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BAZLEY V. COMMISSIONER, 331 U. S. 737 (1947)

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U.S. Supreme Court

Bazley v. Commissioner, 331 U.S. 737 (1947)

Bazley v. Commissioner

No. 287

Argued January 10, 1947

Decided June 16, 1947*

331 U.S. 737

Syllabus

1. Pursuant to a purported plan of "reorganization" and "recapitalization" of a family corporation, all but one share of which was owned by a taxpayer and his wife and which had an earned surplus of $855,783, each old share of stock having a par value of $100 was exchanged for five new shares of no par value, but a stated value of $60, and new debenture bonds having a total face value of $400,000 payable in ten years but callable at any time.

Held:

1. The transaction was not a tax free "reorganization" within the meaning of §§ 112(b)(3) and 112(g)(1)(E) of the Internal Revenue Code, and the taxpayer is liable for income taxes on the full value of the debentures. Pp. 331 U. S. 742-743.

2. The same conclusion reached as to another similar transaction varying in some details, including the fact that there was left undisturbed on the books of the corporation an earned surplus account equal to the value of the debentures distributed in partial exchange for the old stock. Pp. 331 U. S. 743-744.

3. It was not the purpose of the reorganization provisions of § 112(b) and (g) of the Internal Revenue Code to exempt from payment of a tax what, as a practical matter, is a realized gain. P. 331 U. S. 740.

4. Since a "recapitalization" within the meaning of § 112(g)(1)(E) is one form of "reorganization," nothing can be a recapitalization for this purpose unless it partakes of those characteristics of a reorganization which underlie the purpose of Congress in postponing the tax liability. P. 331 U. S. 741.

5. In the case of a corporation which has undistributed earnings, the creation of new corporate obligations which are transferred to stockholders in relation to their former holdings, so as to produce, for all practical purposes, the same result as a distribution of cash earnings of equivalent value, cannot obtain tax immunity because cast in the form of a recapitalization reorganization. P. 331 U. S. 742.

155 F.2d 237 and 155 F.2d 246, affirmed. chanroblesvirtualawlibrary

Page 331 U. S. 738

No. 287. The Tax Court sustained a determination of the Commissioner of Internal Revenue that a taxpayer was liable for income tax on the full value of debentures received under a purported "reorganization" of a family corporation. 4 T.C. 897. The Circuit Court of Appeals affirmed. 155 F.2d 237. This Court granted certiorari. 329 U.S. 701. Affirmed., p. 331 U. S. 744.

No. 209. The Tax Court sustained a determination of the Commissioner of Internal Revenue that a taxpayer was liable for income tax on certain debenture bonds received under a purported "reorganization" of a corporation of which he owned all but a few shares. 5 T.C. 351. The Circuit Court of Appeals affirmed. 155 F.2d 246. This Court granted certiorari. 329 U.S. 695. Affirmed, p. 331 U. S. 744.





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