the prior .holders therefor. This reason in turn seems to be based on the proposition that the acquisition of the shares, the holding of them in the treasury, and their later issuance were all a part of “a tax-affecting transaction” or a dealing by the petitioner “in its own shares as it might in the shares of another” and not a transaction the real nature of which was “capital readjustment.” There is nothing in the record to indicate that the earlier acquistion by the petitioner of its said shares was not intended to be “a capital readjusting” transaction, and certainly there can be no denying that it was so in fact, and the fact that the shares were held as treasury stock and not retired on the books of the corporation would not, in my opinion, make it otherwise. They were not, and the majority opinion so indicates, bought or acquired with any defined purpose or plan for future use. Their only function was their availability for subsequent issuance in the event it should be found desirable to raise additional capital in that manner, and in that respect they were no different from similar shares previously authorized but never before issued. In such circumstances, it seems to me that effect must be given to the prior purchases of the said shares as “capital adjusting transactions,” and I gravely doubt that it may be said that these shares, when later issued for the Schacht stock, had or retained a basis equal to the cost of acquiring them from their prior holders, such cost having previously been absorbed in the adjusting of corporate capital. It is true that the Circuit Court of Appeals for the Fifth Circuit, in Allen v. National Manufacture & Stores Corporation, 125 Fed. (2d) 239, and the Circuit Court of Appeals for the Third Circuit, in Cohen Trust v. Commissioner, 125 Fed. (2d) 689, appear to have accepted the accounting practice of carrying treasury stock as assets on the corporate boobs as denoting substance therein, but in my opinion, and with all due respect to the courts, such a practice presents a picture which is artificial and tells a story that is wholly fictitious. In any event, however, Congress has prescribed in section 113 (a) (7), supra, that the basis for property acquired by a corporation through the issuance of its own stock or securities in connection with a reorganization shall be the same as it would in the hands of the transferor. The Schacht stock was so acquired, and we must apply the statute as Congress has given it to us, for, though the reason for the form of the statute may not be readily apparent when applied to this type of case, or wise or unwise the course Congress has taken, the changing of the statute is the province of Congress, not ours. White v. United States, 305 U. S. 281. Mellott and Disney, JJ., agree with this dissent.   SEC. 113. ADJUSTED BASIS EOR DETERMINING GAIN OR LOSS. (а) Basis (Unadjusted) op Property. — The basis of property shall be the cost of such property; except that— ******* (б) Tax-free exchanges generally. — If the property -was acquired, after February 28, 1913, upon an exchange described in section 112 (b) to (e), inclusive, the basis (except as provided in paragraph (15) of this subsection) shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized upon such exchange under the law applicable to the year in which the exchange was made. * * * This paragraph shall not apply to property acquired by a corporation by the issuance of its stock or securities as the consideration in whole or in part for the transfer of the property to it. [Italics supplied.]    (7) Transfers to corporation. — If the property was acquired after December 31, 1917, by a corporation in connection with a reorganization, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made. This paragraph shall not apply if the property acquired consists of stock or securities in a corporation a, party to the reorganiza~ tion, unless acquired by the issuance of stock or securities of .the transferee as the consideration in whole or in part for the transfer. [Italics supplied.]