Roebling v. Commissioner
United States Court of Appeals for the Third Circuit
143 F.2d 810 (1944)
South Jersey Gas, Electric and Traction Co. (South Jersey) leased its plants and equipment to Public Service Electric and Gas Company (Public Service) for 900 years for $480,000 per year. Ferdinand Roebling III (plaintiff) acquired 166 shares of stock in South Jersey at a cost of $16,600. The directors of South Jersey and Public Service entered into a reorganization plan under which South Jersey would be merged into Public Service in accordance with the New Jersey statute on corporate mergers. The stockholders of South Jersey exchanged their stock for Public Service mortgage bonds. Roebling received bonds with a fair market value of $34,777 in exchange for his stock. The Commissioner of Internal Revenue (the commissioner) (defendant) determined that the difference between the fair market value of the bonds and Roebling’s basis in the stock was taxable income. Roebling challenged the assessment in the United States Tax Court. The court found in favor of the commissioner. Roebling appealed, arguing that the transaction was not a taxable event, because the merger was fully authorized by New Jersey law and, alternatively, that a continuity of interest existed to make the event a nontaxable corporate reorganization.
Rule of Law
Holding and Reasoning (Kalodner, J.)
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