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Titsworth v. Commissioner of Internal Revenue

October 3, 1934

TITSWORTH
v.
COMMISSIONER OF INTERNAL REVENUE



Upon Petition for Review from the United States Board of Tax Appeals

Author: Thompson

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

THOMPSON, Circuit Judge.

This is a petition for review of a decision of the Board of Tax Appeals. The petitioner was a shareholder of the Miehle Printing Press & Manufacturing Company, an Illinois corporation, which had an authorized and issued capital stock of 75,000 shares of no par value. It acquired all of the capital stock of Stonebridge, Inc., also an Illinois corporation, which had an authorized and issued capital stock of 300,000 shares of no par value. The stock of both corporations was of the same character. Neither had preference stock. The acquisition by the Miehle Company of all Stonebridge, Inc., capital stock constituted a reorganization. In February, 1928, the Miehle Company ditributed pro rata to its own stockholders Stonebridge, Inc., stock under the circumstances set out in section 112 (a) (g) (i) of the Revenue Act of 1928 (45 Stat. 816, 818 [26 USCA § 2112 (a, g, i]). At that time the petitioner was the owner of 150 sharees of the Miehle Company stock which he had purchased at a cost of $16,150.

Six hundred shares of Stonebridge, Inc., were allotted to the petitioner, but he was not required to surrender his Miehle Company stock. In February, 1928, he sold his Stonebridge, Inc., stock for $8,000, but reported no taxable gain on this sale in his income tax return for that year. The Commissioner determined that a profit had accrued from the sale, and assessed a deficiency. The Board of Tax Appeals sustained the Commissioner's determination. The petitioner appealed.

The question before us is whether the sale of Stonebridge, Inc., stock resulted in a taxable gain to the petitioner.

Section 112 of the Revenue Act of 1928, supra, provides:

"(a) Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111 [section 2111], shall be recognized, except as hereinafter provided in this section. * * *

"(g) 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) As used in this section and sections 113 and 115 [sections 2113 and 2115] --

"(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."

It is not contended that, under the terms of that section, any taxable gain accrued to the petitioner because of the receipt by him of Stonebridge, Inc., stock.

The determination of loss or gain from the sale of stock received under the circumstances above described is governed by section 113 of the Revenue Act of 1928 (26 USCA § 2113), which provides:

"(a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost ...


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