Georgia-Pacific Corporation v. United States

• Citation: 264 F.2d 161
• Decision Date: 27 February 1959
• Docket Number: No. 17400.,17400.
• Parties: GEORGIA-PACIFIC CORPORATION, Appellant, v. UNITED STATES of America, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

264 F.2d 161 (1959)

GEORGIA-PACIFIC CORPORATION, Appellant, v. UNITED STATES of America, Appellee.

No. 17400.

United States Court of Appeals Fifth Circuit.

February 27, 1959.

C. Baxter Jones, Jr., Mac Asbill, Atlanta, Ga., J. J. Willingham, James M. Hull, Augusta, Ga., Hull, Willingham, Towill & Norman, Augusta, Ga., Sutherland, Asbill & Brennan, Atlanta, Ga., of counsel for appellant.

C. Guy Tadlock, Grant W. Wiprud, Joseph F. Goetten, Lee A. Jackson, Attys., Dept. of Justice, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., William C. Calhoun, U. S. Atty., Augusta, Ga., for appellee.

Before HUTCHESON, Chief Judge, and RIVES and JONES, Circuit Judges.

HUTCHESON, Chief Judge.

This is another of the many cases in which, hewing to the line and letting the chips fall where they may, the court, deciding now for the government and now for the taxpayer, according to the facts of the particular case, is called upon to apply the controlling principle of what is usually referred to as the Kimbell-Diamond doctrine.¹ This succinctly stated is that when stock in a corporation is purchased for the purpose and with the intent of acquiring its underlying assets and that purpose continues until the assets are taken over, no independent significance taxwise attaches to the several steps of a multiple step transaction. The final step is, therefore, viewed not as independent of the stock purchase but simply as one of the steps in a unitary transaction, the purchase of assets.

The importance taxwise of this principle is that if these steps taken together are viewed as a single purchase transaction, the acquiring corporation has a cost base in the assets of the acquired corporation based not upon their cost to the seller but upon the price paid for them by the purchaser.

The essence of the doctrine of these cases, in short, is that tax significance attaches not to the separate steps after the first one but to the transaction as a whole, each step in which is viewed as an integral part of a single transaction, the purchase of assets. The cases, therefore, make it clear that the particular form of the last step, by which the assets are finally taken over, or what would be its tax effect if it were viewed independently and not as an integral part of the purchase transaction, is wholly immaterial. The Kimbell-Diamond doctrine has been applied in numerous cases² in which the final step, viewed independently, has taken such various forms as a taxable liquidation, a nontaxable liquidation, a reorganization, a statutory merger, and a dissolution during the consolidated return period. Nor do the decisions make a distinction between taking over the assets directly and taking them over through subsidiaries.

The case was tried to a jury on evidence consisting of stipulated facts supplemented by the testimony of witnesses who had been officials of the taxpayer corporation during the period in question. While, because of the repetitious nature of the examination and cross examination of plaintiff's witnesses, the record on casual view may appear to be extensive and diffuse, the statement of the occurrences giving rise to the issue at the trial is, as shown in the margin,³ really brief and simple.

There was no controversy below between the government and the taxpayer over the principle to be applied, none over what actually occurred from the purchase of the stock until the statutory merger. The sole controversy was over whether, as plaintiff contended, the stipulated and undisputed facts were such that taxpayer was entitled to a cost base for the timber, the sale of part of which brought about the tax controversy in this case, measured by the value placed upon the timber when the stock purchase was made, or whether, as the government contended, the evidence of a continuing purpose was lacking and, since the final step was the statutory free merger, the base was the greatly less cost of the timber to the Johnson Corporation, the seller, when it first acquired it.

Plaintiff contended below that there was no dispute as to, or conflict in, the facts, and this being so, that the question whether this was a single transaction of multiple steps or a series of independent transactions, was settled by them beyond question in its favor.

The government also contended below that there was no real issue of fact in the case as to the occurrences described in the evidence, but it insisted that, as matter of law, the last transaction, the statutory merger, was not a component step in a multiple step transaction but an independent transaction, which established the base as contended for by the commissioner. The contention, in short, of the government at the trial was that under the Kimbell-Diamond doctrine, the merger by which the Johnson assets were taken over by plaintiff, fixed plaintiff's tax base in the timber, and that it was, therefore, limited to Johnson's very much lower cost because, under the facts of the case and particularly the elapsed time between the purchase of the stock and the merger, taxpayer's dealings could not be considered as a single transaction of multiple steps unless plaintiff also had both an original and a continuing intention to take over the assets by the method of statutory merger ultimately used in this case and that there was no evidence that this was so.

Plaintiff, on its part, contended below: that, under the undisputed facts, the stock purchase and the merger must be viewed as steps in a single purchase of assets transaction in which plaintiff purchased the stock to get the timber, intending, when negotiating and effecting the purchase of the Johnson stock, to get rid of the corporation and take over its assets in some appropriate way; that it continuously thereafter held that intention and pursuant thereto effected the statutory merger; and that, therefore, its tax base in the timber was not its cost to Johnson but the current value placed on it at the time of and in the stock purchase.

At the conclusion of the evidence, the trial judge rejected the government's, and accepted plaintiff's, legal contention. He did this first by overruling the government's motion for a directed verdict and inquiring whether the plaintiff desired to move for a directed verdict. He did it, second, when, plaintiff, stating that it thought the matter would be best disposed of by a verdict, requested the submission of the case to the jury, he gave instructions to the jury, to which defendant objected as virtually directing a verdict for plaintiff, that in order to recover plaintiff must show only that in acquiring the Johnson stock it had an original abiding and continuing intention to take over the Johnson assets, and in effect that if the jury believed the testimony of plaintiff's witnesses, it must find for plaintiff.

When, contrary to the general expectation, the jury returned a verdict for the United States, the plaintiff moved for a new trial on the ground that the verdict was without evidence to support it and manifestly unjust, and, this motion denied, appealed from the judgment presenting here a single specification of error. This is: that there was a complete lack of evidence to support the verdict; that it was, therefore, manifestly unjust and in excess of the powers of the jury and may not stand; that it was undisputed that plaintiff's real purpose and primary objective was to acquire assets and not stock; and that it was a complete miscarriage of justice for the jury to render a verdict in complete contradiction of all the evidence, that its real purpose and primary object in purchasing the Johnson stock had been not to acquire the Johnson assets but simply to acquire the stock in, and, thereby, the Johnson corporation.

Citing many cases⁴ from this court holding that where evidence is credible, reasonable, uncontradicted and unimpeached, a jury may not reject or disregard it, and cases⁵ holding that where the verdict is clearly contrary to the justice and right of the case, the refusal of a trial judge to grant a new trial is an error of law subject to review and correction on appeal, appellant insists that the judgment must be reversed.

On its part, the defendant, considering itself snugly entrenched behind the verdict which below it had vigorously insisted, as matter of law, should not be taken but...