FRANK, Circuit Judge.
The pertinent statutory provisions are set forth in the footnote.
The facts are stated in the opinion and findings of the Tax Court, reported in 18 T.C. 1255. In part they read as follows:
“The stockholders of the old corporation, at a special meeting, expressed their desire to dissolve the old corporation and to sell the assets and distribute the proceeds. They passed resolutions on March 12, 1930, consenting to the formation of a new company of the same name and the dissolution of the old company, 15 days thereafter, as provided by Section 22 of the Stock Corporation Law of New York [McK.Consol.Laws, c. 59]. It was also resolved to have the directors sell the assets, good will and corporate name of the old company to the new corporation. Preferred stock of the new corporation was to be received for the value of the physical assets and net worth, and common stock of the new corporation aggregating a par value of $750,000 was to be taken in payment for all other property including good will and the right to use the corporate name. The new corporation, Bard-Parker Company, Inc. (hereinafter referred to as the petitioner), was incorporated in New York on April 8, 1930. The old company was automatically dissolved on April 24, 1930. The authorized capital stock of the new corporation was $1,950,000, consisting of 4,500 shares of $100 par value 7 per cent cumulative preferred and 150,000 shares of $10 par value common stock. The petitioner, through its directors, purchased the tangible assets of the old company from the liquidating directors of that corporation on April 28, 1930, for $209,-300 par value preferred stock and the assumption of liabilities of $18,-855.59. The intangible assets of the old company were purchased for $750,000 par value common stock of the petitioner. The memorandum of agreement states that the old company had been dissolved.
“The liquidating directors of the old company listed the shareholders of that corporation and the number of preferred and common shares to be issued to each in payment of the tangible and intangible assets of the old company. The preferred shareholders of the old company received $50,000 par value in preferred shares of the petitioner. The remaining $159,300 of the purchase price of the tangible assets was paid to the common stockholders of the old company in the ratio in which they owned stock of their corporation * * *. The common stock of the new corporation was issued in the same ratio * •* *
“On the same date the directors of the petitioners authorized the purchase of certain patents and ap
plications, accepting an offer made by Harry B. Arden. These patents and applications purchased by the petitioner for $750,000 through Arden were owned by Morgan Parker * *
“Gain or loss was not reported by petitioner or Morgan Parker from the transactions involving the purchase by petitioner of the old company’s assets and Morgan Parker’s patents.
“J. W. B. Ladd received $50,000 par value in common stock of the petitioner for his services * *
In its excess profits tax returns for the taxable years taxpayer included in its equity invested capital, for the purpose of computing its excess profits tax credit, the full par value of its common stock in the amount of $1,550,000. The Commissioner in his notice of deficiency reduced the invested capital by that amount. The Tax Court sustained the Commissioner’s determination in part. With respect to the $50,000 of stock issued for Ladd’s services, the Tax Court held that no amount was includible in equity invested capital. With respect to the $750,000 of stock issued for the old corporation’s intangible assets, it held that the amount includible was the cost to the old corporation. With respect to the $750,000 of stock issued for Parker’s scissors patents, it held that the amount includible was cost to taxpayer, i. e., the fair market value of the patents at the time they were acquired, which it found to be $300,000.
Taxpayer appeals from so much of the Tax Court’s decision as is adverse to it. The Commissioner has not cross-appealed.
1. The first question has to do with the intangible assets of the old company, acquired in 1930 in exchange for $750,000 par value of the new company’s common stock. The Tax Court held that this was a tax-free acquisition “in connection with a reorganization” under Section 112(b) (4) of the 1928 Act; that therefore the “basis” of those assets, under 26 LI.S.C. 1946 ed'.. Section 113(a) (7), is the same as it: would be in the hands of the old company; and that consequently this “basis”' represents the new company’s “equity invested capital”, relative to those intangible assets, pursuant to 26 U.S.C.. 1946 ed. Section 718(a) (2).
Taxpayer contends that the transfer of these assets was not tax-free under Section 112(b) (4) or Section 112(b) (5) of the 1928 Act; that therefore the “basis” of those assets is their market, value in 1930 when the new company acquired them in exchange for some of' its common stock; and that, accordingly,, that value must be used in computing-the new company's “equity invested! capital” under Section 718(a) (2). In support of this contention, taxpayer advances several arguments:
(A) Section 112(b) (4), by its terms,, relates solely to a “reorganization” in. which a “corporation” exchanges property for securities in another “corporation.” But here, says taxpayer, the parties to the exchange of these assets were (1) some “natural persons,” as transferors and (2) the new corporation as transferee; for, in accordance with the New York statute, the old company was dissolved, title to its assets then vested in its former directors as “liquidating trustees,” and those persons transferred the assets of the dissolved old company to the new company.
We cannot agree. We think the Tax Court correctly held that the liquidating directors served merely as a “conduit” through which title passed to the new corporation. The obvious aim of Section 112(b) (4) may not so easily be balked. In Helvering v. Alabama Asphaltic Limestone Company, 315 U.S. 179, 184-185, 62 S.Ct. 540, 544, 86 L.Ed. 775, the Court said that “the separate steps were integrated parts of a single scheme. Transitory phases of an arrangement frequently are disregarded under these sections of the revenue acts where they add nothing of substance to the completed affair. * * * Here they were no more than intermedi
ate procedural devices utilized to enable the new corporation to acquire all the assets of the old one pursuant to a •single reorganization plan.”
See also Survaunt v. Commissioner, 8 Cir., 162 F.2d 753; Cf. Gregory v. Helvering, 2 Cir., 69 F.2d 809, affirmed 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596; Kocin v. United States, 2 Cir.,
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FRANK, Circuit Judge.
The pertinent statutory provisions are set forth in the footnote.
The facts are stated in the opinion and findings of the Tax Court, reported in 18 T.C. 1255. In part they read as follows:
“The stockholders of the old corporation, at a special meeting, expressed their desire to dissolve the old corporation and to sell the assets and distribute the proceeds. They passed resolutions on March 12, 1930, consenting to the formation of a new company of the same name and the dissolution of the old company, 15 days thereafter, as provided by Section 22 of the Stock Corporation Law of New York [McK.Consol.Laws, c. 59]. It was also resolved to have the directors sell the assets, good will and corporate name of the old company to the new corporation. Preferred stock of the new corporation was to be received for the value of the physical assets and net worth, and common stock of the new corporation aggregating a par value of $750,000 was to be taken in payment for all other property including good will and the right to use the corporate name. The new corporation, Bard-Parker Company, Inc. (hereinafter referred to as the petitioner), was incorporated in New York on April 8, 1930. The old company was automatically dissolved on April 24, 1930. The authorized capital stock of the new corporation was $1,950,000, consisting of 4,500 shares of $100 par value 7 per cent cumulative preferred and 150,000 shares of $10 par value common stock. The petitioner, through its directors, purchased the tangible assets of the old company from the liquidating directors of that corporation on April 28, 1930, for $209,-300 par value preferred stock and the assumption of liabilities of $18,-855.59. The intangible assets of the old company were purchased for $750,000 par value common stock of the petitioner. The memorandum of agreement states that the old company had been dissolved.
“The liquidating directors of the old company listed the shareholders of that corporation and the number of preferred and common shares to be issued to each in payment of the tangible and intangible assets of the old company. The preferred shareholders of the old company received $50,000 par value in preferred shares of the petitioner. The remaining $159,300 of the purchase price of the tangible assets was paid to the common stockholders of the old company in the ratio in which they owned stock of their corporation * * *. The common stock of the new corporation was issued in the same ratio * •* *
“On the same date the directors of the petitioners authorized the purchase of certain patents and ap
plications, accepting an offer made by Harry B. Arden. These patents and applications purchased by the petitioner for $750,000 through Arden were owned by Morgan Parker * *
“Gain or loss was not reported by petitioner or Morgan Parker from the transactions involving the purchase by petitioner of the old company’s assets and Morgan Parker’s patents.
“J. W. B. Ladd received $50,000 par value in common stock of the petitioner for his services * *
In its excess profits tax returns for the taxable years taxpayer included in its equity invested capital, for the purpose of computing its excess profits tax credit, the full par value of its common stock in the amount of $1,550,000. The Commissioner in his notice of deficiency reduced the invested capital by that amount. The Tax Court sustained the Commissioner’s determination in part. With respect to the $50,000 of stock issued for Ladd’s services, the Tax Court held that no amount was includible in equity invested capital. With respect to the $750,000 of stock issued for the old corporation’s intangible assets, it held that the amount includible was the cost to the old corporation. With respect to the $750,000 of stock issued for Parker’s scissors patents, it held that the amount includible was cost to taxpayer, i. e., the fair market value of the patents at the time they were acquired, which it found to be $300,000.
Taxpayer appeals from so much of the Tax Court’s decision as is adverse to it. The Commissioner has not cross-appealed.
1. The first question has to do with the intangible assets of the old company, acquired in 1930 in exchange for $750,000 par value of the new company’s common stock. The Tax Court held that this was a tax-free acquisition “in connection with a reorganization” under Section 112(b) (4) of the 1928 Act; that therefore the “basis” of those assets, under 26 LI.S.C. 1946 ed'.. Section 113(a) (7), is the same as it: would be in the hands of the old company; and that consequently this “basis”' represents the new company’s “equity invested capital”, relative to those intangible assets, pursuant to 26 U.S.C.. 1946 ed. Section 718(a) (2).
Taxpayer contends that the transfer of these assets was not tax-free under Section 112(b) (4) or Section 112(b) (5) of the 1928 Act; that therefore the “basis” of those assets is their market, value in 1930 when the new company acquired them in exchange for some of' its common stock; and that, accordingly,, that value must be used in computing-the new company's “equity invested! capital” under Section 718(a) (2). In support of this contention, taxpayer advances several arguments:
(A) Section 112(b) (4), by its terms,, relates solely to a “reorganization” in. which a “corporation” exchanges property for securities in another “corporation.” But here, says taxpayer, the parties to the exchange of these assets were (1) some “natural persons,” as transferors and (2) the new corporation as transferee; for, in accordance with the New York statute, the old company was dissolved, title to its assets then vested in its former directors as “liquidating trustees,” and those persons transferred the assets of the dissolved old company to the new company.
We cannot agree. We think the Tax Court correctly held that the liquidating directors served merely as a “conduit” through which title passed to the new corporation. The obvious aim of Section 112(b) (4) may not so easily be balked. In Helvering v. Alabama Asphaltic Limestone Company, 315 U.S. 179, 184-185, 62 S.Ct. 540, 544, 86 L.Ed. 775, the Court said that “the separate steps were integrated parts of a single scheme. Transitory phases of an arrangement frequently are disregarded under these sections of the revenue acts where they add nothing of substance to the completed affair. * * * Here they were no more than intermedi
ate procedural devices utilized to enable the new corporation to acquire all the assets of the old one pursuant to a •single reorganization plan.”
See also Survaunt v. Commissioner, 8 Cir., 162 F.2d 753; Cf. Gregory v. Helvering, 2 Cir., 69 F.2d 809, affirmed 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596; Kocin v. United States, 2 Cir., 187 F.2d 707.
We conclude, then, that, in applying .'Section 112(b) (4), this transaction may not be treated as two transfers — one from the old company to its directors ;and a second from those directors to the new company — since those two transfers were but procedural steps used to •complete what, in substance, constituted ■•a single transfer.
(B) Taxpayer also argues, as follows: Here there were two concurrent transfers in exchange for the stock •of a corporation, i. e. the transfer from the old company and the transfer of the patents; in such circumstances, says the taxpayer, “the transaction must meet the tests of Section 112(b) (5) to be non-taxable,” and, if it does not, then Section 112(b) (4) must be disregarded, because those subsections are mutually exclusive; and here (so the Tax Court found) Section 112(b) (5) did not fit the transaction, since the interests of the transferors in the stock •of the new company was disproportionate to their interests in “the property prior to the exchange.”
We think that contention untenable. 'Section 112(b) (4) and (5) are cumulative, not mutually exclusive. See Helvering v. Cement Investors, 316 U.S. 527, 533-534, 62 S.Ct. 1125, 86 L.Ed. 1649; Britt v. Commissioner, 4 Cir., 114 F.2d 10; Barker v. United States, 9 Cir., 200 F.2d 223, 229; Nelson v. United States, 69 F.Supp. 336, 107 Ct.Cl. 477.
Taxpayer cites cases in which, according to taxpayer, the courts, having held that a transaction was not tax-free because it did not meet the tests of Section 112(b) (5), did not go on to consider whether the transaction was tax-free under Section 112(b) (4) or some other “reorganization” subsection. Assuming that taxpayer has correctly described those cases, they cannot be considered as precedents here. See Webster v. Fall, 266 U.S. 507, 511, 45 S.Ct. 148, 149, 69 L.Ed. 411: “Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents.”
(C) A further argument advanced by taxpayer runs thus: The Tax Court found that “the principal reason for the entire transaction was the exploitation of the scissors patents” acquired from natural persons by the new company; therefore, the transfer to the new company of its intangible assets, and the simultaneous transfer of the patents, both in exchange for common stock of the new company, must be regarded as one transaction; so regarded, it cannot come within Section 112(b) (4), which deals exclusively with inter-corporate transactions.
We do not agree. There were two separate transfers which did not become transmuted into component steps of a single transfer merely because separate properties were transferred at the same
time to one transferee. These two transfers were not — as in the case of the transfer by the old company to its liquidating directors and the re-transfer by them to the new company — mere “procedural” steps towards the completion of one transaction. Nor were the two transfers, otherwise distinct, fused into one merely because the interested persons would not have entered into the arrangement unless it involved both transfers contemporaneously. None of the cases cited by the taxpayer leads us to the result that these transactions should escape the tax consequences which would have followed had they been separated in time.
We do not hold that the dominant aim of the interested persons may never be controlling in this area of “tax law.” We do hold that, on the facts of this case, there occurred (1) a tax-free reorganization exchange of the old company’s intangible assets for new company stock plus (2) a separate non-reorganization exchange of the patents for such stock. Therefore, the “basis” of the intangible assets is that of the old company.
2. We think the Tax Court correctly excluded, from taxpayer’s “equity invested capital,” the market value of the shares of common stock issued to Ladd in exchange for services. For Section 718(a) (2) of 26 U.S.C., 1946 ed. is explicitly restricted to “property * * * previously paid in”; and services have been held not to constitute “property” for such purposes. La Belle Iron Works v. United States, 256 U.S. 377, 389, 41 S.Ct. 528, 65 L.Ed. 998; Simmons Company v. Commissioner, 1 Cir., 33 F.2d 75. Taxpayer argues that Section 69 of the New York Stock Corporation Law provides for the issuance of stock for “labor done” as well as for money or property actually received. We think such a state statute irrelevant in interpreting the provisions of the Federal Revenue Act here applicable.
Affirmed.