John Nelson Co v. Helvering
| Citation | 296 U.S. 374,80 L.Ed. 281,56 S.Ct. 273 |
| Decision Date | 16 December 1935 |
| Docket Number | No. 61,61 |
| Parties | JOHN A. NELSON CO. v. HELVERING, Commissioner of Internal Revenue |
| Court | United States Supreme Court |
Mr. J. S. Seidman, of New York City, for petitioner.
The Attorney General and Mr. J. Louis Monarch, of Washington, D.C., for respondents.
The petitioner contests a deficiency income assessment made on account of alleged gains during 1926. It claims that the transaction out of which the assessment arose was reorganization within the statute. Section 203, Revenue Act, 1926, c. 27, 44 Stat. 9, 11 (26 U.S.C.A. § 112 note), is relied upon. The pertinent parts are in the margin of the opinion in Helvering v. Minnesota Tea Co., 296 U.S. 378, 56 S.Ct. 269, 80 L.Ed. 284, announced this day.
In 1926, under an agreement with petitioner, the Elliott-Fisher Corporation organized a new corporation with 12,500 shares non-voting preferred stock and 30,000 shares of common stock. It purchased the latter for $2,000,000 cash. This new corporation then acquired substantially all of petitioner's property, except $100,000, in return for $2,000,000 cash and the entire issue of preferred stock. Part of this cash was used to retire petitioner's own preferred shares, and the remainder and the preferred stock of the new company went to its stockholders. It retained its franchise and $100,000, and continued to be liable for certain obligations. The preferred stock so distributed, except in case of default, had no voice in the control of the issuing corporation.
The Commissioner, Board of Tax Appeals, and the court all concluded there was no reorganization. This, we think, was error.
The court below thought the facts showed 'that the transaction essentially constituted a sale of the greater part of petitioner's assets for cash and the preferred stock in the new corporation, leaving the Elliott-Fisher Company in entire control of the new corporation by virtue of its ownership of the common stock.'
'The controlling facts leading to this conclusion are that petitioner continued its corporate existence and its franchise and retained a portion of its assets; that it acquired no controlling interest in the corporation to which it delivered the greater portion of its assets; that there was no continuity of interest from the old corporation to the new; that the control of the property conveyed passed to a stranger, in the management of which petitioner retained no voice.
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