Mills v. Commissioner

TRAIN, /., dissenting: Accepting the majority assumption that the option agreement was a part of a plan of reorganization rather than of an outright sale of stock, I do not believe the result reached by the majority is required by either the statute or the decided cases.

The two cases relied upon by the majority in support of its “literal” construction of the word “solely” as it is used in section 368(a) (1), namely, Helvering v. Southwest Corp., 315 U.S. 194 (1942), and Turnbow v. Commissioner, 368 U.S. 331 (1961), both involved the receipt of consideration so plainly different from and in addition to voting stock that those cases are clearly distinguishable from that before us here.

In the instant case, the plan of reorganization provided solely for the exchange of voting stock. No other consideration was provided in the option agreement. Certainly none was intended. Reasonably enough, even inescapably, the agreement contained the proviso that, in the event the price was not evenly divisible by shares at $14 each, the fractional share problem was to be avoided by a payment in cash, which here amounted to $27.36. Had the price been evenly divisible by $14, only stock would have been exchanged, the terms of the option would have been complied with, and presumably the issue would have posed no problem for the majority.

I interpret the word “solely” as requiring that there be no consideration other than voting stock. Consideration in the accepted sense is an inducement to a contract, an impelling influence which induces a contracting party to enter into a contract. To construe here what was simply a mathematical rounding off as constituting additional consideration over and beyond the voting stock mocks the statute as well as the perfectly reasonable plan of the parties to the agreement.

In the latter connection, the majority opinion recognizes, as, indeed, do the congressional committee reports, that the reorganization provisions provide an area in which the taxpayer, by choosing the form of his transaction, can control the tax results by falling within or without the definitions of a reorganization. Despite ajiparent acceptance of this principle, the result reached here by the majority makes the consequences of tax planning turn upon the mere accident of an accounting procedure, substituting complete uncertainty for what were plainly intended to be predictable consequences.

I do not believe it necessary to decide whether there is a de minimis rule applicable to cases of this sort; nor, if there is, whether $27.36 is de minimis under the circumstances here present. In my opinion, the arrangement entered into and its actual implementation meet the test of “solely” when that word is reasonably construed in the light of the statutory framework and the circumstances of the case. It is too well-established to require citation of authority, that statutes should be reasonably interpreted in a practical and sensible light and that a construction leading to an unreasonable result should be avoided.

TietjeNS, Pierce, Mulroney, DrenNEN, and Fay, //., agree with this dissent.