HELVERING, Commissioner of Internal Revenue, v. WATTS. SAME v. SICARD. SAME v. SLOANE.

296 U.S. 387

56 S.Ct. 275

80 L.Ed. 289

HELVERING, Commissioner of Internal Revenue,

Nos. 184, 185, 186.

Argued Nov. 20, 1935.

Decided Dec. 16, 1935.

The Attorney General, and Mr. J. Louis Monarch, of Washington, D.C., for p titioner.

Mr. Samuel Seabury, of New York City, for respondents.

Mr. Justice McREYNOLDS delivered the opinion of the Court.


These causes involved deficiency assessments for income tax against the three respondents for the year 1924.


They were the sole stockholders of United States Ferro Alloys Corporation, herein Ferro Alloys, and the causes, alike in all essential particulars, were dealt with below in one opinion.


The respondents maintain that they exchanged all stock of Ferro Alloys for shares of Vanadium Corporation of America and bonds of Ferro Alloys guaranteed by Vanadium; that these two corporations were parties to a reorganization, and that under section 203(b)(2), Revenue Act 1924, 43 Stat. 256 (26 U.S.C.A. § 112 note), no taxable gain resulted. The Commissioner insists that the transaction was a sale of all the stock of the Ferro Alloys, and therefore taxable gain resulted. The applicable statutory provision is section 203, Revenue Act 1924, the pertinent parts of which 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.


In December, 1924, respondents owned all the stock of Ferro Alloys Corporation. They exchanged this with the Vanadium Corporation for stock of the latter valued at $30 per share and for $1,161,184.50 mortgage bonds of Ferro Alloys guaranteed by Vanadium. Ferro Alloys continued to conduct business until its dissolution in 1928. Article 1574 of Treasury Regulations 65 provided that under the Act of 1924 no gain or loss shall be recognized to the shareholders from the exchange of stock made in connection with the reorganization, if two or more corporations reorganize; for example, by either the sale of the stock of B to A, or the acquisition by A of a majority of the total number of shares of all other classes of stock of B.


The transaction here involved is within the description of reorganization recognized by the Treasury Regulation above quoted. And if the regulation can be taken as properly interpreting the statute, the challenged judgment must be affirmed.


The court below recites the history of the Treasury Regulation above quoted, and concludes that, in view of the re-enactment of the paragraph to which it refers without change, Congress intended to approve the regulation as written.


The Commissioner here maintains that the definition of reorganization found in section 203(h)(1)(A), Revenue Act 1924, 43 Stat. 256 (26 U.S.C.A. § 112 note), should be limited to transactions which partake of the nature of mergers or consolidations, and that here the Vanadium merely made an investment in Ferro Alloys stock and obtained only the rights of a stockholder therein. It is also urged that an exchange of stocks for bonds results in a substantial change of position and that such bonds are 'other property' within the meaning of the statute, and, as such, subject to tax. Much of the argument presented is the same as the one considered in the Minnesota Tea Company Case, and it need not be again followed in detail. The bonds, we think, were securities within the definition, and cannot be regarded as cash, as were the short-term notes referred to in Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462, 53 S.Ct. 257, 77 L.Ed. 428.


The judgment of the court below must be affirmed.

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