Court Opinion

ID: 4595605
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:15:22.939292+00
Date Added: 2024-06-11T07:51:28.303423
License: Public Domain

JOHN R. THOMPSON SECURITIES CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.John R. Thompson Sec. Corp. v. CommissionerDocket No. 51765.United States Board of Tax Appeals33 B.T.A. 1011; 1936 BTA LEXIS 791; February 6, 1936, Promulgated *791  1.  GAIN OR LOSS - BASIS FOR DETERMINATION. - The acquisition by petitioner in 1923 of certain stock by exchange of its own stock held to constitute a "reorganization", as defined in section 203(h)(1) of the Revenue Act of 1926, and, such exchange not falling within the exceptions set out in section 204(a) of that act, the basis for determining loss or gain to petitioner upon its resale of the stock by the latter in 1925 and 1926 is held to be its cost to petitioner.  2.  Id. - Certain other securities acquired by the taxpayer in exchange for its stock, in the same transaction, but not under conditions constituting a reorganization, determined to have been acquired "in connection with a reorganization" and the party from whom such securities were acquired having been shown to be the owner of more than 80 percent of petitioner's stock immediately after the transfer, petitioner's basis for determining gain or loss on resale of these securities is held to be their basis to the transferor as provided by section 204(a)(7) of the Revenue Act of 1926.  Edward H. McDermott, Esq., John L. Hopkins, Esq., Ellsworth C. Alvord, Esq., Charles C. Parker, Esq., and *792 O. John Rogge, Esq., for the petitioner.  Chester A. Gwinn, Esq., and Hugh R. Dowling, Esq., for the respondent.  LEECH*1011  This proceeding seeks redetermination of deficiencies for the years 1924 to 1927, inclusive, in the amounts of $11,635.35, $420,933.23, $56,552.74, and $11,347.27, respectively.  The issues involving taxes for the years 1924 and 1927 have been settled by stipulation of the parties.  The questions submitted for our decision are the proper bases for determination by petitioner of gain or loss with respect to certain securities acquired by it on May 18, 1923, in exchange for its own stock, and sold in the years 1925 and 1926.  FINDINGS OF FACT.  The facts have been formally stipulated by the parties as follows: 1.  Petitioner, John R. Thompson Securities Corporation, is an Illinois corporation with its principal place of business at 350 North Clark Street, Chicago, Illinois.  2.  Petitioner was incorporated on May 17, 1923 under the laws of the State of Illinois as John R. Thompson Securities Company.  Petitioner's name was changed to its present name, John R. Thompson Securities Corporation, on May 22, 1923 and only the*793  latter name will be used in this stipulation in referring to petitioner.  There was no other amendment made to petitioner's charter in connection with the said change of name on May 22, 1923, nor was any change of any kind made in its capital stock or corporate structure at that time.  The *1012  incorporation and organization of petitioner was brought about by one John R. Thompson, now deceased.  3.  Petitioner was authorized by its Articles of Incorporation to issue 100,000 shares of common stock with a par value of $100.00 per share, or a total authorized amount of capital stock of $10,000,000.  No other class of stock was authorized to be issued by petitioner.  Ten (10) shares of petitioner's common stock were issued for One Thousand Dollars ($1,000.00) in cash which was paid in by said John R. Thompson.  These shares were originally issued in his name and subsequently one share was transferred to John R. Thompson, Jr. and one share to H. M. Henriksen as directors' qualifying shares.  These ten shares represented pre-incorporation subscriptions in the minimum amount required under the Illinois law then in force to be subscribed before the company could be incorporated. *794  4.  At the first meeting of the Board of Directors of petitioner held on May 18, 1923, the said John R. Thompson acting for himself, and for Mrs. John R. Thompson, Florence Thompson and H. M. Henriksen, Trustee, made a proposal to said Board to exchange certain securities owned separately by each of said parties (the ownership of said H. M. Henriksen being as trustee as set forth in paragraph 5 of this stipulation), for all of the unissued capital stock of petitioner, consisting of 99,990 shares of common stock, to be issued to, or upon the order of, said John R. Thompson.  This proposal was accepted by said Board of Directors at said meeting, and the issuance of 99,990 shares of petitioner's common stock in exchange for such securities to be transferred to petitioner, was duly authorized.  Pursuant to this proposal and acceptance, said securities were transferred to the petitioner and petitioner's stock was issued in exchange therefor.  Attached hereto, marked Exhibit "A", and made a part hereof, is a correct list of the securities transferred to petitioner in said exchange of May 18, 1923, by each of said parties transferring the same, and the valuations placed thereon by petitioner*795  and by said transferors as representing fair market values.  Attached hereto, marked Exhibit "B", is a schedule showing the fair market values on May 18, 1923, of the securities so transferred, as determined by the respondent and as now agreed to by the petitioner.  No security transferred in said exchange was owned jointly or in common by two or more of said transferors, but each security was owned solely and separately by the transferor thereof.  The said transferors of said securities received petitioner's shares of common stock issued in exchange and as the sole consideration therefor, as follows: Name of TransferorNumber of Shares of Petitioner's Stock ReceivedJohn R. Thompson89,990Mrs. John R. Thompson5,000Florence M. Thompson5,000H. M. Henriksen, TrusteeNoneTotal shares issued in said exchange99,990Except for the ten shares of stock issued for cash in accordance with subscriptions taken prior to incorporation in order to comply with the requirements of Illinois law as to minimum capital and also to supply qualifying shares for directors, all of petitioner's capital stock was issued to the persons who exchanged their property*796  with petitioner.  5.  All of the parties to said exchange received shares of petitioner's stock in exchange for the securities transferred by them, with the exception of H. M. Henriksen, Trustee.  H. M. Henriksen was a close business associate of *1013  John R. Thompson during his lifetime, and for more than twenty years prior to the death of Mr. Thompson, on June 17, 1927, had acted as Mr. Thompson's assistant and secretary, and had assisted him in his personal and business matters.  H. M. Henriksen acquired the 500 shares of preferred stock of John R. Thompson Company transferred by him as Trustee to the petitioner in May 1923 by a transfer in 1917 from John R. Thompson, made for the purposes and under the agreement hereinafter set forth.  For some years prior to September 1917 John R. Thompson had made contributions periodically toward the support of his brothers and sisters and the brothers and sisters of his wife who were in need of financial assistance.  In September 1917, in order to make provision for a fund for such contributions, John R. Thompson transferred to H. M. Henriksen the said 500 shares of preferred stock of John R. Thompson Company under an agreement that*797  H. M. Henriksen would make periodical payments from the income arising from said stock to each of the persons who previously had received contributions from Mr. Thompson during the lifetime of such persons.  H. M. Henriksen held and owned said stock in trust under said agreement and made distributions of the income from said stock to the brothers and sisters of Mr. Thompson and of Mrs. Thompson from the time of said transfer in September, 1917 until the incorporation in May, 1923 of this petitioner, when, at the direction of John R. Thompson, H. M. Henriksen transferred and delivered the certificate representing said 500 shares of preferred stock of John R. Thompson Company to petitioner.  At the time of said transfer John R. Thompson stated that he intended to make other arrangements for continuing the payments to the persons who had received the income from said stock.  From and after said transfer John R. Thompson made payments to said persons from his own funds and never reestablished the former trust of 500 shares of preferred stock of John R. Thompson Company.  6.  After the consummation of said exchange of May 18, 1923, the total assets of petitioner consisted of the securities*798  transferred by all of the parties to the exchange and cash, as follows: As per booksAs per RespondentSecurities (Market value May 18, 1923)$10,026,642.00$9,599,222.50Cash1,000.001,000.00Total$10,027,642.00$9,600,222.50Represented by:Capital stock issued (100,000 shares common)$10,000,000.00Capital surplus27,642.00$10,027,642.007.  The value of the 5,000 shares of petitioner's stock received by Mrs. John R. Thompson in said exchange of May, 1923 was $480,011.13.  The value of the securities transferred by her to petitioner was $697,500.00, or $217,488.87 greater than the value of the stock received by her.  Mrs. Thompson made said exchange at the request of her husband, John R. Thompson, and accepted less than her proportionate share of petitioner's stock issued in said exchange upon a collateral agreement with her said husband that he would compensate her thereafter for the discrepancy between the value of the stock transferred by her and the stock received by her in said exchange.  She never received any compensation, and no settlement was ever made with her on *1014  account of said transaction during her husband's*799  lifetime.  After the death of her husband, she filed a claim against his estate in the probate court in the amount of $250,000.00 founded upon said transaction.  Said claim was duly allowed in said amount by the probate court and was paid.  8.  Among the securities transferred to petitioner in the said exchange were shares of common and preferred stock of John R. Thompson Company.  The following schedule shows the number of shares of common and/or preferred stock of said John R. Thompson Company transferred to petitioner by each of the parties to said exchange: TransferorNumber of shares commonNumber of shares preferredJohn R. Thompson103,1462,939Mrs. John R. Thompson10,0002,000Florence Thompson10,000NoneH. M. Henriksen, trusteeNone500Total shares123,1465,4399.  Said John R. Thompson Company was at the time of said exchange of May 18, 1923 a West Virginia corporation engaged in the operation of a chain of restaurants.  This company was incorporated in the early part of 1914 at the instance of said John R. Thompson.  At that time John R. Thompson was the owner of substantially all of the capital stock of five (5) corporations*800  engaged in the restaurant business in a number of states.  During the month of April 1914, John R. Thompson caused to be transferred to said John R. Thompson Company all of the capital stock of said five (5) corporations, and also certain leases owned by him.  As a result of this transfer, John R. Thompson became the owner of 32,275 1/2 shares of the common stock and 17,750 shares of the preferred stock of John R. Thompson Company, which were issued in payment for property received by that company in said exchange.  The common stock was voting stock and the preferred stock was non-voting except in certain contingencies, none of which has ever occurred.  The total authorized capital stock of John R. Thompson Company at the time of its incorporation consisted of 20,000 shares of preferred stock of the par value of $100.00 per share, and 40,000 shares of common stock of the par value of $100.00 per share.  No increase in the authorized number of shares of preferred stock has ever been made, and no shares of such stock other than the original number of 17,750 shares issued to John R. Thompson have ever been outstanding.  From time to time since 1914 shares of preferred stock have been*801  purchased or redeemed and cancelled.  The authorized number of common shares has been increased since 1914.  In 1919 the number was increased from 40,000 to 180,000 and the par value of each share was changed from $100.00 to $25.00.  Four (4) shares of $25,00 par value were issued to stockholders for each former share of $100.00 par value, and 20,000 of the shares of $25.00 par value were sold for cash.  In 1920 the number of authorized shares of common stock was increased from 180,000 to 240,000 and a stock dividend of 60,000 shares was declared and paid.  No other changes in the capital structure of John R. Thompson Company have been made at any time material herein except that shares of preferred stock have been retired and cancelled.  10.  From 1914 to the time of the increase in 1919 of the authorized capital stock of John R. Thompson Company, John R. Thompson was the owner of record at all times of not less than 32,000 shares of common stock out of a total of 40,000 shares outstanding.  After the exchange of four shares for one and *1015  the stock dividend of 33 1/3 per cent, John R. Thompson was the owner in April 1920 of 162,196 2/3 shares of John R. Thompson Company*802  out of a total of 240,000 shares outstanding.  In May 1920 John R. Thompson ceased to be the owner of the majority of the common shares of John R. Thompson Company.  In that month he made gifts of 10,000 shares each to Mrs. John R. Thompson, his wife, Mrs. Ruth T. Owen, a daughter, Florence Thompson, a daughter, and John R. Thompson, Jr., his son, and other gifts aggregating 7,600 shares, or a total of 47,600.  At the close of 1920 John R. Thompson was the owner of 118,994 2/3 shares of common stock; at the close of 1921 of 115,510 2/3 shares, and at the close of 1922 of 105,846 shares.  In May 1923, he was the owner of 105,546 shares.  On May 18, 1923 said John R. Thompson Company had issued and outstanding 240,000 shares of common stock and had issued 9,500 shares of preferred stock, of which 15 shares were owned by said company, making a total of 9,485 shares of preferred stock outstanding.  These were the only classes of stock of said company and said company had no shares of capital stock outstanding except as stated above.  In the exchange of May 1923, John R. Thompson, Mrs. John R. Thompson and Florence Thompson transferred a total of 123,146 shares of common stock of John R. *803  Thompson Company to petitioner, and John R. Thompson, Mrs. John R. Thompson and H. M. Henriksen, Trustee, transferred a total of 5,439 shares of preferred stock of said company to petitioner.  By the exchange of May 18, 1923, the petitioner acquired more than fifty per cent (50%) of the voting stock and more than fifty per cent (50%) of the total number of shares of all other classes of stock and more than fifty per cent (50%) of the total outstanding shares of stock of all classes of said John R. Thompson Company.  Petitioner did not acquire in said exchange fifty per cent (50%) of the voting stock and fifty per cent (50%) of the total number of shares of stock of any other corporation.  11.  During the years 1925 and 1926 petitioner sold large amounts of the securities acquired by it in the exchange of May 1923.  In filing its income tax return for each of these years, petitioner used as the basis for computing gain or loss on these sales the cost, as set up on its books, of such securities to petitioner, that is, the fair market value on the date paid in, namely, May 18, 1923.  Respondent has revised the figures used in petitioner's returns by using as the basis for computing*804  gain or loss on the sale of securities acquired in the exchange of May 1923, the cost or other basis of said securities to the transferors in place of the cost thereof to the petitioner.  12.  With respect to and for the purpose of determining the deficiency, if any, for each of the calendar years 1924, 1925, 1926 and 1927, it is further stipulated and agreed as follows: 1924(a) Independently of any of the facts stipulated herein there is no deficiency and no overpayment for the year 1924.  1925(b) During the year 1925 petitioner paid interest in the amount of $60,207.72 on a brokerage account which petitioner employed for the sale and purchase of securities.  A profit in the amount of $241,774.08 derived from transactions consummated through this brokerage account has been included in petitioner's taxable income but respondent failed to allow interest paid on said account as a deduction.  Said interest item in the amount of $60,207.72 shall be allowed as a deduction from petitioner's net income for 1925.  *1016  (c) During the year 1925 petitioner sold 102,390 shares of common stock of John R. Thompson Company which were acquired by petitioner in the exchange*805  of May 1923.  Respondent computed the gain from the sale of said shares on the same basis as such shares would have in the hands of petitioner's transferors and computed such basis as $1,252,673.27.  The fair market value of said common stock of John R. Thompson Company on May 18, 1923, was $45.75 per share.  The total fair market value of said 102,390 shares on said date was $4,684,342.50.  If it be determined that petitioner is entitled to compute the gain or loss on the sale of said stock on the basis of the cost to it instead of the basis in the hands of its transferors, the additional cost to be allowed will amount to $3,431,669.23.  1926(d) During the year 1926 petitioner sold 5,104 shares of common stock and 5,439 shares of preferred stock of said John R. Thompson Company, together with shares of stock of other corporations, all acquired by petitioner in the exchange of May 1923.  If it be determined that petitioner is entitled to use as the basis for computing gain or loss from the sale of all securities acquired by it in the exchange of May 1923 the cost of such securities to petitioner, that is the fair market value thereof on May 18, 1923, then it is agreed*806  that petitioner had no taxable income for 1926 and the deficiency proposed by respondent shall be eliminated.  If, however, it be determined that said basis of cost to the petitioner shall be applied only with respect to the shares of common and preferred stock of said John R. Thompson Company acquired by petitioner in said exchange of May 1923, and shall not be applied as to the securities of other corporations acquired by petitioner in said exchange, then petitioner's taxable income for the year 1926 shall be determined in accordance with the following stipulated facts: (e) Respondent computed the gain from the sale in 1926 of said 5,104 shares of common stock and 5,439 shares of preferred stock of said John R. Thompson Company on the same basis as said stock would have in the hands of petitioner's transferors.  In the case of said common stock, respondent allowed a total cost of $150,568.00.  The fair market value of said common stock on May 18, 1923 was $45,75 per share or a total fair market value on said date of said 5,104 shares of $233,508.00.  In the case of said preferred stock, respondent computed the total cost of said 5,439 shares at $505,770.46.  The fair market value*807  of said stock on March 18, 1923 was $120.00 per share or a total fair market value on said date of said 5,439 shares of $652,680.00.  If it be determined that the petitioner is entitled to compute gain or loss on the sale in 1926 of said shares of common and preferred stock of John R. Thompson Company on the basis of cost thereof to petitioner instead of the basis of said stock in the hands of petitioner's transferors, the additional cost to be allowed the petitioner will amount to $82,940.00 in the case of common stock of said company and $146,909.54 in the case of preferred stock of said company or a total of $229,849.54.  1927(f) No adjustment in taxable net income as computed by respondent shall be made for 1927 and the deficiency in the amount of $11,347.27 as proposed by respondent may be confirmed.  EXHIBIT "A." - List of securities transferred to John R. Thompson SecuritiesCorporation in exchange of May 18, 1923.Name of security No. of sharesValuetransferredSecurities transferred to petitioner by John R. Thompson:John R. Thompson Co. - Preferred2,939$367,375.00John R. Thompson Co. - Common103,1465,054,154.00Continental & Commercial Natl. Bank653179,575.00University State Bank252,823.00Blackstone Company505,000.00Drake Hotel Co. - Preferred636,300.00Chicago Auditorium Co47037,600.00Whitestone Co. - Preferred20019,500.00Whitestone Co. - Common100500.00Parmelee Transfer Co2,240168,000.00Balaban & Katz Motion Picture Co. - Pfd16016,000.00Balaban & Katz Motion Picture Co. - Common16012,800.00Yellow Cab and Manufacturing Co5,1081,404,700.00Inland Glass Co. - Preferred10010,000.00Inland Glass Co. - Common1003,000.00Luxtone Company - Common2502,500.00Wm. Wrigley, Jr. Co171,870.00Chicago Motorbus Co. - Preferred1,525152,500.00Chicago Motorbus Co. - Common1,525190,625.00Chicago Yellow Cab Co2,000180,000.00Racine Crushed Stone Co12024,000.00Mercantile Trust Co5518,755.00New York Yellow Taxi Co3,875503,750.00Philadelphia Yellow Taxi Co. - Preferred744,070.00Philadelphia Yellow Taxi Co. - Common787,020.00Chicago No. Shore & Milw. RR Co. - Com. P. Ctfs5,95447,632.00Chicago No. Share & Milw. RR Co. - 1st Pfd. Ctfs1,32672,930.00Chicago No. Shore & Milw. RR Co. - 2nd Pfd. Ctfs5,708241,163.008,734,142.00Securities transferred to petitioner by Mrs. John R. Thompson:John R. Thompson Co. - Preferred2,000250,000.00John R. Thompson Co. - Common10,000490,000.00Securities transferred to petitioner by Florence Thompson:John R. Thompson Co. - Common10,000490,000.00Securities transferred to petitioner by H. M. Henriksen, Trustee:John R. Thompson Co. - Preferred50062,500.0010,026,642.00*808 EXHIBIT "B". - List of Securities transferred to John R. Thompson SecuritiesCorporation on May 18, 1923.John R. Thompson (including 2,939 shares of preferred stock of John R. Thompson Company at $120.00 per share, or $ 352,680.00 and 103,146 shares of common stock of John R. Thompson Company at $45 3/4 per share, or $4,718,929.50)$5,071,609.50Other stocks as per Exhibit "A"3,312,613.008,384,222.50Mrs. John R. Thompson, 2,000 shares of preferred stock of John R. Thompson Company at $120.00 equals$240,000.00and 10,000 shares of common stock of John R. Thompson Company at $45 3/4 per share457,500.00697,500.00Miss Florence Thompson, 10,000 shares of common stock in John R. Thompson Company at $45 3/4 per share457,500.00H. M. Henriksen, trustee, 500 shares of preferred stock in John R. Thompson Company at $120.00 per share60,000.00Total9,599,222.50*1018  OPINION.  LEECH: Petitioner contends that the basis for determining gain or loss on its disposition of securities acquired on May 18, 1923, in the transaction heretofore detailed, is their fair market value on that date. *809  It has so computed its gain reported in its returns for the years in question.  Respondent contends that the acquisition of these securities by petitioner was under conditions which bring the transaction within section 204(a)(8) of the Revenue Act of 1926 and that the proper basis to petitioner for computing gain or loss on resale is the basis of such securities, in each instance, to the parties from whom they were acquired.  Section 204(a) 1 of the Revenue Act of 1926 provides that the basis for determining gain or loss from sale or other disposition of property after February 28, 1913, shall be the cost of such property, with certain exceptions set out in detail.  It is stipulated that the fair market value of the assets conveyed to petitioner on May 18, 1923, by John R. Thompson, his wife, daughter, and a trustee holding certain of the securities in exchange for all of its capital stock, was the sum of $9,599,222.50.  It necessarily follows that this is the fair market value of petitioner's stock issue in exchange and therefore the cost to petitioner of these securities.  If another basis than such cost is to be used in determining gain or loss on resale, the circumstances*810  of the acquisition must be such as to bring the transaction within one of the exceptions declared in the cited section.  *811  In the transaction the tax results of which are now in dispute, this petitioner acquired more than 50 percent of the preferred and more than 50 percent of the common stock of the John R. Thompson Co.  It also acquired, in the same transaction, securities in other corporations, *1019  but representing, in no case, a majority of the stock of any such corporation.  The consideration paid by petitioner for the acquisition of this property was all of its stock, held thereafter by the sellers.  The transaction, in which the stock of the John R. Thompson Co. was transferred to petitioner constituted a "reorganization" within the definition of section 203(h)(1) 2 of the Revenue Act of 1926.  ; ; , all decided December 16, 1935.  *812  It necessarily follows that the John R. Thompson Co. was a "party to a reorganization" under section 203(h)(2) 3 of the Revenue Act of 1926.  An examination of section 204 shows that subsections (6), (7), and (8) embody the only exceptions controlling voluntary exchanges for a consideration as was the one here in question.  It is apparent that subparagraph (6) is not applicable to the acquisition of the John R. Thompson Co's. stock since it excludes "property acquired by the corporation by issuance of its stock or securities as the consideration in whole or in part for the transfer of the property to it." Furthermore, subsections (7) and (8) are not applicable because each exempts specifically "stock or securities in a corporation a party to a reorganization." Thus, since the acquisition by petitioner of the stock of the John R. *813  Thompson Co. constituted a reorganization and such stock was that of a party to the reorganization, it is excluded from the exceptions set out in section 204(a).  Consequently, the basis for determining gain or loss from its sale or other disposition by petitioner is its cost to the latter.  *1020  In addition to the stock of the John R. Thompson Co. petitioner acquired, in the transaction set out in the stipulation, certain other securities as a consideration for stock issued to John R. Thompson.  The circumstances of this acquisition appear to bring it squarely within the provisions of section 204(a)(7), heretofore set out in the margin.  We think it clearly established that these securities were acquired by petitioner in connection with a reorganization, and that they did not represent "stock or securities in a corporation a party to a reorganization." Immediately after the transfer of such securities by Thompson to petitioner he was the owner of approximately 90 percent of the stock of petitioner.  We hold that petitioner's basis for determining gain or loss upon its disposition of these securities is the basis of such securities to the transferor, John R. Thompson. *814 ; . The deficiencies should be redetermined in accordance with the conclusions herein reached and with the stipulated adjustments.  Judgment will be entered under Rule 50.Footnotes1. SEC. 204 (a).  The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that - * * * (6) If the property was acquired upon an exchange described in subdivision (b), (d), (e), or (f) of section 203, the basis 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.  If the property so acquired consisted in part of the type of property permitted by paragraph (1), (2), (3), or (4) of subdivision (b) of section 203 to be received without the recognition of gain or loss, and in part of other property, the basis provided in this paragraph shall be allocated between the properties (other than money) received, and for the purpsoe of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange.  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; (7) If the property (other than stock or securities in a corporation a party to the reorganization) was acquired after December 31, 1917, by a corporation in connection with a reorganization, and immediately after the transfer an interest or control in such property of 80 per centum or more remained in the same persons or any of them, 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; (8) If the property (other than stock or securities in a corporation a party to a reorganization) was acquired after December 31, 1920, by a corporation by the issuance of its stock or securities in connection with a transaction descrbibed in paragraph (4) of subdivision (b) of section 203 (including, also, cases where part of the consideration for the transfer of such property to the corporation was property or money in addition to such stock or securities), 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. ↩2. SEC. 203(h) as used in this section and sections 201 and 204 - (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), or (B) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are n control of the corporation to which the assets are transferred, or (C) a recapitalization, or (D) a mere change in identify, form, or place of organization, however effected. ↩3. SEC. 203(h)(2).  The term "a party to a reorganization" includes a corporation resulting from a reorganization and includes both corporations in the case of an 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. ↩