Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935)

Helvering v. Minnesota Tea Co.,

No. 174

Argued November 19, 1935
Decided December 16, 1935 *
296 U.S. 378

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

1. A corporation transferred to another all of its assets in exchange for a large sum in cash and 18,000 shares of common stock of the transferee corporation; it retained the stock and distributed the cash to its own stockholders, who assumed certain of its debts.

Held:

(1) The transaction was a "reorganization" under § 112(i)(1)(A) of the Revenue Act of 1928, which embraces within the meaning of the term reorganization "a merger or consolidation (including the acquisition by one corporation of . . . substantially all of the properties of another corporation)," and no taxable gain was recognizable under the Act. P. 382.

(2) That the relationship of the taxpayer to the assets transferred was substantially changed does not prevent the transaction from constituting a reorganization under the Act. P. 386.

(3) That a large amount in cash was received by the transferor was permissible so long as it received also an interest in the affairs of the transferee which represented a material part of the value of the transferred assets. P. 386.

2. Clause (B) of § 112(i)(1) of the Revenue Act of 1928, under which it is essential to the "reorganization" there defined that, immediately after the transfer, the transferor or its stockholders be in control of the transferee corporation does not narrow the scope of Clause (A). P. 384.

3. Dissolution of the transferor corporation is not essential to a reorganization under the Act. P. 386.

4. The construction here given the Act is supported by Treasury Regulations long enforced. P. 384.

5. To constitute a reorganization under Clause (A) of the section, it is essential that the interest acquired by the transferor in the affairs of the transferee corporation be definite and material; it must represent a substantial part of the value of the thing transferred. P. 385.

76 F.2d 797, id., 806, affirmed.

Certiorari to review judgments reversing a decision of the Board of Tax Appeals, 28 B.T.A. 591, in three cases involving income taxes.