Court Opinion

ID: 4485924
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:05.072743+00
Date Added: 2024-06-11T15:03:47.897284
License: Public Domain

DisNey, J., dissenting: I can not agree that the satisfaction of the corporate petitioner’s debt by issuance of its stock in settlement thereof was a transfer in exchange within section 112 (b) (5) of the Internal Revenue Code. Such a conclusion is inimical to the more general idea in Hale v. Helvering, 85 Fed. (2d) 819, that there is no exchange in the compromise of notes for cash less than their face value. It is even more out of line with Bingham v. Commissioner, 105 Fed. (2d) 971, wherein property was used to discharge indebtedness. That case says, in effect, that it is no ordinary concept to say that there is exchange of debt when it is merely satisfied. Moreover, in F. T. Bedford, 2 T. C. 1189, (1197), we considered whether there was an exchange within the meaning of section 112 (b) (3), where a corporation secured the release of its guaranty of another company’s stock by issuing its own preferred stock. We said: * * * The transfer of the new preferred stock of the Terminal Co. for the release of its guaranty of the preferred stock of the Buildings Co. was not an exchange within the meaning of section 112 (b) (8). The transfer was merely in payment or compromise of its own obligations. The Terminal Co. received nothing which was property in its possession, but merely succeeded in extinguishing its obligations to the preferred stockholders of the Buildings Co. That being so, such a settlement as the Terminal Co. made did not involve an exchange under section 112 (b) (3) of the Code. * ⅜ * Obviously, the word “exchange” means the same in both section 112 (b) (3) and section 112 (b) (5), so that the case is flat authority here. Moreover, in Seiberling Rubber Co., 8 T. C. 478, we considered whether within section 112 (b) (5) there was a nontaxable reorganization, where the petitioner, holding unsecured claims as well as stock of a solvent corporation, caused the assets of the debtor corporation to be transferred to a new corporation which issued its capital stock to the petitioner in full settlement of the greater part of the petitioner’s claims. As I understand tlie opinion, it holds, in effect, that section 112 (b) (5) was not complied with, because in reality there was nothing but transfer from the old corporation to the petitioner. We relied upon Bunker Hill & Sullivan Mining & Concentrating Co., 1 T. C. 1057. Therein we also considered and denied the application of section 112 (b) (5). The facts were, in substance, that a debtor corporation transferred its assets to a new corporation in exchange for stock and then exchanged that stock to its creditors, including the petitioner, who had made advances from time to time in large amounts to the debtor corporation. Petitioner there relied upon Miller & Paine, 42 B. T. A. 586, and Leslie H. Reed, 45 B. T. A. 1130; affd., 129 Fed. (2d) 908, both of which are relied upon in the majority opinion here. In my view, there was no exchange within the intendment of section 112 (b) (5), and I would recognize the gain.