This case presents the following question: whether gain realized by a taxpayer upon the transfer of his stock in a wholly owned corporation in consideration for voting stock in another corporation plus cash is recognizable in its entirety or only to the extent of the cash received. The Tax Court, following Howard v. Commissioner of Internal Revenue, 7 Cir., 1956, 238 F.2d 943 , has ruled that the gain is recognizable only to the extent of the cash received. Grover D. Turnbow, 32 T.C. 646 . We have concluded that this was error and that the gain is recognizable in its entirety.

The taxpayer, Turnbow, was the sole stockholder of International Dairy Supply Company, a Nevada corporation which had its principal place of business in San Francisco, California. In 1952, the taxpayer transferred his stock in that company to Foremost Dairies, Inc., a New York corporation which had its principal place of business in Jacksonville, Florida. This transfer was in exchange for 82,375 shares of the common stock of Foremost and $3,000,000.00 cash, so-called “boot.” The Foremost shares were of a value of $1,235,625.00. Thus the shares constituted 29% of the total consideration received, while the boot constituted 71%.

The taxpayer reported a capital gain on the transaction limited to the $3,000,-000.00 cash boot, less expenses which by agreement he had undertaken to assume. The Commissioner determined that the entire gain on the transaction was taxable, establishing that gain at $4,163,-691.94. Tax deficiencies for the years 1952 and 1953 in the amounts, respectively, of $264,037.43 and $14,786.26 were determined.

The taxpayer petitioned the Tax Court for review. That court held that gain on the transaction should be limited to the cash boot. The deficiencies were disallowed. The Commissioner has petitioned this court for review.

The problem presented involves construction of § 112 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 112 , which deals with recognition of gain or loss.

Section 112(a) sets forth the general rule that “upon the sale or exchange of property the entire amount of gain or loss * * * shall be recognized, except as hereinafter provided in this section.”

Among the exceptions specified, § 112 (b) deals with exchanges solely in kind, and § 112(b) (3) deals with exchanges of stock for stock on reorganization. It provides:

The term “reorganization,” as used in § 112(b) (3), is defined in § 112(g) (1), which, as amended in 1943, provides:

In this case we are concerned with the definition set forth in Clause (B) of § 112(g) (1). Our discussion also deals with the definition set forth in Clause (C). Today these types of reorganization are known to the tax bar as (B) and (C) reorganizations and we shall take advantage of this terminology.

Section 112(c) is the section upon which the taxpayer relies for his right to limit recognition of gain to the cash boot. As amended-in 1943, § 112(c) (1) provides :

The dispute before us is as to the method to be followed in applying § 112 (c) to the facts of a case. The Tax Court purported to follow its earlier decision upon this problem in Luther Bonham, 1936, 33 B.T.A. 1100, 1103-1104 . It quoted that opinion (supplying its own emphasis) as follows:

Howard v. Commissioner of Internal Revenue, supra, 238 F.2d at page 948 , was also quoted to the following effect:

Applying this method to the case at bar, the taxpayer reasons: but for the cash received, the transaction — solely stock for stock — would have met the “solely” requirements of both §§ 112(b) (3) and 112(g) (1) (B) and fallen within the nonrecognition provision of § 112 (b) (3). Therefore, he says, under § 112(c) the gain to be recognized is limited to the amount of the cash received.

The Commissioner contends that § 112 (b) (3) requires an actual and not a hypothetical reorganization before nonrecognition can result; that petitioner’s method assumes the absence of boot not only to determine whether § 112(b) (3) would apply but also to determine whether the § 112(g) (1) (B) definition would apply; that this does violence to § 112 (b) (3), which expressly contemplates the existence of a reorganization.

The method of applying § 112(c), advocated by the Commissioner, is to ascertain first whether a reorganization exists under § 112(g) (1). If it does, then and only then can the nonrecognition provisions of § 112(b) (3) become applicable. If it does not, § 112(b) (3) cannot apply. Only when § 112(b) (3) applies, can § 112(c) operate to modify its consequences.

Applying this method to the case at bar, the Commissioner reasons that, since the presence of boot precludes a (B) reorganization, § 112(b) (3) cannot apply and the gain is subject to taxation under § 112(a). Under the Commissioner’s construction, (B) and (C) reorganizations are forever excluded from the operation of § 112(c). The other types of reorganizations specified in § 112(g) (1), however, do remain subject to the operation of § 112(c).

Upon this dispute, legislative history supports the Commissioner’s position.

Prior to 1934, there were no (B) or (C) reorganizations as such. Section 112(i) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 513, (the pri- or analogous section to § 112(g) (1) of the 1934 Act, 26 U.S.C.A. Int.Rev.Acts, page 695) read in pertinent part:

The provisions of §§ 112(b) (3) and 112 (c), however, existed in substantially their present form.

The reasons for the 1934 amendment of § 112(g) (1) are clearly disclosed by congressional reports and discussion. The House Ways and Means Committee Report, H.Rep. No. 704, 73d Congress, 2d Session 13 (1934) states:

A letter from the Secretary of the Treasury, which appears in the Congressional Record, 78 Cong.Rec. 2512 (1934) states:

A subcommittee of the House Ways and Means Committee, studying the revision of the revenue act, was sufficiently exercised over avoidance practices to give serious consideration to the advisability of eliminating completely the provisions governing reorganization exchanges. H. Rep., December 4, 1933, 73d Congress, 2d Session, 8-9 (1933). However, the House Ways and Means Committee, in its report, stated:

The House committee’s solution was to eliminate from the definition of reorganization, as it then appeared in Clause (A), the parenthetical phrase following the words “merger or consolidation.”

Had this solution been adopted, there would have been no (B) or (C) reorganizations and § 112(c) obviously could have no reference to such transactions.

The Senate Finance Committee reported, S.Rep. No. 558, 73d Congress, 2d Session, 16 (1934):

Then follows the Clause (B) definition which was eventually incorporated into § 112(g) (1) of the 1934 act.

Emphasizing its views that the tax avoidance problems would be met, the report states at page 17:

It is clear from this history that, with specific abuses in mind,' Congress sought to eliminate them by requiring that, for an acquisition to qualify for the tax advantages of a reorganization, it must be in exchange solely for voting stock.

With reference to this requirement the Supreme Court has stated in Helvering v. Southwest Consolidated Corporation, 1941, 315 U.S. 194, 198 , 62 S.Ct. 546, 550 , 86 L.Ed. 789 :

Certainly it could not have been intended by Congress that this result would be frustrated at birth by the already existing provisions of § 112(c); yet such would seem to be the effect of the taxpayer’s construction.

The Commissioner’s construction seems supported by subsequent congressional action. If (B) reorganizations can hypothetically exist notwithstanding boot, the same would apply to today’s (C)-type reorganizations, which also were created by the 1934 amendments.

Yet, in 1939, Congress saw fit to amend the definition of (C) reorganizations by providing:

In § 368(a) (2) (B) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 368 (a) (2) (B), the definition was further amended to provide that only 80% of the assets of the acquired corporation need be obtained in exchange for voting stock; that boot could, without defeating reorganization, be the consideration for assets above 80%. Under the taxpayer’s. construction, neither of these amendments was necessary. That Congress felt it necessary so to amend the section indicates that the Commissioner’s construction reflects the true congressional intent and understanding.

The taxpayer refers us to a point emphasized in Howard v. Commissioner of Internal Revenue, supra. Section 112(e) is the counterpart of § 112(c), the latter dealing with recognition of gains and the former with recognition of losses. Section 112(e) has remained virtually unchanged since its original enactment as § 203(f) of the Revenue Act of 1924. It provides :

Howard points out that if the presence of boot results in recognition of gains it likewise results in recognition of losses; that a taxpayer desiring that a loss be recognized might convert what otherwise would be a legitimate reorganization into a sale by the payment of a trifling amount of cash; that such a construction would thus defeat the 1924 legislative intent in enacting § 112(e).

It would appear, however, that Congress in 1934 was aware that attempts might be made under the proposed amendment to secure recognition of losses notwithstanding actual continuity of interest. The House Ways and Means Committee, as we have noted, recommended that the “acquisition” type of transaction (the forerunner of today’s (B) and (C) reorganizations) be completely eliminated from the definition of reorganization. At the same time the report stated:

Thus it would appear that in the judgment of Congress the danger of tax avoidance (through securing recognition of losses notwithstanding continuity of interest) was avoided by the probability that the acquisitions resulting in loss could be treated as reorganizations under the remaining provisions of § 112 (g) (1)

Whether this judgment was sound apparently still remains to be tested. However, Congress would seem to have weighed the desirable features of the proposed amendment (as to gains) against its undesirable potentialities (as to losses). For us to permit the possibility of tax avoidance under § 112(e), to control our construction of § 112(c), would be to overrule the apparent judgment of Congress upon this very question.

The Tax Court opinion in this case points out that the Commissioner’s regulations are deemed to have received the approval of Congress (citing Lykes v. United States, 1951, 343 U.S. 118 , 72 S.Ct. 585 , 96 L.Ed. 791 ; Helvering v. Winmill, 1938, 305 U.S. 79 , 59 S.Ct. 45 , 83 L.Ed. 52 ) and places reliance upon the Commissioner’s regulations, 118 § 39.112 (g)-4. In our view, this section casts little light on the problem. On the other hand, § 39.112(g)-l(c) of the regulations lends support to the Commissioner’s position. It provides in part:

We conclude that, if the “solely for voting stock” requirement of (B) and (C) reorganizations is to be given the effect intended by Congress, § 112(c) cannot operate to render a stock-plus-boot acquisition a (B) or (C) reorganization through a disregard of the existence of boot. In the case before us, then, the existence of boot prevents § 112(g) (1) (B) from applying; since no reorganization exists, § 112(b) (3) cannot apply; § 112(c) is then also inapplicable.

Reversed and remanded with instructions that the deficiencies determined by the Commissioner be reexamined in the light of this opinion.

. Even the 1934 amendment did not separate (B) and (O) reorganizations. Both were dealt with under Clause (B). It was not until the Internal Revenue Code of 1939 that the separation occurred which has given rise to today’s terminology. . The judgment of Congress would also seem to have taken into consideration the apparent lack of effectiveness of § 112 (e) in preventing loss taking in corporation exchange transactions. The report of the subcommittee of the House Ways and Means Committee stated in H.Rep., December 4, 1933, 73d Congress, 2d Session 37-42 (1933) : “The statute provides that upon sale or exchange of property, the entire amount of gain or loss shall be recognized with certain exceptions. The exceptions are the exchange and reorganization provisions already referred to. If a taxpayer desires to take a loss, it is easy to arrange a transaction falling without the exceptions. On the other hand, if it is desired to pay no tax on the gain, the transaction can be so arranged as to come within the exception. In addition, losses from the sale or exchange of stocks and bonds are limited, to a large extent, to gains from such sales or exchanges so in many cases a stock or bond loss, even if recognized, could not be utilized by the taxpayer.” This quote also appears at: Hearings before the House Committee on Ways and Means on the 1934 Revenue Bill, 73d Congress, 2d Session 60 (1934).