Weiss v. Stearn Same v. White
| Decision Date | 26 May 1924 |
| Docket Number | 263,Nos. 262,s. 262 |
| Citation | 265 U.S. 242,68 L.Ed. 1001,44 S.Ct. 490 |
| Parties | WEISS. Collector of Internal Revenue, v. STEARN. SAME v. WHITE |
| Court | U.S. Supreme Court |
Mr. Alfred A. Wheat, of New York City, for petitioner.
[Argument of Counsel from pages 243-245 intentionally omitted] Mr. Charles P. Hine, of Cleveland, Ohio, for respondent Stearn.
[Argument of Counsel from pages 246-248 intentionally omitted] Mr. John G. White, of Cleveland, Ohio, for respondent White.
[Argument of Counsel from pages 248-250 intentionally omitted] Mr. Justice McREYNOLDS delivered the opinion of the Court.
Respondents brought separate actions to recover money which they alleged petitioner unlawfully demanded of them as income tax. The question for our decision is this: Did they, by the transactions hereinafter detailed, dispose with profit of all or, as they maintain, of only half their interests in the National Acme Manufacturing Company, within the income provisions, Revenue Act of 1916, c. 463, 39 Stat. 756, 757, § 2(a), being Comp. St. § 6336b(a). Both courts below upheld their claims and gave judgments for appropriate refunds.
Under a definite written agreement the following things were done——
(A) Respondents and other owners delivered duly indorsed certificates representing the entire capital stock ($5,000,000) of the National Acme Manufacturing Company, incorporated under laws of Ohio—the old corporation—to the Cleveland Trust Company, as depositary. Messrs. Eastman, Dillon & Co. deposited $7,500,000 with the same trust company. Representatives of both classes of depositors thereupon incorporated in Ohio the National Acme Company—the new corporation—with $25,000,000 authorized capital stock, and powers similar to those of the old corporation. Pursuing the definite purpose for which it was organized, the new corporation purchased and took over the entire property, assets, and business of the old one, assuming all outstanding contracts and liabilities, and in payment therefor issued to the trust company its entire authorized capital stock. It continued to operate the acquired business under the former management, and the old corporation was dissolved.
(B) The trust company delivered to Eastman, Dillon & Co. certificates for half the new stock—$12,500,000. To the owners of the old stock—to each his pro rata part—it delivered certificates representing the remaining half, together with the $7,500,000 cash received from Eastman, Dillon & Co. The owner of each $100 of old stock thus received $150 cash, also $250 of new stock, representing an interest in the property and business half as large as he had before. Prior to the specified transactions his interest in the enterprise was 100/5000000; thereafter it became 250/25000000, or 50/5000000.
The collector ruled that each old stockholder sold his entire holding, and assessed respondent accordingly for resulting profits. Adopting a different view, the courts below held that he really sold half for cash and exchanged the remainder, without gain, for the same proportionate interest in the transferred corporate assets and business.
We agree with the conclusion reached below. The practical result of the things done was a transfer of the old assets and business, without increase or diminution or material change of general purpose, to the new corporation, a disposal for cash by each stockholder of half his interest therein, and an exchange of the remainder for new stock representing the same proportionate interest in the enterprise. Without doubt every stockholder became liable for the tax upon any profits which he actually realized by receiving the cash payment. If by selling the remainder he hereafter receives a segregated profit, that also will be subject to taxation.
Petitioner relies upon United States v. Phellis, 257 U. S. 156, 42 Sup. Ct. 63, 66 L. Ed. 180, and Rockefeller v. United States, 257 U. S. 176, 42 Sup. Ct. 68, 66 L. Ed. 186; also Cullinan v. Walker, 262 U. S. 134, 43 Sup. Ct. 495, 67 L. Ed. 906, which followed them. As the result of...
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