Helvering v. Bashford
| Decision Date | 03 January 1938 |
| Docket Number | No. 33,33 |
| Citation | 302 U.S. 454,58 S.Ct. 307,82 L.Ed. 367 |
| Parties | HELVERING, Commissioner of Internal Revenue, v. BASHFORD. Re |
| Court | U.S. Supreme Court |
Messrs. Homer S. Cummings, Atty. Gen., and J. Louis Monarch, of Washington, D.C., for petitioner.
Mr. Walter G. Moyle, of Washington, D.C., for respondent.
Whether Bashford is liable for a deficiency in the income taxes assessed for the year 1930 depends upon whether Atlas Powder Company was, as defined by section 112(i)(2) of the Revenue Act of 1928, 26 U.S.C.A. § 112 note, 'a party to the reorganization' of the Peerless Explosives Company.
Atlas Powder Company desired to eliminate the competition of three concerns—Peerless Explosives Company, Union Explosives Company, and Black Diamond Powder Company. Deeming it unwise to do so by buying either their stock or their assets, Atlas conceived and consummated a plan for consolidating the three competitors into a new corporation, with Atlas to get a majority of its stock. To this end holders of the stock of the three companies were duly approached by individuals who represented Atlas; their agreements to carry out the plan were obtained; the new corporation was formed and became the owner practically of all the stock, and all the assets, of the three competitors; Atlas became the owner of all the preferred stock and 57 per cent. of the common stock of the new corporation; and in exchange for the stock in the three companies each of the former stockholders re- ceived some common stock in the new company, some Atlas stock, and some cash which Atlas supplied.
Bashford, one of the stockholders in Peerless, received in exchange for his stock 2,720.08 shares of the common stock of the new corporation, $25,306.67 in cash, 625 shares of Atlas preferred, and 1,344 shares of Atlas common. In his income tax return for the year 1930 he included all the cash, but did not include the gain on stock of either the new corporation or Atlas. The Commissioner concedes that gain on the stock in the new corporation was properly omitted, since the new company was a 'reorganization' of Peerless. He insists that the Atlas stock should have been included, as it was 'other property' on which gain was taxable under section 112(c)(1) of the Revenue Act of 1928, 26 U.S.C.A. § 112(c)(1) and note, since Atlas was not 'a party to the reorganization.' The Board of Tax Appeals (33 B.T.A. 10) held that Atlas was 'a party to the reorganization,' and hence that gain on its stock was properly omitted by Bashford. The Circuit Court of Appeals for the Third Circuit affirmed that judgment. 87 F.2d 827. Because of alleged conflict of the decision with Commissioner v. Groman, 7 Cir., 86 F.2d 670, we granted certiorari in both cases.
In Groman v. Commissioner, 302 U.S. 82, 654, 58 S.Ct. 108, 112, 82 L.Ed. 63, decided by us November 8, 1937, we gave the following construction to the reorganization sections here involved:
'Where, pursuant to a plan, the interest of the stockholders of a corporation continues to be definitely represented in substantial measure in a new or different one, then to the extent, but only to the extent, of that continuity of interest, the exchange is to be treated as one not giving rise to present gain or loss.'
Applying the rule, we held there that the Glidden stock received by Groman was 'other property' and he, therefore, liable on the...
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