St. Onge v. Commissioner

ALICE V. ST. ONGE, PETITIONER, ET AL., 1v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. St. Onge v. Commissioner Docket Nos. 70364, 70470-70473, 70815, 70816, 71263, 71342, 72530, 72664, 72701, 72930. United States Board of Tax Appeals 31 B.T.A. 295; 1934 BTA LEXIS 1118; October 12, 1934, Promulgated *1118 1. Mergers and consolidations are statutory, and a taxpayer claiming that a merger or consolidation occurred under a Federal statute authorizing the consolidation of a state bank with a national bank, must show affirmatively that the action taken was that prescribed by the statute and resulted in a consolidation. 2. A transaction involving the purchase of part of the assets of a state bank by a national bank for cash and the assumption of liabilities, the distribution of the remainder of the assets to the stockholders of the state bank, and the issuance to the latter of shares of the national bank for a price equivalent to the stipulated price of the assets acquired from the state bank, and the dissolution of the state bank, held to be neither a merger or consolidation under the Federal statute, nor an acquisition by one corporation of substantially all of the properties of another corporation in a transaction partaking of the nature of a merger or consolidation, and hence not a "reorganization" within section 112(i), Revenue Act of 1928. J. Robert Sherrod, Esq., and O. H. Chmillon, Esq., for the petitioners. Frederick R. Shearer, Esq., Wilford Payne,*1119 Esq., and Dean P. Kimball, Esq., for the respondent. MURDOCK *295 These cases, which have been consolidated, involve deficiencies determined by the Commissioner for the year 1930, as shown in the following table: Docket No. Petitioner Deficiency 70364 Alice V. St. Onge $128.68 70470 George E. Harris 46.90 70471 Ivory C. Eaton 1,459.50 70472 Fred D. Cross, executor, estate of Harry W. Ramsdell 628.16 70473 Fred D. Cross 263.66 70815 Lucy E. Shea 394.20 70816 John R. Burnett $231.59 71263 George N. Andrews 97.48 71342 George A. Sylvester 1,681.35 72530 George F. Thurber 137.02 72664 Lester F. Thurber 4,172.76 72930 Elizabeth J. Flanders 270.40 72701 Walter Burnett 848.30 Each of these petitioners was a stockholder in the Old Guaranty Savings Bank of Nashua, New Hampshire. Each petitioner received in 1930 a small amount of cash, some stock of the Second *296 National Bank of Nashua, some stock of Pullman, Inc., and some stock of the Nashua Manufacturing Co. The Commissioner has treated the transaction in which these stockholders received these items as a liquidation of the Old Guaranty*1120 Savings Bank. The parties have agreed upon the fair market value of each kind of stock received, the amount of each kind of stock received by each petitioner, the amount of cash received by each, and the basis for gain or loss which the stock of the Old Guaranty Savings Bank had in the hands of each petitioner. The petitioners contend that the cash, the stock of Pullman, Inc., and the stock of the Nashua Manufacturing Co. are taxable to them as an ordinary dividend at surtax rates only, and the stock of the Second National Bank was received by them in a reorganization, and, under section 112(b)(3) of the Revenue Act of 1928, no gain or loss to them on that transaction is recognized, and in case the Board holds that the stock of Pullman, Inc., and the stock of the Nashua Manufacturing Co. were received by these petitioners as part of the plan of reorganization, then the gain to them from this transaction is taxable under section 112(c)(2). FINDINGS OF FACT. The Old Guaranty Savings Bank of Nashua (hereinafter called the State Bank), which was established under the laws of New Hampshire in 1863, was reorganized as a guaranty savings bank under the laws of the State of New Hampshire*1121 in 1891, and from that time until June 2, 1930, carried on business in Nashua as a guaranty savings bank. The Second National Bank of Nashua (hereinafter called the National Bank) at all times material hereto was a national banking corporation, duly established under the laws of the United States. It had conducted its business as a national bank at Nashua for a number of years prior to the year 1930. Two of the officers of the State Bank who had been most active in its affairs were not in good physical condition to carry on their duties after 1928, whereas the officers of the National Bank were in good physical condition. A number of people owned stock in both banks. Some of those interested in the future of the two banks came to the conclusion that it would be desirable to combine the banks in some way. In October 1929 the trustees of the State Bank authorized the president to appoint a committee of three to confer with a like committee from the National Bank "in regard to formulating a plan for a possible merger." The two committees which were appointed recommended a merger of the two banks upon the following basis, as shown in the minutes of a meeting of the board of trustees*1122 of the State Bank held on December 23, 1929: The payment to the Guaranty Fund holders of this bank, of a special dividend of two shares of Pullman, Incorporated, and two shares of Nashua Manufacturing Company, preferred, for each four shares of the Guaranty Fund of *297 this bank, and the issuing of three shares of stock of the new or merged bank, for each four shares of the Guaranty Fund of this bank. The trustees of the State Bank and the directors of the National Bank voted to recommend the plan to the stockholders. After this plan was announced in the press, the Bank Commissioner of the State of New Hampshire advised the State Bank that he would oppose any action which would result in the discontinuance of the State Bank. About the same time a question arose, in the minds of those interested in the plan, of whether the National Bank stock could be issued for other than cash. Thereafter the plan was changed to one whereby the National Bank was to purchase all of the assets of the State Bank, excepting 1,000 shares of Pullman, Inc., common stock, 1,000 shares of Nashua Manufacturing Co. preferred stock, and $2,600 in cash, for $467,947.74, and the stockholders of*1123 the State Bank were to purchase 1,500 shares of stock of the National Bank. A notice dated February 12, 1930, was sent to the stockholders of the State Bank notifying them that a special meeting would be held March 3, 1930, for the purpose of seeing what action the stockholders would take in regard to "selling all of the assets of said bank, of whatever kind or nature, to the Second National Bank of Nashua, under such terms and conditions as the Trustees of the said The Old Guaranty Savings Bank of Nashua, deemed for the best ivterest of the Holders of the Guaranty Fund", to see if the stockholders would authorize the trustees to do the things necessary to transfer the assets and to secure the protection of the depositors and stockholders of the State Bank, to see if the stockholders would elect trustees "to receive all the stock of the said The Old Guaranty Savings Bank of Nashua, and effect an exchange of said stock for 1,500 shares of the stock of The Second National Bank of Nashua, and to distribute said stock of the said The Second National Bank of Nashua, to the Holders of the Guaranty Fund, pro-rata, and to issue fractional warrants when necessary to effect such distribution", *1124 and to see if the stockholders would give the trustees authority, after all these things had been accomplished, to wind up the affairs of the State Bank and surrender its charter. The special meeting was held on March 3, 1930, and the stockholders voted to sell the assets to the National Bank under such terms and conditions as the trustees might deem for the best interest of the holders of the guaranty fund of the bank, and the trustees were authorized to do whatever might be necessary to complete the transfer of the assets. Two trustees were appointed to receive all of the stock of the State Bank and "effect an exchange of said stock for 1,500 shares of the stock of the said The Second National Bank of Nashua." The trustees were also authorized to wind up the affairs of the State Bank and surrender its charter after *298 the completion of the transfer and the protection of the holders of the guaranty fund. On February 18, 1930, the National Bank sent a notice to its stockholders of a special meeting to be held on March 24, 1930, to see if its stockholders would vote "to purchase all of the assets" of the State Bank, to authorize the necessary acts to consummate the transfer*1125 and to permit the board of directors to enter into a contract, to assume in the name and on behalf of the National Bank all outstanding liabilities of the State Bank, to see if the stockholders would vote to increase the capital stock of the National Bank "by the issuance for cash of fifteen hundred shares additional, without first offering same for subscription to the present stockholders, to the duly elected representatives or trustees for the present stockholders (the holders of the Guaranty Fund) of The Old Guaranty Savings Bank of Nashua upon payment by said duly elected representatives or trustees of the sum of $467,947.74", and to authorize the directors to do whatever acts might be necessary "to secure the issuance and sale of the additional stock." The meeting was held on March 24, 1930, and the stockholders voted to purchase all of the assets of the State Bank, authorized the directors to do the acts necessary to consummate the transfer of these assets, and authorized the directors to enter into a contract assuming in the name and on behalf of the National Bank all the outstanding liabilities of the State Bank. They also adopted a resolution as follows: RESOLVED That under*1126 the provisions of Section 5142 U.S.R.S. 1, as amended February 25, 1927, the capital stock of this Association be increased in the sum of One Hundred Fifty Thousand Dollars ($150,000.), making the total capital Three Hundred Thousand Dollars ($300,000.). The National Bank stockholders at this same meeting next - VOTED: That the issuance of $150,000.00 (1,500 shares of capital stock of this Association, as voted by the resolution just passed, be made to the holders of the Guaranty Fund of The Old Guaranty Savings Bank, Nashua, without first offering said stock to the present stockholders of this Association, The Second National Bank of Nashua, and that our right to subscribe to said new stock be and hereby is waived. On April 5, 1930, the trustees of the State Bank met and decided to sell the assets of the State Bank in accordance with the terms and conditions set forth in a contract of sale which was read. On April 1 the directors of the National Bank met and agreed to purchase the assets of the State Bank in accordance with the terms of the contract of sale above referred to. On May 17, 1930, the trustees of the State Bank were notified of a special meeting on May 20, 1930, for*1127 the following purposes: 1st. To declare the special dividend in the stock of Pullman Incorporated and the Nashua Manufacturing Company, Preferred, as called for by the contract *299 between The Old Guaranty Savings Bank of Nashua and The Second National Bank of Nashua. 2nd. To declare a dividend to the holders of the Guaranty Fund of The Old Guaranty Savings Bank of Nashua, for the months of May and June, 1930, as provided for by the contract between The Old Guaranty Savings Bank of Nashua and The Second National Bank of Nashua. 3rd. To authorize some person or persons to sign a deed or deeds from The Old Guaranty Savings Bank of Nashua to The Second National Bank of Nashua, or to such person or persons as said The Second National Bank of Nashua may direct, of all of the real estate owned by said The Old Guaranty Savings Bank of Nashua, wherever situated and under whatever name. 4th. To authorize some person or persons to assign all mortgages and to endorse all notes from said The Old Guaranty Savings Bank of Nashua to said The Second National Bank of Nashua. 5th. To authorize some person or persons to sign all stock certificates, bonds or other evidence of*1128 indebtedness, from the said The Old Guaranty Savings Bank of Nashua to the said The Second National Bank of Nashua. 6th. To do such acts and conduct such business as may be necessary to carry into full force and effect the said contract of The Old Guaranty Savings Bank of Nashua and The Second National Bank of Nashua. The meeting was held and it was voted: * * * that a special dividend, consisting of 1,000 shares of the stock of Pullman Incorporated and 1,000 shares of the Preferred stock of Nashua Manufacturing Company, be paid to the holders of the Guaranty Fund of this bank (but not until the certificates issued as evidence of such ownership, have been deposited with Fred D. Cross and John R. Burnett, Trustees, who have been chosen to act in the matter) on the basis of two shares of Pullman Incorporated and two shares of Nashua Manufacturing Company, Preferred, for each four shares of the Guaranty Fund of this bank, now outstanding, and that any purchase of the shares of said Guaranty Fund hereafter made, will carry with it the right of such shares to participate pro-rata in this special dividend. At the same meeting it was voted: * * * to pay a dividend to the holders*1129 of the Guaranty Fund, amounting to $1.33 per share, covering a dividend at the usual rate, for the months of May and June, 1930, as provided for by the contract between The Old Guaranty Savings Bank of Nashua and The Second National Bank of Nashua, this dividend to be payable June 11th, to stockholders of record June 2, 1930. The officers were designated to sign deeds conveying the real estate to the National Bank, to assign all mortgages, endorse all notes, to the National Bank, "to sign all stock certificates, bonds, or other evidence of indebtedness, from" the State Bank to the National Bank. Two men "were chosen as custodians of the Guaranty Fund and Guaranty Fund Surplus and any other necessary assets, until such time as the general depositors of The Old Guaranty Savings Bank of Nashua, are paid in full." The contract of sale theretofore agreed upon was executed on June 2, 1930, as of April 1, 1930. It provided as follows: Whereas, it is proposed to sell all of the assets, with the exceptions hereinafter set forth, of whatever kind or nature, now owned by The Old Guaranty *300 Savings Bank of Nashua, a corporation duly organized under the laws of the State of New*1130 Hampshire, and doing business in Nashua, in the County of Hillsborough, and State of New Hampshire, and hereinafter called VENDOR. And whereas, it is proposed that The Second National Bank of Nashua, a corporation duly established by law and doing business in said Nashua, hereinafter called VENDEE, is to purchase all of the assets of said VENDOR, with the exceptions hereinafter set forth. And whereas, the special depositors, the holders of the Guaranty Fund, of said VENDOR, at a legally called meeting, at which every share of stock was represented, have unanimously voted to sell all of the assets of said VENDOR, to said VENDEE, and have duly authorized its Board of Trustees to do whatever act or acts may be necessary to carry said sale into effect. And whereas, the stockholders of said VENDEE, at a legally called meeting, at which every share of stock was represented, have unanimously voted to purchase all of the assets of said VENDOR and have duly authorized its Board of Directors to do whatever act or acts may be necessary to carry said purchase into effect. And whereas, the Trustees of said VENDOR, at a meeting duly called for that purpose, by vote, authorized Fred D. *1131 Cross, Treasurer, to sign the contract hereinafter set forth, on the part of said VENDOR. And whereas, the Directors of said VENDEE, at a regular meeting, by vote, authorized John M. Blakey, Cashier, to sign the contract hereinafter set forth, on the part of said VENDEE. Said VENDOR hereby agrees to sell to said VENDEE, all its assets, with the exceptions hereinafter set forth, of whatever kind or nature and wherever situate, meaning thereby, to include all real property, all personal property, all choses in action, and all other property whatsoever, to said VENDEE, its successors and assigns. Said VENDEE hereby agrees to purchase from said VENDOR, all its assets, with the exceptions hereinafter set forth, of whatever kind or nature and wherever situate, meaning thereby, to include all real property, all personal property, all choses in action, and all other property whatsoever, from said VENDOR. It is hereby mutually agreed between said VENDOR and said VENDEE, that the purchase price for the assets as above set forth, shall be the sum of $467,947.74. It is hereby mutually agreed and is a part of the consideration of this sale and purchase, that the said VENDEE shall*1132 save the said VENDOR, its special depositors, the holders of its Guaranty Fund, its Trustees and Officers, harmless from any loss, cost, damage, taxes, or any liability whatsoever, and shall assume all of the liabilities of whatever kind or nature that are now existing or may hereafter exist against the sald VENDOR. It is hereby mutually agreed and understood between said VENDOR and said VENDEE, that, the said VENDOR reserves to itself for distribution to its special depositors, the holders of its Guaranty Fund, 1,000 shares of the Nashua Manufacturing Company, Preferred stock, and 1,000 shares of the stock of Pullman Incorporated, to be distributed to the special depositors of said VENDOR, the holders of its Guaranty Fund, pro-rata. It is further mutually agreed and understood that, said VENDEE shall declare a special dividend to its present stockholders, of $40,266.01. It is mutually agreed that the regular dividend on the stock, or Guaranty Fund of the VENDOR, shall be paid to the holders thereof, up to the nearest quarterly dividend date of the VENDEE prior to the date of the consummation of this contract, and the special depositors, the holders of the Guaranty Fund *301 *1133 of the VENDOR, shall receive dividends on their new stock of the VENDEE, from said quarterly date, and it is further mutually understood, that said VENDEE shall have the right to pay its regular quarterly dividends as they become due. This agreement is conditioned upon said VENDEE delivering to a Trustee or Trustees, designated by said VENDOR, 1,500 shares of the Capital Stock of said VENDEE, upon the payment by said Trustee or Trustees to said VENDEE, of the sum of $467,947.74. It is hereby mutually agreed and understood that the transfer of assets from the VENDOR to the VENDEE shall be accomplished in such manner as will fully protect the general depositors of the VENDOR, and that the means adopted for such protection shall be subject to the approval of the Bank Commissioner of the state of New Hampshire. Signed and sealed by the above named contracting parties, this first day of April, 1930. Pursuant to the terms of the contract, the assets of the State Bank were transferred and the National Bank on June 2, 1930, drew its cashier's check for $467,947.74, payable to the State Bank. This check was immediately endorsed by the State Bank to the National Bank. The National*1134 Bank, in accordance with its agreement, delivered 1,500 shares of its capital stock to the trustees who had been appointed to receive it. On June 11, 1930, the State Bank distributed $1.33 a share to its stockholders of record on June 2, 1930, in accordance with the resolution of its trustees passed at a special meeting held on May 20, 1930, and thereafter from time to time, as the stockholders of the State Bank surrendered their certificates, the 1,000 shares of Pullman, Inc., stock, the 1,000 shares of preferred stock of the Nashua Manufacturing Co., and the National Bank stock were distributed to the stockholders of the State Bank. The Old Guaranty Savings Bank ceased doing business on June 2, 1930, and on that date or soon thereafter was dissolved by an act of the Legislature of the State of New Hampshire. A trust fund was set up to guarantee the general depositors in the State Bank until they came in and transferred their accounts to the National Bank. The Comptroller of the Currency issued a certificate dated June 2, 1930, in the following form: Whereas, Satisfactory notice having been transmitted to the Comptroller of the Currency that the Capital Stock of The Second*1135 National Bank of Nashua, New Hampshire * * * has been increased in the sum of One Hundred and Fifty Thousand Dollars ($150,000), in accordance with the provisions of Section 5142, U.S.R.S., as amended February 25, 1927, and that the whole amount of the increase has been paid in, and that the paid up Capital Stock of the Bank now amounts to the sum of Three Hundred Thousand Dollars ($300,000); Now, it is hereby certified, That the Capital Stock of The Second National Bank of Nashua having been increased in the sum of One Hundred and Fifty Thousand Dollars ($150,000), and the amount of the increase paid into the Bank as a part of the Capital Stock thereof, the said increase of Capital is approved. *302 The president of the Second National Bank of Nashua certified under date of June 2, 1930, to the Comptroller of the Currency, that the capital stock of the Second National Bank of Nashua had been increased pursuant to the provisions of section 5142, U.S.R.S., as amended February 25, 1927, in the sum of $150,000, all of which had been paid in cash, not in promissory notes or other like evidences of debt, and that the paid-up capital stovk of the bank then amounted to $300,000. *1136 The vice president of the National Bank wrote to the Comptroller of the Currency on March 18, 1930, for an appointment in connection with "the details of handling the proposed increase in our capital stock for the purpose of acquiring, by purchase of assets, the Old Guaranty Savings Bank of this city." The president of the National Bank wrote to the Comptroller of the Currency on April 4, 1930, as follows: Acting under the authority of a resolution of the Board of Directors, I request approval of this application to increase the capital stock of The Second National Bank of Nashua from $150,000 to $300,000 and that the necessary blanks and instructions be furnished. The increased capital which is to be paid for in cash will be sold at $311.96 per share to the present shareholders (holders of the Guaranty Fund) of The Old Guaranty Savings Bank of Nashua, N.H., the present shareholders of The Second National Bank of Nashua having all waived their right to subscribe for the new stock. The purchase of the business of The Old Guaranty Savings Bank of Nashua is contemplated in connection with this increase. On this date, the books of this bank showed the following: Capital $150,000.00 Surplus 150,000.00 Undivided profits 153,584.35 Total deposits 4,334,469.68 Total resources 4,974,894.03 *1137 Propulation of Nashua is 30,000. The vice president of the National Bank wrote to the Comptroller of the Currency on May 21, 1930, stating that the transfer to consummate the purchase of the State Bank was planned for Monday, June 2, and requesting that a bank examiner be present at that time in order that approval of the issuance of the additional stock could be secured by wire from Washington on the same day. After the Banking Commissioner of New Hampshire notified the State Bank of his objections, a proceeding was instituted in the Surperior Court of the State of New Hampshire for a declaratory judgment and the court held that there was no valid objection to the contract. The distribution of the Pullman, Inc., and Nashua Manufacturing Co. stock was in liquidation of the State Bank and was made pursuant *303 to the contract above quoted so that the value of four shares of the stock of the State Bank would be the equivalent of the value of three shares of the stock of the National Bank. OPINION. MURDOCK: The petitioners in these cases contend in the first place that the transaction between the National Bank and the State Bank was a "reorganization" within the*1138 definition of that term given in section 112(i) of the Revenue Act of 1928. The words of the definition upon which they rely are as follows: The term "reorganization" means (a) a merger or consolidation (including the acquisition by one corporation of * * * substantially all the properties of another corporation) * * *. The Supreme Court said, in : The words within the parenthesis may not be disregarded. They expand the meaning of "merger" or "consolidation" so as to include some things which partake of the nature of a merger or consolidation but are beyond the ordinary and commonly accepted meaning of those words - so as to embrace circumstances difficult to delimit but which in strictness can not be designated as either merger or consolidation. In , the court said: A merger ordinarily is an absorption by one corporation of the properties and franchise of another whose stock it has acquired. The merged corporation ceases to exist, and the merging corporation alone survives. A consolidation involves a dissolution*1139 of the companies consolidating and a transfer of corporate assets and franchise to a new company. If a given transaction in strictness can be designated as either a merger or a consolidation, it is a reorganization within the meaning of the definition, and the words in parenthesis are unimportant. If, however, a particular transaction, which in strictness cannot be designated as either a merger or consolidation, nevertheless partakes of the nature of a merger or consolidation, it must be tested by the words in the parenthesis to see whether or not it is a reorganization within the meaning of the statute. The National Bank did not acquire "substantially all the properties" of the State Bank. Assets of the State Bank having a substantial value as compared to the value of all of the assets of that bank were not acquired ty the National Bank. We refer to 1,000 shares of Pullman, Inc., stock and 1,000 shares of Nashua Manufacturing Co. preferred stock which had a value of $148,125 at the time of the transaction in question. These assets were distributed to the stockholders of the State Bank as an essential part of the very *304 transaction in question. The distribution*1140 of the Pullman, Inc., and Nashua Manufacturing Co. stock was a part of the plan which was to result in the dissolution of the State Bank. That distribution was not an ordinary dividend, but was a distribution in liquidation. Sec. 115(c). It cannot be disregarded in determining whether or not the National Bank acquired substantially all of the assets of the State Bank within the meaning of section 112(i). The cash distribution, although in a fractional amount to correspond to the usual dividend rate, was likewise a liquidating dividend. Since the National Bank did not acquire substantially all of the properties of the State Bank, the transaction was not a "reorganization" within the meaning of the parenthetical part of the definition. The case of , affirming , is not in poivt, since in that case substantially all the properties were acquired. However, the fact that the National Bank did not acquire substantially all of the properties of the State Bank would be immaterial if the transaction was one which in strictness could be designated as either a merger or a consolidation. Mergers and consolidations*1141 are inherently statutory. 7 Fletcher Cyclopedia Corporations, § 4670; ; ; ; ; Jones v. Rhea, 107 S.E.(Va.) 814. Cf. ; . If statutory provision has been made for mergers and consolidations and the necessary steps have been taken, a merger or consolidation occurs by operation of law. The enfranchisement of the resulting corporation is dependent upon some prior legislative enactment. The petitioners here contend that a consolidation or merger occurred under a Federal statute providing for the consolidation or merger of a state and national bank under the charter of the national banking association. See Act of November 7, 1918, 40 Stat. 1043, sec. 3, as added by Act of February 25, 1927, 44 Stat. 1224. The Federal statute provides for the consolidation of a state bank with a national bank after certain required steps have been taken to accomplish that result. A majority of the board of directors*1142 of each bank proposing to consolidate must lawfully agree upon terms and conditions upon which they desire to consolidate under the charter of the national banking association. The directors must call a meeting of the stockholders of each bank and publish notice of the time, place, and object of the meeting as provided in the Federal statute, and the agreement of the directors must be ratified and confirmed by the affirmative vote of at least two thirds of the shareholders at the meeting. The various steps must then be carried out and the Comptroller *305 of the Currency must certify his approval of the consolidation. If these things are all done in the proper manner, a consolidation of the two or more banks under the charter of the national bank results. But if any essential step is omitted, there is no consolidation or merger under this act. Cf. , affirming . The Commissioner has held that there was no reorganization. Thus the petitioners must establish by the evidence that there was a reorganization. Since the alleged reorganization depends upon a merger or consolidation*1143 under the Federal statute cited, the petitioners must show affirmatively that a consolidation or merger took place under that statute. This they have failed to do, for they have not shown that the provisions of the act were complied with. There is no showing that the directors of either bank ever agreed upon terms and conditions of consolidation. They agreed upon therms and conditions of a sale. There is no showing that the requirements of the act in regard to publication of the notice to the stockholders of these two banks were ever complied with or that the stockholders ever approved of a plan of reorganization. They approved of a plan of sale. Nor is there any showing that the Comptroller of the Currency in fact approved this transaction as a consolidation under this provision of the Federal statutes or issued any certificate of approval of the transaction as a consolidation under the law. There is in evidence a certificate from the Comptroller of the Currency authorizing the increase in the capitalization of the National Bank, but that can not possibly be construed as an approval by the Comptroller of a consolidation under the Federal statute. *1144 The original plan evolved by the officers and directors of the two banks might have resulted in a consolidation or merger, and, therefore, a reorganization, if that plan had been carried out, but it was never carried out. Instead, a different plan was followed, for reasons satisfactory to the parties, under which the assets and business of the State Bank were purchased by the National Bank for cash and the stock of the National Bank was purchased by the stockholders of the State Bank for cash. A trust fund was set up to guarantee the general depositors in the State Bank until they came in and transferred their accounts to the National Bank. The notices and resolutions referred to this plan of sale rather than to any plan for a consolidation or merger of the two banks under the Federal statute. Cf. ;; . Since the transaction between the two banks was not a merger or a consolidation and the National Bank did not acquire substantially all *306 of the*1145 properties of the State Bank, there was no reorganization within the definition of that term contained in section 112(i) of the Revenue Act of 1928, and we are unable to follow the petitioners in the very first step of their argument. The general rule provided in section 112 for the recognition of gain or loss is that upon the sale or exchange of property the entire amount of the gain determined under section 111 shall be recognized. The parties are agreed upon the basis for gain to these taxpayers on the State Bank stock. Section 111(c) provides that the amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property other than money received. The amount realized by these taxpayers from the disposition of their State Bank stock is therefore the total fair market value of the Pullman stock, the Nashua Manufacturing Co. stock, and the Second National Bank stock received by each, plus $1.33 per shares received in cash. These total amounts were distributed in complete liquidation of a corporation and, therefore, under section 115(c) are to be treated as in full payment in exchange for the stock. *1146 Reviewed by the Board. Decision will be entered under Rule 50. VAN FOSSAN dissents. BLACK BLACK, dissenting: It seems to me that the substance of the transactions involved in this proceeding is this: The stockholders of two banks, one state bank and the other a national bank, were anxious to merge them. Certain difficulties were encountered and the final agreement or plan was that a certain amount of cash and the stock in Pullman, Inc., and the Nashua Manufacturing Co. owned by the Old Guaranty Savings Bank of Nashua should be distributed to the stockholders of that bank, and the remainder of its assets should be exchanged with the Second National Bank of Nashua for 1,500 shares of its capital stock, these shares to be ratably distributed to the shareholders of the state bank in exchange for their shares in the proportion of three shares of the national bank for each four shares owned in the state bank. If my interpretation of these transactions is correct, then I think the provisions of section 112(b)(3) and section 112(c)(1) of the Revenue Act of 1928 apply, and the gain is to be recognized only to the extent of the cash and the stock in Pullman, Inc.*1147 , and the Nashua Manufacturing Co., which were distributed to the stockholders of the state bank. It is true that the form of a sale of the ramaining assets of the state bank to the national bank for $467,947.74 was carried out, and this $467,947.74 was immediately used to purchase 1,500 shares *307 of stock in the national bank, and these shares were ratably distributed to the stockholders of the state bank, and it was dissolved. Was not this at least akin to a merger? Was the form of a sale of the assets and the immediate purchase of stock with the check so as to comply with the national banking laws substantially different from that which we had before us in ? The Circuit Court, in affirming our decision in the Howard case, (certiorari denied, ), among other things, said: The section of the 1921 act just cited provides that: "When in the reorganization of one or more corporations a person receives in place of any stock or securities owned by him, stock or securities in a corporation a party to or resulting from such reorganization," no gain or loss shall be recognized. *1148 The word "reorganization" is defined by the section itself as including merger and consolidation (including the acquisition by one corporation of substantially all the properties of another corporation). Had the substance of what was contemplated and done been a disposition of the assets of the Michigan corporation for the sum of $625,000, paid or to be paid in cash, whether such sum was in fact temporarily paid by a ninety day note or by other evidences of indebtedness in amounts certain, and whether such other evidences of indebtedness were held by the vendor company, or were then or subsequently distributed among the preferred stockholders, we do not doubt that the petitioner would be entitled to deduct the loss claimed; but we cannot see in the transaction disclosed by the present record aught but a financial reorganization of the Michigan corporation wherein and whereby the preferred stockholders were to acquire a proportionate interest in common stock of the Illinois or purchasing corporation. The evidence discloses that there was some doubt whether the Michigan corporation law permitted a corporation to sell its assets for anything but cash. The note was given to allay*1149 such misgivings, but it would seem clear that the course pursued was merely a subterfuge whereby assets could be purchased with stock. There was, it would seem, no intention to pay the note in cash. The giving of the note with the accompanying option was merely the means whereby the preferred stockholders were to acquire an interest of diminished value in the new corporation in exchange for and in lieu of their stock in the old. The present case falls within the letter of section 202(c)(2) of the Revenue Act of 1921, and, we think, also within its spirit. The transaction would therefore not be closed until the petitioner eventually disposed of his stock in the Illinois corporation or until its value finally became extinct within the meaning of the Royal Packing Company and De Loss cases above cited. Of course it seems clear that whatever gain resulted to petitioners from the distribution to them of the cash and the stock in Pullman, Inc., and stock in the Nashua Manufacturing Co. was taxable to them under section 112(c)(1), but, in my judgment, the transfer to the national bank of all the remaining assets of the state bank after the foregoing distribution to its stockholders, *1150 and the receipt therefor by the state bank of 1,500 shares of stock of the national bank and the distribution thereof to the stockholders of the state *308 bank, three shares for four, and the subsequent dissolution of the state bank, was a reorganization within the provisions of section 112(i) of the Revenue Act of 1928, and the exchange of stock for stock by petitioners is, under section 112(b)(3), nontaxable. As said in the Howard case, supra, the transaction would not be closed until the petitioners eventually disposed of their stock. ARUNDELL and ADAMS agree with thie sissent. Footnotes 1. Proceedings of the following petitioners are consolidated and decided herewith: George E. Harris; Ivory C. Eaton; Fred D. Cross, Executor, Estate of Harry W. Ramsdell; Fred D. Cross; Lucy E. Shea; John R. Burnett; George N. Andrews; George A. Sylvester; George F. Thurber; Lester F. Thurber; Elizabeth J. Flanders; Walter Burnett. ↩