293 U.S. 465 (1935), 127, Gregory v. Helvering

Docket NºNo. 127
Citation293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596
Party NameGregory v. Helvering
Case DateJanuary 07, 1935
CourtUnited States Supreme Court

Page 465

293 U.S. 465 (1935)

55 S.Ct. 266, 79 L.Ed. 596




No. 127

United States Supreme Court

Jan. 7, 1935

Argued December 4, 5, 1934




1. A corporation wholly owned by a taxpayer transferred 1000 shares of stock in another corporation held by it among its assets to a new corporation, which thereupon issued all of its shares to the

Page 466

taxpayer. Within a few days, the new corporation was dissolved and was liquidated by the distribution of the 1000 shares to the taxpayer, who immediately sold them for her individual profit. No other business was transacted, or intended to be transacted, by the new corporation. The whole plan was designed to conform to § 112 of the Revenue Act of 1928 as a "reorganization," but for the sole purpose of transferring the shares in question to the taxpayer, with a resulting tax liability less than that which would have ensued from a direct transfer by way of dividend. Held: while the plan conformed to the terms of the statute, there was no reorganization within the intent of the statute. P. 468.

2. By means which the law permits, a taxpayer has the right to decrease the amount of what otherwise would be his taxes, or altogether to avoid them. P. 469.

3. The rule which excludes from consideration the motive of tax avoidance is not pertinent to the situation here, because the transaction upon its face lies outside the plain intent of the statute. P. 470.

69 F.2d 809 affirmed.

Certiorari to review a judgment reversing a decision of the Board of Tax Appeals, 27 B.T.A. 223, which set aside an order of the Commissioner determining a deficiency in income tax.

Page 467

SUTHERLAND, J., lead opinion

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

Petitioner, in 1928, was the owner of all the stock of United Mortgage Corporation. That corporation held among its assets 1,000 shares of the Monitor Securities Corporation. For the sole purpose of procuring a transfer of these shares to herself in order to sell them for her individual profit, and at the same time, diminish the amount of income tax which would result from a direct transfer by way of dividend, she sought to bring about a "reorganization" under § 112(g) of the Revenue Act of 1928, c. 852, 45 Stat. 791, 816, 818, set forth later in this opinion. To that end, she caused the Averill Corporation to be organized under the laws of Delaware on September 18, 1928. Three days later, the United Mortgage Corporation transferred to the Averill Corporation the 1,000 shares of Monitor stock, for which all the shares of the Averill Corporation were issued [55 S.Ct. 267] to the petitioner. On September 24, the Averill Corporation was dissolved, and liquidated by distributing all its assets, namely, the Monitor shares, to the petitioner. No other business was ever transacted, or intended to be transacted, by that company. Petitioner immediately sold the Monitor shares for $133,333.33. She returned for taxation, as capital net gain, the sum of $76,007.88, based upon an apportioned cost of $57,325.45. Further details are unnecessary. It is not disputed that, if the interposition of the so-called reorganization was ineffective, petitioner became liable for a much larger tax as a result of the transaction.

The Commissioner of Internal Revenue, being of opinion that the reorganization attempted was...

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