Helvering v. Cement Investors, Inc., 316 U.S. 527 (1942)

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Helvering v. Cement Investors, Inc.

No. 644

Argued April 27, 1942
Decided June 1, 1942 *
316 U.S. 527

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE TENTH CIRCUIT

Syllabus

A plan for the reorganization of a corporation and its wholly owned subsidiary in a proceeding under § 77B of the Bankruptcy Act, provided for the creation of a new company which would assume the obligations of the bonds of the parent company and would issue income bonds and common stock in exchange for the first mortgage bonds of the subsidiary company, the latter having been guaranteed as to principal and interest by the parent company. Stockholders of the debtor companies were to receive in exchange for their stock only warrants for the purchase of shares of the new company. The plan was confirmed by the bankruptcy court and was consummated by a conveyance of the assets of the old companies to the new by the debtor companies, the bankruptcy trustee, and the trustee under the indenture securing the bonds of the subsidiary company. The new securities were issuable to, or on the order of, the reorganization managers, acting a "agents" of the security holder. Immediately after the consummation of the plan, all of the issued shares of the new company (552,660 common shares of an authorized 1,000,000) belonged to the former holders of the bonds of the old subsidiary company. Nearly two year later, only 465 shares had been issued to holders of warrants.

Held:

1. The transaction was not a "reorganization" within § 112(g)(1)(B) of the Revenue Act of 1936 (Helvering v. Southwest Consolidated Corp., 315 U.S. 194), nor within § 112(g)(1)(C) of that Act. P. 530.

2. The transaction satisfies the requirements of § 112(b)(5) of the Revenue Act of 136, and no gain resulting therefrom to holders of bonds of the subsidiary company is to be recognized. P. 531.

The legislative history of § 112 (b)(5) supports this conclusion.

3. The "reorganization" provisions of the Revenue Acts do not furnish the exclusive methods for securing a deferment of gains or losses arising out of transactions popularly known as corporate readjustments or reorganizations. P. 533.

4. Whether a tax liability in this case may have been incurred under § 112(a) -- a question not fairly within the issues as framed by the Commissioner, and not decided below -- is not here determined. P. 535.

122 F.2d 380, 416, affirmed.

Certiorari, 315 U.S. 825, to review affirmances of decisions of the Board of Tax Appeals, 42 B.T.A. 473, in favor of the taxpayers.