Montana-Dakota Utilities Co. v. Commissioner
This text of 25 T.C. 408 (Montana-Dakota Utilities Co. v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
OPINION.
In determining the deficiencies herein, respondent has allowed to petitioner, as a basis for computing depreciation with respect to the properties of Dakota and Sheridan County, acquired as above shown, the same basis that such properties had in the hands of the predecessor corporations, thus treating the acquisition of the latter’s stock and securities and the acquisition of the physical properties of those companies on their liquidation as separate and distinct transactions. It is his position that those transactions come within the ambit of sections 112 (b) (6)1 and 113 (a) (15)2 of the Internal Revenue Code of 1939. He argues that though petitioner might have wanted the properties of the two corporations, the negotiations were for the purchase of stock and securities, that the stockholders of each corporation did not want to sell, and would not sell, the properties, and that on the sale of the stock by the stockholders the corporations cannot be said to have sold assets.
Petitioner’s contention is that the question at issue concerns a “step transaction,” that tax liability is not to be determined on each step viewed independently and in isolation, but rather, on the basis of the net effect of the entire transaction. It relies on the principles enunciated in Helvering v. Alabama Asphaltic Limestone Co., 31S U. S. 179; Koppers Coal Co., 6 T. C. 1209; and Kimbel-Diamond Milling Co., 14 T. C. 74, affirmed per curiam 187 F. 2d 718, certiorari denied 342 U. S. 827.
It is quite clear from the record that, whether petitioner negotiated specifically for the assets of the two corporations or not, its primary, in fact its sole purpose, was to acqtiire the corporate assets through the purchase of the stock and the immediate liquidation of the corporations, to the end that it might integrate the properties into its directly owned operating system. We are of the opinion and hold that, insofar as this petitioner is concerned, the various steps, when taken as a whole, constituted the purchase of the properties of the said companies, and respondent’s contention that section 112 (b) (6) is applicable cannot prevail. Kimbell-Diamond Milling Co., supra; Koppers Coal Co., supra; Commissioner v. Ashland Oil & Refining Co., 99 F. 2d 588. And section 112 (b) (6) being inapplicable, it follows that section 113 (a) (15) does not apply.
Respondent contends further that if sections 112 (b) (6) and 113 (a) (15) do not apply to the transactions under consideration, then the amounts to be allocated as bases to the depreciable properties acquired by petitioner upon the liquidation of the two corporations consist only of allocable portions of the amounts paid for the stock and securities of the two liquidated corporations.
Although respondent agrees that petitioner acquired the properties of Dakota and Sheridan County subject to their liabilities, by liquidating the corporations, he argues that there is no evidence that the liabilities were ever paid by petitioner, and that Kimbell-Diamond Milling Co., supra, is to the effect that the liabilities of a corporation assumed upon liquidation of the corporation under a comparable plan were not considered as part of the cost of the assets acquired.
The argument of the respondent is, in our opinion, without merit. According to section 113 (a), the basis of property is cost, unless otherwise provided in some one of its subsections, and there is no claim of applicability of any such subsection other than section 113 (a) (15), disposed of above. Treating the various steps taken in acquiring the properties as a whole, the cost of the properties of each corporation was the amount paid for the stock and securities plus the liabilities assumed, since in the case of a closed transaction the cost of property includes not only the payment made in cash but also the liabilities to which the property is subject or which are assumed by the purchaser. See Crane v. Commissioner, 331 U. S. 1; Blackstone Theater Co., 12 T. C. 801; Consolidated Coke Co., 25 B. T. A. 345, affd. 70 F. 2d 446; Athol Manufacturing Co., 22 B. T. A. 105, affd. 54 F. 2d 230.
It is true that in Kimhell-Diamond Milling Co., supra, the facts indicate that the corporation, upon liquidation, did have liabilities of $14,020.90, aside from capital liabilities, and that those liabilities were not included in the amount held to have been the cost of the corporate properties acquired. There is no indication, however, that the taxpayer there made any claim that such liabilities, whether assumed, paid, or otherwise satisfied, constituted a part of the cost of the assets acquired, and it could have been that the parties, subject to the determination that section 113 (a) (9) was not the controlling section, had stipulated or agreed that the cost of the securities, adjusted for other factors as therein indicated, was the cost to the taxpayer of the assets. In any event, it does not appear that the question here was litigated or considered in Kimbell-Diamond Milling Co., supra. Accordingly, that case is not to be regarded as authority for the proposition for which the respondent contends.
Subject to the above determination that the liabilities assumed upon liquidation of Dakota and Sheridan County constituted a part of the cost of the corporate assets acquired, the parties have stipulated the basis of the properties to petitioner and the portions of the said basis attributable to each kind and class of such properties. In making that stipulation we assume that allowance was made for any cash received by petitioner upon liquidation of the two corporations. Effect will be given to the stipulations in the Eule 50 computations herein.
Decision will be entered wnder Buie 60.
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25 T.C. 408, 1955 U.S. Tax Ct. LEXIS 32, Counsel Stack Legal Research, https://law.counselstack.com/opinion/montana-dakota-utilities-co-v-commissioner-tax-1955.