Helvering v. Bashford

Atlas Powder Company (Atlas) intended to eliminate three competitors—Peerless Explosives Company (Peerless), Union Explosives Company, and Black Diamond Powder Company—by reorganizing the competitors into a single company that would eventually be a subsidiary owned by Atlas. Atlas approached the shareholders of all three competitors to consolidate the three companies into one new corporation. Atlas would then own the majority of the new company’s stock. Bashford (plaintiff) owned shares in Peerless. In exchange for Bashford’s Peerless stock, he received over 2,700 shares of the new company, over $25,000 in cash, 625 shares of Atlas preferred stock, and 1,344 shares of Atlas common stock. In Bashford’s 1930 tax returns, he did not include a gain on the stock of the new corporation or Atlas. The Commissioner of Internal Revenue (the commissioner) (defendant) agreed that the gain on the new corporate stock was correctly excluded; however, the commissioner believed the gain on the Atlas stock should have been included in the tax return because Atlas was not a party to the reorganization. The Board of Tax Appeals (the board) held that Atlas was a party to the reorganization, and gain on Atlas stock was properly excluded from Bashford’s tax return. The commissioner appealed to the United States Court of Appeals for the Third Circuit. The circuit court affirmed the board’s decision. The commissioner appealed to the United States Supreme Court.