Court Opinion

ID: 4493185
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:49.198219+00
Date Added: 2024-06-11T15:03:59.490641
License: Public Domain

VaN FossaN,
dissenting: It seems clear to me that the prevailing opinion goes much further than is warranted either by the language of the revenue acts or by the authoritative decisions of the courts. It reads into the statute a concept and a limitation neither written in nor intended by Congress.
*597Black,
dissenting: The effect of the majority opinion as I construe it is to interpret paragraph (1) (A) of section 112 (i) of the Revenue Act of 1928, which now reads: “(1) The term ‘ reorganization ’ means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation) ” as if the last clause quoted above were made to read: “ or substantially all the properties of another corporation if immediate1/y after the transfer the transferor or its stoclcholders or both are in control of the corf oration to which the properties are transferred.” I find no warrant for reading into the statute this language which is not there.
In support of the conclusion which it reaches, the majority opinion cites Cortland Specialty Co., 22 B.T.A. 808; affd., 60 Fed. (2d) 937, and Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462. I do not think these two cases are authority for what the Board holds in the instant case.
In the Cortland Specialty Co. case, one corporation transferred its assets to another in consideration of cash and promissory notes. The Board held that the transaction was not a reorganization, but simply a sale by one corporation of its assets to another. This view was upheld by the Circuit Court of Appeals for the Second Circuit, the court holding that the transaction did not come within section 203 (e), Revenue Act of 1926, because the property received for the assets sold did not include “ stock or securities ”, the notes received not being so classifiable. There was no continuity of interest on the part of the transferor corporation or its stockholders in the ' property sold because neither the selling corporation nor its stockholders received stock in the purchasing corporation. The situation in Pinellas Ice & Cold Storage Co. was pretty much the same. There two corporations owned by the same stockholders sold their assets to a third corporation for cash and promissory notes. No stock or other securities of the purchasing corporation were received. The Supreme Court held that the transaction was a mere sale of assets and did not partake of any of the features of either a merger or a consolidation. The court was, however, careful to point out that the words within the parenthesis of (A) might not be disregarded. On that point the court said:
* * * The words within the parenthesis may not be disregarded. They expand the meaning of “ merger ” or “ consolidation ” so as to include some things which partake of the nature of a merger or consolidation but are beyond the ordinary and commonly accepted meaning of those words — so as to embrace circumstances difficult to delimit but which in strictness cannot be designated as either merger or consolidation. But the mere purchase for money of the *598assets of one company by another is beyond the evident purpose of the provision, and has no real semblance to a merger or consolidation. Certainly, we think that to be within the exemption the seller must acquire an interest in the affairs of the purchasing company more definite than that incident to ownership of its short term purchase money notes.
In the instant case the seller acquired an interest in the affairs of the purchasing company to the extent of 18,000 shares (voting trust certificates) of its no-p'ar common stock. This, in my opinion, gave the transferring corporation that continuing interest in the new above quoted. As to the cash received in the transaction, it is taxable to the corporation to the extent of the gain realized, unless distributed to the stockholders in pursuance of the plan of reorganization. This is so by reason of section 112 (d) of the Revenue Act of 1928, which reads:
If an exchange would be within the provisions of subsection (b) (4) o'f this section if it were not for the fact that the property received in exchange consists not only of stock or securities permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then—
(1) If the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but
(2) If the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property so received, which is not so distributed.
( It is my understanding that it is under the foregoing provision that the Commissioner has determined that there is a taxable gain to the corporation in this proceeding to the extent of $106,411.18. On the date that petitioner, the Minnesota Tea Co., transferred all of its assets to the Grand Union Co. for .18,000 shares of its common stock plus $426,842.52 in cash, pursuant to resolutions authorizing the transfer, it immediately .distributed the cash pro rata to its shareholders, the petitioners, E. C., A. F., and L. T. Peterson, who assumed and thereafter duly discharged all of its Habilites. The petitioners Peterson received cash in the amount of $426,842.52 and assumed and paid liabilities of $106,471.13, each thereby receiving his pro rata portion of the net distribution of $320,370.79. Respondent has held this taxable to each of the petitioners Peterson as dividends received from the corporation and has helcTtim $706,471.73 taxable to the corporation as profit from the transfer of assets, received in cash and not distributed to the stockholders in pursuance to a plan of reorganization. The Commissioner contends that this $106,471.73 was impressed with a trust, that the stockholders should use it to pay the debts of the corporation and that this is *599not a distribution to stockholders within the meaning of the statute above quoted, but is equivalent to the corporation itself using the money to pay its debts. With this view I agree. The majority opinion, however, does not affirm the deficiency against the corporation on that ground, but on the ground that there was no reorganization and the whole transaction was taxable. With this view, for reasons I have already stated, I disagree. I do not discuss the question as to whether the $320,370.79 admittedly distributed to the petitioners Peterson is all taxable to them as dividends as determined by respondent, or only a part as contended by petitioners. The majority opinion having affirmed the deficiencies on the ground that there was no reorganization, I am content to record my dissent to that holding.