Summary
In Davis v. United States, ct. cl., 26 F. Supp. 1007, the contention was made that Congress did not intend to make a distinction between a case where the stock of one corporation is received in exchange for the stock of another when the assets of the latter have been acquired directly by the former in consideration of such exchange of stock and a case where the stock is received in an identical transaction except for the fact that the corporation, the taxability of whose stock is involved, takes the assets through a wholly owned subsidiary.
Summary of this case from Hedden v. Commissioner of Internal RevenueOpinion
No. 43413.
April 3, 1939.
Thomas G. Haight, of Jersey City, N.J. (Robert H. Montgomery and J. Marvin Haynes, both of Washington, D.C., on the brief), for plaintiff.
Samuel E. Blackham, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by John W. Davis against the United States of America to recover alleged overpayment of income tax.
Petition dismissed.
Plaintiff sues to recover $24,671.49, alleged overpayment of income tax for 1929, with interest. This tax resulted from the action of the Commissioner of Internal Revenue in including in income for that year an amount determined by him to represent a gain upon the receipt of stock of the Underwood-Elliott-Fisher Company in a certain transaction in 1929 which plaintiff contends was a transaction involving a non-taxable exchange under section 112 of the Revenue Act of 1928, 26 U.S.C.A. § 112, arising out of a reorganization to which, it is alleged, the Underwood Company was a party. The facts are not in dispute. The only question is whether the Underwood-Elliott-Fisher Company, certain stock of which plaintiff received and which the Commissioner held resulted in a taxable gain, was a party to a reorganization within the meaning of section 112(b)(3), (g), and (i) of the Revenue Act of 1928 and Art. 577 of Regulations 74.
Special Findings of Fact
1. On January 3, 1929, plaintiff, a resident of Downingtown, Pennsylvania, was the owner of 440 shares of capital stock of the Neidich Process Company, a New Jersey Corporation, with principal office at Burlington. At that time this corporation was negotiating with the Underwood-Elliott-Fisher Company, a Delaware corporation. January 5, 1929, the Board of Directors of Neidich Process Company, hereinafter sometimes referred to as the Neidich Company, approved a contract dated January 3, 1929, with the Underwood-Elliott-Fisher Company, hereinafter sometimes referred to as the Underwood Company. This action of the Board of the Neidich Company was approved at a meeting of the stockholders of that company held January 5, 1929. At this meeting the stockholders authorized and directed officers of the Neidich Company to execute and deliver the required agreement and to do whatever else might be necessary to accomplish the results intended. A copy of the minutes of this stockholders' meeting is in evidence as exhibit 2 and is made part hereof by reference.
2. January 5, 1929, plaintiff and Samuel A. Neidich, who was president of the Neidich Process Company (of New Jersey), entered into an agreement, as follows:
"Witnesseth, Whereas Davis has sold, assigned and transferred unto Neidich 440 shares of the capital stock of the Neidich Process Company, a Corporation of the State of New Jersey, located and transacting business at the City of Burlington aforesaid, for the purpose of making it possible to sell and convey the assets and business of the said Neidich Process Company to the Underwood-Elliott-Fisher Corporation, in payment for which stock Neidich is to deliver unto Davis, his heirs or assigns, capital stock of the said Underwood-Elliott-Fisher Corporation at the ratio of five and one-half shares thereof for each share of the Neidich Process Company stock sold and transferred by Davis to Neidich.
"Now this agreement witnesseth, That Neidich in consideration of the premises and the sum of one dollar to him in hand paid by Davis, the receipt of which is hereby acknowledged, has agreed and does hereby agree to assign, transfer and deliver unto Davis, his heirs or assigns, prior to April 1st, 1929, a sufficient number of shares of the capital stock of the Underwood-Elliott-Fisher Corporation to equal the number of shares of the Neidich Process Company stock sold and transferred as aforesaid to Neidich at the ratio of five and one-half shares of the Underwood-Elliott-Fisher Corporation to one of the Neidich Process Company; it being understood and agreed that Davis shall be entitled to have and receive such dividend or dividends as may be declared and paid on the stock of the Underwood-Elliott-Fisher Corporation on and after January 1st, 1929, as well as any and all other benefits and advantages that may belong to said stock or to which it may become entitled from and after January 1st, 1929."
In accordance therewith plaintiff delivered to Neidich the 440 shares of stock which he then owned in the Neidich Company, receiving from Samuel A. Neidich therefor a so-called "due bill," as follows: "Due to John W. Davis, of Burlington, New Jersey, 2,420 shares of capital stock of the Underwood-Elliott-Fisher Corporation to be transferred and delivered to him prior to April 1, 1929, together with such dividend as may be declared and/or paid thereon on and after January 1, 1929." Each of the other stockholders of the Neidich Company (of New Jersey) entered into a similar agreement with Samuel A. Neidich and received a similar due bill from him upon the delivery by each stockholder of his shares of stock in the Neidich Process Company (of New Jersey).
3. In Art. 1 of the contract of January 3, 1929, between Neidich Process Company, the New Jersey corporation, the Underwood-Elliott-Fisher Company, and Samuel A. Neidich, the Underwood Company agreed forthwith to cause to be organized under the laws of Delaware, or under the laws of such other state as it might determine in its discretion, a corporation having the name of Neidich Process Company or such other name as the Underwood Company should designate (hereinafter sometimes called the "New Company"). The New Company was to have such capitalization and powers as the Underwood Company, in its discretion, should determine, and of which the Underwood Company would own all the issued and outstanding capital stock. In Art. 2 of the contract the Neidich Company (of New Jersey) agreed to sell, assign, transfer, and convey to the New Company and the Underwood Company agreed that the New Company would purchase all the property and assets of every kind and nature, except the corporate franchise owned by the Neidich Company.
Art. 3 of the contract provided that in full payment for the designated property of the Neidich Company (of New Jersey) the Underwood Company agreed, so far as material here, (1) that it and the New Company would cause to be delivered to the Neidich Company (of New Jersey) 21,005 shares without par value of the common stock of the Underwood Company; (2) that the New Company would assume all the liabilities of the Neidich Company (of New Jersey) shown on its balance sheet as of December 31, 1928, other than liabilities for capital stock, surplus, and undivided profits; and (3) that the New Company would assume all material purchase contracts of the Neidich Company which did not extend beyond 1929 or which could not be canceled at the option of the buyer at the end of 1929. Certain other liabilities mentioned in the contract were to be assumed by the New Company. In the concluding sentence of this article it was provided and agreed that the New Company would not assume and would not be liable for any taxes for 1928 or any prior year, or years. Art. 4 provided that the New Company should have the exclusive use of the name "Neidich Process Company." In accordance with this article, the old company changed its name to Burlington Research Company.
Art. 5 provided for the delivery by the old company of all deeds, bills of sale, instruments of transfer and assignment necessary to vest title in the New Company to all the properties and assets, and that such instruments should be in form approved by counsel for the Underwood Company. Art. 7, so far as material here, is as follows:
"As an inducement to the Underwood Company to enter into this agreement and on which it is agreed the Underwood Company has relied in entering into this agreement, and as a continuing obligation, the Neidich Company and Neidich jointly and severally agree and represent:
* * * * * *
"(b) that, except for directors' qualifying shares, Neidich now is or will be by the date of the closing hereof, the owner in his own right of all the shares of such issued and outstanding capital stock."
Art. 9 provided in part as follows: "If the audit of the net earnings of the Neidich Company for the period of three and one-half years ended June 30, 1928, as certified by Messrs. Touche, Niven Co., shall show, after deductions of and for all income taxes, that such net earnings as so certified are less than an average of $170,211 per annum, the Neidich Company and Neidich jointly and severally agree that for each dollar of such deficiency they will transfer and deliver to the Underwood Company $7.10 in common stock of the Underwood Company, taking the common stock of the Underwood Company at $87 per share, or at the option of the Underwood Company they will make payment to the Underwood Company on such basis in cash."
Art. 11 provided that the closing of the contract should be effective as of January 1, 1929, and Art. 12 set forth that — "The Neidich Company and Neidich jointly and severally agree that the operations of all the aforesaid property and assets have been and will be conducted in the usual and ordinary manner and for the account of the New Company from December 31, 1928, to the date of closing hereof. The Underwood Company agrees that the New Company will assume all liabilities incurred in connection with such operations from such date to the date of closing hereof." Other provisions of the contract to and including Art. 17 are not necessary to be here set forth. The contract is in evidence as exhibit 1 and is made a part hereof by reference.
4. Subsequently, and pursuant to the aforementioned agreement of January 3, 1929, a new corporation was organized under the laws of the State of Delaware by the name of the Neidich Process Corporation. Ten subscribing shares were paid for at the rate of $30 a share (these shares were later transferred to the Underwood Company). The Board of Directors of the new company (Neidich Process Company, of Delaware) at its first meeting resolved to accept and authorized its officers to execute an acceptance of an offer from the Underwood-Elliott-Fisher Company dated January 15, 1929, a copy of which is in evidence as exhibit 4A and is made a part hereof by reference. In this offer the Underwood Company proposed to the Neidich Process Company (of Delaware) that it would cause to be conveyed and transferred to the new Delaware Company the physical properties and other assets, except franchises and such property and assets as were not transferable, of the Neidich Process Company (of New Jersey) subject to certain liens and cause such property and assets to be operated for the account and benefit of the Delaware Corporation from December 31, 1928, to the date of the conveyance and transfer by the New Jersey Corporation of such property and assets to the Delaware Corporation. In exchange for such property and assets, the proposal of the Underwood Company provided that the new Neidich Process Company (of Delaware) should pay to the Underwood Company $300 in cash; issue and deliver to the Underwood Company, or upon its order, a certificate or certificates for 4,190 shares of full paid and non-assessable stock without par value of the new Delaware Corporation, and that the new company would assume certain specified liabilities of the Neidich Process Company of New Jersey which were the same liabilities as mentioned in the agreement of January 3 between the New Jersey Company and the Underwood Company.
5. The new Delaware Company accepted the proposal of the Underwood Company and at the closing of the contract dated January 3, 1929, hereinbefore referred to, simultaneously with the transfer by the old Neidich Process Company (of New Jersey) of its property and assets to the new company (Neidich Process Company of Delaware) by bill of sale and deed, and the issuance of 4,190 shares of the stock of the new Delaware Company to the Underwood Company, the Underwood Company delivered to the old company (Neidich Process Company of New Jersey) a due bill for 21,005 shares of common stock of the Underwood Company, which due bill was made payable to the Burlington Research Company (the new name of the old Neidich Process Company of New Jersey). A correct copy of the bill of sale from the Burlington Research Company (formerly Neidich Process Company of New Jersey) to the Neidich Process Company of Delaware is in evidence as exhibit 4B and is made a part of this finding by reference. The deed from the old Neidich Company of New Jersey transferring its real estate to the new Delaware Company was executed in the same form as the bill of sale.
6. The books of the Underwood Company recorded the issuance of the 21,005 shares of its stock as follows: "To record on the books of U.E.F. Co. the issuance of 21,005 shares in exchange for the assets of the Neidich Process Co. in accordance with the resolution of the Board of Directors of January 10, 1929." The books of the new company (Neidich Process Company of Delaware) recorded the issuance of its 4,190 shares of stock (other than the ten subscribers' shares) to the Underwood Company as follows: "To reflect the acquisition from Underwood-Elliott-Fisher Co. Vendor of the property formerly owned by Neidich Process Company (a New Jersey Corp.) and the assumption of certain liabilities in connection therewith as set forth in the minutes of the board of directors, January 15, 1929. This property less $300.00 in cash, is the consideration received for 4,190 shares of the capital stock of the company."
7. Subsequent to January 5 and prior to March 7, 1929, the old New Jersey Corporation whose name had then been changed to Burlington Research Company received from Underwood-Elliott-Fisher Company 21,005 shares of stock of the Underwood Company under and in accordance with the contract between the New Jersey Company and the Underwood Company of January 3, 1929.
8. On March 6, 1929, the Board of Directors of the Burlington Research Company adopted the following resolution:
"That the proper officers of this Company be and they hereby are authorized and directed to distribute to the stockholders of this Company according to their prorata interest, the 21,005 shares without par value of the Common Stock of Underwood-Elliott-Fisher Company owned by and standing in the name of this Company upon the prior receipt from the stockholders of this Company of a letter indemnifying and saving harmless the directors of this Company from any and all liability which may be occasioned by or result from such distribution; and further
"Resolved that the President and Treasurer of this Company be and they hereby are authorized and directed to convey, transfer and assign to S.A. Neidich, the certificates for 21,005 shares without par value of the Common Stock of Underwood-Elliott-Fisher Company, owned by and standing in the name of this Company; and further
"Resolved that the proper officers of this Company be and they hereby are authorized and directed to execute such further instruments and do such further acts as may be necessary or in their opinion desirable to carry out the foregoing resolutions."
9. The distribution and transfer of the stock of the Underwood Company authorized in the foregoing resolution were duly made, and prior to March 25, 1929, Samuel A. Neidich, in accordance with the "due bill" of January 5 hereinbefore quoted in finding 2, transferred and delivered to plaintiff 2,420 shares of the aforementioned 21,005 shares of the Underwood-Elliott-Fisher Company stock. Samuel A. Neidich also transferred and delivered the balance of the 21,005 shares of stock of the Underwood Company to the following individuals holding the so-called "due bills" from Neidich: Ira J. Davis, 204 shares; George A. Lance, 165 shares; S.S. Garwood, 38 shares. Neidich retained 18,178 shares of the Underwood Company's stock for himself.
10. The respective shareholdings in the Neidich Process Company of New Jersey (the old company) immediately prior to the execution of the contract between that company and the Underwood Company on January 3, 1929, were as follows: S.A. Neidich, 3,305; John W. Davis, 440; Ira J. Davis, 37; George A. Lance, 30; S.S. Garwood, 7.
11. Plaintiff filed his income tax return for 1929 showing a tax of $735.50, payment of which was made in quarterly installments, the first installment of $183.88 being paid on March 15, 1930. The remaining installments were paid on or before their respective due dates.
Subsequent to the filing of this return and the payment of tax shown thereon, the Commissioner of Internal Revenue, upon an examination and audit thereof, assessed an additional tax and interest of $24,671.49, which was paid by plaintiff in the amounts of $5,000 on February 20, 1931, $10,000 on April 10, 1931, and $9,671.49 on April 15, 1931. The additional tax was wholly attributable to the inclusion in plaintiff's income of the gain or profit determined by the Commissioner to have arisen from the exchange by the taxpayer of 440 shares of stock of the Neidich Process Company of New Jersey for 2,420 shares of Underwood-Elliott-Fisher stock in connection with the sale and transfer by the New Jersey Company of all its property and assets to the new Delaware Company, as hereinbefore fully set forth in connection with the contract of January 3, 1929.
12. November 30, 1932, plaintiff filed a claim for refund for 1929 of the additional tax and interest totaling $24,671.49. In a letter of August 31, 1934, in evidence as exhibit 7 and made a part hereof by reference, the Commissioner advised plaintiff that the claim for refund would be disallowed. The claim was formally rejected September 11, 1934. Thereafter, on March 23, 1936, plaintiff filed an application for reconsideration of the claim and this application was denied by the Commissioner August 24, 1936.
The questions presented are (1) Whether the stock of the Underwood Company which plaintiff received in 1929 as a result of the transfer by the Neidich Company of New Jersey of its property and assets to the New Neidich Company of Delaware was stock of a corporation a party to a reorganization on which no gain or loss should be recognized under the provisions of section 112 of the Revenue Act of 1928 — that is, whether the Underwood Company was a party to a reorganization; and (2) If the Underwood Company was a party to a reorganization, whether, at the time of the reorganization, the plaintiff was a shareholder in the old New Jersey Company.
"Recognition of Gain or Loss.
"(a) General Rule. — Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.
"(b) Exchanges Solely in Kind. — * * *
"(3) Stock for stock on reorganization. — No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
"(4) Same — Gain of corporation. — No gain or loss shall be recognized if a corporation a party to a reorganization exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.
Plaintiff contends that although the contract of January 3, 1929, between the old New Jersey company and the Underwood Company contemplated that the Underwood Company would, for convenience, form a new wholly-owned corporation to take title to the assets of the New Jersey corporation, the substance of the transaction was the acquisition of these assets by the Underwood Company; that the Underwood Company was therefore a "party to a reorganization" within the meaning of section 112(i)(2) of the statute and the stock of the Underwood Company received by him was stock in a corporation a party to a reorganization within the meaning of section 112(g). It is argued by plaintiff that Congress did not intend to make a distinction between a case where the stock of one corporation is received in exchange for the stock of another when the assets of the latter have been acquired directly by the former in consideration of such exchange of stock and a case like the one at bar where the stock is received in a transaction identically the same, except for the fact that the corporation, the taxability of whose stock is involved, takes the assets through a wholly-owned subsidiary.
We are of opinion from the facts presented and upon the decided cases that the Underwood Company, the stock of which plaintiff received, was not a party to a reorganization within the meaning of the statute and that such stock is not to be excluded under section 112(g) in the determination of plaintiff's tax for 1929. It is agreed that, if this interpretation of the statute is correct, the additional tax and interest determined and collected by the Commissioner were due and that plaintiff is not entitled to recover.
What actually occurred was that under the contract of January 3, 1929, between the Neidich Company of New Jersey and the Underwood Company the latter agreed to cause a new corporation to be organized under the laws of Delaware. The Underwood Company was to own all the issued and outstanding capital stock of the new company. The old Neidich Company of New Jersey agreed to sell to the new company of Delaware and the Underwood Company agreed that the new Delaware company would purchase all the property and assets of the old New Jersey company in payment for which the Underwood Company agreed that it and the new Delaware Company would cause to be delivered to the old New Jersey company 21,005 shares of the stock of the Underwood Company and that the new Delaware Company would assume the liabilities of the old New Jersey company with certain minor exceptions. This transaction was carried out strictly in accordance with the contract. The Underwood Company organized the new Delaware Company, taking all of its issued stock. The old New Jersey Company by a bill of sale and deed transferred all of its property and assets to the new Delaware Company and received from the Underwood Company the 21,005 shares of its common stock which the old New Jersey Company distributed to its then sole stockholder — Samuel A. Neidich, and Neidich, pursuant to his contracts with the former shareholders of the old New Jersey Company distributed to them, in the proportions agreed upon, certain stock of the Underwood Company.
This was the substance of the transactions and we are of opinion that certain book entires by the Underwood Company and the new Delaware Company tending to reflect a transfer from the old New Jersey Company to the Underwood Company and then from the Underwood Company to the new Delaware Company are, in view of the facts as to what actually occurred, of no controlling importance. Stripped of the unessential formalities, the essence of the transaction was the issuance by the Underwood Company of 21,005 shares of its own stock for 4,190 shares of stock of the new Delaware Corporation and the delivery of 21,005 shares of stock of the Underwood Company to the old New Jersey corporation in exchange for the acquisition by the new Delaware corporation of the assets and property of the old company. In the accomplishment of the completed transaction, the delivery by the Underwood Company of its stock direct to the old New Jersey Company was, in legal contemplation, the same as the issuance by the Underwood Company of its stock to the new Delaware Corporation in exchange for all the stock of the Delaware Corporation and the delivery by the Delaware Corporation of the stock of the Underwood Company to the old New Jersey Company. The cases of Groman v. Commissioner of Internal Revenue, 302 U.S. 82, 58 S.Ct. 108, 82 L.Ed. 63, and Helvering v. Bashford, 302 U.S. 454, 58 S.Ct. 307, 82 L.Ed. 367, require these conclusions.
In the Groman case it appeared that the plaintiff and all other stockholders of Metals Refining Company, an Indiana corporation, entered into a contract with the Glidden Company, an Ohio Corporation, reciting that the shareholders of Indiana were desirous of merging and consolidating the properties of their company with the Glidden Company and with a new corporation that Glidden was to organize under the laws of Ohio. The shareholders of the Metals Company agreed that they would assign their shares to the new Ohio corporation which was to have a specified capital structure divided into preferred and common shares, and the Glidden Company agreed that it would issue and deliver, or cause to be issued and delivered, to the shareholders of the Metals Company a stated number of shares of the Glidden Company's own prior preference stock at an agreed valuation, a stated number of shares of the preferred stock of the new Ohio Company, also at an agreed valuation, and sufficient cash to equal the appraised value of the Metals Refining Company's assets as of March 1, 1929, and that, after the exchange of stock, the Glidden Company would cause the Metals Company to transfer its assets to the new Ohio company. This transaction was carried out and, as a result, Groman received certain shares of the stock of the Glidden Company, shares of the new Ohio stock, and $17,293 in cash. In his return for 1929 Groman included the cash as income but did not include the shares of stock of the Glidden Company and of the new Ohio company, claiming, as plaintiff here claims, that the stock of the Glidden Company was received in exchange in a reorganization and that the Glidden Company was a party to a reorganization within the meaning of section 112 of the Revenue Act of 1928. The Commissioner of Internal Revenue held that the Glidden Company was not a party to a reorganization and that the stock received by Groman in that company was taxable in 1929 to the extent of the gain derived from the exchange. The court held that the Glidden Company was not a party to the reorganization and that the gain to Groman through the receipt by him of the stock of the Glidden Company was taxable in 1929. The court in construing the reorganization sections of the Revenue Act of 1928 said, 302 U.S. at page 89, 58 S.Ct. at page 112, 82 L.Ed. 63: "* * * where, pursuant to a plan, the interest of the stockholders of a corporation continues to be definitely represented in substantial measure in a new or different one, then to the extent, but only to the extent, of that continuity of interest, the exchange is to be treated as one not giving rise to present gain or loss."
In Helvering v. Bashford, supra, it appeared that the Atlas Powder Company, being desirous of eliminating the competition of Peerless Explosives Company, Union Explosives Company, and Black Diamond Powder Company and deeming it unwise to do so by buying either their stock or assets, conceived and consummated a plan for consolidating the three competitors into a new corporation with Atlas to get a majority of the stock of such new corporation. To this end the holders of the stock of the three companies mentioned were approached by individuals representing the Atlas Company, and their agreements to carry out the plan were obtained. The new Ohio corporation was formed and became the owner, practically, of all the stock and all the assets of the Peerless, Union, and Black Diamond companies. The Atlas Company became the owner of all the preferred stock and 57 per centum of the common stock of the new corporation; and, in exchange for the stock in the three old companies mentioned, each of the former stockholders of such old companies received some common stock in the new company, some Atlas Company stock, and some cash which Atlas supplied. Upon these facts the court, 302 U.S. at page 457, 58 S.Ct. at page 308, 82 L.Ed. 367, said: "Applying the rule [announced in Groman v. Commissioner, supra, 302 U.S. page 89, 58 S.Ct. 108, 82 L.Ed. 63] here, we hold likewise that the Atlas stock was `other property' and Bashford, therefore, liable on the deficiency assessment; because the Atlas Powder Company was not `a party to the reorganization.'"
In the Bashford case the plaintiff, in an attempt to distinguish Groman v. Commissioner, supra, contended that the Atlas Company should be held to be a party to the reorganization for the reason that it acquired not only a majority of the voting shares of all other classes of stock of the new corporation in the reorganization, but all the stock of the Peerless and Union Companies in direct exchange for such stock of Peerless and Union; that the plaintiff and other stockholders of those companies received certain shares of stock of the Atlas Company; that the Atlas Company, unlike the Glidden Company in the Groman case, was a party to all the exchanges, while the new company was a party only to exchanges with Atlas; and that the stockholders of Peerless and Union did not participate in the contract or exchange between Atlas Company and the new company. As to these claimed distinctions, the court said, 302 U.S. at page 458, 58 S.Ct. at page 309, 82 L.Ed. 367: "Any direct ownership by Atlas of Peerless, Black Diamond, and Union was transitory and without real substance; it was part of a plan which contemplated the immediate transfer of the stock or the assets or both of the three reorganized companies to the new Atlas subsidiary. Hence, under the rule stated, the above distinctions are not of legal significance. The difference in the degree of stock control by the parent company of its subsidiary and the difference in the method or means by which that control was secured are not material. The participation of Atlas in the reorganization of its competitors into a new company which became a subsidiary did not make Atlas `a party to the reorganization.' The continuity of interest required by the rule is lacking."
The facts which obtained in the Groman and Bashford cases, supra, are not distinguishable from the facts in the case at bar, and we think the rules announced in those cases are controlling here.
In the case of Samuel A. Neidich v. Commissioner of Internal Revenue, 38 B.T.A. 1178, the United States Board of Tax Appeals held that Neidich, who was a stockholder and the president of the Neidich Process Company of New Jersey (the old company), was taxable upon the gain derived by him through the receipt in 1929 of stock of the Underwood-Elliott-Fisher Company in the transaction here involved, for the reason that the Underwood Company was not a party to the reorganization, and in that opinion we concur. See, also, Mellon v. Commissioner of Internal Revenue, 36 B.T.A. 977; Hedden v. Commissioner, 37 B.T.A. 1082.
Plaintiff relies upon Helvering v. Minnesota Tea Company, 296 U.S. 378, 56 S. Ct. 269, 80 L.Ed. 284, and Schuh Trading Co. et al. v. Commissioner of Internal Revenue, 7 Cir., 95 F.2d 404. In our opinion the Minnesota Tea case is not in point, and the Schuh Trading Company case is not in harmony with the decisions in Groman v. Commissioner, supra, and Helvering v. Bashford, supra.
Plaintiff is not entitled to recover and the petition is dismissed.
It is so ordered.
* * * * * *
"(g) Distribution of Stock on Reorganization. — If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized.* * * * * *
"(i) Definition of Reorganization. — As used in this section and sections 113 and 115 —"(1) The term `reorganization' means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation), or (B) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred, or (C) a recapitalization, or (D) a mere change in identity, form, or place of organization, however effected.
"(2) The term `a party to a reorganization' includes a corporation resulting from a reorganization and includes both corporations in the case of an acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation.
"(j) Definition of Control. — As used in this section, the term `control' means the ownership of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation." 26 U.S.C.A. §§ 112(a), (b) (3, 4), (h), 112 note.