John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935)

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John A. Nelson Co. v. Helvering

No. 61

Argued November 19, 20, 1935
Decided December 16, 1935
296 U.S. 374

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

1. A corporation transferred substantially all of its property to another corporation in return for cash and the entire issue of preferred stock of the transferee, the stock being without voting rights except in case of default in payment of dividends; the transferor used part of the cash received to retire its own preferred stock, and distributed to its stockholders the remainder of the cash and the preferred stock of the transferee; the transferor corporation did not dissolve, but retained its franchise and continued liable for certain obligations. Held, there was a "reorganization" under § 203(h)(1)(A) of the Revenue Act of 1926, and no taxable gain upon the transaction was recognizable under the Act. P. 376.

2. Under § 203(h)(1)(A) of the Act, it is not essential to a reorganization that the transferor acquire a controlling interest in the transferee, nor that the transferor be entitled to participate in the management of the transferee, nor that the transferor be dissolved. P. 377.

3. Paragraph(h)(1)(B) of § 203, under which control of the transferee corporation by the transferor or its stockholders is essential to a reorganization, was not intended to modify the provisions of paragraph (h)(1)(A). P. 377.

4. The owner of preferred stock, though without voting rights, has a substantial interest in the affairs of the issuing corporation. P. 377.

75 F.2d 696 reversed.

Certiorari to review a judgment affirming a decision of the Board of Tax Appeals (24 B.T.A. 1031; 28 B.T.A. 529) sustaining a determination of a deficiency in income tax.