Weiss v. Stearn
265 U.S. 242 (1924)

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U.S. Supreme Court

Weiss v. Stearn, 265 U.S. 242 (1924)

Weiss v. Stearn

Nos. 262 and 263

Argued April 30, 1924

Decided May 26, 1924

265 U.S. 242

Syllabus

Pursuant to an agreement, the stockholders of an Ohio corporation deposited with a trustee their certificates for all its capital stock ($5,000,000), and other parties deposited $7,500,000; the depositors organized a new Ohio corporation with authorized capital stock of $25,000,000, and powers like those of the old corporation; the new corporation took over the property, assets and business of the old one, assuming its contracts and liabilities, and delivering certificates for all its stock to the trustee, in payment, and carried on the business under the old management; the old corporation was dissolved; the trustee delivered half of the new stock and the whole $7,500,000 to the old stockholders pro rata, and the other half of the new stock to the other depositaries, so that each owner of old stock received cash, and also shares of new stock representing an interest in the corporate property and business half as large as he had before.

Held:

(1) That the new stock received by the old stockholders, unlike the money, was not the proceeds of a sale, but represented part of the same capital investment as their old shares, without any segregated gain taxable as income under the Revenue Act of 1916. P. 265 U. S. 252.

(2) The transaction amounted to a financial reorganization under which each stockholder retained half his interest and disposed of the remainder. P. 265 U. S. 254.

(3) Questions of taxation must be determined by viewing what was actually done, rather than the declared purpose of the participants. Id.

(4) When applying the Sixteenth Amendment and income tax laws enacted under it, the courts must regard matters of substance, and not of mere form. Id.

285 F. 689 affirmed.

Page 265 U. S. 243

Certiorari to judgments of the circuit court of appeals affirming judgments recovered by the respondents in the district court in their actions to recover money paid under protest as income taxes.

Page 265 U. S. 251

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