Robinette

This case presents a question framed by the Commissioner of Internal Revenue as follows:

The principal issue is whether the rule in Commissioner v. Sansome, 2 Cir., 60 F.2d 931 , cert. denied 287 U.S. 667 , 53 S.Ct. 291 , 77 L.Ed. 575 , applies here. In that case, on reorganization, the original corporation sold all its assets to another company which assumed all existing liabilities and issued its shares to the stockholders of the old corporation without change in the proportion of holdings. The original corporation carried on its books a large surplus and undivided profits which the new company carried over at the same figure. The new company, however, made no profits, and the taxpayer claimed the right to take liquidating dividends to amortize his cost, returning any overplus as profit for the year 1924 when last payment was made. The Circuit Court of Appeals disallowed taxpayer’s claim and instead held that under the Revenue Act, §§ 201 and 202(c) (2), 42 Stat. 228 , 230, where reorganization caused neither gain nor loss, the original corporation’s profits distributed in 1923 on liquidation of successor were taxable as successor’s earnings.

The case before us involves the…