Morgan Mfg. Co. v. Commissioner
This text of 44 B.T.A. 691 (Morgan Mfg. Co. v. Commissioner) is published on Counsel Stack Legal Research, covering United States Board of Tax Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
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[696]*696OPINION.
The first issue relates to the correct amount of depreciation which should be allowed petitioner as a deduction from 1936 income. There is no dispute as to the life of the property or the rate of depreciation which is to be used. The question at issue is the cost basis of the assets upon which depreciation is to be computed.
Petitioner contends that it is entitled to use the cost basis of the Dimension Co., adjusted by the amount of depreciation which had accrued to it at the time the property was transferred to petitioner. Respondent contends that the basis which should be used is $62,500, which represents the cost of the assets to petitioner. The statutes upon which petitioner relies are printed in the margin.1
Petitioner’s contention is that there was a merger of the Dimension Co. with the old Morgan Co. and that immediately upon the com[697]*697pletion of the merger the new Morgan Co. owned all the assets of the Dimension Co. and the Morgan Co. and had assumed all of their liabilities and the stockholders of the two old companies had become stockholders in the new Morgan Co. In support of this contention, petitioner says in its brief:
So therefore on the effective date of the merger, namely, June 16, 1936, and immediately thereafter, that is to say until July 7, 1936, the former stockholders of the constituent Dimension Manufacturing Company were the owners of 829⅛ shares (or 82.9%) and the former stockholders of the constituent original Morgan Manufacturing Company were the owners'of 171 (or 17.1%) of the outstanding capital stock of the consolidated corporation.
The difficulty with petitioner’s contention in this respect, it seems to us, is that petitioner would treat as entirely separate transactions the formal merger agreement which is in evidence and an oral agreement between the stockholders of both corporations entered into prior [698]*698to June 15, 1986, and within the year 1936, by which it was agreed that:
* * * if tiie Morgan Co. as it was to be constituted subsequent to June 16, 1936, should pay off the then existing notes payable of the Dimension Co. in the amount of $62,500, the stockholders of the Dimension Co. would release their rights if any in the Morgan Co. as constituted subsequent to June 16,1936.
We do not think it is permissible to treat these two steps as separate transactions but that the transaction as a whole determines its legal consequences. See Prairie Oil & Gas Co. v. Motter, 66 Fed. (2d) 309.
When the whole transaction as disclosed by the stipulated facts is viewed, we think it shows an acquisition by the Morgan Co. of all the properties of the Dimension Co. in consideration of the payment in cash by the Morgan Co. of $62,500 indebtedness which Dimension Co. owed to its stockholders. This was a sale by one corporation of its assets to another corporation for a consideration of $62,500 in cash. Neither the Dimension Co. .nor any of its stockholders ever received any stock of the Morgan Co. in consideration of the sale of the Dimension Co.’s assets. . There was, therefore, not that continuing interest remaining in the old corporation or its stockholders which is required before there is a statutory reorganization. Cf. Cortland Specialty Co. v. Commissioner, 60 Fed. (2d) 937.
We, therefore, hold that petitioner did not acquire the assets in question in a statutory reorganization in which no gain or loss was recognized, but acquired them in a purchase for $62,500, and this latter amount represents the cost of such assets to petitioner and is the correct basis for depreciation. On this issue we sustain the Commissioner.
The second issue relates to petitioner’s claim for a credit under section 26 (c) (1) of the Bevenue Act of 1936, printed in the margin.2 The respondent has determined that the petitioner was not under any written contract restricting the payment of dividends prior to May 1, 1936; that petitioner’s contract with the Keconstruction Finance Corporation by its expressed terms did not become effective and binding upon the parties until the funds had been paid to or made available to the petitioner, which did not occur until on or about July 6, 1936.
[699]*699On the facts of record the respondent’s determination in this respect must be sustained. See Florence Cotton Mills, 44 B. T. A. 436; Bethlehem Silk Co., 43 B. T. A. 515.
Reviewed by the Board.
Decision will l>e entered for respondent.
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44 B.T.A. 691, 1941 BTA LEXIS 1288, Counsel Stack Legal Research, https://law.counselstack.com/opinion/morgan-mfg-co-v-commissioner-bta-1941.