*1 828 839, 117, 449 46, U.S. 66 46 Thorpe, v. 189 F.2d 51 L.Ed.2d

his.” Landstrom (8th Cir.) English (quoting American denied, Law), cert. 342 Encyclopedia U.S. Judge Motley “[pjlaintiff found that 37, 819, (1951); 72 96 620 Black’s S.Ct. L.Ed. specific any has failed to forth set facts Dictionary 1968); Law 1559 ed. see indicating any of bad acts faith F.Supp. v. Oil 45 Coastal Club Shell ” reading defendant . . . . Our 859, (W.D.La.1942). 863 impels agree. record us to One func In order to an action establish judgment tions summary the “avoid title, plaintiff slander of show must long expensive litigation ance pro publication there has been a malicious Washington nothing....” ductive of Post concerning allegations false the title to his 965, Keogh, (D.C.Cir. Co. v. 365 F.2d 968 property causing special damages. Wendy's 1011, 1966), deniеd, cert. 385 87 U.S. S.Ct. Jersey, Manage of South Inc. v. Blanchard 708, (1967). Eight years 17 L.Ed.2d 548 493, N.J.Super. 491, 170 Corp., ment 406 Bay litigation by or on Point have behalf 1337, (Ch.Div.1979); Frega A.2d 1338 v. produced nothing. absence of that — Jersey Mortgage Northern New Associa showing faith or malice on the bad tion, 331, N.J.Super. 337-41, 51 143 A.2d defendant, part of there is no reason 885, (App.Div.1958); Bogosian 889 v. First keep litigation hope alive in the Bank, N.J.Eq. 133 32 plaintiff prove Bay could Point’s mort 585, (Ch.Div.1943). A.2d 586 Malice or bad gage property been has satisfied. The “gist faith of the action” for slander been free clear the mortgage sold Deshler, 167, of title. Andrew v. 45 N.J.L. lien. There let the matter end. (N.J.1883). 170 A defendant who asserts a Judgment and order affirmed. against good

claim property in faith “under impression an honest of its will truth” penalized damages. Rogers Carl Moran, 163,

Corp. 168, v. N.J.Super. 103 246 750, (App.Div.1968).

A.2d 753 alleges

Plaintiff that defendant

knew that its lien invalid was bad However,

faith refused to it. release when CORPORATION, summary judgment a motion for is made McCRORY supported, case, Plaintiff-Appellant, as it inwas opposing party may upon not rest mere v. conclusory allegations or denials. SEC v. America, UNITED STATES of Corp., 31, Research Automation 585 F.2d 33 Defendant-Appellee. (2d Cir. plaintiff A does not become 775, jury entitled to No. Docket simply by asserting trial 80-6243. cause of action in which the defendant’s Appeals, States Court of state of mind is a materiаl element. Hahn Second Circuit. Sargent, 461, (1st v. 523 F.2d 468 Cir. denied, cert. 425 Argued U.S. S.Ct. March L.Ed.2d 54 Some facts must be 12, 1981. Decided June support asserted to the claim that the state Heiman, of mind existed. Housand (2d 1979);

F.2d Herrmann v.

Moore, Cir.), (2d cert.

denied, (1978);

L.Ed.2d 679 Yiamouyiannis States, Inc.,

Consumers Union the United Cir.), (2d 939 — 42 *2 acquired corporations

time the liqui- dated, we reverse and remand for further findings of fact.

I. *3 (“McCro- Appellant McCrory Corporation ry”) brought this action in district court $57,278.70, interest, seeking plus ‍​‌​‌​‌​​‌‌​‌​​‌​​​‌​‌​​​‌​‌​​​​​‌‌‌‌​​‌‌‌‌​​​​​‌‍a refund of Baum, Levin, Asofsky (Rubin, alleged Paul H. on income taxes to have been im- Friedman, properly Constant & New on City, York assessed and for cor- collected the brief), plaintiff-appellant. the poration’s year January for tax that ended maintained that the Inter- Farrell, P. Atty. Jams Asst. U. S. (“IRS”) erroneously nal Revenue Service Y., City (John D. of S. N. New York S. $159,107 totaling disallowed deductions for Martin, Jr., Atty., U. S. David M. Jones expenses incurred incident the two trans- Dolinger, Attys., Michael H. Asst. U. S. dispute actions issue in here. The was City, brief), New York for defend- presented to the district court for decision ant-appellee. by judgment, summary cross-motions for on stipulated par- basis by of facts TIMBERS, Before KAUFMAN Cir ties. WARD, Judges, cuit Judge.* District Each giving of the two transactions rise WARD,

ROBERT J. Judge: District presents this appeal legal ques- the same appeal presents This question the narrow acqui- tion. Both transactions involved the purposes whether for federal inсome tax by corporation sition one of the stock of acquiring corporation may ex- deduct the another by statutory merger. In the first penses corpo- transaction, incident its of a completed 31, 1958, on October tax-free, subsidiary rate by a (“Olen”), stock-for- Company, acquired Olen Inc. was exchange pursuant stock merged to I.R.C. 361 by and H. Company §§ into L. Green years during in the later (“Green”), tax which McCrory’s predecessor.1 On De- acquiring corpbration liquidates 22, 1960, transaction, cember second subsidiary disposes of the line or Shops Delaware, lines National Inc. Shirt acquired of business in the earlier (“National”), acquired transac- merged was Reasoning tion. in this case that ex- McCrory. engaged into Olen was in the penses by appellant acquiring were incurred operating business of a chain of retail stores corpo- in the dealing general creation of a new merchandise. National entity rate comprising acquiring corpo- operated selling chain of stores men’s ration merged with acquired two subsidi- furnishings retail. The IRS determined aries, the district court held merg- that both transactions were tax-free became the capital 368(a)(1)(A), basis of ers and as corporation and could a result Olen the shareholders of and Na- surviving corpo- deducted at the time of the exchanged tional who their stock for shares ration’s demise. Because we McCrory, find that in Green respectively, sus- acquiring corporation may have been enti- gain tained no or loss for federal income tled to deduct some of these purposes.2 tax * 361(a), Of the United States District Court for 2. Pursuant York, sitting by 361(a), gain recognized Southern District of New des- or loss shall party “[n]o ignation. if a to a pursuance exchanges property, plan reorganization, solely subsequently merged for stock or securities in Green into corрoration party reorganiza- Green-McCrory June another 1961. The transaction “Reorganization” is in I.R.C. is not in tion.” defined issue here. Accordingly, business. Green, doned Olen time it was At the successor, McCrory, as claimed the Green’s business both its retail operating was Olen $52,843 year ending its tax deduction for through ownership of directly and 31, 1965, year in January The subsidiaries corporations. subsidiary Be- thereafter business was discontinued. from Olen operating Di- had a net loss for as Mobile Green’s cause functioned [Alabama] however, proved unprof- carried this de- year, Division vision. The Mobile itable, however, January year ending Januаry and on to the tax duction over issue, 31,1966, in the divi- which McCro- year of the subsidiaries when most insolvent, subsidiary cor- carryover. operating loss ry sion had a net liquidated and their assets porations were return, McCrory income tax On its 1960 By November to Green. distributed $146,533 expenses incident to deducted had been dissolved each of the subsidiaries allowed merger with National. IRS *4 corporate had charters and the subsidiaries’ $40,269 a to be taken as of this amount having suc- McCrory, been surrendered. deduction, required the remain- but current 1961, directly in June then ceeded Green $106,264 capitalized. McCrory ing to be retail stores in the operated the sought this latter sum in the to deduct gradually merger. The stores were 31, 1966, ending January during year tax over the of the next three sold off course completed divesting itself of which it had finally was dis- years. The Olen business assets. the National subsidiaries their year ending McCrory’s continued in tax ending year 31, January 1965. McCrory claimed total January Olen, its retail operated $159,107 Like National of incident deduction directly through subsidiary outlets both McCrory-National to the Green-Olen January McCro- corporations. On the IRS’s determina- It was transactions. operating assets ry sold the that led to to allow this deduction tion not and in Novem- pаrties to third subsidiaries this lawsuit. liquidated the sub- ber and December 1964 II. The charters all sidiaries.3 were National subsidiaries surrendered us, question we were precise before The January June 1965 and 1966.4 between discover, is one of surprised to somewhat parties pointed impression. first The $52,- initially sought to deduct none, case, and we have found us to no acquisition incident to its in this case— addressing issue raised year during the ac- in the tax expenses incurred capitalized whether ultimately quisition was made. The IRS ongoing connection this deduction on determined not allow merger be by statutory can business ground nonde- lines of that the lines year in the when the expenditures be deducted that could ductible Strictly or abandoned. are sold only when Green aban- business deducted bearing 368(a)(1)(A), determination 368(a)(1)(A), to in- rations no § 26 U.S.C. § statutory merger appeal, to the or consolidation.” be some concern clude “a district court on remand. McCrory’s liquidation of National subsidi- 3. accomplished provisions hap- aries was under stipulated do reveal what facts 4. The 332, pursuant to which assets, any, pened if and the to the charter gain “recognized receipt on the no or loss is Presumably National’s assets National itself. property com- distributed surrendered and its charter also were sold corporation.” plete liquidation The of another event, January neither stipulated do below facts to which precise suggests that the nor the Government and its subsidiaries not disclose whether Olen we need with which a matter fate of National liquidated, distribut- also were and their assets ourselves, our deci- view of and in to concern ed, Although with in accordance why this matter reason sion here we no any gains question whether or losses time. at this should considered corpo- recognized liquidation of the Olen speaking, currently we are not here with concеrned deductible.5 Ameri capitalized organization or Colortype can 10 B.T.A. expenses, expenditures (1928). Similarly, expenses or incident to incurred liquidation corporation. capital reorganiza of a incident to a capital expenditures tion also are and not presented question The divides itself Estate, currently Mills deductible. Inc. sequential inquiry. into two lines of Commissioner, (2d Cir. first is whether 1953); Rayon Corp. Skenandoa v. Commis should expenditures issue here be viewed as sioner, (2d Cir.), 122 F.2d 268 corporate organizations incident to or reor L.Ed. 556 ganizations, expenditures be treated as Corp. See also Bilar Tool Die & incident to the of assets. The Commissioner, 711-12 Government, calling McCrory’s expendi Mertens, and 4A J. Law “merger expenses,” tures contends that the 25.35, Federal Income Taxation at 177 organization should be treated as (rev. requirement ed. that reor reorganization expenditures. In our ganization expenses capitalized is con view, McCrory’s expenses are principle organization sistent with the properly analogous more viewed as costs are expenditures. This rule incident to the of an asset supported by judicial reasoning and should be accordingly. treated View reorganization expenditures, or such like ing the matter in this way, we conclude *5 ganization expenditures, contribute to the may have been entitled to the asset, intangible creation an long-term deduction some of its ex namely change corporate “a in the struc penses at the it disposed time of the Olen operations.” ture for the benefit of future and National assets lines of business. Estate, Commissioner, supra, Mills Inc. v. Having conclusion, reached this it is neces 206 F.2d sary that we then turn to a second line inquiry and consider whether all or Moreover, the do not dis part McCrory’s acquisition expenses were pute merger the now-settled law that that, deductible. We conclude because acquisition expenses are not deductible some of the in surviving, acquiring corporate entity at curred, effect, in the capital, the time generally transaction. See McCrory was not entitled to deduct all of Eustice, B. Bittker & J. Federal Income incident to the Corporations Taxation of and Shareholders Olen and discussing National. After first 15.04, (4th 1979), at 5—10 to 5-11 ed. legal precedents governing the deducti Mertens, supra, 25.35, 4A J. at 177. The bility organization, reorganization and acquiring ‍​‌​‌​‌​​‌‌​‌​​‌​​​‌​‌​​​‌​‌​​​​​‌‌‌‌​​‌‌‌‌​​​​​‌‍incident to a business merger expenses generally, we turn in the purchasing the stоck another discussion below to a consideration of the capital expenditures pur for income tax two lines inquiry summarized above. poses and must be treated as of the thereby acquired. of the asset cost Wood

A. Commissioner, 572, ward v. 397 90 U.S. long-established 1302, It is a principle (1970); of S.Ct. 25 L.Ed.2d 577 United corporate corporation’s tax law 580, that a or Corp., v. Hilton States Hotels ganizing expenses constitute outlays (1970). 25 L.Ed.2d 585 248, however, Presumably 5. I.R.C. 26 U.S.C. § af- tions. and itures in were not cause this is because option fords its predecessor recognized expend- to elect to treat organization expenditures as deferred connection these transactions ratably corpo- “organizational expenditures” and deduct them over the be- years longer ration’s they directly first five of business incident to operations. sought corporation. Neither nor Green creation of a See l.R.C. provision 248(b)(1) to avail 1.248-l(b)(4) itself of this in con- and 26 C.F.R. acquisi- nection (1979). with the National and Olen

833 capital outlays. nondeductible These costs into corporation dissolves acquired when an may cor be de reduce inflow transfers its assets to merger, upon liquidation ducted when incurred or poration organization Keuren, acquired Jаmes I. Van 28 and dissolution. year in the penditures not be deducted also General B.T.A. 487 See Rather, merger. the Fifth Circuit of the Commissioner, Corp. Bancshares v. v. United ruled in Vulcan Materials Co. denied, (8th Cir.), 712 379 85 cert. U.S. States, (1964) (no 13 L.Ed.2d 40 deduction S.Ct. 942, 92 (1971), 30 L.Ed.2d for costs incident to issuance stock divi life corporate “the attributes [of dend); Pacific Coast Biscuit 32 B.T.A. dissolving corporation] are trans (no (1935), acq., 1954-1 C.B. 6 deduction surviving corporation to the and are ferred retiring issuing stock and new for costs of preserved.” The intan there continued and Eustice, stock); supra, B. Bittker & J. gible corporate enti 115.04,at 5-17. organization perhaps by ty, created on reorganization, and inure to continue B. operations benefit of future surviv ing corporation. inquiry, We turn now to our first wheth- er in issue here should be Organization capital expenditures, expenses incident viewed as incurred, ized when are deductible at the reorganization or to of assets. corporate entity time is dissolved. Mal argues that the Green and The Government Association, (1928), Temple 16 B.T.A. 409 ta McCrory acquisition expenditures are akin acq., also XIII-2 C.B. See merger expenses Materials Vulcan Commissioner, Bryant Heater Co. supra, Co. v. (6th F.2d Cir. and Shellabar expenditures ‍​‌​‌​‌​​‌‌​‌​​‌​​​‌​‌​​​‌​‌​​​​​‌‌‌‌​​‌‌‌‌​​​​​‌‍issue Commissioner, ger Products Grain Co. Estate, Commissioner, supra. Mills Inc. v. This F.2d rule it, po- As we understand Government’s premise corpo that when based *6 rule of Vulcan Ma- sition that under the completely ration is dissolved it loses its acquisition expenses capitalized terials the corporate identity privilege doing and its intangible assets of here must be treated as corporation. business as a As a result of persist acquiring corporations that will “liquidation and dissolu all entities in successor tion, something it lost or abandoned colórate surviving continuing benefit until the last paid and it was entitled to a had Arguing along corporation is dissolved. resulting Kop deduction from the loss.” lines, urges the Government further similar pers Co. United expenses in the same man- us to treat these (Ct.Cl.1960). expenses in at issue ner as we treated reorganization Capitalized ex them to con- Mills Estate and consider penditures may also deducted dissolut corporate “altered struc- tributed to an why expendi We no ion.6 reason such ture,” in F.2d at that continued tures should be treated the same as McCrory disposition of the earlier- after the capitalized organization expenditures are of busi- acquired Olen and National lines taxpayer treated when made no ness. pursuant eleсtion to I.R.C. 248—at least Materials one We do not believe that Vulcan purely where transaction is of reor broadly be read as ganization raising involve the and Mills Estate should does not hand, suggests. Neither capital. of new the other as the Government On stock, subsequent penses acquisition and dis- incident to the issuance of or involved the corporations and asso- general, position subsidiary in in corpora- to I.R.C. organization expenditures, be amortized 6. Unlike expenses effecting tion’s C. dated lines business. Vulcan Materi- capitalized taxpayer als the Judge Knapp acquisition ruled that “the sought were incurred connec- deduct not, in- strictly speaking, mergers tion with a series of that ultimate- merely curred to obtain the assets of Olen ly preced- of the resulted in the assets of all National, but rather were incurred becoming ing corporate part of the entities particular legal order to achieve the vehicle Company. surviving The Vulcan Materials (in instance, statutory each a tax-free sale, liquida- case did not involve the later merger) thought be desira- or disposition tion other F.Supp. ble.” 496 district or earlier subsidiaries court held that because Olen and National mergers. were prеsent- In Mills Estate we merger, acquired by statutory only deductibility ed 368(a)(1)(A), all capital reorganiza- incident to an internal to be had carried as assets of liquidation. Again, partial tion and no sale acquiring corporations and could not be disposition and subsequent occurred. successor’s) McCrory’s (or until deducted its In the Green-Olen McCrory-Na demise. the taxpayer tional argue Government the dissent predecessor purchased the assets and lines having acquire elected to Olen and of business of the subsidiaries. merger tax- tax-free We with that its payer McCrory accept “must the tax conse- costs should be any treated the same as choice, quences of contemplat- whether [its] incurred in the of an ed not.” Commissioner National Al- general rule, expenditures asset. As a inci Dehydrating Milling falfa & dent to the of an asset must be 2129, 2137, 40 L.Ed.2d 717 capitalized by taxpayer of the dispute ofWe course have no cost of the asset and either deducted as proposition. consequences this The tax depreciation expense over the asset’s life McCrory’s election are what this case is all time or nondepreciable carried as a asset problem is about. Our with the contention only be deducted at the the acquired time somehow, because of the benefits asset is sold abandoned. least acquisitions merger by statutory pursu- case, the analogy suggests is 361(a) 368(a)(1)(A), ant §§ proper one. losing must suffer burden of If the transactions here involved ability deduct subsequent disposition acquisitions. incurred incident to the the assets and lines of business Olen and argument purported fault in this National, all acquisition expenses associated *7 burden does logically not flow from the could have been deducted time the benefits of an ex- I.R.C. 361 tax-free § Olen and National assets and businesses change. It was the shareholders of Olen completely disposed were and In of. and National who from benefited section case, however, this because acquisi- the two McCrory No 361. matter how and Green tions were mixed involving transactions, pursuant structured the to both the capital purchas- and the 1032(a) I.R.C. there would have been no § assets, ing of presented we are with the by acquiring taxable event cor- realized question above, second adverted to whether porations.7 part all of McCrory’s penses were deductible. It to is to this We that critical a decision second it is inquiry that we now turn. McCrory that chose ac- here and Green to aware, course, 1032(a), McCrory 1032(a), 7. Under § I.R.C. 26 and did § U.S.C. gain recognized provisions “[n]o corporation loss shall be to benefit from the tax-free of I.R.C. receipt money or other to the extent that these § § property exchange (including provisions exchange-of-stock for stock trea- made the offer sury stock) corporation.” of such areWe more attractive to the Olen and National share- obtaining capital been would quire by and stock-for-stock National when incurred or when Olen and exchange purchase. cash It deductible by rather than James I. Van however, liquidated. not, aspect of the National the tax-free Keuren, supra. on which our decision turns. transaction8 Rather, un- financing arrangement is the here, course, presented In situation derlying exchange that matters. capital did first raise and then McCrory acquire Olen and National subsidiaries problem presented Rather, by inducing the for cash. share must be viewed in the context of the exchange and to holders of Olen McCrory Green to choices made for Green and McCro their stock shares of rather acquire companies for stock than accomplish taxpayer to ry, elected for cash. The case bеfore us would be an aspects of these transactions— companies two each'of pur easier one if the had been (1) raising (2) purchasing capital and Accepting chased for as we do the cash. effect, Transpor enunciated in Parmelee companies simultaneously. In principles — States, v. capital tation Co. United McCrory raised the to Green and (dictum); Metropolitan (Ct.Cl.1965) 625-26 Olen and National from share States, themselves, by Laundry Co. United F.Supp. holders of Olen and National Massey- (N.D.Cal.1951); issuing McCrory. The 806-07 stock in Green and Inc., Ferguson, (1972), any 59 T.C. incurred connection with aspect caрital-raising of the transaction expenses incurred See time. B. Bittker and National for cash could deduct not deductible at Eustice, 15.07, at supra, corporations J. 5-34. Yet ed at the time the & “clearly purchasing as liquidated, if the identifiable connected e., (i. ac transaction pect lines of business and severable” would have been incurred had the companies type were sold or abandoned.9 quired were, cash) If, however, purchased Id. corporations had issued been hold, deductible at the time the to raise the cash it needed we own stock liquidated.10 companies, compаnies were sold or acquire the two liquidation, along view, however, sold with the associated on In our this incidental holders. (though possibly assets, tangible significant) should not then the deductible benefit illogical give capital ipso applied to an facto rise otherwise would be reduce consequence. gains pursuant unfair U.S.C. part aban- 1011. If transactions involved supra. See 8. note separate sale donment tangible ness, businesses sale of lines of busi- McCrory apparently sought deduct these between allocation ordinary capitalized acquisition expenses from ordinary approрriate. See deductions income as loss generally Transportation Unit- Parmelee Co. v. refusing U.S.C. allow deduc- 623-24; States, supra, ed Joffre simply tions the IRS determined that (N.D.Ga.1971); F.Supp. 1177 failed to that it had sustained had establish 57-503, 139; 1957-2 C.B. Rev.Rul. years loss” in the tax “deductible abandonment 1-165-1, l-167(a)(5) C.F.R. 1-165-2 & §§ question. did not have occa- the IRS Krane, Deducting Legal See also question whether the de- sion address the Problems, Accounting allowed, 44 Tax- Fees: Selected expenses, if and when duction of Magazine Tax 9 & n.13 ordinary es—The would reduce income or reduce the (or losses) capital gains *8 increase the may our have mischaracterized 10. The dissent sale of the assets or lines of business ac- the not, suggests, holding. We the dissent do as if, quired appears, We that as it earlier. purchase of between the draw a distinction expenses directly were allo- the not Rather, purchase of stock and the cash assets. specific cable National, from and to assets Olen raising the of our distinction is between but the rather were attributable to (by issuing stock) the of the generally, and Olen and National lines liquidation McCrory then if on corporation with that stock or assets of another capital. sold off the Olen and Na- Moreover, here, not as a ‍​‌​‌​‌​​‌‌​‌​​‌​​​‌​‌​​​‌​‌​​​​​‌‌‌‌​​‌‌‌‌​​​​​‌‍we do hold tional assets and lines busi- abandoned the believe, might reading the one to ness it would a dissent lead be entitled to 165 abandon- hand, capital are ment to loss. On the other if the lines of that costs incident the surviving (capital-raising) business of Olen and National were themselves deductible when acquisitions giving The rise the tax III. questions at do lend issue here them- Accordingly, McCrory is entitled to selves to treatment basis what opportunity on remand to demonstrate courts and commentators have called the that acquiring and Olen National it in of the aspect” “dominant transaction. E. curred pur assоciated with the .

g., Planing Mill Co. v. Gravois Commission- chase aspect of the were er, See separate and distinct from those Mertens, 25.35, supra, also J. and with capital-raising aspect connected Philipps, Deductibility Legal Expenses acquisitions.12 Having instituted a re Redemptions, in Corporate suit, Incurred Stock fund McCrory bears the burden of Liquidations Separations, Partial proof. Janis, States Duke L.J. 944-48.11 L.Ed.2d 1046 sought acquire Green assets and If on busi- remand district court Olen finds all of nesses of and National. This obvious- ly objective incurred in was the of both Na transactions. aspects (as tional were capital-raising we сonnected the issuance of have la- shareholders, stock them) to Olen and National or beled of the Green-Olen and McCro- capital-rais were common ry-National transactions, though perhaps ing transaction, purchase aspects of the necessary aspect dominant principal, taxpayer be will entitled to no purchasing subsidiary corporations, refund. unquestionably secondary this in- stance. we to follow the “domi- recognize that, We as a result afford- here, aspect” approach nant we would be ing this and other taxpayers the constrained to conсlude that all of the tax- opportunity to achieve deduction of some

payer’s acquisition expenses were deducti- incident of a years ble in completed when McCrory subsidiary merger, the administrative disposition of the Olen and may burden be IRS increased some- businesses. This would be obviously appreciate an un- what. We also taxpay- that the result, may required tenable for then a er corporation keep be ac- more detailed quiring expense records subsidiary by may kept pre- than tax-free here, viously, merger, taxpayer failing and that a keep would receive more fаvor- adequate reap records able will no tax benefit than a corporation treatment ef- from decision today. we reach fecting our a similar pur- cash view, however, recordkeeping and ad- chase having after first raised the cash considerations, ministrative issuing stock. just Such result would insubstantial, do not our warrant reach- as unreasonable urged as the one on us by ing inappropriate an otherwise result and Government, a result we rejected earli- precluding a from taxpayer deducting ever opinion, er in this under which a acquisition expenses appropriate in an case. acquiring a subsidiary by statutory merger get would no deduction of acquisition ex- reversed, judgment disposed whatsoever when it later proceedings remanded for consistent with the subsidiary. opinion. is, course, These It dissolves. costs are never essential refund re- covery (i) deductible. either those of match acquisition expenses it claims were incurred aspect” aspect approach in connection with The “dominant has not See, Note, g., been transaction with and lines free from of business of criticism. e. Deductibility Attorneys’ Fees, Olen and National that were sold or abandoned 74 Harv.L. out, completely (1961), Comment, Rev. and natively closed 1409-11 alter- At- torneys' (ii) Liquidation: demonstrate that all Fees for Partial Business Expense Asset?, fully Capital and National assets and businesses were 6 Stan.L.Rev. 368 finally disposed years and question. the tax *9 parties sitions involved in this case.

KAUFMAN, Judge (dissenting): Circuit chose characterize these transactions as to Judge Ward’s at Admittedly, I dissent. reorganizations, pursuant to tax-free I.R.C. purchase of tempt conceptualize Green’s result, 368(a)(1)(A). and Na- As Olen’s McCrory’s purchase of National as Olen and gains tional’s shareholders avoided transactions, involving initial ex two-step they disposed of their as- liabilities when stock for changes McCrory of Green and Moreover, offering sets. Na- subsequent acquisitions Olen’s cash and vehicle, Green and tional this tax-free in return for that and National’s assets deal, incentive to the McCrory added an cash, superficial appeal. If we follow assets for a presumably obtained the sellers’ majority suggests, approach, this as the proceeds the sellers price, lower because the purchases of costs stock associated Thus, I taxed. cannot received were not intangible are allocable to the “altered cor the benefits to Green and structure,” Estate, Mills Inc. v. Com porate in merely “incidental” na- McCrory were missioner, (2d note 7 ante. ture. See upon and are therefore deductible liqui surviving dissolution at the parties this determined v. United dation. Vulcan Materials Co. not to initial tax liabilities outset incur States, (5th Cir.), F.2d characterizing acquisition as statuto- route, ry mergers. Having chosen that contrast, (1971). In the costs L.Ed.2d required treat McCrory should be purchases of assets incident to the cash are analogous acquisition expenses in a manner purchasers dispose when deductible to the treatment of similar non-deductible g., Transportation them. E. Parmelee Co. other forms of tax- costs associated with (Ct.Cl.1965) 351 F.2d 619 To reorganizations. re- mergers free v. Com (dictum); Massey-Ferguson, Inc. acquisitions this underlying cast missioner, 59 T.C. 220 An evidentia issuance of stock and a point two-step as a necessary, majority ry hearing con of assets for and sale realizable tends, appropri to enable the district court taxpayer to redefine allow the cash would McCrory’s ately allocate its own tax of the transaction for the terms aspects between the two compel advantage. I would be inclined transactions. consequences of its accept apprоach, I am unable concur this v. National initial choice. Commissioner however, because the taxable events which Milling Dehydrating & Alfalfa sequence of hypothetical attach to this 40 L.Ed.2d 717 distinguish majority’s mod- exchanges el from the actual tax-free for a remand Accordingly, I no reason adopted. Green and pro- could facts since there no of stock for cash is initial issuance acquisi- duce would characterize corpora- issuing taxable event but tax-free anything tion transactions as tion, 1032(a), purchaser or for Judge mergers. affirm I would when issuer that stock. But the Government. Knapp’s decision for uses cash to transaction, step hypothetical second sellers, event

the sale is a realization capital gains

subjecting them to a tax. one two-step procedure liability. incurs ‍​‌​‌​‌​​‌‌​‌​​‌​​​‌​‌​​​‌​‌​​​​​‌‌‌‌​​‌‌‌‌​​​​​‌‍tax contrast, no taxable incidents were McCrory, either

realized

purchasing corporations, or by Olen Na-

tional, assets, acqui- sellers