John A. Nelson Co. v. Helvering
United States Supreme Court
296 U.S. 374, 56 S. Ct. 273 (1935)
- Written by Daniel Clark, JD
Facts
The Elliot-Fisher Corporation formed a new corporation (merger sub) to acquire substantially all of the assets of the John A. Nelson Company (Nelson) (plaintiff). The new corporation was a type of entity typically referred to as a merger sub—an entity with the sole purpose of facilitating a merger. The merger sub was organized with common stock and nonvoting preferred stock. Elliot-Fisher contributed $2 million to the merger sub in exchange for its common stock. Nelson contributed substantially all of its property to the merger sub in exchange for $2 million and all of the merger sub’s preferred stock. Nelson treated the transaction as a tax-free reorganization when filing its taxes. The Internal Revenue Service (IRS) (defendant) treated the transaction as a taxable sale of assets for preferred stock and assessed a deficiency. Nelson challenged the deficiency at the United States Board of Tax Appeals, which, along with the Seventh Circuit, upheld the IRS’s deficiency. Nelson appealed to the United States Supreme Court.
Rule of Law
Issue
Holding and Reasoning (McReynolds, J.)
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