U.S. Supreme Court HELVERING v. MINNESOTA TEA CO., 296 U.S. 378 (1935)

[Page 296 U.S. 378, 380]

of stock of another corporation, or substantially all the properties of another corporation.' The Circuit Court of Appeals held otherwise, and remanded the cause for determination by the Board whether the whole of the cash received by the Minnesota Tea Company was in fact distributed as required by the act. We granted certiorari because of alleged conflicting opinions.

The petition also stated that, as the taxpayer made an earlier conveyance of certain assets, the later one, here in question, of what remained to the Grand Union Company did not result in acquisition by one corporation of substantially all property of another. This point was not raised prior to the petition for certiorari, and, in the circumstances, we do not consider it.

Statutory provisions presently helpful are in the margin. [Footnote 1]

[Page 296 U.S. 378, 386]

The transaction here was no sale, but partook of the nature of a reorganization, in that the seller acquired a definite and substantial interest in the purchaser.

True it is that the relationship of the taxpayer to the assets conveyed was substantially changed, but this is not inhibited by the statute. Also, a large part of the consideration was cash. This, we think, is permissible so long as the taxpayer received an interest in the affairs of the transferee which represented a material part of the value of the transferred assets.

Finally, it is said the transferor was not dissolved, and therefore the transaction does not adequately resemble consolidation. But dissolution is not prescribed, and we are unable to see that such action is essential to the end in view.

The challenged judgment is affirmed.

Nos. 175 and 176.

The respondents in these cases are two of the three stockholders of Minnesota Tea Company. The writs were granted upon the Commissioner's petition, which states the question involved is whether the transaction between Minnesota Tea Company and Grand Union Company, described above, No. 174, resulted in a reorganization within the Revenue Act of 1928. The petition also declared: 'The amount of the tax due from the respondents , ... depends solely upon whether the transfer of the properties of the Minnesota Tea Company to the Grand Union Company was a reorganization within the meaning of the Revenue Act.'

We think the court below rightly decided there was a reorganization. It reversed the Board of Tax Appeals, and remanded the cause for further proceedings, and its judgment must be affirmed. Footnotes

Footnote 1 Revenue Act, 1918, c. 18, 40 Stat. 1060.

Sec. 202. (b) When property is exchanged for other property, the property received in exchange shall for the purpose of determining gain or loss be treated as the equivalent of cash to the amount of its fair market value, if any; but when in connection with the reorganization, merger, or consolidation of a corporation a person receives in place of stock or securities owned by him new stock or securities of no greater aggregate par or face value, no gain or loss shall be deemed to occur from the exchange, and the new stock or securities received shall be treated as taking the place of the stock, securities, or property exchanged.

Revenue Act, 1921, c. 136, 42 Stat. 230.

Sec. 202. (c) For the purposes of this title, on an exchange of property, real, personal or mixed, for any other such property, no gain or loss shall be recognized unless the property received in exchange has a readily realizable market value; but even if the property received in exchange has a readily realizable market value, no gain or loss shall be recognized-

(2) When in the reorganization of one or more corporations a person receives in place of any stock or securities owned by him, stock or securities in a corporation a party to or resulting from such reorgani-