On October 2, 1931, Timken-Detroit Company and Silent Automatic Company agreed to merge. Under the terms of the transaction, Timken-Detroit would transfer its assets to Silent Automatic. The companies believed the transaction to be a non-taxable reorganization. In 1931, the companies prepared the documents necessary for the transaction but scheduled a closing date of January 2, 1932 to transfer title and possession. The Internal Revenue Service (IRS) (defendant) determined that the transaction was a sale subject to taxation for the year 1932. The companies appealed, and the Board of Tax Appeals found that the transaction did not constitute a sale. The IRS appealed.