Court Opinion

ID: 4493288
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:52.391796+00
Date Added: 2024-06-11T08:48:32.797470
License: Public Domain

Trammell,
dissenting: In my opinion, when the corporation gives up its assets for cash and a portion of its own stock for cancellation, there should be an allocation between the value of the assets to the extent cash was paid therefor and the value thereof represented by the exchange of stock, and that portion for which stock was received for cancellation only should be held to be a limitation to that extent. This would reduce the basis for the assets sold for cash. It is difficult to see how the corporation has acquired any gain by the acquisition for cancellation and the cancellation of stock. In so far as any value of the assets may be attributable to the stock received is concerned, that is, that portion of the value of the assets which was in excess of the cash received, might fairly be considered to be a turning back by the corporation to the stockholders of a proportionate part of assets. The assets actually left the corporation and did not come into it. The certificates of stock merely represented the pro rata share of the stockholder in the earnings of the corporation after the *1200payment of debts. When stock is surrendered for cancellation and for nothing else, the other stockholders may possibly receive a larger pro rata share in the earnings, but the corporation has no additional assets to take the place of what left the corporation in exchange for the stock to be canceled.
This seems to me, in so far as the stock is concerned after an allocation has been made, merely to be capital readjustment brought about by the cancellation of stock and the receipt thereof for that purpose. In my opinion this is not a case where a corporation was dealing in its own stock as an outsider would deal, but a mere corporate readjustment of capital.
It would seem clear that if three individuals contributed to a corporation three buildings and for those buildings so contributed received certificates of stock representing their pro rata contribution to the capital of the corporation, and thereafter one of the individual stockholders desired to receive his building back and the corporation gave it back and the individual surrendered his stock, the corporation would have nothing on which to base a capital gain — it would be simply a capital adjustment. This case differs from the example stated, it seems to me, only in the fact that a certain amount of cash was paid in for the corporate property transferred to its stockholders, but I see no reason why a proper allocation could not be made and treat one part of the transaction as being a mere capital adjustment and the other part as a sale of assets. I do not agree, however, that the stock transaction should be disregarded entirely.