297 U.S. 129 (1936), 226, Manhattan General Equipment Co. v. Commissioner of Internal Revenue

Docket Nº:No. 226
Citation:297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528
Party Name:Manhattan General Equipment Co. v. Commissioner of Internal Revenue
Case Date:February 03, 1936
Court:United States Supreme Court

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297 U.S. 129 (1936)

56 S.Ct. 397, 80 L.Ed. 528

Manhattan General Equipment Co.


Commissioner of Internal Revenue

No. 226

United States Supreme Court

Feb. 3, 1936

Argued January 8, 1936




1. A loss resulting from the sale in 1926 of securities in respect of which a distribution pursuant to a plan of reorganization had been made, held properly determined, for the purpose of computing income tax under the Revenue Act of 1926, by the method prescribed by Art. 1599 of Treasury Regulations 65, as amended April 3, 1928, rather than by the original regulation promulgated August 28, 1926, where the effect of applying the original regulation would be to credit the taxpayer with a loss greatly disproportionate as between the stock in respect of which the distribution was made and the stock distributed, contrary to the provision of the statute which requires that the basis shall be "apportioned" between the old and the new stock. P. 132.

2. To apportion is "to divide and assign in just proportion," "to distribute among two or more a just part or share to each." P. 134.

3. The validity of an administrative regulation depends on whether it is consistent with the statute and reasonable. P. 134.

4. Since the original regulation could not lawfully be applied in the circumstances of this case, because inconsistent with the statute and unreasonable, the amended regulation in effect became the

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primary and controlling rule in respect of the situation presented, and was not void as retroactive. P. 135.

76 F.2d 892 affirmed.

Certiorari, 296 U.S. 559, to review a judgment affirming a decision of the Board of Tax Appeals, 29 B.T.A. 395, sustaining determinations of deficiencies in income taxes in two cases. The cases were consolidated before the Board of Tax Appeals and disposed of by a single decision both by the Board and by the Circuit Court of Appeals.

SUTHERLAND, J., lead opinion

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

These cases involve identical facts and questions of law, and were disposed of by the court below in one opinion. 76 F.2d 892. The facts, so far as they concern the question here, are taken from the statement of that court:

The petitioners are affiliates of United Brokerage Company. That corporation filed income tax returns for itself and its affiliates for 1925 and 1926, and the petitioners seek to review tax deficiencies attributed to them by the Commissioner, which the Board of Tax Appeals has affirmed. . . .

On June 30, 1925, the United Brokerage Company purchased for $3,414,345.63 in cash, all the capital stock of Artemas Ward, Inc. (a New York corporation), that was

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issued and outstanding, consisting of 4,964 shares of no par value. . . .

On December 31, 1925, pursuant to a plan of reorganization, Artemas Ward, Inc. (N.Y.) transferred to Artemas Ward, Inc. (a Delaware corporation), in exchange for 100 shares of stock of the latter company of no par value, all its assets, then of a net book value of $1,246,920.07, with the exception of cash and accounts receivable aggregating $284,967.21 -- that is to say, the New York corporation transferred to the Delaware corporation assets of the value of $961,952.86. Immediately after the transfer, and on December 31, 1925, Artemas Ward, Inc. (N.Y.) distributed to United Brokerage Company the 100 shares of stock of Artemas Ward, Inc. (Del.) and accounts receivable amounting to $234,967.21. In December, 1926, United Brokerage sold the entire 4,964 shares of Artemas Ward, Inc. (N.Y.) for $49,640. That stock had cost the United Brokerage $3,414,345.63, and the total must be apportioned between the 100 shares of the Delaware corporation (which it still owns) and the 4,964 shares of Artemas Ward, Inc. (N.Y.) in order to determine the loss suffered by the United Brokerage Company through its sale of the 4,964 shares at $49,640. . . .

Upon the reorganization, the New York corporation had left among its assets, valued at $1,246,920.07, accounts receivable and cash aggregating $284,967.21, or approximately 22.85% thereof, after $961,952.86 had been transferred to the Delaware Company. Under Art. 1599(2) (as amended, infra) the portion of $3,414,345.63 paid by the United Brokerage Company for the stock of Artemas Ward, Inc. (N.Y.) represented by that stock after the reorganization was $780,303.97. If from this be deducted $234,967.21 accounts receivable and the $49,640 realized from the sale in December, 1926, there


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