1933 BTA LEXIS 1194 | B.T.A. | 1933
Lead Opinion
Section 203(c) of the Revenue Act of 1926 provides:
If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized.
Article 1576, Regulations 69, cited by both the petitioner and the respondent, is as follows:
Receipt of stock or securities in reorganization. — If, without any surrender of his stock or securities, a shareholder in a corporation a party to a reorganization receives in pursuance of the plan of reorganization stock or securities*35 in such corporation or in another corporation a party to the reorganization, no gain to the shareholder will be recognized.
Section 203 (h) of the Revenue Act of 1926 defines the terms material to the issue in the case at bar, as used in section 203 (c), in the following language:
(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 in control of the corporation to which the assets are transferred, or (C) a recapitalization, or (D) a mere change in identity, form or place of reorganization, however effected.
(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 cf 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.
The petitioner contends that the bonds received by decedent in 1926 as a stockholder of the Sandusky Cement Co. are exempt from income tax upon the ground that they were distributed to her " in pursuance of a plan of reorganization ” under section 203 (c) of the Revenue Act of 1926. Whether this be so depends upon the interpretation given to section 203 (h) (1) (A) of the Revenue Act of 1926 quoted above. In Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462, the Supreme Court, referring tp this language, 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 assets 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 he 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. This general view is adopted and well sustained in Cortland Specialty Co. v. Commissioner of Internal Revenue, 60 E. (2d) 937, 939, 940. It harmonizes with the underlying purpose of the provisions in respect of exemptions and gives some effect ¡to a)l the words employed. [Italics supplied.]
From our findings it is to be noted that the Sandusky Cement Co. acquired all of the capital stock and bonds of the Railway Co. in 1922. This was an .outright purchase. The stockholders and bondholders of the Railway Co, received cash and short term notes in payment for the securities sold, They did not acquire any
It appears to us that there is no ground for holding the decedent exempt from income tax in respect of the fair market value of the bonds received, the value of which is not in question. The decision of the United States Supreme Court in United States v. Phellis, 257 U.S. 156, is determinative of this issue.
Reviewed by the Board.
Judgment will be entered for the respondent.
Trammell dissents.
Dissenting Opinion
dissenting: The prevailing opinion in this case turns solely on the ground that when the Cement Co. acquired 100 percent of the stock and bonds of the Railway Co. there was no reorganization under the statute. It may be pertinent first to point out that neither in the notice of deficiency, nor in the pleadings, nor at the hearing, has respondent ever questioned the fact that there was a statutory reorganization in 1922. The sole issue to which the attention of the parties has been addressed is whether or not the distribution of bonds in 1926 came under section 203 (c) of the Revenue Act of 1926, and the contention of respondent is that the distribution was made at such a time and in such a manner as to constitute the payment of a dividend and not a distribution “ in pursuance of a plan of reorganization.”
Section 203 (h) (1) provides:
(li) 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 in control of the corporation to which the assets are transferred, or (C) a recapitalization, or (D) a mere change in identity, form, or place of organization, however effected.
It may be that some of the confusion in this case arises from the thought that the transaction here does not look like a “ reorganization ” as popularly understood. But we are concerned not with the popular definition or conception, but with the statutory definition, a very different thing. Whether this transaction was a “ merger ” or a “ consolidation ” at common law is not the question. The question is does it come within the statutory definition, especially the parenthetical clause which the Supreme Court has said enlarges the scope of the terms used. Believing that it does, I must dissent.