
    No. 377
    WEISS v. STEARN
    U. S. District Court, N. D., Ohio
    No. 3790.
    Jan. 9, 1923
    This opinion has not been published exc»ot in Abstract.
    INTERNAL REVENUE — Income received by stockholders on reorganization of corporation.
    Attorneys — C. M. Charest, B. W. Henderson, E. S Wertz, and C. A. Mapes. for Weiss; C. P. Hiñe, foi Stearn, and J. G. White, for White.
   PECK, D. J.:

Epitomized Opinion

This was an action brought by Stearn and White against Weiss, Collector of Internal Revenue, in the U. S. District Court to recover certain sums of money, paid as income tax. The plaintiffs were stockholders in the Eastman, Dillon & Co., which corporation transferred all its property subject to its debts to a new corporation, organized under the laws of Ohio, to take over and continue the business, but with a capital stock five times as large as the old company. The stockholders delivered all of their stock to an intermediary in trust, the par value of each share of old stock being $100. For each share so deposited they were to and later did receive $150 cash and five shares of new stock of a nominal par value of $50 each, but actually valued at $30 each. One-half of the new stock was distributed among the old stockholders at an agreed valuation and a third party purchased the other half at the same valuation, proceeds being distributed among the old stockholders at the above rate. After this transaction was completed the Eastman, Dillon & Co. then dissolved,. the new company taking its place. This transfer really increased the corporate stock and at the same time reduced the face value of' the shares by a process of exchange of new stock for old. The plaintiffs, who were among the old stockholders, paid an income tax on such profit as was made on that half of the stock which was sold at $30 per share. The collector further compelled them to pay a like tax of a similar amount because of the receipt of the other half of the new stock in exchange for the old, the government claiming that they made the same gain thereby as upon the half which they had already sold. The plaintiffs recovered a judgment for the amount paid under this second assessment in the District Court, whereupon the tax collector prosecuted error to the U. S. Circuit Court of Appeals Held:

1. Under Income Tax Act 1916, Par. 2a, being Compiled Statutes, Par. 6336b, the distribution by i corporation upon reorganization of new stock in exchange for old did not involve a taxable income inasmuch as the same investment was still entered ir the same enterprise although represented by nev stock certificates; therefore the stockholders wer< only subject to an income tax on the $150 per share  