Helvering v. Southwest Consolidated Corp.,
315 U.S. 194 (1942)

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U.S. Supreme Court

Helvering v. Southwest Consolidated Corp., 315 U.S. 194 (1942)

Helvering v. Southwest Consolidated Corp.

No. 286

Argued January 14, 15, 1942

Decided February 2, 1942

315 U.S. 194


1. Pursuant to a plan of creditors, the indenture securing bonds of an insolvent corporation was foreclosed, and its properties transferred to a new corporation in exchange for common stock and stock purchase warrants of the latter, the common stock going mostly to bondholders of the old corporation, but a small portion of it, together with part of the warrants, to the old corporation's participating unsecured creditors, the other warrants going to the old corporation's preferred and common stockholders. Its nonparticipating security holders were paid cash, which was obtained in the course of the transaction by means of a loan from a bank which the new corporation later assumed and paid.

Held, that the transaction is not a "reorganization" under § 112(g)(1) of the Revenue Act of 1934. P. 315 U. S. 198.

To constitute a "reorganization" under clause B of that section, the assets of the transferor corporation must be acquired solely for voting stock of the transferee. Voting stock plus some other consideration does not meet the statutory requirement.

2. The provision of the Revenue Act of 1934, § 112(g)(1)(B), as amended retroactively by the Revenue Act of 1939, that, in determining whether an exchange is solely for voting stock,

"the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded,"

is inapplicable to an indebtedness arising out of he reorganization, such as the bank loan described, supra, as distinguished

Page 315 U. S. 195

from a debt of the transferor antedating the transaction. P. 315 U. S. 198.

3. Warrants entitling the holder to buy voting common stock at so much per share are not "voting stock" within the meaning of § 112(g)(1)(B) of the Revenue Act of 1934. P. 315 U. S. 200.

4. Under clause C of § 112(g)(1) of the Revenue Act of 1934, which requires that, immediately after the transfer, the transferor or it stockholders, or both, be in control of the transferee corporation, and § 112(h), which defines "control," there is no reorganization where, at the critical date, control is in creditors of the old corporation by virtue of shares issued to them by the the corporation. P. 315 U. S. 201.

5. "Recapitalization" within the meaning of clause D of § 112(g), supra, implies a reshuffling of a capital structure within the framework of an existing corporation, and a transaction which shifts the ownership of the proprietary interest in the corporation is not "a mere change in identity, form, or place of organization" within the meaning of clause E. P. 315 U. S. 202.

119 F.2d 561 reversed.

Certiorari, 314 U.S. 598, to review a judgment which affirmed a decision of the Board of Tax Appeals overruling deficiency assessments.

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