DocketNumber: Docket No. 3734-80
Citation Numbers: 79 T.C. 564, 1982 U.S. Tax Ct. LEXIS 34, 79 T.C. No. 36
Judges: Tannenwald
Filed Date: 9/28/1982
Status: Precedential
Modified Date: 1/13/2023
*34
Corporation A acquired all the stock of corporation B. Corporation A was then merged into corporation B.
*565 Respondent determined deficiencies in petitioner's Federal income tax in the amounts of $ 27,007, $ 24,480, and $ 23,945 for the taxable years 1974, 1975, and 1976, respectively. The sole issue for our determination is whether petitioner is entitled to a stepped-up basis in its assets, equal to the price paid for petitioner's stock by Cayuga Corp. 1
FINDINGS OF*36 FACT
Some of the facts have been stipulated and are found accordingly.
Petitioner New York Fruit Auction Corp. is a corporation with offices located at Hunts Point Food Center, Bronx, N.Y. Prior to and during the years at issue, petitioner was engaged in the business of conducting daily produce auctions at the Hunts Point Terminal Market in Bronx, N.Y.
The majority of petitioner's shares was owned by DiGiorgio Corp. (DiGiorgio). Some time prior to January 1, 1972, DiGiorgio concluded that it wished to divest itself of its stock in petitioner. By letter agreement dated June 8, 1972, and executed by DiGiorgio on June 12, 1972, DiGiorgio and Monitor Petroleum Corp. (MPC) entered into an agreement whereby MPC was to acquire DiGiorgio's stock holdings in petitioner.
On July 12, 1972, Cayuga Corp. (Cayuga) was incorporated for the purpose of acquiring petitioner's stock. MPC formally assigned its rights under the June 8, 1972, letter agreement to Cayuga on July 27, 1972. Cayuga acquired all petitioner's stock owned by DiGiorgio, i.e., 31,413 shares of class A voting stock (80.27 percent of the outstanding shares) and 26,573 *566 shares of class B nonvoting stock (73.22 percent*37 of the outstanding shares) on August 1, 1972. 2
On September 29, 1972, C. Sub. Inc. (C. Sub.) was incorporated as a wholly owned subsidiary of Cayuga. Apparently for the purpose of eliminating petitioner's minority shareholders, C. Sub. was merged into petitioner on November 10, 1972, and, in accordance with the merger agreement, the minority shareholders were paid $ 45 per share for petitioner's stock. The merger became effective on November 10, 1972.
On August 9, 1973, Cayuga was merged into petitioner. The owners of petitioner after the merger were the former owners of Cayuga. Apparently, the merger took the form of a downstream merger on the advice of petitioner's counsel. The record disclosed no reason why an upstream merger would not have been feasible. 3
*38 OPINION
The sole issue for our determination is whether petitioner is entitled to a cost-of-stock basis 4 in its assets. Apparently, Cayuga's only asset was the stock in petitioner. Therefore, the assets whose bases are at issue are those assets which were owned by petitioner, rather than Cayuga, prior to the merger. Respondent contends that there exists no authority which would permit petitioner to step up the basis of its assets. Petitioner argues that it is entitled to a step-up in basis: (1) Pursuant to
Generally, a corporation's*39 basis in its assets is their historical cost. See
We deal first with petitioner's argument that it is entitled under
*40 The merger of Cayuga into petitioner did not result in the complete liquidation of
Insofar as
See also
*42 Having concluded that petitioner is not entitled to increase the basis of its assets pursuant to
In
Petitioner argues at length that the record clearly shows that the persons who arranged the purchase of petitioner's stock by Cayuga intended from the outset to acquire the assets of petitioner and that we should give effect to that intention. We think the record is far from clear as to the*44 existence of any such intention. In any event, such an intention is not in and of itself enough. For the
Petitioner's plea that we should look through form to substance and ignore this critical fact is without merit. We have in several instances cut through form and opted for substance, even to the extent of resurrecting a corporation which was eliminated during what purported to be an (F) reorganization (
That the result for which petitioner contends might have been accomplished in another fashion (the merger or liquidation of petitioner into Cayuga) is beside the point. Petitioner cannot escape the form of the transaction which it utilized. Compare
1. In accordance with a joint motion of the parties, the issue of the valuation of petitioner's assets was severed from the issue of petitioner's entitlement to a step-up in basis. See
2. At no time pertinent herein were any of the shareholders of Cayuga shareholders of petitioner or otherwise related parties within the meaning of
3. Although, in general, petitioner was required to obtain New York City's consent prior to assigning its lease of the Hunt's Point Terminal Market, the lease could be assigned to petitioner's successor corporation resulting from a merger, consolidation, or reorganization without such consent.↩
4. The cost-of-stock basis refers to the cost which Cayuga paid to purchase petitioner's stock.↩
5. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as amended and in effect during the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
6.
(2) Exception. -- If property is received by a corporation in a distribution in complete liquidation of another corporation (within the meaning of (A) the distribution is pursuant to a plan of liquidation adopted -- * * * * (ii) not more than 2 years after the date of the transaction described in subparagraph (B) (or, in the case of a series of transactions, the date of the last such transaction); and (B) stock of the distributing corporation possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote, and at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), was acquired by the distributee by purchase (as defined in paragraph (3)) during a 12-month period beginning with the earlier of, (i) the date of the first acquisition by purchase of such stock, or (ii) if any of such stock was acquired in an acquisition which is a purchase within the meaning of the second sentence of paragraph (3), the date on which the distributee is first considered under section 318(a) as owning stock owned by the corporation from which such acquisition was made,
(1) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and the owner of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends); and * * * (2) the distribution is by such other corporation in complete cancellation or redemption of all its stock, and the transfer of all the property occurs within the taxable year; in such case the adoption by the shareholders of the resolution under which is authorized the distribution of all the assets of such corporation in complete cancellation or redemption of all its stock shall be considered an adoption of a plan of liquidation, even though no time for the completion of the transfer of the property is specified in such resolution; * * *↩
7. Since the
8. See, e.g., B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders par. 11.44, at 11-48 (4th ed. 1979), for the proposition that "the purchase of stock by an
9.
10.
Waltham Netoco Theatres, Inc. v. Commissioner of Internal ... , 401 F.2d 333 ( 1968 )
madison-square-garden-corporation-formerly-graham-paige-corporation , 500 F.2d 611 ( 1974 )
E. T. Griswold v. Commissioner of Internal Revenue , 400 F.2d 427 ( 1968 )
Kimbell-Diamond Milling Co. v. Commissioner of Internal ... , 187 F.2d 718 ( 1951 )
In the Matter of Chrome Plate, Inc., Bankrupt. Chrome Plate,... , 614 F.2d 990 ( 1980 )
Wall v. United States , 164 F.2d 462 ( 1947 )
United States v. Cumberland Public Service Co. , 70 S. Ct. 280 ( 1950 )