Palm Springs Holding Corporation v. Commissioner of Internal Revenue
| Decision Date | 02 February 1942 |
| Docket Number | No. 503,503 |
| Citation | 86 L.Ed. 785,62 S.Ct. 544,315 U.S. 185 |
| Parties | PALM SPRINGS HOLDING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE |
| Court | U.S. Supreme Court |
Mr. Thomas R. Dempsey, of Los Angeles, Cal., and Mr. John E. Hughes, of Chicago, Ill., for petitioner.
Samuel O. Clark, Jr., Asst. Atty. Gen., for respondent.
This case is a companion case to Helvering v. Alabama Asphaltic Limestone Co., 315 U.S. 179, 62 S.Ct. 540, 86 L.Ed. —-, decided this day. This, too, was an insolvency reorganization, though a different procedure was employed to consummate it. The old corporation had outstanding about $300,000 face amount of first mortgage bonds, secured by a lien on its realty. The property, which was an hotel, was leased to an operating company. In 1931, as a result of transactions not relevant here, one Pinney became the sole stockholder of the old corporation and of the operating company. The furniture and fixtures in the hotel were owned by the operating company. They were covered by a chattel mortgage which, together with the lease on the hotel, were assigned and pledged as part of the security for the bond issue. In 1931 both companies were in financial difficulties and insolvent, at least in the equity sense. A bondholders' committee was formed which received deposits of more than half of the face amount of the bonds. Petitioner was formed in 1932. Pursuant to the plan of reorganization six shares of petitioner's preferred stock and four shares of its common stock were issued to assenting bondholders for each $1000 bond. In addition all of petitioner's remaining common stock was issued to one Lacoe in return for his agreement to pay the costs of incorporating petitioner up to $1000 and for his agreement to lend money to petitioner. Before the actual issuance of any of the shares, Lacoe agreed to transfer 1,000 shares of the common stock to Pinney, the sole stockholder of the two companies, for his services in the reorganization and as an inducement to him to continue as manager of the hotel. None of the stock of petitioner, however, was issued to any stockholder or former stockholder of either of the companies for any rights any of them had as stockholders. In May, 1932, the indenture trustee declared the principal of the bonds due and payable. Pursuant to the terms of the indenture, the trustee sold all of the properties of the old corporation, including the lease and chattel mortgage, to petitioner, the highest bidder. The bid price was $61,800. It was satisfied by the payment of about $18,700 in cash and by the delivery to the trustee of bonds of a face amount of $292,000 for the balance. Foreclosure proceedings against the old corporation and the operating company were then instituted. At the foreclosure sale the furniture and fixtures, comprising all of the property of the operating company, were bought in by petitioner.
The Commissioner, in determining a deficiency in petitioner's income and excess profits tax for the fiscal year ended May 31, 1936, disallowed depreciation deductions on both the realty and personal property on the basis of cost to the old corporation and operating company.1 He used as the basis the cost of the assets to petitioner plus the cost of additions. The Board of Tax Appeals sustained the Commissioner's determination with respect to the personal property but rejected it with respect to the realty. The Circuit Court of Appeals sustained the Commissioner on both points. 9 Cir., 119 F.2d 846.
Though the petition for certiorari raised the question, petitioner now concedes that the acquisition of the furniture and fixtures from the operating company was not a 'reorganization' within the meaning of § 112(i)(1)(A) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 513. So we do not reach that issue. As respects the assets acquired from the old corporation, we think there...
To continue reading
Request your trial
-
Maine Steel, Inc. v. United States
...Helvering v. Alabama Asphaltic Limestone Co., 1942, 315 U.S. 179, 62 S.Ct. 540, 86 L.Ed. 775, and Palm Springs Holding Corp. v. Commissioner, 1942, 315 U.S. 185, 62 S.Ct. 544, 86 L.Ed. 785, in which the Supreme Court held that the continuity of interest test was satisfied and the requiremen......
-
Western Mass. Theatres v. Commissioner of Int. Rev.
...used to achieve "effective command" over the insolvent corporation's property was not significant. Palm Springs Holding Corp. v. Commissioner, 1942, 315 U.S. 185, 62 S.Ct. 544, 86 L.Ed. 785. Hence it followed that once the seizure of the equity interest by the creditors had occurred, it was......
-
Scofield v. San Antonio Transit Company, 14784.
...797 and Southwest Natural Gas Company v. Commissioner, 5 Cir., 1951, 189 F.2d 332, 334. See also, Palm Springs Holding Corporation v. Commissioner, 315 U.S. 185, 62 S.Ct. 544, 86 L.Ed. 785; Bondholders Committee, Marlborough Investment Co. v. Commissioner, 315 U.S. 189, 62 S.Ct. 537, 86 L.E......
-
Fairmont Aluminum Co. v. Commissioner of Int. Rev.
...be allowed on the ground that it came into being as a tax free reorganization under the holding in Palm Springs Holding Corporation v. Commissioner, 315 U.S. 185, 62 S.Ct. 544, 86 L.Ed. 785 and held that it had not established its claim on this basis, "Taxpayer contends that it came into be......