U.S. Supreme Court JOHN A. NELSON CO. v. HELVERING, 296 U.S. 374 (1935)

[Page 296 U.S. 374, 377]

'It follows that the transaction was not part of a strict merger or consolidation or part of something that partakes of the nature of a merger or consolidation and has a real semblance to a merger or consolidation involving a continuance of essentially the same interests through a new modified corporate structure. Mere acquisition by one corporation of a majority of the stock or all the assets of another corporation does not of itself constitute a reorganization, where such acquisition takes the form of a purchase and sale and does not result in or bear some material resemblance to a merger or consolidation.'

True, the mere acquisition of the assets of one corporation by another does not amount to reorganization within the statutory definition. Pinellas, Ice & Cold Storage Co. v. Commissioner of Internal Revenue, 287 U.S. 462, 53 S.Ct. 257, so affirmed. But where, as here, the seller acquires a definite and substantial interest in the affairs of the purchasing corporation, a wholly different situation arises. The owner of preferred stock is not without substantial interest in the affairs of the issuing corporation, although denied voting rights. The statute does not require participation in the management of the purchaser; nor does it demand that the conveying corporation be dissolved. A controlling interest in the transferee corporation is not made a requisite by section 203(h)(1)( A) (26 U.S.C.A. 112 note). This must not be confused with paragraph (h)( 2) (26 U.S.C.A. 112 note).

Finally, as has been pointed out in the Minnesota Tea Case, paragraph ( h)(1) (B) was not intended to modify the provisions of paragraph (h)(1)(A). It describes a class. Whether some overlapping is possible is not presently important.

The judgment below must be reversed.