American Bantam Car Company, Petitioner, v. Commissioner of Internal Revenue, Respondent, 11 T.C. 397

Summary

The court found that a group had bought the assets of a company subject to liabilities. The group then transferred the assets, the liabilities, and some cash to a new corporation in exchange for a proportionate amount of common stock. After the initial exchange, the taxpayer made an agreement with underwriters to transfer common stock to them in exchange for selling preferred stock. The court affirmed the IRS's decision that the exchange was non-taxable and that the taxpayer's basis in the assets was the same as in the hands of the transferring group. The court determined that under the Revenue Act of 1936 § 112(b)(5), transfers of property to a corporation controlled by the transferors resulted in no recognition of any gain or loss. The court concluded that the transaction was completed upon the initial exchange and did not include any subsequent transfers to the underwriters. Accordingly, the court found the requisite control and proportionality for a non-taxable exchange and ...