1931 BTA LEXIS 2099 | B.T.A. | 1931
Lead Opinion
The principal question involved in these proceedings is whether the parent company realized a taxable gain or sustained a deductible loss upon the liquidation of its subsidiary during the calendar year 1920. Petitioners contend that the parent company sustained a deductible loss of $675,438.31 as representing the difference between the cost to the parent company of the subsidiary’s stock, namely, $1,293,900, and the amount received by the parent company in final liquidation, namely, $618,461.69. The respondent determined that, since the two corporations were affiliated within the meaning of section 240 of the Revenue Act of 1918, neither gain nor loss resulted from the transaction in question. He still maintains that his determination in this respect was proper, but has pleaded in the alternative that in case the Board should hold the
In Remington Rand, Inc. v. Commissioner, 33 Fed. (2d) 77; certiorari denied, 280 U. S. 591, the Circuit Court of Appeals for the Second Circuit held that where one corporation on March 1, 1916, purchased all of the stock of another corporation for a consideration of $45,000, and on February 28, 1920, sold such stock for $60,000, it realized a taxable profit of $15,000 on the sale, notwithstanding the two corporations were affiliated within the meaning of section 240, supra, and had filed consolidated returns for the years 1918, 1919, and the first two months of 1920. In the opinion the Court treated both the purchase and sale as taking place outside the period of affiliation. The language of the Court is:
Such a sale [of stock] terminates the affiliation which had resulted from its purchase. Both the purchase and the sale took place outside the period of affiliation, and were made by the seller for its own account, not for the account of the affiliation — as much so, we think, as if the parent company had purchased Blackacre before the affiliation began and had sold it after the affiliation.
In Riggs National Bank, 17 B. T. A. 615, and Obenchain-Boyer Co., 18 B. T. A. 293, we followed the Remington-Rand decision to the extent of recognizing that the disposition of stock by a member of an affiliated group which results in termination of the affiliation, may give rise to gain or loss. We think the same rule should be applied to the facts in the instant proceedings. See also the last sentence of section 201 (c) of the Revenue Act of 1918, reading: “Amounts distributed in the liquidation of a corporation shall be treated as payments in exchange for stock or shares, and any gain or profit realized thereby shall be taxed to the distributee as other gains or profits ” and Hellmich v. Hellman, 276 U. S. 233.
We are thus confronted with the respondent’s alternative contention, which presents the question whether the parent company sustained a deductible loss of $675,438.31 as contended by petitioners, or realized a taxable gain of $324,561.69, as contended by the respondent. The answer lies in whether the special dividend of $1,000,000 was an ordinary dividend as the petitioners contend, or
Reviewed by the Board.
Judgment will he entered under Rule 50.