the transaction in question is not a liquidation-reincorporation, it may be considered a reorganization under Section 368. This is predicated on the alleged transfer by Sandor of all of its assets to Winx within the meaning of Section 354 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 354(b)(1)(A). In substance, and insofar as is material here, Section 368 provides that a transfer by a corporation of all or part of its assets to another corporation will constitute a reorganization if immediately after the transfer the transferor, or one or more of its shareholders, is in control of the corporation to which the assets are transferred, and stock or securities of the transferee corporation are distributed in a transaction which qualifies under Section 354. To qualify under Section 354, the transferee corporation must acquire "substantially all of the assets" of the transferor corporation, and any stock, securities or other property received by the transferor corporation must be distributed in pursuance of the plan of reorganization.
In support of its reorganization theory, defendant contends that Sandor transferred substantially all of its assets to Winx, and argues that the words "substantially all" in Section 354 refer to the operating assets of the transferor corporation, and not to the liquid assets that are distributed pursuant to a reorganization plan. The authorities cited by defendant on this branch of the case are distinguishable on their facts. In each instance there was clearly a transfer of substantially all of the assets of the transferor corporation to a successor corporation, coupled with a continuance of the first corporation's business by its successor. But the facts here are different; and while it is true, as stated by defendant, that the question of what constitutes "substantially all" of the assets of a transferor corporation is not to be determined by the application of an arbitrary percentage figure, it does not follow that a "percentage figure" may not be a factor in the overall picture. In cases of this nature the transaction must be viewed in its entirety.
Sandor's principal and only asset, the Prospect Street property, was not transferred to Winx. What was transferred to Winx was the Spruce Street property, acquired by Sandor and conveyed by it to Winx under the circumstances heretofore related. Defendant, treating the Spruce Street property as Sandor's "only operating asset", contends that its conveyance to Winx clearly resulted in a statutory reorganization of Sandor under Section 368, thereby subjecting Sandor to a taxable gain on the sale of its assets. Even if it be assumed under the facts of this case that the Spruce Street property could be classified as an operating asset of Sandor, it represented but 9% of the total value of Sandor assets. To view this conveyance as a transfer of "substantially all" of Sandor's assets, borders on the frivolous. This Court is satisfied that Sandor did not, within the intendment of Section 354 transfer "substantially all" of its assets to Winx. Under the circumstances there could be no reorganization of Sandor under Section 368.
This Court is satisfied that Sandor has complied with the requirements of Section 337. In pertinent part, Section 337 states the general rule to be that if "(1) a corporation adopts a plan of complete liquidation on or after June 22, 1954, and (2) within the 12-month period beginning on the date of the adoption of such plan, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12-month period." The "plain and simple" language of this statute is admitted by defendant. But, says defendant, Section 337 does not cover every fact situation that comes within its literal terms, and resort must be had to the legislative history to ascertain what Congress intended to cover by the "plain and simple" language it used. The legislative history is set forth in Vol. 3, 1954 U.S. Code Cong. and Adm. News, p. 4017. This Court has examined the pertinent provisions thereof, covering both the House and Senate Reports, at pp. 4064, 4244, 4679 and 4896. Nothing therein contained is indicative of a Congressional intent to impose upon a corporation seeking to come within the provisions of Section 337, conditions other than those plainly and clearly expressed in said section. Under the circumstances, there is no room for construction, and resort need not be had to any legislative history. See: Commissioner v. Ridgway Estate, 291 F.2d 257 (3 Cir. 1961); United States v. 11 Star Pack, 248 F. Supp. 933 (E.D. Pa. 1966); United States v. Oregon, 366 U.S. 643, 648, 6 L. Ed. 2d 575, 81 S. Ct. 1278 (1961).
After conclusion of the hearing in this Court, an appeal then pending from the Tax Court decision in Berghash v. Commissioner, 43 T.C. 743, was decided. The opinion of the Court of Appeals for the Second Circuit is reported, sub nom. Commissioner v. Berghash, in 361 F.2d 257. That case involved a corporate liquidation, followed by a distribution of assets to the stockholders of the transferor corporation, dissolution thereof, and continuance of the business of the transferor by a successor corporation. The stockholders of the transferor (husband and wife) filed a joint tax return in which they reported the gain on the liquidation of the transferor as a long-term capital gain. The transferor, in its return for the period in question, reported no income tax on the gain it had realized, relying on the application of Section 337 to the transfer of its assets and subsequent liquidation.
With respect to the stockholders, the Commissioner of Internal Revenue filed a notice of deficiency, alleging that the distribution received by them was in the nature of a dividend, and hence taxable to the extent of the transferor's earnings and profits at ordinary income rates. As to the transferor, the Commissioner filed a notice of deficiency, claiming in this instance that the gain realized by it was fully taxable to the corporation at long-term capital gains rates. An appeal to the Tax Court by the taxpayers resulted in a decision in their favor. That Court held that the assets received by the stockholders in connection with the liquidation of the transferor corporation were taxable to them at capital gains rates under Section 331(a) of the Internal Revenue Code of 1954, and since the transaction under attack was not a reorganization of the transferor within the meaning of Section 368, that Section 337 was applicable to the transfer of assets that had been made by the transferor to its stockholders. The Court of Appeals affirmed.
With respect to the issue here involved, the facts in Berghash were even stronger than those in the case at bar to support defendant's contention that there should be no application of Section 337. The successor corporation in Berghash continued to operate the same drug store that had been owned by the transferor corporation, under the same name, and in the same location. Notwithstanding, the Tax Court concluded:
"We are unable to find any authority or any indication from the legislative history of section 337 that would require us to disregard the actual liquidation of [the transferor corporation] * * *. We therefore hold that no gain or loss is recognizable to [the transferor corporation] as a result of the sale in question."