U.S. Supreme Court HELVERING v. WATTS, 296 U.S. 387 (1935)

[Page 296 U.S. 387, 389]

The transaction here involved is within the description of reorganization recognized by the Treasury Regulation above quoted. And if the regulation can be taken as properly interpreting the statute, the challenged judgment must be affirmed.

The court below recites the history of the Treasury Regulation above quoted, and concludes that, in view of the re-enactment of the paragraph to which it refers without change, Congress intended to approve the regulation as written.

The Commissioner here maintains that the definition of reorganization found in section 203(h)(1)(A), Revenue Act 1924, 43 Stat. 256 (26 U.S.C.A . 112 note), should be limited to transactions which partake of the nature of mergers or consolidations, and that here the Vanadium merely made an investment in Ferro Alloys stock and obtained only the rights of a stockholder therein. It is also urged that an exchange of stocks for bonds results in a substantial change of position and that such bonds are 'other property' within the meaning of the statute, and, as such, subject to tax. Much of the argument presented is the same as the one considered in the Minnesota Tea Company Case, and it need not be again followed in detail. The bonds, we think, were securities within the definition, and cannot be regarded as cash, as were the short-term notes referred to in Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462, 53 S.Ct. 257.

The judgment of the court below must be affirmed.