Mills v. Commissioner

OSCAR LEROY MILLS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Mills v. Commissioner Docket No. 72345. United States Board of Tax Appeals 35 B.T.A. 629; 1937 BTA LEXIS 849; March 11, 1937, Promulgated *849 1. After his marriage petitioner purchased shares of stock in corporation A with borrowed money. As collateral for the loans he deposited 1,154 shares of the stock purchased and 1,836 shares of stock owned by him at the time of marriage. The loans were based on his individual credit and the notes recited that the collateral posted was his individual property. Held, that the shares purchased with the proceeds of the loans were his individual property and not community property. 2. Corporation A, a party to a reorganization, exchanged its assets for all of the stock of corporation B, also a party to the reorganization. Corporation A then sold a portion of the stock of corporation B for cash, after which corporation A was dissolved and the petitioner, in accordance with the plan of reorganization, exchanged his stock in corporation A for stock in corporation B, and cash. Held, that petitioner is taxable on the gain realized from the exchange, but in an amount not in excess of the cash received. Philip Grey Smith, Esq., and C. F. Rothenberg, Esq., for the petitioner. J. C. Maddox, Esq., for the respondent. TURNER *630 The*850 respondent has determined an income tax deficiency against the petitioner for the year 1929 in the amount of $7,365.73. The petitioner alleges that the respondent erred (1) in treating certain dividends and the profits from the disposition of certain stock as his individual income instead of community income; (2) in his determination of the cost of the shares of stock disposed of; and (3) in computing the portion of the profit taxable as capital gain. FINDINGS OF FACT. The petitioner, an individual, resides in Los Angeles, California. He was married on August 11, 1928, and since that date has reported his income on a community property basis. In 1925 petitioner organized under the laws of California a corporation known as Mills Process Alloys, Inc., sometimes referred to in this report as Mills Process. The authorized capital stock was 10,000 shares of common stock having a par value of $10 per share. Five thousand shares of the authorized capital stock of the corporation were to be issued to the petitioner in consideration for certain patents covering processes for uniting alloy steel to carbon steel. The remaining 5,000 shares of stock were to be sold for cash. A permit*851 was procured from the Corporation Commissioner of California which prescribed the terms and conditions under which the stock should be issued. In this permit it was provided that the stock to be received by the petitioner for his patents was to be issued at the same time and in the same amounts as stock was sold and issued from the remaining 5,000 shares. It was further provided that the stock to be received by the petitioner for patents should, when issued, be deposited in escrow with the National City Bank of Los Angeles pending further orders of the Commissioner of Corporations. Prior to the taxable year the petitioner had acquired a total number of 6,655 shares of Mills Process stock. Five thousand shares represented stock received for the patents above mentioned. It had no cost basis. One share was purchased in 1926, 1,154 shares were purchased on or about December 7, 1928, and the remaining 500 shares were purchased on or about December 19, 1928. All of the stock, except that acquired for patents, was purchased by the petitioner for cash at par, or a total amount of $16,650. The purchase of 1,154 shares of stock on December 7, 1928, was made from the proceeds of the*852 petitioner's personal 90-day note to the California Bank in the sum of $12,000. As collateral security for the note, the petitioner delivered the certificate for the 1,154 shares *631 purchased and trust receipts for 846 shares held by the escrow agent. The purchase of 500 shares on December 19, 1928, was made out of the proceeds of a second loan made by the California Bank to the petitioner on a similar note for $6,000. As collateral security for this note he pledged an additional amount of 990 shares of Mills Process stock. On that date the bank held as collateral for the two notes a total of 2,990 shares of Mills Process stock, all of which represented shares acquired by him in exchange for the patents previously mentioned, except the 1,154 shares purchased on December 7. Each note recited that the petitioner, as maker of the note, was the sole owner of the stock pledged as collateral. During the month of January 1929 the petitioner sold 100 shares of Mills Process stock for $1,000 in cash. Under date of December 12, 1928, petitioner received a letter from the Leo G. MacLaughlin Co. wherein that company proposed that the capital stock structure of Mills Process*853 be revised so that the authorized capital stock of the company would thereafter be 40,000 shares of class A stock and 120,000 shares of class B stock; that the total 40,000 shares of class A and 80,000 shares of class B stock be issued to the stockholders of Mills Process at a rate of 4 shares of class A and 8 shares of class B stock for each share of common stock then outstanding; that thereafter the Leo G. MacLaughlin Co. and associates would purchase 30,000 shares of the class A stock and 30,000 shares of the calss B stock from the stockholders for the net sum of $610,000; and, further, that 20,000 shares of the class B stock so purchased should be pooled for market operations and that the stockholders of Mills Process should be entitled to share in the pool account to the extent of 50 percent of the net proceeds. Under date of December 18, 1928, the petitioner, as president of Mills Process Alloys, Inc., wrote the Leo G. MacLaughlin Co. to the effect that he had been authorized by the board of directors to inform it that upon receipt of "a definite proposal for the purchase of the stock referred to", steps would be taken to make the necessary changes in the capital structure of*854 Mills Process for carrying out the proposal. Under date of December 26, 1928, a definite proposal was made to Mills Process Alloys, Inc., by Blankenhorn & Co. and the Leo G. MacLaughlin Co., as follows: As a result of our recent conversations relative to the recapitalization of Mills Process Alloys, Inc., the undersigned have agreed between themselves to submit to you a joint proposal and underwriting, the terms of which follow: Your Company is to legally authorize the sale of all of its assets tangible and intangible to a new corporation to be formed immediately - the new corporation to bear a name similar to that of your present corporation. The capital structure of the new corporation will be: 40,000 shares of Class A stock of no par value. 120,000 shares of Class B stock of no par value. *632 The Class A stock will be without par value and entitled to $2.00 per share cumulative dividends payable quarterly. It will be entitled in case of liquidation or merger to $30.00 per share. It will be convertible at any time, share for share, into Class B stock. It shall be non-voting unless eight consecutive dividend payments are not met, in which case the Class*855 A shares shall vote alike with the Class B shares. The Class B stock will be without par value and will have sole voting rights except as above mentioned. 40,000 shares of the Class B stock will be held in the treasury of the company for conversion of the Class A stock. Full payment for the above mentioned assets is to be made by the new company with 40,000 shares of the above mentioned Class A stock and 80,000 shares of the above mentioned Class B stock. We agree to purchase and the Mills Process Alloys, Inc. by accepting the terms of this letter agrees to sell to us 30,000 shares of Class A stock in the new company, and 30,000 shares of the Class B stock in the new company for the net sum of Six Hundred Thirty Thousand Dollars ($630,000) cash. The purchase of this stock from you at the above mentioned figure is subject to the conditions set forth below, and with the distinct understanding that the undersigned shall have an exclusive option on 30,000 shares of Class A stock and 30,000 shares of Class B stock of the new company at the net sum of $630,000 until the close of business January, 31, 1929. To put it more plainly, we are to have a period ending January 31, 1929 in*856 which to advise you that this underwriting agreement is in full force and effect and subject to no conditions whatever. The conditions upon which this purchase is contingent are as follows: (a) That you furnish us with a satisfactory audit showing earnings of the Mills Process Alloys, Inc., from January 1, 1928 to December 31, 1928, and a certified balance sheet as of December 31, 1928. These figures to be prepared at the expense of the new corporation by Price, Waterhouse & Company or other certified public accountants of well known reputations satisfactory to us. (b) That Messrs. Gibson, Dunn & Crutcher, attorneys at law, Los Angeles, deliver to us at our expense their opinion approving the regularity and legality of all matters in connection with the sale of the assets of the Mills Process Alloys, Inc. to the new company, the organization of the new company and the issuance by it of its stock, and showing a satisfactory status of the patents held by the Mills Process Alloys, Inc. granted and pending. (c) That a physical examination of the properties of the Mills Process Alloys, Inc. be made by representatives of the Underwriters and that such physical examination, as well*857 as a business survey of the field in which your company is operating, marketing conditions and demand for product will be obtained at our expense. (d) That the Commissioner of Corporations of the State of California authorize the sale by the old company to the new of the above mentioned stock. You will cause the new corporation to have a Board of at least five members composed originally of Mr. Oscar Le Roy Mills, Mr. W. A. Trout, Mr. E. W. Goeser, and one member of the firm of Leo G. MacLaughlin & Company, and one member of the firm of Blankenhorn & Company, Inc. You will also cause the new company to apply for listing on the Los Angeles Stock Exchange of both A and B stocks upon request from us, it being understood that as soon as possible we will institute trading in both classes of this stock on the Los Angeles Curb Exchange. You will also cause the new company to grant to the undersigned the exclusive right and option for a period of five years to purchase any and all future securities issued by the new company, or any subsidiary, or controlled companies, *633 which may be offered to the public through the medium of an underwriter, or investment banker, said*858 exclusive right, however, to under no conditions necessitate the sale of such securities to the undersigned at a price lower or under conditions inferior to any obtainable in the open market. The undersigned will retain for their own account 10,000 shares of the 30,000 shares of the Class B stock purchased, and will place in a pool for market operation 20,000 shares of the B stock purchased. All liabilities of this pool are to be borne by the undersigned. All proceeds from this account are to be divided equally between the group formed from the stockholders of the Mills Process Alloys, Inc. and the undersigned. The management and the termination of this pool will be discretionary with the undersigned - it being understood, however, that the pool must be terminated in any event within a period of five months from the inauguration of trading in the pool stock. Minimum price for any pool stock shall be $7.50 per share. It is the intention of the undersigned to market publicly the Class A stock purchased. The chief stockholders of the Mills Process Alloys, Inc. will agree not to dispose of their Class A or Class B stocks without the consent of the underwriters until the expiration*859 of the above mentioned pool. For your information the obligation contained in this commitment is binding to the extent of one-half each upon the undersigned. In conclusion, we beg to assure you of our desire to expedite this matter in every manner possible, and with that thought in view desire that your officers will cooperate with us in every way and make available all the information and data. It is our understanding that Mr. Oscar LeRoy Mills will agree to serve on the Board of Directors and renain active in the management of the affairs of the new corporation for the first three years of its existence. In order to save time, we have placed our commitment in this form and if it meets with your approval we request that you sign the acceptance appended. Assuring you of our pleasure of being associated with you in this important step, we are Very truly yours, BLANKENHORN & CO., INC., By EDWARD V. CARTER, Vice-President. LEO G. MAC LAUGHLIN & COMPANY, By WM. K. NOURSE. On a date not disclosed by the record, the acceptance of Mills Process Alloys, Inc., was endorsed on the offer as follows: We have read the above letter and we herewith accept it with*860 its terms and conditions and will do our utmost to facilitate conclusion of the transaction. MILLS PROCESS ALLOYS, INCORPORATED, BY OSCAR L. MILLS, PRESIDENT. On January 23, 1929, a special meeting of the stockholders of Mills Process Alloys, Inc., was held at the offices of the corporation in Los Angeles. The holders of the entire 10,000 shares of corporate stock were present in person or by proxy. At that meeting a resolution was adopted authorizing and directing the sale and transfer of all of the corporate assets, business, and good will, including patents and patent rights, to Mills Alloys, Inc., a Delaware corporation, *634 for 40,000 shares of class A stock and 79,990 shares of class B stock of the latter corporation, Mills Alloys, Inc., agreeing to assume all of the obligations of Mills Process and to pay all expenses in connection with the transfer of the assets. With reference to the sale of stock of the new corporation to Leo G. MacLaughlin & .co. and Blankenhorn & .co., the minutes show the following: The President then announced that a syndicate composed of Leo G. MacLaughlin Co., Blankenhorn & Co., and Bond, Goodwin and Tucker, had offered the stockholders*861 of the company the sum of $660,000 in cash for the sale of 30,000 shares of the Class "A" stock of Mills Alloys, Inc., a corporation, and 30,000 shares of the Class "B" stock of said corporation to the said syndicate by the said stockholders when the said stock shall have been acquired. The President then stated that it was advisable to expedite the sale of said stock pending the dissolution of this company and the distribution of said stock, and that for such purpose this company should transfer the said stock to the syndicate and close the transaction pending and subject to the dissolution of this company and the distribution of said stock, and that this company should enter into all negotiations and agreements and pay all expenses on behalf of the stockholders of this company in order to close the deal as quickly as possible. Upon motion duly made, seconded and carried, the following resolution was unanimously adopted: WHEREAS, this company is about to acquire 40,000 shares of Class "A" stock of Mills Alloys, Inc., a corporation, and 79,990 shares of Class "B" stock of said corporation; and WHEREAS, a syndicate composed of Leo G. MacLaughlin Co., Blankenhorn & Co. and*862 Bond, Goodwin and Tucker, has offered to purchase 30,000 shares of said Class "A" stock and 30,000 shares of said Class "b" stock from this company for the sum of $660,000 cash and a one-half interest in the net proceeds of a pool to be formed as hereinafter appears; and WHEREAS, the said syndicate plans to form a pool of 20,000 shares of Class "B" stock for purposes of market operation; and WHEREAS, it is deemed advisable that the said stock be sold to said syndicate for said consideration when the said stock shall have been acquired by this company; IT IS RESOLVED that when the 40,000 shares of Class "A" stock of Mills Alloys, Inc. and 79,990 shares of Class "B" stock of said corporation shall have been acquired by this company, it shall thereupon sell to the said syndicate 30,000 shares of said Class "A" stock and 30,000 shares of said Class "B" stock for the sum of $660,000 cash and a one-half interest in the net proceeds of the pool of 20,000 shares of said Class "B" stock to be hereinafter formed and operated; * * * At the same meeting a resolution was adopted directing the board of directors to take all steps necessary for the dissolution of the corporation and the*863 distribution of its assets. Immediately following the meeting of the stockholders, a meeting of the board of directors of Mills Process Alloys, Inc., was held, at which time resolutions were adopted for the purpose of carrying out the directions contained in the resolutions previously adopted by the *635 stockholders. The resolution directing the sale by Mills Process Alloys, Inc., of 30,000 shares of class A stock and 30,000 shares of class B stock of Mills Alloys, Inc., for $660,000 cash and a one-half interest in the net proceeds of the pool to be formed with 20,000 shares of the said class B stock, was in substantially the same words as the resolution previously adopted by the stockholders. The directors also adopted a resolution authorizing the president to take the necessary steps to effect the dissolution of the corporation. On January 29, 1929, the officers of Mills Process executed an assignment of its assets to Mills Alloys, Inc., in exchange for 40,000 shares of class A stock and 79,990 shares of the class B stock of the latter corporation and the assumption by that corporation of the liabilities of Mills Process. On the same date Mills Alloys, Inc., approved*864 the transfer and by corporate action assumed all obligations of Mills Process except its capital stock liability. On April 5, 1929, Mills Process Alloys, Inc., was dissolved by decree of the Superior Court of the State of California in and for the County of Los Angeles, and the directors of the corporation were named as trustees in liquidation for its creditors and stockholders. During the month of February 1929 Mills Process Alloys, Inc., sold to the syndicate, in accordance with resolutions adopted by the stockholders and directors thereof, as shown above, 30,000 shares of class A and 30,000 shares of class B stock of Mills Alloys, Inc., receiving therefor $660,000 in cash and the right to share in the pool created with 20,000 shares of the class B stock so sold. The interest of Mills Process in this pool amounted to 50 percent of the net proceeds, and was approximately $120,000. In accordance with the plan outlined, the petitioner surrendered his 6,555 shares of stock in Mills Process Alloys, Inc., and received therefor 6,555 shares of class A stock, 32,775 shares of class B stock, and $473,159.01 in cash. During the year 1929 the petitioner received dividends on his*865 stock in Mills Alloys, Inc., at the rate of $1.29 on each share of his class A stock and 25 cents on each share of his class B stock. OPINION. TURNER: The first claim made by the petitioner is that a portion of the Mills Process stock disposed of was community property and that the gain derived and the dividends received on the stock of Mills Alloys, Inc., which replaced the stock claimed to have been community stock, should be treated as community income and not as the individual income of the petitioner. It is not contended that any portion of the 5,000 shares of Mills Process stock issued to the petitioner in exchange for patents, nor stock purchased by him *636 before his marriage was community property. Further, the petitioner concedes that the shares purchased after marriage were petitioner's separate property to the extent that they were purchased with proceeds of a loan upon his separate property. It is contended, however, that 638.3665 shares of the 1,654 shares purchased after marriage were community property, leaving the remaining 1,015.6335 shares to be classified as the separate property of the petitioner. These amounts are arrived at by applying to the*866 1,654 shares purchased, the same ratios that 1,154 shares, the amount of shares purchased with the first loan, all of which were deposited as collateral, and 1,836 shares deposited as collateral out of petitioner's separate property, bear to the total 2,990 shares of collateral. Examination of the petitioner's method of computing the number of shares belonging to the community discloses at once the weakness of his position on the facts of this case. If the number of community shares purchased is in the same ratio to the total number of shares purchased as the number of community shares deposited as collateral is to the total number of shares of collateral, then by the petitioner's own conclusion only 638.3665 of the total collateral shares were community shares and the remaining collateral, 2,351.6335 shares, was the separate property of the petitioner. It then follows that a recomputation of the ratios would be required. The result of such a second computation would obviously disclose a correspondingly smaller portion of the total number of shares purchased as the number of community shares. On each recomputation the number of community shares would dwindle until substantially*867 no amount would be indicated as community property. The answer to our problem is to be found in the facts and the law, however, and not in the strength or weakness of some method of computation. As we understand the law of California, property purchased partly with the separate funds of a spouse and partly with community funds is separate property and community property in the same proportion that the purchase price is made up of separate and community funds, ; ; ; , and property purchased with borrowed money is separate and community property to the extent that the loans are based upon the credit of the individual spouse or upon the credit of the community. ; ; ; ; ; . In this case the facts warrant only one conclusion, and that is that the loans procured for the purchase of the stock in question were made*868 upon the sole and individual credit of the petitioner. As a preliminary detail before the loans were made, the petitioner established his *637 personal credit with the California Bank by submitting an individual financial statement. No claim is made that the community owned any Mills Process stock prior to the purchases in December 1928. The only stock deposited as collateral, except the stock purchased from the proceeds of the first loan, belonged to the petitioner individually. Furthermore, each of the notes recited on its face that the petitioner, the maker of the note, was the sole owner of the stock pledged as collateral. The community risked nothing at any stage of the transaction and we find that it furnished no part of the credit upon which either loan was made. On the first issue the respondent is sustained. In reaching the above conclusion we have not overlooked our opinion in . In that case the property in question was purchased with the proceeds of a loan made by the husband on his personal note. The only collateral posted was the property purchased. There was nothing further to show that the funds were borrowed*869 on the faith and credit of his separate property, nor was there any evidence that he was not in fact acting on behalf of the community. Under those facts we there held that the presumption that property purchased after marriage was to be treated as community property had not been overcome by extrinsic evidence. In this case, as we have pointed out, the facts do show that the loan, out of the proceeds of which the stock in question was purchased, was intended to be, and was in fact, made upon the faith and credit of the husband's separate property, and not upon the faith and credit of the community. Our first problem in deciding the remaining issues is to determine the exact nature of the transaction whereby the petitioner disposed of his Mills Process stock. The respondent, in determining the deficiency, treated the disposition by Mills Process of its assets for the stock of Mills Alloys, Inc., as a reorganization within the meaning of section 112(i)(1)(A) 1 of the Revenue Act of 1928. He also assumed the exchange by the stockholders of Mills Process for the stock of Mills Alloys, Inc., in accordance with the provisions of section 112(b)(3) 2 of the act and thereafter a sale*870 by the stockholders *638 of a portion of the stock of Mills Alloys, Inc., so received. In connection with that sale he applied the first in, first out rule and treated the major portion of the stock sold by the petitioner as being held in place of the 5,000 shares of Mills Process stock acquired by him in exchange for patents which had no cost basis. This stock, having been acquired at the time the patents were turned in to Mills Process in 1925, more than two years prior to the disposition of Mills Alloys, Inc., stock in 1929, was treated as capital assets. So far as the record shows, the petitioner in making his return also treated the sale of stock of Mills Alloys, Inc., as a sale by the stockholders of Mills Process rather than a sale by the corporation prior to liquidation, and no exception to the determination of the respondent in that respect was taken in the petition filed. The petitioner did allege, however, that the respondent erred in applying the first in, first out rule, claiming that the stock of Mills Alloys, Inc., was received in exchange for the entire block of his stock in Mills Process and that the cost of the latter stock should be averaged to determine*871 the cost basis of the stock of Mills Alloys, Inc., received therefor and sold to the syndicate. ; affd., ; ; affd., . At the time of filing his brief the respondent also filed a motion requesting*872 leave to file an amended answer to conform the pleadings to the proof offered at the hearing. In the proposed amendment to his answer, the respondent alleged in the alternative that, according to the proof, the sale of 30,000 shares of class A stock and 30,000 shares of class B stock of Mills Alloys, Inc., which had been received by Mills Process in reorganization, had been sold by that corporation prior to dissolution and that the stockholders of Mills Process in fact exchanged their Mills Process stock for stock of Mills Alloys, Inc., and cash. On these facts it was argued that the petitioner is taxable on the gain realized from the exchange, but only to the extent of the cash received. The petitioner opposed the motion to amend, first, on the ground that it was not timely and did not meet the requirements of the rules of the Board, and, second, that under the theory advanced by the respondent it would be necessary for the petitioner to present additional proof, particularly with reference to the fair market value of the stock of Mills Alloys, Inc., in order to show the amount of gain realized. By order entered on March 28, 1936, the motion of the respondent was granted, *873 , and the petitioner was allowed a period of 45 days for the filing of a reply and a request for further hearing, if further hearing was desired. No reply was filed and no request for further hearing has been made. *639 The evidence in this case clearly shows and we have found as a fact that upon the receipt by Mills Process of the stock of Mills Alloys, Inc., Mills Process sold 30,000 shares of class A stock, and 30,000 shares of class B stock of Mills Alloys, Inc., for $660,000 in cash, and a right to share in a pool created from 20,000 shares of the class B stock sold, to the extent of 50 percent of the net proceeds therefrom. Mills Process was then dissolved and the stockholders of that company surrendered their stock in liquidation, receiving for each share of Mills Process stock, one share of class A stock and 5 shares of class B stock of Mills Alloys, Inc., $66 in cash, and a further right to share pro rata in the proceeds from the pool which had been created with 20,000 shares of class B stock. The proceeds from the pool were distributed in the taxable year, and for his 6,555 shares of Mills Process stock the*874 petitioner received 6,555 shares of class A stock and 32,775 shares of class B stock of Mills Alloys, Inc., and $473,159.01 in cash. There is no question that Mills Process exchanged all of its assets for stock of Mills Alloys, Inc., and that this transaction constituted a reorganization within the meaning of section 112(i)(1)(A), supra. It is also clear that the petitioner exchanged his Mills Process stock in accordance with the plan of reorganization for stock of Mills Alloys, Inc., and cash. This transaction falls squarely within the provisions of section 112(b)(3), supra, and section 112(c)(1) 3 of the act, under which the gain realized on such an exchange is taxable, but in an amount not in excess of the sum of money received. The entire holdings of the petitioner in Mills Process, including the 100 shares sold in January prior to the reorganization, had a cost basis of only $16,550. The gain realized on the exchange was the difference between the cost of the petitioner's Mills Process stock exchanged and the fair market value of the stock of Mills Alloys, Inc., received in exchange, plus $473,159.01 in cash. No proof was specifically directed to the question of*875 the fair market value of the stock of Mills Alloys, Inc., but the facts show that the syndicate paid $660,000 for 30,000 shares of class A stock and 30,000 shares of class B stock just prior to the date on which the petitioner made his exchange. Furthermore, according to the agreement the 20,000 shares of class B stock placed in the pool for sale to the public could not be sold for an amount less than $7.50 per share, and, although we do not know the exact price at which that stock was sold, we do know that it was sold in accordance with the terms of *640 the agreement, and the proceeds were distributed in the dissolution of Mills Process along with the cash previously received from the syndicate. On the record there can be no doubt that the fair market value of the 6,555 shares of class A stock and 32,775 shares of class B stock of Mills Alloys, Inc., received by the petitioner in exchange for his Mills Process stock, was greatly in excess of his cost basis for the Mills Process stock. It follows that the gain realized on the transaction exceeded the amount of cash received, and, under section 112(c)(1), supra, the gain so realized is recognized and taxable to the extent*876 of $473,159.01, the amount of cash received. Since it appears that the taxable transaction here was a disposition by the petitioner of his Mills Process stock and not a disposition by him of the stock of Mills Alloys, Inc., after it was received in exchange for his Mills Process stock, there is no occasion for any confusion or difference on the capital gain issue. The dates on which the various shares of Mills Process stock were acquired by the petitioner are not in dispute and the amount of gain which constitutes capital gain and that which constitutes ordinary gain can be worked out on recomputation. Reviewed by the Board. *877 Decision will be entered under Rule 50. Footnotes 1. (i) Definition of reorganization. - As used in this section and sections 113 and 115 - (1) The term "reorganization" means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation), * * * ↩ 2. SEC. 112. RECOGNITION OF GAIN OR LOSS. * * * (b) Exchanges solely in kind. - * * * (3) STOCK FOR STOCK ON REORGANIZATION. - No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization. ↩ 3. SEC. 112. (c) Gain from exchanges not solely in kind. - (1) If an exchange would be within the provisions of subsection (b)(1), (2), (3), or (5) of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the tair market value of such other property. ↩