The opinion
DisNey, J., dissenting: The whole point of this case depends upon the meaning of “its stockholders” in section 112 (g) (1) (D) of the code in defining reorganization. The majority view is that 68.93 per cent of a corporation’s stockholders comprises “its stockholders” within the statute. I must disagree. The statutory expression must mean (a) all of the stockholders, or (b) substantially all of the stockholders, or (c) some of the stockholders. Obviously 68.93 per cent is not all, nor substantially all, of those holding stock, and the majority does not so view the matter. It simply concludes that, since 68.93 per cent of the predecessor corporation’s old shareholders owned 100 per cent of the outstanding and voting stock of the new corporation, there was reorganization, and cites Toklan Royalty Corporation v. Jones, 58 Fed. Supp. 967, where it was held that where 75.5 per cent of the old stockholders owned 100 per cent of the stock of the new corporation there was reorganization under section 112 (g) (1) (D) of the code. The case merely states the facts and the above conclusion, without analysis of the question. The majority here, in similarly concluding, does not state whether it considers 68.93 per cent of the stockholders all of them, or only a part. It could not mean the former; if the latter is meant, then it follows that any part, at least any substantial part, of a corporation’s stockholders satisfies the statute. But, if so, then say 49 per cent is sufficient, and we might have one part, 49 per cent, reorganizing into one new corporation, and another substantial part, for example, 51 per cent, likewise reorganizing into still another corporation. But since continuity of the corporate organization is of the essence of reorganization, under cases so numerous as to require no collation, more than one reorganized corporation appears impossible — from which it follows that even if “its stockholders” does not necessarily mean full 100 per cent, it must at least mean so many that another portion could not reorganize into another corporation. It is obvious, I think, that 68.93 per cent of the stockholders does not satisfy such a requirement. Of course the fact that they have 100 per cent control of the transferee corporation is not the test, though it is given controlling weight by the majority — since it is nowhere stated what “its stockholders” does require.
In my opinion, a reading of section 112 (g) of the code discloses at once that Congress never intended that 68.93 per cent of a corporation’s stockholders are “its stockholders,” for three times in the ten lines of that subsection, when it was desired to express less than all of a category, specific language so expressed: (a) “all or a part” of voting stock was the expression when less than all was meant; (b) “substantially all” was applied to “properties” when less than all was being required; and (c) “all or a part” was applied to assets when all were not required to be transferred. Can it be reasonably doubted, then, that Congress would likewise in the same subsection (in fact in the same sentence) carefully designate less than all of “its stockholders” if it so intended? This textual analysis is consonant with the underlying idea of the continuity of organization necessary to defer taxation. The statutory scheme is “as a general rule to recognize gain or loss upon the exchange of property and to provide for specific exception in situations which are expressly described.” Union Pacific Railroad Co., 32 B. T. A. 383; Evert A. Bancker, 31 B. T. A. 14. I do not find place in such a plan for an exchange where under the statute a corporation must be represented by “its stockholders,” but only 68.93 per cent take part. I would hold that there was no reorganization under section 112 (g) (1) (D). Therefore, I respectfully dissent.
Kern, Leech, Turner, and Opper, JJ., agree with this dissent.