G. & K. MANUFACTURING CO.
v.
HELVERING, COMMISSIONER OF INTERNAL REVENUE
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G. & K. Manufacturing contested a 1929 income tax deficiency assessment, arguing that its transfer of substantially all assets to Kraft-Phenix Cheese Corporation in exchange for cash and stock constituted a tax-free reorganization under the Revenue Act of 1928. The Supreme Court reversed the lower court's determination that the transaction was a sale, holding that if the taxpayer transferred substantially all its assets, the transaction qualified as a reorganization despite the taxpayer's continued existence and retention of some subsidiary stock interests, and remanded the case for factual findings on the value of retained assets.
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Mr. Justice McReynolds delivered the opinion of the Court.
The petitioner contests the validity of a deficiency assessment for 1929 income taxes. It maintains that the transaction out of which the alleged gains arose amounted to a reorganization within the intendment of § 112 (i) (1) (A), Revenue Act, 1928.†
The court below was of opinion that the transaction involved amounted to a sale of the assets and business of the taxpayer. In November, 1929, petitioner transferred what the Board of Tax Appeals seems to have assumed was substantially all of its assets to the Kraft-Phenix Cheese Corporation and received therefor $200,000 in cash and 17,250 shares common stock of the purchaser, then worth possibly thirty dollars per share. After the transfer , the taxpayer remained in existence and continued to do business. It also retained assets of undisclosed value, namely, shares of certain subsidiary corporations and some other property. If the claim of the taxpayer that the transfer included substantially all its property is correct, then we think what was done amounted to a reorganization within the statute. The facts in respect of this were not found by the Board of Tax Appeals, and the cause must be returned there in order that the omission may be supplied. The mere fact that the taxpayer and its subsidiaries continued actively in business would not defeat the claim of reorganization. The ownership of the stock in the Kraft-Phenix Cheese Corporation gave the taxpayer a substantial and continuing interest in the affairs of that corporation.
The judgment of the court below is reversed. The cause will be remanded to the Circuit Court of Appeals with direction to that Court to remand the case to the Board of Tax Appeals for determination of the value of the retained assets and such further proceedings as may be necessary.
Reversed.
†
Margin of opinion in Helvering v. Minnesota Tea Co., ante, p. 378.
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Groman v. Commissioner of Internal Revenue, 302 U.S. 82 (U.S. 1937)…f the Revenue Act of 1924; Regulations 69, Art. 1577, applicable to § 203 (h) (2) of the Revenue Act of 1926. Compare Helvering v. Watts, 296 U. S. 387. Compare Helvering v. Minnesota Tea Co., 296 U. S. 378; G. & K. Manufacturing Co. v. Helvering, 296 U. S. 389. Section 112, Subsections (i) (1) (B) and (j). Pinellas Ice Co. v. Commissioner, 287 U. S. 462, 470; Nelson Co. v. Helvering, 296 U. S. 374, 377; Helvering v. Minnesota Tea Co., 296 U. S. 378, 385; G. & K. Manufacturing Co. v. Helvering, 296 U. S.…1 / 2
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Starr v. Commissioner of Internal Revenue, 82 F.2d 964 (4th Cir. 1936)…(i) (1) of the Revenue Act of 1928, 45 Stat. 816, 818. Helvering v. Minnesota Tea Co., 56 S.Ct. 269, 80 L.Ed. —; John A. Nelson Co. v. Helvering, 56 S.Ct. 273, 80 L.Ed. —; Helvering v. Watts, 56 S.Ct. 275, 80 L.Ed. —; G. & K. Mfg. Co. v. Helvering, 56 S.Ct. 276, 80 L.Ed. —. Counsel for the Commissioner contend, however, that, in reversing the Board on the question of reorganization, we should sustain the Commissioner’s contention that there was in effect only one transfer, and that, under section 112(c) (…
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Commissioner of Internal Revenue v. Kitselman, 89 F.2d 458 (7th Cir. 1937)…ror or its stockholders in the transferee, and such interest may not be mere short term notes of the transferee, but must be definite and material and represent a substantial part of the value of the thing transferred. G. & K. Mfg. Co. v. Helvering, 296 U.S. 389, 56 S.Ct. 276, 80 L.Ed. 291; Helvering v. Minn. Tea Co., supra; Pinellas Ice & Cold Storage Co. v. Commissioner, supra; Cortland Spec. Co. v. Commissioner, 60 F.(2d) 937 (C.C.A.2); Worcester Salt Co. v. Commissioner (C.C.A.) 75 F.(2d) 251. 5. The t…
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