Reilly Oil Co. v. Commissioner of Internal Revenue, 13202.
| Decision Date | 22 May 1951 |
| Docket Number | No. 13202.,13202. |
| Citation | 189 F.2d 382 |
| Parties | REILLY OIL CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fifth Circuit |
William P. Fonville, Dallas, Tex., for petitioner.
Hilbert P. Zarky, Ellis N. Slack, Helen Goodner, Irving I. Axelrad, Sp. Assts. to Atty. Gen., Theron Lamar Caudle, Asst. Atty. Gen., Charles Oliphant, Chief Counsel, Bernard D. Daniels, Sp. Atty., Bureau of Internal Revenue, Washington, D. C., for respondent.
Before HUTCHESON, Chief Judge, and BORAH and RUSSELL, Circuit Judges.
The sole issue in this case is whether the organization of petitioner for review in 1940 as a result of proceedings under Chapter X of the Bankruptcy Act, 11 U.S. C.A. 501 et seq., was a tax free reorganization within the terms of Section 112 of the Internal Revenue Code. 26 U.S.C.A. § 112. The Tax Court, five judges dissenting, held that the transaction came within the terms of the statute and therefore upheld the Commissioner's determination that the petitioner's basis for cost in computing depletion was the cost basis of its predecessor.1 We affirm the decision of the Tax Court.
The petitioner was organized pursuant to a plan of reorganization of the predecessor corporation under Chapter X of the Bankruptcy Act, directed in all respects by orders of the court in which the proceeding was pending. The court directed the formation of a new corporation and directed the trustee of the bankrupt predecessor corporation to sell a part of its properties and use the proceeds of the sale to pay the creditors of the corporation and to purchase, at a price fixed by the court, certain units of property in which the bankrupt had a substantial interest, but in which certain individuals owned direct unit interest. The Court fixed the value of each share of the outstanding stock of the corporation in reorganization and directed in the plan of reorganization that those of the stockholders who so desired might elect to surrender their stockholdings to the predecessor corporation and receive cash at the value fixed by the Court for each share of stock, or could receive stock in the new corporation (the petitioner for review).
In conformity with the plan 164,001.27 of the total of 237,927.21 shares outstanding were surrendered for stock in the new corporation and 48,094.73 shares were surrendered for cash.
The properties in which the corporation owned a substantial interest had been divided into units. The Court fixed a value of each unit and directed the trustee to either purchase the outstanding units for cash or to issue to the owners a proportionate part of the stock of the new corporation in exchange for their units, as the owners should elect. The majority of the units were exchanged for stock in the new corporation; approximately 20 per cent were surrendered for cash; and approximately 17 per cent of the units, plus 25,831.21 shares of stock in the predecessor corporation were exchanged by one Brown for one of the oil wells owned by the corporation.
The new corporation took possession of the assets remaining after the necessary sales and exchange were made, plus the units of interest which were acquired. Shares of stock in the petitioner were distributed among the participating unit holders at values equalling the values of the stock they had owned in the predecessor and the values of the units. No persons other than the stockholders in the predecessor corporation became stockholders in the new corporation. Immediately after the transfer of the assets from the predecessor to the petitioner approximately 68.93 per cent of the predecessor's shareholders owned 100 per cent of the stock of the petitioner.
The Tax Court determined that the facts of the transaction constituted a nontaxable reorganization under Section 112 (g)(1)(D) of the Internal Revenue Code.2 The petitioner's contention of error centers upon its interpretation of the words "its shareholders" appearing in Section 112 (g)(1)(D) as quoted. It contended in the Tax Court that these words meant 100 per cent of the shareholders of the transferor and in this Court relies upon the argument set forth in the dissenting opinion of five judges of the Tax Court above referred to, which expresses the view that the words must mean (a) all of the stockholders, or (b) substantially all of the stockholders, or (c) some of the stockholders, and that 68.93 per cent of the stockholders can not constitute compliance with the language of the statute,...
To continue reading
Request your trial
-
Western Mass. Theatres v. Commissioner of Int. Rev.
...v. Commissioner, 6 Cir., 1936, 84 F.2d 415; Seiberling Rubber Co. v. Commissioner, 6 Cir., 1948, 169 F.2d 595; Reilly Oil Co. v. Commissioner, 5 Cir., 1951, 189 F.2d 382; Standard Coal, Inc., 1953, 20 T.C. 208. See also Holland, "Continuity of Interest in Nontaxable Reorganizations and Sect......
-
Scofield v. San Antonio Transit Company, 14784.
...262 U.S. 134, 43 S.Ct. 495, 67 L.Ed. 906; Rockefeller v. United States, 257 U.S. 176, 42 S.Ct. 68, 66 L.Ed. 186; Reilly Oil Company v. Commissioner, 5 Cir., 189 F.2d 382; Lewis v. Commissioner, 1 Cir., 176 F.2d ...
-
Reef Corporation v. CIR
...has been found where 67% or 69% of the old corporation's stockholders control the new corporation. Reilly Oil Co. v. Commissioner of Internal Revenue, 5 Cir. 1951, 189 F.2d 382; Western Mass. Theaters v. Commissioner of Internal Revenue, 1 Cir.1956, 236 F.2d 186. Changes of less than 50%, a......
-
Reef Corporation v. Commissioner, Docket No. 788-63 and 789-63.
...352 U. S. 836 (1956); Ernest F. Becher Dec. 20,466, 22 T. C. 932 (1954); and Reilly Oil Co. v. Commissioner 51-1 USTC ¶ 9307, 189 F. 2d 382 (C. A. 5, 1951), affirming Dec. 17,308 13 T. C. 919 (1949). Cf. Joseph C. Gallagher, Respondent in his brief states that if Reef is a separate taxable ......