1942 BTA LEXIS 810 | B.T.A. | 1942
Lead Opinion
In making its income and excess profits tax return for the fiscal year ended September 30, 1936, the taxable year, petitioner computed gain or loss on the disposition of the inventories and on the realization of the accounts and notes receivable, and depreciation on the depreciable assets, all of which it had acquired from the old company, by using the basis of those assets in the hands of that company. In the hands of the old company the basis of the inventories was $112,966.27 and of the accounts and notes receivable was $65,588.76; and the basis of the depreciable assets after adjustment for depreciation was $11,481.14.
Respondent determined that petitioner was not entitled to use the basis of the assets in question in the hands of the old company and that the correct basis of the assets in question was the cost thereof to petitioner. He determined that all of the assets acquired by peti
Petitioner bases its claim that the correct basis of the assets in question was the same as in the hands of the old company on section 113 (a) (7) of the Revenue Act of 1934, the pertinent provisions of which are set forth in the margin.
The transaction in which petitioner acquired the assets of the old company was not a reorganization within the meaning of subdivision (C) of section 112 (g) (1). Subdivision (C) requires that “immediately after the transfer the transferor or its stockholders or both” be in “control” of the transferee. “Control” is defined in section 112 (h)
Nor was the transaction a reorganization within the meaning of subdivision (E) of section 112 (g) (1). In Helvering v. Southwest Consolidated Corporation, supra, the Supreme Court made the very pertinent observation that “a transaction which shifts the ownership of the proprietary interest in a corporation is hardly ‘a mere change in identity, form, or place of organization’ within the meaning of clause E.”
It follows that section 113 (a) (7) is not applicable.
The correct basis of the assets in question was thus the cost of such assets to petitioner. Sec. 113 (a).
In our opinion the fair market value of the shares of stock at the time of issue should be measured by the fair market value of the assets of the old company less $68,265.91. In this case the fair market value
The record satisfies us that the assets acquired by petitioner from the old company had a total fair market value at the time of acquisition of $195,910.63 ■; and that the fair market value of the inventories was $112,966.27; of the accounts and notes receivable, $65,588.76; and of the depreciable assets, $11,481.14. Thus the fair market value of the shares of stock issued for the assets was $195,-910.63 less $68,265.91, or $127,644.72; and the total cost of the assets to petitioner was $195,910.63. The total cost of $195,910.63 was allo-cable in part as follows: $112,966.27 to inventories, $65,588.76 to accounts and notes receivable, and $11,481.14 to depreciable assets.
Petitioner concedes that respondent correctly disallowed two deductions totaling $271.10. Respondent allowed three deductions totaling $16,733.20 which were not taken on petitioner’s original return. Therefore, there is no deficiency and there is an overpayment in income tax for the taxable year. The amount of the overpayment
Eeviewed by the Board.
Decision will be entered umder Rule SO.
The amount of $129,065.91 appears to be the total of the following amounts: $61,700, the total par value of the 617 shares of preferred stock issued by petitioner to the assenting creditors of the old company; $443.17, the net amount paid by petitioner to assenting creditors of the old company for fractional shares; $23,278.63, the total amount paid by petitioner to nonassenting creditors of the old company; and $44,544.11, the total amount of the liabilities of the old company or of the trustee assumed by petitioner.
SEC. 113. adjusted BASIS FOR DETERMINING GAIN OR LOSS.
(a) Basis (unadjusted) oí Property. — The basis of property shall be the cost of such property; except that—
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(7) Transfees to corporation where control of property remains in same persons. — If the property 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 50 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. * * *
SEC. 112. RECOGNITION OF GAIN OR LOSS.
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(g) Definition of Reorganization.- — As used in this section and section 113.
(1) The term “reorganization” means (A) a statutory merger or consolidation, or (B) the acquisition by one corporation in exchange solely for all or a part of its voting stock; of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of another corporation; or of substantially all the properties of another corporation, or (C) 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 (D) a recapitalization, or (E)i a mere change in identity, form, or place of organization, however effected.
SEC. 112. RECOGNITION OF GAIN OR LOSS.
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SEC. 113. adjusted BASIS FOR DETERMINING GAIN OR LOSS.
(a) Basis (unadjusted) of Propertt. — The basis of property shall be the cost of such property; * * *
It so happens that the basis of the assets in question to petitioner is approximately the same as the basis thereof to the old company at the time of the transfer of assets.