Court Opinion

ID: 4618961
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:39:40.271968+00
Date Added: 2024-06-11T07:59:26.361567
License: Public Domain

WHITNEY CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Whitney Corp. v. CommissionerDocket No. 81993.United States Board of Tax Appeals38 B.T.A. 224; 1938 BTA LEXIS 897; July 29, 1938, Promulgated *897  Where the petitioner corporation and its affiliated subsidiary, W, transferred a material part of their assets to a newly organized corporation, M, in exchange for all its stock, and immediately thereafter petitioner exchanged all its stock in M with a fourth corporation, S, for cash and promissory notes, and petitioner's subsidiary, W, exchanged all its stock in M with S for stock of S; held, that the gain on S stock received by W is recognizable, since the continuity of interest necessary to make S a party to a reorganization, under section 112, Revenue Act of 1928, was lacking; following Groman v. Commissioner,302 U.S. 82">302 U.S. 82; and Helvering v. Bashford,302 U.S. 454">302 U.S. 454. Frank W. Wilson, C.P.A., and C. S. Wilson, Esq., for the petitioner.  E. C. Algire, Esq., for the respondent.  KERN *225  This case comes before us on respondent's determination of a deficiency in the income tax of petitioner and its subsidiary corporations for the year 1930 of $28,493.86, and involves the question whether the transfer, in 1930, of assets by petitioner and the Whitney Brothers Co. to a new company, the Merritt-Chapman*898  & Whitney Corporation, in exchange for all the capital stock of that company, the stock so received by petitioner and the Whitney Brothers Co. being sold in the same year to a fourth corporation, the Merritt-Chapman & Scott Corporation, resulted in a profit taxable to petitioner and the Whitney Brothers Co. in that year.  The respondent, while conceding that the exchange, if taken alone, would be a reorganization and as such nontaxable under section 112(i)(1)(A) of the Revenue Act of 1928, contends that the exchange by petitioner and the Whitney Brothers Co. of their assets for Merritt-Chapman & Whitney Corporation stock constitutes, with the later sale of this stock to the Merritt-Chapman & Scott Corporation, a single transaction, with resulting profit to petitioner.  FINDINGS OF FACT.  The facts were stipulated in part and are as follows: The Whitney Corporation, hereinafter known as petitioner, is a Minnesota corporation (though erroneously said to be a Wisconsin corporation in the petition), doing business principally in that state.  During 1930 it owned all the outstanding capital stock of the Whitney Brothers Co., a Wisconsin corporation, hereinafter known as "Brothers", *899  and of the Whitney Materials Co., a Minnesota corporation, hereinafter known as "Materials"; and with these two subsidiary companies it filed a consolidated income tax return for 1930.  The same persons were directors in petitioner and Brothers, and were also officers in the three corporations.  Petitioner and Brothers had the same offices and some employees in common.  The Merritt-Chapman & Scott Corporation, hereinafter known as "Scott", was a Delaware corporation organized in 1922 and doing business in New York City in 1930 as a general contractor.  The Merritt-Chapman & Whitney Corporation, hereinafter known as the "New" corporation, was organized as a Delaware corporation in 1930.  During 1930 petitioner was principally a holding company, owning all the stock of its two subsidiaries, Brothers and Materials, as set out above, and certain assets, real and personal, which were being used in part by Brothers and in part by Materials.  During 1930 and until the contract of October 17, 1930, hereinafter set out, became effective, Brothers was in the marine and general contracting business, while Materials was in the sand, gravel, and builders' materials trade.  *226 *900  During 1930 Gwin A. Whitney was president of petitioner, of Brothers, and of Materials.  He owned 1,476 of the 2,925 outstanding shares of petitioner's common stock, his uncle, E. H. Whitney, owning 696 shares and his mother 610 shares, but he had no connection before December 30, 1930, with Scott.  Early in 1930 informal negotiations were begun by Scott looking to the merger of Scott and Brothers.  Scott was a combination of the Merritt Wrecking Co., Chapman Brothers Derrick Co., and T. A. Scott Co., a salvage concern, all old companies.  A new management of the company sought to extend its business to marine and general contracting.  Shortly before 1930 Brothers had completed the river section of the Detroit-Windsor tunnel, a fact which may have been noticed by Scott's officers, who wished to obtain a foothold on the Great Lakes where Brothers had mainly operated for around forty years.  Brothers had also been in the sand and gravel business, and organized Materials to take over this function.  Materials also handled coal and coke.  Petitioner was organized to take over from Brothers nonconstruction assets and generally to simplify its operations.  In 1930 Brothers owned some of the*901  assets used by Materials in its business, and petitioner owned some of the assets used by Brothers in its marine and general contracting business.  After informal discussion with Scott, Gwin A. Whitney agreed to a general plan of merger, provided extraordinary expenses, including taxes, might be avoided, and after several months' study a plan of reorganization was evolved to be used as a guide.  This plan, unsigned, was put in evidence and provides as follows: (1) Whitney Brothers Company shall transfer certain assets pertaining to the marine and general contracting business to Whitney Corporation; (2) Whitney Brothers Company shall transfer all assets now owned by it pertaining to the sand, gravel, and building materials business, to Whitney Materials Company; (3) Whitney Corporation shall transfer all assets now owned by it pertaining to the sand, gravel and building materials business, to Whitney Materials Company; (4) In consideration of the foregoing intercompany transfers, appropriate charges or credits shall be made to the proper inter-company accounts for which settlement may be made by the issuance and delivery of shares of the capital stock of the debtor company or*902  companies; (5) A corporation called Merritt-Chapman & Whitney Corporation shall be organized under the laws of the State of Delaware for the principal purpose of engaging in the marine and general contracting business; (6) Whitney Brothers Company shall transfer all of its remaining property, both tangible and intangible, including good-will, and Whitney Corporation shall transfer all property owned by it pertaining to the marine and general contracting business, to Merritt-Chapman & Whitney Corporation in consideration for the issuance and delivery of certificate or certificates representing seventy-five hundred (7500) shares of the common capital stock of Merritt- *227  Chapman & Whitney Corporation to Gwin A. Whitney as agent of Whitney Brothers Company and Whitney Corporation; (7) Whitney Brothers Company shall be the equitable owner of forty-eight hundred (4800) shares of the common stock of Merritt-Chapman & Whitney Corporation so to be issued to Gwin A. Whitney as agent, which forty-eight hundred (4800) shares shall be deemed to be the equivalent in value of the property, both tangible and intangible, including good-will, to be transferred by Whitney Brothers Company*903  to Merritt-Chapman & Whitney Corporation; (8) Whitney Corporation shall be the equitable owner of twenty-seven hundred (2700) shares of the common stock of Merritt-Chapman & Whitney Corporation to be issued to Gwin A. Whitney as agent, which twenty-seven hundred (2700) shares shall be deemed to be the equivalent in value of the property to be transferred by Whitney Corporation to Merritt-Chapman & Whitney Corporation.  (9) Whitney Brothers Company shall, to effect the merger of the marine and general contracting business owned and conducted by it prior to the transfer and exchange provided for in paragraph (6) above and to be owned and conducted by Merritt-Chapman & Whitney Corporation from and after such transfer and exchange, in pursuance of this plan, transfer and assign all of its right, title, and interest in the seventy-five hundred (7500) shares of the capital stock of Merritt-Chapman & Whitney Corporation, its interest to be represented by forty-eight hundred (4800) shares of such stock, to Merritt-Chapman & Scott Corporation solely in exchange for ten-thousand (10,000) shares of the common and twenty-five hundred (2500) shares of the preferred capital stock of said Merritt-Chapman*904  & Scott Corporation.  (10) Whitney Corporation shall transfer and assign all of its right, title, and interest in the seventy-five hundred (7500) shares of the capital stock of the Merritt-Chapman & Whitney Corporation, its interests to be represented by twenty-seven hundred (2700) shares of such stock to Merritt-Chapman & Scott Corporation for a cash consideration; (11) Whitney Brothers Company shall liquidate and dissolve at such time and in such manner as shall be for the best interest of the company; (12) The transfers, exchanges, and assignments herein provided for shall be made by each company for itself, by itself or its authorized agent independently of the transfers, exchanges, and assignments of the other company or companies, but may be made simultaneously with the transfers, exchanges, and assignments of the other company or companies by the same document or paper in which case or cases such transfers, exchanges, or assignments shall not be deemed to be the joint action of two or more companies; (13) The transfers, exchanges, and assignments shall be made independently of each other and in the order and sequence as herein provided, but may be made by the same document*905  or paper in which case or cases such transfers, exchanges, and assignments shall be deemed to have been made independently of each other and in the same order and sequence as herein appearing.  This plan was adopted and approved by resolution of petitioner's directors on October 2, 1930, and by Brothers' directors on December 26, 1930.  On October 17, 1930, an agreement was entered into between Gwin A. Whitney and Scott, a copy of which was put in evidence and is incorporated herein by reference.  This was supplemented by an agreement between the parties dated December 1, 1930, and by a *228  second supplementary agreement dated December 19, 1930, copies of both agreements being put in evidence and incorporated herein by reference.  These agreements were carried out by the parties in accordance with their terms, which are summarized hereinafter.  In a letter of December 29, 1930, Brothers made the following offer to New, which, by the latter's acceptance, became an agreement in respect of its own future: In consideration of the purchase by your corporation of certain assets of the undersigned corporation as provided in a certain agreement between Mr. Gwin A. Whitney and*906  Merritt-Chapman & Scott Corporation, dated October 17, 1930, and for other valuable considerations, the undersigned agrees that from and after December 29, 1930, it will not take any new contracts or conduct any other and further contracting or other business in any respect similar to the business to be carried on by your corporation, except for and on account of your corporation.  Your signature in the place provided therefor below shall constitute this an agreement between us, binding upon our respective successors and assigns.  Before the plan of October 17, 1930, was carried out Brothers transferred to petitioner assets relating to the marine contracting business, the method of accounting employed, shown by journal entries put in evidence being substantially as follows: The net cost of the assets to Brothers was $85,362.87.  The accounting for the transfer was done by a charge on Brothers' books to petitioner and credits to the various asset and depreciation reserve accounts, with corresponding entries on petitioner's books and accounts.  In making these entries the asset and depreciation reserve accounts carried on Brothers' books were merely transferred without change to*907  petitioner's books, the net cost of the assets being charged to petitioner by Brothers and correspondingly credited.  Scott had no interest in these intercompany transfers between petitioner and Brothers.  These intercompany transactions were not provided for in the agreement of October 17, 1930, but appear to have been contemplated in the "Plan of Reorganization." At the same time as these transfers, Brothers made a transfer of certain of its fixed assets to Materials, which were not to be sold or transferred to the new corporation.  The transfer by Brothers to petitioner was made, in part, to enable the latter to retire its bond issue of about $260,000, secured by a mortgage on its own assets and those of Brothers and Materials, the retirement being agreed upon by petitioner as an incident of the plan with Scott.  At the time of these intercompany transfers by Brothers to petitioner there was outstanding on the books of Brothers against petitioner $166,586.79, which, together with the net cost of the assets transferred by Brothers to petitioner, $85,362.87, made $251,949.66.  This amount was liquidated on January 1, 1931, (1) by petitioner *229  surrendering to Brothers*908  1,500 shares of the latter's preferred stock with a par value of $150,000, (2) by the cancellation of a dividend of $100,008.25 payable by Brothers to its stockholder, petitioner, but not yet declared, and (3) by the payment to Brothers of $1,941.41 in cash.  The net cost of assets transferred to the new corporation by petitioner, including the assets received by petitioner from Brothers in the amount of $85,362.87, set out above, was $201,138.86, and the net cost of the assets so transferred to the new corporation by petitioner, excluding the assets transferred to petitioner by Brothers, above, was $115,775.99.  The net cost of the assets transferred by Brothers to New, excluding the assets transferred by Brothers to petitioner, as above, was $126.445.10, and the net cost of the total assets transferred by Brothers to New, both directly and through petitioner, was $211,807.97.  By stipulation of the parties it was agreed that the net cost of assets, as set out above, should be taken as the basis in determining gain or loss.  The assets transferred to New by petitioner and Brothers, as set out, were set up on New's books at $226,872, as shown by a balance sheet attached to the second*909  supplementary agreement, of December 19, 1930, which was put in evidence and is incorporated herein by reference.  After the transfer of its assets by Brothers to New, already set out, Brothers had assets and liabilities remaining as follows: Cash$45,600Accounts receivable3,290Due from Merritt-Chapman & Whitney Corporation16,600Due from officers and employees6,180Liabilities20,300After the transfer by petitioner to New and to Scott petitioner had remaining assets as follows, not including the stock of Brothers and Materials held by it, approximately 40 percent of its original total assets: Cash value of life insurance$9,316.75Sundry securities11,485.00Officers' and employees' accounts4,201.00Docks and dock sites43,394.20Land and gravel deposits101,613.64Prepaid insurance230.57On December 30, 1930, the provisions of the agreement of October 17, 1930, as amended by supplementary agreements on December 1 and 19, 1930, were carried out as follows: Petitioner and Brothers conveyed, by appropriate bills of sale and assignment, assets used in the marine contracting trade to New for 7,500 shares of its capital*910  stock, which were allocated 2,700 shares to petitioner and 4,800 shares to Brothers.  This allocation of New's *230  stock to petitioner and Brothers was made before the intercompany transfer and on the basis of a valuation of the assets of the respective companies, also made before that transfer.  This stock was set up on the books of the respective corporations at a value equal to the net cost of the assets transferred by each company after giving effect to the intercompany transfer of assets from Brothers to petitioner.  The stock on the same day was transferred to Scott, pursuant to the agreement of October 17, 1930, as amended, in consideration for $100,250 in cash, $105,000 principal amount of notes, 2,500 shares, par value $100 each, of 6 1/2 percent cumulative preferred stock, and 10,000 shares, no par value, of capital stock of Scott, together with certain warrants to purchase additional shares of common stock in the same company.  The following entry was made on the books of Scott after the transfer: Investment in Merritt-Chapman & Whitney Corp$776,872.00To Gwin A. Whitney, et al, Vendors776,872.00To record the acquisition through a 100% owned*911  subsidiary of the fixed assets and good will of Gwin A. Whitney, Whitney Bros. and Whitney Corporation, as provided in a contract dated October 17, 1930, and supplemental contracts dated December 1, 1930 and December 19, 1930.  The cash and notes receivable from Scott were allocated by Gwin A. Whitney to petitioner and the stock of Scott was allocated to Brothers, an intercompany transaction between petitioner and Brothers.  The notes were discounted at the bank by petitioner shortly after their receipt at a discount of 4%; and the cash and proceeds of the notes were used to retire the outstanding balance of petitioner's bond issue set out above.  The parties stipulated that the face amount of the notes received by petitioner, $105,000, in the transaction might be treated as the equivalent of cash to the extent of their fair market value, which, allowing for the 4 percent discount, is $100,800.  The fair market value of the preferred stock of Scott on December 30, 1930, when the transfer was made, was $80 a share, and the fair market value of its common stock was then $15 a share.  One reason for the transfer of assets by Brothers to petitioner before the exchange with Scott was*912  effected was to permit an allocation to petitioner of the cash and notes received from Scott on the exchange, and thereby to effect a transfer nontaxable under the revenue act.  All the 2,500 shares of preferred stock of Scott transferred to Brothers under the plan were not delivered on December 30, 1930, 1,667 shares of it, under the October 17, 1930 plan, being deposited by Whitney in escrow with the New York Trust Co. as a guaranty for the period ended December 31, 1931, that the net profits of New should not be less than $150,000, one share of Scott preferred to be *231  surrendered for each sum of $90 below that amount.  In fulfillment of this guaranty of earnings Brothers surrendered about 520 shares of the Scott preferred stock.  The preferred stock was issued in the name of Brothers and placed in escrow by it, Whitney being liable on the guaranty.  Any dividends on the stock while in escrow were receivable by Brothers.  The settlement under this guaranty was made about a year and a half after the escrow agreement was executed, the final deposit agreement of December 30, 1930, contemplating a final settlement between January 1 and April 1, 1932.  The delay was caused*913  in part by disagreement between the parties on the profits, but mainly by the death of the president of Scott.  After these transfers had been completed on December 30, 1930, Scott had outstanding 28,777 shares of preferred stock and 290,605 shares of common, including the 2,500 shares of preferred and 10,000 shares of common stock issued to Brothers.  Shortly after the organization of the new company Whitney became its president and remained so until it was dissolved towards the end of 1936 and its assets were taken over by Scott.  Before the execution of the contract, on December 30, 1930, Whitney had no connection with Scott.  He held no stock in the new company or in Scott until about 1934, when he became president of the latter.  Brothers was still an existing corporation at the time of the hearing, but it has been inactive since 1930 and holds substantially no assets excepting the Scott stock.  The respondent determined that the net profit realized on the transaction in the amount of $227,666.04 was taxable in the year 1930, the profit being calculated as follows: Cost of assets transferred$657,903.44Less depreciation330,319.48$327,583.96Consideration received:Cash$100,250.002-year 6% notes105,000.0010,000 shs. common stock150,000.002,500 shares pref. stock200,000555,250.00Profit$227,666.04*914  OPINION.  KERN: The respondent has determined a deficiency of $28,493.86 in the income tax of petitioner and its affiliated companies for the calendar year 1930, pursuant to article 16(a) of Regulations 75, set *232  out in the margin, 1 on the theory that the exchange of the assets of petitioner and the Whitney Brothers Co. (Brothers) for the stock of the Merritt-Chapman & Whitney Corporation (New) and the later exchange of this New stock with the Merritt-Chapman & Scott Corporation (Scott) were, in effect, a sale, and, not being within the nonrecognition provisions of section 112 of the Revenue Act of 1928, the resulting gain is taxable.  *915  The petitioner contends that Brothers, although a subsidiary of petitioner, may be a party to a reorganization independent of its parent, and was a party to a reorganization within the meaning of sections 112(b)(3) and/or 112(b)(4) and 112(i)(1)(a) of the Revenue Act of 1928, set out in the margin, 2 and consequently that *233  no gain or loss was recognizable on receipt by Brothers of the capital stock of either New or Scott in exchange for substantially all of Brothers' assets.  In the alternative it is urged that if gain or loss is recognizable on the exchange of Brothers' assets for the capital stock of either New or Scott, the amount of such gain or loss can not be determined in the year 1930, because it was not known in that year what would be the precise number of shares of Scott which Brothers would receive in consideration for its assets.  *916  1.  We shall deal first with the question whether the nonrecognition reorganization provisions apply.  The more salient facts may be presumed to afford a clear picture of the transaction.  The petitioner, in 1930, was a holding company which owned all the capital stock of its two subsidiaries, Brothers and Materials, which were engaged in the marine contracting business.  Gwin A. Whitney was president of all three corporations and a major shareholder of petitioner, with substantially all the rest of its stock being held by his family connections.  Scott was an entirely distinct corporation, resulting from several old constituent companies, and was anxious to acquire a marine contracting business in the Great Lakes region.  After some discussion a plan was drawn up by Whitney and Scott by which Brothers was to dispose of its gravel business to Materials, and petitioner was to do the same; and Brothers was then to transfer all its remaining property relating to the marine contracting business and its good will to a new company to be organized, the Merritt-Chapman & Whitney Corporation, in exchange for 4,800 shares of the new company's common stock, the remaining 2,700 shares of the*917  total of New's 7,500 shares to go to petitioner.  The next step was for Brothers to exchange its 4,800 shares of New for 10,000 shares of common and 2,500 shares of preferred of Scott's stock and then to dissolve, petitioner at the same time exchanging its 2,700 shares of New stock with Scott for cash.  This plan was set out in an agreement of October 17, 1930, between Gwin A. Whitney and Scott, and its supplements of December 1 and 19, 1930.  Certain intercompany transfers between Brothers and petitioner took place before the exchange with New and with Scott.  In these transfers Scott had no interest.  The plan, as outlined, was carried out in substance, including the transfer of certain assets by petitioner to New not specifically mentioned in the plan.  Part of these assets had been received by petitioner from Brothers in the intercompany transfers.  Brothers did not transfer all its assets to New but retained cash in excess of liabilities in the amount of $25,300, and about the same amount of accounts receivable and debts.  It had transferred directly to New $126,000 of assets, and including those transferred through petitioner, $211,000.  Petitioner, after its transfer to New, *918  still held about 40 *234  percent of its original total assets, not including its shares of stock of Brothers.  Brothers, after the transfer, continued to exist, but did no business beyond holding the Scott stock and its other assets.  Respondent, in his deficiency notice, treated the several transactions as severable, holding that gain from the transfers of assets by petitioner and its wholly owned subsidiary Brothers to New in exchange for all the issued stock of that company was nonrecognizable under section 112(b)(5), but that the second transfer by petitioner and Brothers of New's stock so received to Scott for the latter's stock resulted in recognizable gain, since New was not dissolved and petitioner and its subsidiary, Brothers, were not, after the second transfer, in control of Scott.  Respondent now contends that the transaction was a sale of assets by petitioner and Brothers for cash, notes, and stock, and the gain is therefore recognizable under section 112 of the Revenue Act of 1928; that the plan, as adopted and carried out, does not fall within the statute; and that, even if it should be held within the statute, the corporate entities of petitioner and Brothers*919  should be ignored and a taxable profit found.  We may assume that the transfers of assets by petitioner and its subsidiary Brothers to New in exchange for New's stock would be a reorganization within the meaning of the statute.  However, the "plan of reorganization" contemplated more.  Pursuant to its terms, petitioner exchanged its stock in New with Scott for cash and notes, and Brothers exchanged its stock in New with Scott for Scott's stock in an amount which represented only a small percentage of the total stock of Scott then outstanding.  This occurred December 30, 1930, on the same day petitioner and Brothers had acquired the stock of New.  It is obvious that these were all steps in one transaction.  As a result of the entire transaction, petitioner had transferred certain of its assets to New and held, on December 30, 1930, cash and notes of Scott, and Brothers had transferred certain of its assets to New and held stock in Scott, which, in turn, held all of the outstanding stock of New.  There is no question but that the cash and the notes held by petitioner are taxable to the extent of the gain realized, the latter at their fair market value, as found by us in the findings*920  of fact.  This part of the transaction would fall within the general taxing provision of section 112(a) of the Revenue Act of 1928 as a sale; and even if the cash had been combined with property permitted to be exchanged without tax recognition, the cash would still be taxable *235  under section 112(c)(1), set out in the margin. 3 As to whether the stock of Scott acquired by Brothers is taxable, we think this question has been decided by the Supreme Court of the United States in the case of Groman v. Commissioner,302 U.S. 82">302 U.S. 82, the opinion in which was handed down subsequent to the submission of this case.  Under the authority of that decision and the decision in Helvering v. Bashford,302 U.S. 454">302 U.S. 454, it is our opinion that Scott was not a party to any reorganization and that the receipt of its stock by Brothers was the occasion for computation of taxable gain within the meaning of section 112(a) of the Revenue Act of 1928, set out in the margin. 4 As those cases demonstrate, the proper test of whether a corporation is a "party to a reorganization" is to be found in the continuity of interest which the shareholders of one corporation*921  have after the exchange in the second corporation.  The transfer of assets by petitioner and Brothers to New in exchange for New's stock, and the immediate transfer by petitioner and Brothers of New's stock so received to Scott in exchange, respectively, for cash and notes, and for Scott's stock, resulted in no continuity of interest in Scott.  Brothers parted with its assets, and as the result of the reorganization plan received Scott's stock, but the latter did not represent in any way the old assets which remained in Scott's subsidiary, New.  The continuity of interest must be material and permanent.  Helvering v. Bashford, supra.Cf. Gilbert D. Heddin,37 B.T.A. 1082">37 B.T.A. 1082; Note 51 Harv.L.Rev. 893. The same result would follow as to Scott's stock in Brothers' hands, even if Brothers had retained a portion of New's stock received on the first stage of the transaction, for the situation would then be precisely that considered in the Groman and Bashford cases, Scott's stock being "other property" within the meaning of section 112(c)(1), and, as such, recognizable for tax purposes.  On this point we must hold for respondent.  *922 2.  The only remaining question is whether the transaction was closed in 1930 so as to render any gain realized by petitioner or *236  Brothers determinable in that year.  Petitioner contends that the provisions of the agreement with Scott, by which 1,667 shares of the former's preferred stock were placed in escrow at the time of the exchange in 1930*923  as security for Gwin A. Whitney's guaranty of the minimum earnings of the New company for the period ended December 31, 1931, make the gain completely uncertain in that year and not determinable until 1932.  The fair market value of Scott preferred stock has been stipulated and is covered by our findings.  It is true that 520 shares of this stock had to be returned ultimately by Brothers for failure to meet the guaranty in full, but this does not affect the gain realized in 1930.  At most, it would result in a loss in the later year.  The stock was issued to Brothers, and in its name, and any dividends payable by reason of its ownership would have gone to Brothers.  We think that Commissioner v. Darnell, Inc., 60 Fed.(2d) 82, relied on by petitioner, is distinguishable on its facts, and that the situation is ruled in respondent's favor by our decisions in Federal Development Co.,18 B.T.A. 971">18 B.T.A. 971, and Luther Bonham,33 B.T.A. 1100">33 B.T.A. 1100; affd., 89 Fed.(2d) 725. Cf. North American Oil Consolidated v. Burnet,286 U.S. 417">286 U.S. 417. Judgment will be entered under Rule 50.Footnotes1. ART. 16. - PARENT AGENT FOR SUBSIDIARIES.  (a) Scope of Agency of Parent.Except as provided in paragraphs (b) and (c) of this article (relating to the effect of the withdrawal of a subsidiary or the dissolution of the parent) - The parent corporation shall be for all purposes, in respect of the tax for the taxable year for which a consolidated return is made or is required, the agent of each corporation which during any part of such year was a member of the affiliated group, duly authorized in the name of the parent to act for and represent each such corporation in all matters relating to such tax; the parent corporation shall be the sole agent for such corporations in such matters; and such corporations shall not have authority to act for or represent themselves in any such matter.  For example, all correspondence will be carried on directly with the parent; deficiency letters will be mailed only to the parent, and the mailing to the parent shall be considered as a mailing to each such corporation; the parent will file petitions and conduct proceedings before the Board of Tax Appeals, and any such petition shall be considered as having also been filed by each such corporation; the parent will file claims for refund or credit; refunds will be made directly to and in the name of the parent and will discharge any liability of the Government in respect thereof to any such corporation; and the parent in its name will give waivers, give bonds, and execute closing agreements, offers in compromise, and all other documents, and any waiver or bond so given, or agreement, offer in compromise, or any other document so executed, shall be considered as having also been given or executed by each such corporation.  Notwithstanding the provisions of this paragraph, however, any deficiency letter, in respect of the tax for a consolidated return period, will name each corporation which was a member of the affiliated group during any part of such period, any assessment (whether of the original tax or of a deficiency) will be made in the name of each such corporation (but a failure to include the name of any such corporation will not affect the validity of the deficiency letter or the assessment as to the other corporations); and any notice or demand for payment, any distraint (or warrant in respect thereof), any levy (or notice in respect thereof), any notice of a lien, or any other proceeding to collect the amount of any assessment, after the assessment has been made, will name the corporation from which such collection is to be made.  The provisions of this paragraph shall apply whether or not a consolidated return is made for any subsequent year, and whether or not one or more subsidiaries have become or have ceased to be members of the group at any time (but see paragraph (b),↩ of this article). 2. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (b) Exchanges solely in kind. - * * * (3) STOCK FOR STOCK ON REORGANIZATION. - No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.  (4) SAME - GAIN OF CORPORATION. - No gain or loss shall be recognized if a corporation a party to a reorganization exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.  * * * (i) Definition of reorganization. - As used in this section and sections 113 and 115 - (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), * * * ↩3. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (c) Gain from exchanges not solely in kind. - (1) If an exchange would be within the provisions of subsection (b)(1), (2), (3), or (5) of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient 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.  ↩4.  SEC. 112.  RECOGNITION OF GAIN OR LOSS.  (a) General rule.↩ - Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.