United For the United States — United States v. Seattle-First National Bank

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INDEX ‘

Page

In ic ok ss bap ndiaclanliaiisnnuadiemeaieiainh dima baae oe

Jurisdiction... ..-.- on 06 Kb dnc ehnakneniiabeesbucaue 1

i cireendnnnpchnnideendenmions a ae 2

' Statutes and ereuaen involved - bide dpsaipainl tdeniatacnsaes ghiRiointannicihe die to e'es 2

i Dn wavasecceocducsetios idwkidmineawmes wuliblie Mateoniel 2

_ Specification of errors to he | PERRET: sey Sie itera 6

‘Summary of argument... .-.-..--2----.--- Fenoens ocaseeee 6

Argument: ; ‘

_ The transfers of securities and real estate from the state

bank to the respondent by virtue of their consolidation

were taxable transfers within the meaning of Section

800, Schedule A-3, 8 and 9 of the Révenue Act of 1926,

sta ninndes cess we éucininnkdllenniagineewambis 7

I ali ickki ahh ise ec éccciten links niiak anceloiemedan 20.

te nearer Din Gia au te ta sh dn sce bok pw at. ectoss bili rio ace 21

4 . CITATIONS

Cases: . , * °

Becker v. Bank of Commerce Liquidating Co., 102 F. 2d 633, _

certiorari denied, 308 U. S. 578. ............-----22-- 16

gy "© os Se a eee 16

Carpenter v. White, 80 F. 2d 145, certiorari denied, 297

ER te PET Seer A eS PORT RE PER 20

City Bank Farmers Trust Co. v. Hoey, 125 F.-2d 577= —.-. 9,

; . 12, 13, 14, 16, 18

«Cliffs Corp. v: United States, 103 F. 20 77__-___.._.__- 9, 13, 16

Founders General Co. v. Hoey, 300 U. 8S. 268... _..__--- 9, 10

Hofheimer v. Seaboard Citizens Nat. Bank, 154 Va. 392___. 10

Koppers Coal & Transportation Co. v. United Statcs, 107 F.

ah a a Ne ee ae 9, 13, 15

eee, ge, O08 0. @ O08... 3.8... ae

Niagara Hudson Power Corp. v. Hoey, 117 F. 2d 414,

certiorari denied, 313 U. 8. 671- Seca inane es 9, 12, 13, 14, 16

Old Colony R. Co. v. Commissioner, 284 U. 8. 552... ----- 17

Provost v. United States, 269 U.\S. 443____-._-_--_- saphs 8

Raybestos-Manhattan Co. v. United States, 296 U. S. 60_- 8, 13, 17

- Rogers v. Helvering, decided-December 6, 1943__.__.____- 16

State Street Trust Co. v. Hassett, 134 F: 2d 156._ 13, 14; 15, 16, 18

United States v. Merchants Nat. Tr. & Sav. Bink, 101 F. 2d

Le A earns 5, 12, 16; 37

Weil v. United orm, 115 F. 2d’ 999, certiorari denied,

I SSS a Dr lg RU oo Te 9, 13, 14, 16

Worcester Na‘. Bank, Fr parte, 279 U. 8. Re Rem a

565091—43——-1 - : (1)

fii: ’ Page

Act of November 7, 1918, ¢. 209, 40 Stat. 1043, secede

* See. 3 (12 U. 8. C. § 34a)... 2. 10, 11, 23

Revenue Act of 1936, ¢. 37, 44 Stat. 9: . ;

DE Skit nesnnbadennccwencccneescnpetacen 2

Schedule aK ciedonied ae al 21

Schedule A-2, as amended... ._........-...--- 21

Schedule A-3, as amended... -..-..-.----.-. 7, 13, 21

Schedule’ A-8, as amended. --.-.-.....--.------ 19, 22

Schedule A-9, as amended... -.__..........- 7, 18, 22

Revenue Act of 1932, c. 200, 47 Stat. ‘169: are .

| “Bee MM. .-- eee eeeeeeeeenetee es caieenbbiene 19, 23

ee Fletcher Cyclopedia Corporations, pp. 2212, (308....-. 10,11

. Treasury Regulations 7 (1982 ed.):

\ _ Art, 34....- A TP EI ae aa scotia aeniibatiai 11, 12, 25

Maa ee seisiosgabiiiiias ‘Teen, 8) FT

Sv Art. 36. ececcece atgaleae wee receeseceacccceccccs eooe 26

Se be a eG ere regee tom, eee: Dae 19, 26

XK EI es a natnanlaceanpeuieedinantiabanpicpencoiee 12, 27

.—-

Gnthe Supreme Gourt of the Bnited States

Ocroner Term, 1943" |

es re

No. 267

Untrep SrarEs ‘or AMERICA, PETITIONER

Vv. ae

Searrte-Finst Nationa, Bank, a NATIONAL

BANKING ASSOCIATION

"ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE NINTH CIRCUIT

‘BRIEF FOR THE UNITED STATES —

| oprwroms BELOW

The opinion of the District Court (R. 55-76)

is reported in 44 F. Supp. 603. . The opinion of

the Cireuit Court of Appeals (R. 93-94) is re-—

ported i in 136 F’, 2d 676. : :

: . JURISDICTION

The judgment ofthe Circuit Court of Appeals

was entered on } 24, 1943 (R. 94-95). The —

petition for-a writ\of certiorari was filed on.

August 17, 1943, granted-on October 11, 1943.

The jurisdiction of this Court is invoked under

“ Section 240 (a) of the Judicial Code, as amended.

PY Be areca eee

—

Lear

| QUESTION PRESENTED °

Respondent. (a national bank). and a ren bile

consolidated’ under the charter of respondent by .

' written agreement therefor, ratified by their re- -

"> ‘spective shareholders and approved by the Comp-

troller of the Currency in‘accordance with the

- National Banking Act. ,,Legal title to all cor-

poraté securities and realty held in the state

bank’s name, in its own. right. and in fiduciary

_eapatities, was thereafter -held by respondent.

- Did.the transaction involve a taxable transfer of -_

-the securities and realty under the stamp-tax pro-

Visions of the Revenue Act of 1926, as amended ?

STATUTES aND REGULATIONS INVOLVED

_ The’ statutes and regulations involved will is |

found in the Appendix, ‘infra, pp. 21-27. | Py Chas

“3

‘STATEMENT

Respondent, known prior to December 28, 1935,.

as First National Bank of Seattle, entered into a

written agrecment on November 26, 1935, with the

Spokane and Eastern Trust Company, hereinafter

called the state bank, signed by the diréctors of

_ each, providing for the consolidation of the two

banks under respondent’ s charter and -the cor-

porate name of Seattle-First*National Bank (R.

43-50). The agreement provided that (R. 49-50)—

“This consolfiation shall become effective when it

shall have been ratified and confirmed by the af-

firmative vote of the holders of at least two-thirds

eo?

e

of the shares of stock, at the time outstanding, of”

both banks, “and the Comptroller of the Cur- 7

rency *.* * shall have issued his formal cer-

tificate under’ the séal of his office approv ing such

consolidation.”’ - &..

The state bank owned real estate, including. its |

banking premises, as well as corporate stocks and

bonds, to all of which it held legal title as a part

of its corporate assets. It also held in trust cer-

tain stocks and bonds, the legal title to which was

vested in it as trustee, executor, administrator,

guardian, or irf other fiduciaiy capacities.. (R. 77. ) ;

Section 5 5-ef the agreement: provided, in part, as

follows (R. 29):

All assets of each association at the date

of consolidation shall pass to and vest in

‘the consolidated association, and the con- ,

solidated associatton shall be responsible for

all of thé liabilities of*every Kind and

” deser sjrdon. of each: of the munca :

* associations.

The shareholders met: and ratified the’ agree-

ment, and on December 28, 1935, Acting Comp-

troller of the Curréney Awalt issued a certificate -

_ of approval, reciting that it appeared the diree-

tors and shareholders of both banks had complied

with the Act of Congress, approved. November. 7,

- 1918, as amended, and therefore the banks had ° |

| Y

been consolidated under the charter of the First

National Bank of Seattle and under the cor-

porate title of Seattle-First National Bank, ~_—

an author ized capital of $8,000,000-(R. 16-18).

4

The findings in the pretrial order, expressly ap-

_ proved by. counsel for the eis parties, state

(RB. 14): |

"That the denaiine proceedings were au-

thorized by Section 34 (a), Title 12,

U.S. C. A, and resulted in the consolida-

tion of the trust | company into the plaintiff |

Seattle-First National Bank pursuant to

the above statute, and accordingly there

was effected by the agreement of November

26, 1935, and the shareholders’ ratification

thereof, followed by approval of the Con-

. troller of the Currency, a transfer of legal

title to all corporate securities and real

estate, legal title to’ which was formerly

held in the name of the Spokane and East-

ern Trust Company, eithér in its individual

capacity or as:a fiduciary in various capac-

ities. No documentary stamps were pur- .

chased or affixed with respect to the transfer

of legal title to such .corporate securities

- and realty. Subsequently, a deputy col-

lector examined the records of ‘the bank,

and as a result, documentary stamps in tlie

amount of $1,631.48. were’ purchased and

affixed to the appropriate records.

This suit was brought_on October 17, 1941, to

recover the above’ tax, $1,631.48" a penalty of

$100, and interest (R. 2-6). The United States

?The $1,631.48 tax eeungireeen $500 paid with peapect to

_ the transferred realty (R.:5, 19-20), $457.60 with respect to

- securities formerly owned by the state bank in its own right

(R. 5, 21-22), and $673.88 with respect to securities held in

' trust (R. 5).

a.

5

filed an answer admitting parts of the complaint

(R. 7-11). A pretrial hearing resulted in the

entry of an order embodying material findings of ©

fact (R. 12-15), and the introduction of documen-

tary exhibits, upon which the case was tried... The

District Court made further findings which are a —

repetition of the first ten paragraphs of the com-

plaint (R. 76-80). An opinion was filed (R. 55-

76) in which the District Court stated that the —

decision in United States v. Merchants Nat. Tr. &

Sav. Bank, 101 F. 2d 399 (C. C. A. 9), compelled .

it to hold that a tax was not dué with respect to

the securities held in trust and by analogy that

‘a tax was likewise not due with respect to the

securities which the state bank had owned bene-

ficially (R. 62; 65). The court stated, however,

that except for the compulsion of the Merchants.

Nat. Bank case it would hold the tax properly

“¢ollected (R. 71). With’ respect to the tax on

the transfer of real estate? the District Court held .

-. that the problem was different but the tax was not

due (R. 72). Judgment was accordingly entered

for respondent for the- tax of $1,631.48 with inter-

est (R. 82)2 -The Circuit Court of Appeals held

that the ease was in all respects governed by its

earlier decisiun in the Merchants Nat: Bank case,

and affirmed the judgment (R. 93-95).

? Recovery was denied for the $100 penalty, which was paid

in compromise of a threatened criminal prosecution (R. 79),

on the ground that the compromise was a final settlement of

the penalty (R. 75).

.

= _ URGED

SPECIFICATION OF ERRORS TO BE S6ED

The Circuit Court of Appeals erred :

1. In failing to hold.that the transactions in-

volved deliveries or transfers by the state bank

to respondent of the real estate and securities

owned outright, as well as®f_ the securities to:

which it held mere legal title in: fiduciary ‘eapac-

ities, within the Stamp-tax provisions of the. Reve-

nue Act of 1926, as amended. -

2. In holding that. the transactions involved

were not subject to the stamp-tax provisions of

the Revenue Act of 1926, as amended. ” ;

3. In affirming the a _of the District.

Court.

SUMMARY OF ARGUMENT

This Court in construing the statute in question

has noted its comprehensive terms and ruled that

its scope is not to be restricted ‘by technical re-

finements. In this case the consolidation agree-

ment between the respondent and the state bank

expressly provides’ that all assets of the state ~

bank at the date of consolidation shall pass to the —

consolidated association, in consideration of stock

in the consolidated association, or cash at the

option of the shareholders of the state bank.

This agreement was approved by the directors

and stockholders of the state bank. The national

banking aet under which the consolidation was

effected specifically provides that no deed or other -

transfer is necessary to vest title to the property

7

of the state bahk in the national bank. Accord-

ingly it would seem clear that under the cireum-

stances of this case there were transfers of legal

title to the securities, whether owned beneficially

or held as a fiduciary, and to the real.estate from.

the state bank te the respondent. Therefore the -

transfers were subject to the stamp tax under the

expréss terms of the statute. 3 :

The ‘Treasury’ Regulations support this con-

clusion and the weight. of authority—in similar

and analogous cases is to the satne effect.

THE TRANSFERS OF SECURITIES AND REAL ESTATE FROM

THE STATE BANK TO THE RESPONDENT BY VIRTUE OF

THEIR .CONSOLIDATION WERE TAXABLE TRANSFERS

WITHIN THE MEANING OF SECTION 800, SCHEDULE A-3,

8 AND 9 OF THE REVENUE ACT OF 1926, AS AMENDED

1. The securities —Seetion 800, Schedule: A-3.

of the Revenue Act of 1926, as amended (Appen-

- dix, infra, pp. 21-22), imposes a stamp tax-on

transfers of legal title to any shares of _ stock

or certificates, ‘‘whether- made upon or -shown

~ by the books of the corporation or other organiza-

tion, or by any assignment in blarik, or by any de-

livery, or by, any paper or agreement or memo-

randum or other’‘evideuce of transfer or sale

(whether entitling the holder in any manner to the

benefit of such share, certificate gave

noty.”? .

Section, 800, Schedule A-9 of the Revenue Act

of 1926, as amended (Appendix, infra, PP. 22-23),

565091 —43———

: e

‘

:

§

imposes: a sti tax on all transfers of legal title .

to bonds, whether made by any assignment in blank -

or by any delivery, or by any paper or agreement

or memorandum or other evidence of transfer or

sale (whether entitling the holder ‘am any, manner

- to the benefit of such instrument or not).

The comprehensiveness of this language has

been given literal application by this Court. In

applying the statute to transactions necessarily in-

volved i in short sales in Provost v. United States,

"269 U.S. 443, this Court said (p. 458) : ;

It [the statute] evidenced a purpose not

only to tax all sales or agreements to sell

which had been previously taxed, but to

extend the taxing provision to all transfers

of legal. title to shares or certificates

whether technical sales or not. * * *

In Raybestos-Manhattan Co. v. United States,

296 U.S. 60, this Court upheld a stamp tax * upon

the receipt by the stockholders of shares in ‘a new

corporation resulting from a reorganization, and

. in its opinion this Court said (pp. 62, 63):

The stock transfer tax is a revenue meas-

_ ure exclusively. Its language discloses the

general purpose to tax every transaction

whereby the right to be or become a share-

holder of a corporation or to receive any

certificate of any interest -in its property

is surrendered by one and vested in’ an-

other. ** * | . .

+. . * - * . +

* This was in addition to the tax on the original issue of *

the stock, liability for which was ouneeted (296 U. S. 60, 62).

9

The reach of a taxing act whose purpose

is as obvious as the present .is not to be —

- restricted by technical refinements. = ft

In Founders General Co. v. Hoey, 300 U. 8. 268,

this Court upheld the imposition of a stamp ta®*

' upon the transfer of stock from a.stockholder to .

his nominee, and in its opinion said (p. 275)

that—

* * * we are not to look beyond the ‘Act ,

for further criteria of taxability.

The cireuit courts ‘of appeals have alsq em-

phasized the broad language of the statute. In ©

Weil v. United States, 115 F, 2d 999 (C. C. A. 2),

_ certiorari denied, 313.0. S. 574, the court said

(p. 1002) =

The cies Court construed the statute

imposing the transfer tax literally in Rag-

bestos-Manhattan, Ivc., v. United States,

296 U.S.60 * .* * and Founders ee.

eral Corp. v. Hoey, 300 U. 8. 268 . -

_ and was altogethér strict in subjecting the

transfers to a tax.

See also City Bank Farmers Trust Co. v.-Hoey,

125 F. 2d 577, 578 (C. C. A. 2); Niagara Hudson

Power Corp. v. Hoey, 117 F. 2d 414, 416 (C. C. A.

_2), certiorari denied, 313 U.S. 571; Cliffs Corp.

v. United States, 103 F. 2d 77, 79, 80 (C. C. A.

*6); Koppers Coal cd: Trtnspertation Co. v.

_ United States, 107 ‘F. 2d 706, 708 (C. C. A. 3).

10

In_ this ‘case, the consolidation or merger‘

effected transfers of legal title to the securities,

formerly held by the state bank either in its own ~

“name or as a fiduciary,’ to respondent. The agree- ‘

ment expressly~provides_that.a]l assets of each

party at the date of consolidation shall pass to the

_consolidatéd associatioh (R. 29, 47). The record.

shows that the agreement of consolidation was

submitted to. a special meeting of thé board of

directors of the state bank on November 26, 1935,

‘at which time'the agreement for consolidation was

read and a resolution was passed authorizing the

_. State bank to enter, into the agreement and its

. officers to execute such agreement, and caliing a

spécial meeting: of stockholders on December 24,

1935, for the purpose of ratifying and eniianing.

ve

‘Section 8 of the Sid of November 7 . 1918, as amended

(Appendix, infra, pp. 23-24) under which the consolidation

or merger was effected, provides for a “consolidation” in

-which the. “constituent” banks shall be “merged: into and

continued in the consolidated national banking association”

which shall “be deemed to be the same corporation as each of

the. constituent. institutions.” The language, speaking of’

both consolidation aid merger, is inconclusive.as to whether |.

_the reerganization is a consolidation or merger, but as the.

". constituent institutions continue in the form ofthe surviving

corporation instead of expiring to be replaced by a new

corpuration: the reorganization resembles a, true merger -

rather than a true consolidation. Hofheimer v. Seaboard

Citizens Nat. Bank, 154 Va. 392, 397, 153 S. &. 656: see bb

Fletcher Cyclopedia C orporations, pp. 712, 308. ?

-. 5 The reach of the tax is not restrictéd to transfers of bene-

ficial interests. Founders General Co. v. Hoe Ys supra, at

p. 274. . .

11

_. the agreement (R. 23-36). Another resolution

was passed by the board of ‘directors appointing

a committee to certify the acceptability of the as-

sets to be contributed by each of the merging |

_ banks (R..37). The record also shows that the.

stockholders of the state bank at the special meet-

ing held on December 24, 1935, ratified and con. ,

- firmed this agreement (R. 38-53):. In these cir-

~eumstanees, it would seem to be clear that there

were transfers of legal title to the securities of the

state bank at the time of consolidation or merger

and that such transfers are subject -to stamp tax

under thé express terms of Section 800, Behedule

A-3-and 9." de

The Treasury Regulations support this eonelu-

sion. Article 34-(r) of Treasury Regulations 71

(Appendix, infra, p. 25) provides that upon a

- merger, the transfer of stock owned by a corpora-

tion which is. merged into another corporation

from the name of the first to the name of the

second corporation, is subject to the tax.’ We

* Under Section 3 of the 1918 Act as amended (Appendix,

infra, pp. 23-24) also, the effect of the consolidation or mer-

ger was to transfer the property to the national bank. ¢

’ As noted in footnote 4, supru, p. 10, the instant reorgan-

ization resembles a merger more than a consolidation so it

would appear to come precisely within this regulation. The

case does not rest on this, however; a regulition stating a

merger to-be a taxable transfer was doubtless deemed. neces-

sary because in a true merger the merging « -orporations con-

‘tinue.in the surviving corporation (Fletcher. op. cit. footnote

‘4, p. 10), thus laying the foundation for a technical argu-

Ment against there being a “transfer.” In a true consolida- |

12

need not now contest the decision (City Bank

Farmers Trust Co. v. Hoey. supra) that this

regulation applies only to stock beneficially owned

__ by the corporation, for with respect to the stock

- held in trust by the-state bank and transferred to

respondent, Article 34 (b) of Treasury Regula- ©

tions 71 (Appendix, infra, p. 25) provides that

the transfer of stock by trustees is subject to the

tax.

Under Article 120 of Trenmury Regulations 71:

(Appendix, infra, p. 27), the Regulations relating

- to transfers of stocks are ne 4 in- - respect of *

| transfers. of bonds. 3

os The court below held, however, i in reliance. upon

its earlier decision.in United States v. Merchants

.. Nat. Tr. & Sav. Bank, 101 F. 2d 399, that

these transfers were exempt because they resulted

“‘wholly by operation of law” within the mean-,

_ ing of Article 35 .(r) (Appendix, infra, p. 26).

' The court reasoned that because no deed, assign-

ment or other instrument was executed, because’ ~

the ‘certificates were not endorsed * and there was -

‘hot any delivery or change of possession other

than that which may be implied. from the consol-

tion, however, the old corporations expire and a new one

appears (id.) so the existence there of a transfer is by con-

trast a fortiori (see Niagara Hudson Power Corp. v. Hocy,

117 F. 2d 414 (C. C. A. 2) certiorari denied, 313 U. S. 571),

thus obviating the need for an interpretative regulation.

* The record does -not show — the certificates were not’

endorsed.

13

idation, the ioctl occurred by siaitittede of as.

- But inasmuch as t directors and ‘stockholders of

both banks acted upon the consolidation agreement,

the consolidation or merger: was effected by the

act of the parties and not by operatidn of law.

The fact that there was no deed or other instru-

‘ment to transfer the property in question is im- —

material (Raybestos-Manhattan Co. v. United

States, supra), because Section 800, Schedule A-3

and 9, expressly imposes the tax on transfers of

legal title whether made upon any paper or memo-

randum or other evidence of transfer. In this case

- the agreement of consolidation which was ap-

proved by the directors and ratified by the stock-

-. helders was the memorandum or other evidence

of transfer (R. 23-53). Cf. Raybestos-Manhattan

Co. v. United. States, supra. . That no formal as-

signment is necessary is shown by the following

authorities : Raybestos-M anhattan Co. v. United

States, supra; Weil v. United. States, 115 F. 2d

999 (C. C. A.’ 2), erationari denied, 313 U. 8.

574; Koppers Coal-& Transportation Co. v- United

States, 107 F. 24 706 (C. C. A. 3); Niagara Hud- ~

son: Power Corp. v. Hoey, 117 F. 2d 414 (C. C. A.

2), certiorari-denied, 313 U.\ 8. 571; State Street

Trust Co. v. Hassett, 134 F. 2d 156 (C. C. A. 1);.

City Bank Farmers Trust Co. v. Hoey, 125 F. 2d

577 (C. C.-A. 2); and Cliffs Corp. v. United States,

103 F, 2a 77 (C. C. A. 6). | ;

: \

14

‘The decisions of other circuit courts. cf appeals

support our contention that mergers and consoli-

' dations do not occur wholly by operation of law.’

In City Bank Farmers Trust Co. ‘v. Hoey, supra;

a trust company holding ‘stock in trust” was.

merged under the banking law of New York with

another trust company, and legal title to the stock

held. in trust was transferred to the other com- -

pany. The court held that there was a transfer

of the stock held in trust under Section 800,

Schedule A-3, of the Revenue Act of 1926, as

amended. Niagara Hudson*Power Corp v. H oey,.

supra, involving the consolidation of two corpora- _

tions Ghder the New York stock corporation law,

is to the same effect. In that ca: - the court a 7

oa ee te aay x

'* Weil v. United d Staten, supra, biel carries the dinthenitin

accorded by the Regulations to transfers by operation of law

to, and perhaps even beyond, the farthest permissible extent,

_will serve for present purposes to illustrate the difference.

between a.taxable transfer and one by operation of law, A.

take-over by the New York State Superintendent of Insur-"

ance, later succeeded by the Mortgage Commission, was held

an exempt transfer by operation of law. A subsequent’

transfer of the assets (securities) by the Mortgage Commis-

. sion to new trustees selected by tlie .invéstors on the consent’

of two-thirds, was held not: to be by operation of law and

: therefore to be taxable.

+ AWith respect to’stock held by the merged trust company

as custodian, the court held that there, was no taxable trans-

fer. A similar ruling was made in State Street Trust Co. Vv.

Hassett, 134 F. 2d 156 (C. C. A. 1). - In this case none of the

- securities involved »was held as custodian. :

.

i

ndeed, it is said, a transfer is inconceiy-

able, for there were no instruments of

transfer, nor was there any moment of:

time at which a transferor and‘a_trans- |

ferée were co-existent. But in legal*jargon.

a change of ownership, terminating rights

and other relations in one entity and cre-

ating them in another, is the essence of .

“transfer,” * * *.

In State Street Trust Co. ¥. Hassett, 134 If. 2d

156 (C. |G. A. 1), two state banks merged neon

- the law of Massachusetts and one of the banks

transferred to the other securities which it held

both in its own right and-in a fiduciary ‘capacity.

_ The transfers were held subject to the documen-

tary stamp taxes under Section 800, Schedule A-3

‘and 9, of the Revenue Act of 1926, as amended.

Koppers Coal & Transportation Co. v. United

States, supra, involved the consolidation of two

corporations under the law of Delaware. In that

case the transfer of stock owned by one of the’

corporations to the surviving corporation was held

a taxable transfer. under Section 800, Schedule:

A-3, of the Revenue Act of 1926, as amended.

In that case the court said (p. 708) :

In short, the underlying property of ‘the

constituent corporations is transferred to

the resultant corporation upon the carrying . .

“out of the consolidation or merger as pro-

vided by Section 59.

> Such a-transfer of title is, within the ex-

; _ press - language of Schedule A A . @) of See-

16°

- tion 800 and i is precisely the example given

in Article 34 (r) of Treasury Regulations

71. The transfer of the stock from Kop-

pers Coal & Transportation Company to

. C..C. B, Smokeless 1 Company was not

), “wholly by. operation of law’ since the.

voluntary act and. participation of the con-

‘stituent companies was required in order

to effect the merger or consolidation.. __

See also Cliffs Corp. v. United States, 103 F.

“2d 77 (C. C. A. 6), and Becker. v. Bank of Com-

merce Liquidating Co., 102 F. 2d 633 (C. C. A.

- 8), certiorari denied, 308 U. 8. 578.

“The Merchants Nat. Bank ease, supra, errone- -

' ‘ously relied upon technicalities of California law to

support the ‘conclusion that the transfers resulted

wholly by operation of law. The fact that'a state

may treat a certain transaction as being by “opera-*.

_ tion of law’’ does not control the application of a

Federal Revenue Act. Rogers v. Helvering, No. -

-66, decided) December 6, 1943; Burnet v. Harmel, ,

287 U. 8. 103, 110; Lyeth v. ‘Hoey, 308 VU. S. 188,

193; Weil y. United States, supra; Niagara Hudson

Power Corp. v. Hoey, supra; Cliffs Corp. v. United

: States, supra; Becker v. Bank of Commerce

Liquidating Co., 102 F. 2d 633.(C. C. A. 8),

‘certiorari denied, 308 U. S. 578; State Street

Trust Co. v. Hassett, supra; City Bank Farmers

Trust \Co. v. Hoey, supra. :

_ The statute authorizing the consolidation of re-

spondent and the state bank provides in part that

upon such a consolidation the consolidated asso-

ee a | |

ciation ‘shall be deemed to be’”’ the same corpora-

tion as each of the constituent ifstitutions. This

- Court has referred to the consolidation as accom- ~

plishing a ‘transfer and has decided that the con-

solidated association cannot act in the name of ong

- of its constituents as an executor without applying

to. the proper tribunal to be substituted for the

constituent. Ez parte Worcester Nat. Bank, 279

U. S. 347. In any event what is ‘““deemed ‘to be”?

: the situation for banking purposes does not fore-

close an inquiry into the realities of ‘the situation

‘for tax purposes. See Old Colony RB. Co. v. Com-

missioner, 284 U. S. 552¢ 562. This taxing act

is “not to'be restricted by technical refinements.”’

Raybestos:Manhattan Co. v. United States, —_ |

at p: 63.

In the M erchants Nat. Bank case the court be:

low rested its decision upon the ground that the

exemption of these transfers was justified by

. Article 35 (h) of the Treasury Regulations. (Ap-

pendix, infra, p. 25). That provision deals with

transfers from the name of a deceased or resigned

_ trustee to the name of a substituted trustee ‘‘ap-

| pointed in accordance with the terms of the original |

trust agreement.’’ The decision below relies upon”

the Merchants Nat. Bank decision, but ‘does not

specifically mention why it extended that decision

to transfers of beneficially qwyned securities and

real ‘property. Neither of the cases actually in- _

volved a deceased or resigned trustee, but-the- Mer-

chants Nat. Bank case held that Article 35 oe)

m3

ame 18 sh

is not to be strictly construed, but instead is to be

given a “‘plain commonsense’? meaning. broad

enough to include ‘the change of trustees which |

. occurs upon a consolidation. The Second Circuit

in the City Bank Farmers (Trust Co. case dis-

agreed with such an approach to the problem, and

held (p. 579) that it had “no power-to extend by

* analogy such a regulation ™ under a statute which

4

‘itself is to.be strictly construed. v2 We submit

that the City Bank Farmers Trust Co. decision cor-

rectly interprets the regulations and that the ex-

emptions in the Regulations themselves represent ~

_the utmost degree of magnanimity which the stat-

ute justifies and therefore must be strictly confined

to the fields which they cover.

' In any event there is a clear distinction between

a transfer “‘from the. name of a deceased or re-

signed. trustee to the name of a substituted trustee

. appointed in accordance with the terms of the

original trust agreement” and a transfer which

results from a consolidation or merger. The

latter is a’ transfer for its own business reasons.

' from one professional trustee to another, wholly

voluntary and hence a far cry from the transfers

by operation of law which Article 35 (h) rl

— states it means to exempt. .

-

The court was there considering Treasury Regulations

71, as in effect in an earlier year, 1931. The language of the

1932 edition of the Regulations involved here is ‘identical.

1 Accord, State Street Trust Ce. v. Hassett, 134 F, 2d 156

(C.C. A. 1).

19

2. The real property—With respect to the

real estate transferred by the state bank to -re-

spondent, Section 800; Schedule A-8,- of the

Revenue Act: of 1926, as amended (Appendix,

infra, p. 22) imposes a stamp tax on a deed,

instrument, or writing whereby any lands or other

realty sold shall be transferred or conveyed to the

purchaser. In determining whether, property was

‘transferred’? the same principles should apply

as in the case of the securities. And the agree-

ment of consolidation, an instrument in writing,

transferred the real estate, thus satisfying the re-

- quirements of Section 800, Schedule A-8, of the

“Revenue Act of 1926, as amended, and making

clear that the transfer of the’ real estate was not

made wholly by operation ef Taw. os

~ Sinee the statute refers in terins to land “‘sold”’ |

- to a “purehaser,”’ the question remains whether

respondent. was a purchaser under the cireum-

stances of: this case.:. The transfer of property,

including realty, from the state bank to respond-

ént was made in consideration -of stock or cash,

depending upon the election of the stockholders of

the state bank (R. 30, 48). Article 89 of ‘Treas-

ury Regulations 71 (Appendix, infra, pp. 26-27)

provides that stock im a corporation is a valuable .

consideration for the transfer of. real property.

While respondent is arf association, not a corpora-

‘tion, it comes within the statutory definition of ©

corporation in Section 1111 (2) (Appendix, inf ra, ;

- p, 23) of the Revenue Act of 1932. Since there

20

was a change of ownership, we submit that re-

spondent is a purchaser within the meaning of the

statute. . etre

In Carpenter v. White, 80 F. 2d 145 (C. C. A.

‘1), certiorari denied, 297 U. 8. 720, .a business

trust and a corporation conveyed by deed all of

their realty to another business trust organized ---

to absorb the properties and the business of the

"two units, which received in return a pro rata por-

tion of shares in the new business-unit. The court

held that a taxable transfer occurred under See-

tion 800, Schedule A-5, of the Revenue Act of

1924, which corresponds to Section 800, Schedule

A-8, of the Revenue Act of 1926, as amended.

* The instant case should, ¥e submit, be similarly

decided. als ‘Detr eks

| : CONCLUSION .

Thé decision of the court below, which is con-

trary to the weight of authority, incorrectly ap-

plied the statute and ‘the regulations and accord-

ingly should be reversed. |

Respectfully. submitted.

Cartes Fany,

. Solicitor General.

SAMUEL O. CLaRK, Jr.,

Assistant Attorney General.

_Sewaut Key,

J. Louis Monarce,

Morton K. RoruscHi,

: ‘VALENTINE Brookes,

Special Assistants to the Attorney General.

DrceMBER 1943, .

‘APPENDIX

Revenue Act of 1926, c. 27, 44 Stat. 9:

Src. 800..On and after the expiration of

_ thirty days after the enactment of this Act .

there shall be levied, collected, and_ paid,

. for and in respect of the several bonds,

debentures, ‘or certificates of stock and

of indebtedness, and other documents,

instruments, matters, and things men-

tioned and described in Schedule A of this,

So

SCHEDULE A.—STaMP TAXES

- 1. [as. amended by Section -721 of the. .

Revenue Act of 1932, ¢. 209, 47 Stat. 169]

Bonds | of indebtedness. On all bonds,

2. [as amended by Section 722 of the

Revenue Act of 1932] Capital Stock (and

similar interests), issue: On each original

a 7 o ai

- 3. fas amended by Section. 723 (a) of

the. Revenue Act of 1932] Capital stock

(and similar interests), sales or transfers:

-On all sales, or agreements to sell, or mem-

oranda of sales or deliveries of, or trans-

-fers of legal title to any of the shares or

certificates: mentioned or described in sub-

division 2, or to rights to subscribe for or

to .receive such shares or certificates,

whether made upon or shown by the books

- of the corporation or other organization,

_ or by any assignment in blank, or by any

- delivery, or by any paper or agreement or

memorandum or other evidence of transfer —

(21)

Rall

22

or sale (whether entitling the holder in.

. any manner to the: benefit of such share,

certificate, interest, or rights, or not), on

each $100 of par or face value or fraction

thereof of the certificates of such corpora-

tion * *. *, 4 cents, - # ® ** @

- &. [as added by Section 725 of the Reve-

nue Act -of 1932, and as amended by -

‘Section 212 of the National Industrial

Recovery Act, c. 90, 48 Stat. 195, ‘and as

amended by Pub. Res. No. 36, ¢. 333, 49

Stat. 431] Conveyances: Deed, instrument,

or writing, delivered on or after the 15th

day after the date of the enactment of the

Revenue Act of 1932 and before July 1,

. 1937 (unless deposited in escrow before

April 1, 1932), whereby any lands, tene-

ments, or other realty sold shall be granted,

assigned, transferred, or otherwise con-

veyed to, or vested in; the purchaser or

purchasers, ‘or any other person or persons,-

by his, her, or their direction, when the

consideration or value of the interest or

property conveyed, exclusive of the value

of any lien or encumbrance remaining

_ thereon at the time of sale, exceeds $100

and does not: exceed $500, 50 cents; and .

-. for each additional $500 or fractional part

thereof, 50 cents. * * * | ae pes

9. [as added by Section 724 (a) of the

_ Revenue Act of 1932, and as amended by

Section 212 of the National Industrial Re- |

covery Act, and ds amended by Pub. Res.

No. 36] Bonds, ete., sales or transfers: On

all sales,-or agreements to ‘sell, or memo-

randa of sales or deliveries of, or transfers

of legal title to any of the instruments

Mentioned or described in, subdivision 1 =

and of a kind -the issue of whieh .is taxable

thereunder, whether made by any assign-

23

: ment in blank or by any delivery, or by .-

any paper or agreement or memorandum.

or other evidence: of transfer or sale

‘(whether entitling the holder in any man-

ner to the benefit of such instrument or

- not), on each $100 of face value or fraction

thereof, 4 cents: * *° *. ie

Revenue Act of 1932:

Section 11]1.—

* 7 * wa”: - 2

(2) The term “corporation”’ ‘includes

associations, joint-stock companies, and in- °

surance. companies. .

Act of November 7, 1918, ¢. 209, 40 Stat. 1043,

Sec. 3, as added by the Act of February 25, 1927,

-¢@, 191, 44 Stat. 1224, See. 1, and as amended by

the Banking Act of 1933, c. 89, 48 Stat. 162, Sec. —

24, and/the Banking Act of 1935, c. 614, 49 Stat.

Src.. 3. That any’ bank incorporated

under the laws-of any State, or any bank

‘ineorporated in the District of Columbia,

may be consolidated with-a national bank-

. ing association located in.the same State,

county, city, town, or village under the:

charter of such national banking associa-

tion en such ‘terms and conditions as may

be lawfully agreed upon by a majority of .

the board of directors of each association

or bank proposing to consolidate, -and |

which agreement shall be ratified and_con-

_ firmed by. the affirmative vote of fhe share-

holders of each such association or bank

‘owning at least two-thirds of its capital

‘stock outstanding, or by a greater propor-

‘tion’ of such eapital stock in the case of |

such State bank if the laws of the State

where the same is organized so require,

-

24 ©

at a meeting to be held on the call of the

directors after ublishing notice: of the .

time, place, and object of the meeting

_ * *. @ +

dation, or upon a-consolidation of two or

more national banking associations under

» Section 1. of this Act, the corporate exist-

‘ enee of each of the constituent banks and.

interests of each of such constituent banks

- and national banking associations in and

to every species of property, real, personal,

and mixed, and choses in action thereto.

belonging, shall be deemed to be. trans.

ferred to and vested in such consolidated |

national banking association without : any

deed or other transfer; and such c¢onsoli-

dated national banking association, by vir-

tue of such consolidation and without any

order or other action on the part of anv

court or otherwise, shall hold and’ enjoy

the same and.all rights of property, fran-

chises, - and interests, including appoint-

ments, designations, and nominations and

all other rights and interests as trustee,

executor, administrator, registrai of stocks

and bonds, guardian of estates, assignee,

receiver, committee of estates of lunatics

and in every other fiduciary. capacity, in

the same manner and to the same extent

as such rights, franchises, and _ interests

were held or enjoyed by any. such con-

Stituent institution’ at the time of such

consolidation * * *, 1120.5. ¢. § 34a. ]

a

“Treasury Regulations 71 (1932 ed. ):

Art. 34. Sales or transfers subject to .

tar.—The following are examples of trans- :

actions subject to the tax:

, (a) The sale or transfer of shares of

stock, whether or not represented by

~ certificates.

(b) ‘The_transfer—of - . stock to or by

trustees.

. : *. * + *

(r) Upon a merger, the transfer of stock

owned by ‘a corporation which is merged

- into-another corporation from the name of __

the first to the name of the second corpora-

tion, such a transfer being effected by the —

act of the parties and not wholly by opera-

tion of law.

*.- . = ‘ * o * :

(t) The transfer of legal title to stock

irrespective of whether or not the trans-

feree receives any beneficial interest

therein, except as provided .in article

30 (k).

(un) Transfer of stock from obd firm to

new firm succeeding to its business where

personnel is different. &

7 * * + ’ -

Art. 35. Sales or transfers not subject

to tar—The followmg are examples: of

transactions not subject to the tax: ~

*. * - *” * ~

_ (h) The transfer of stock from the name

of a deceased or resigned trustee to the

name of ‘a substituted trustee appointed in

accordance with the terms of the original

, trust agreement, which is a transfer result-

ing wholly by operation of law.

* +. . -_ + "Ys *.

(r) Transfers of shares or certificatés of

stock which result wholly by operation of -

law are not subject to the tax. “Transfers

of this ¢haracter are those which the law

itself will effect without any voluntary aet

‘of the parties, such: as transfer of stock

' from .decedent to executor. Acie

_ a *” * -< *.

_ Art. 36.. Memoranda of sales.—Every

person who makes an agreement to sell or

transfers title to shares of stock by delivery

-of certificates assigned -in. blank,’ ineluding

every person who lends stock, shall, as a

part of such transaction, promptly make .

and deliver. to the buyer or borrower a bil]

or memorandum of such sale, agreement’

to ‘sell, of loan, duly signed by the. seller

or lender or kis agent, to which the requi-

site stamps shall be affixed and canceled,

which bill or memorandum shall‘ show the

date of the transaction, the names of the

seller and buyer; or lender and _. borrower,

and the name and number of shares of

stock, and the tax paid thereon, and in. the

_ case of a transaction made on an. exchange

shall- bear a number upon the face thereof

and have printed or written in ink thereon

the words “Subject to the Revenue Act of

1926, as amended, and regulations made in

accordance therewith.” No more than one -

such bill: or Meniwrandum made by the

seller or lender on any given date shall bear’

the same number. However, no single

transaction or. purchase or Sale that is.

made upon an exchange by one member

to another member shall be required to be

evidenced by more than one stamped

memorandum. . . +, |

Art. 89. Stock in corporation a valuable’

‘consideration—Stock ina corporation is a

‘

-

valuable consideration for the transfer of.

' real property. . : aes

Art. 120, Basis of tar—The tax accrues

_ at the, time of making the sale or agree-__

ment to sell or memorandum -of sale, or —

delivery of, or transfer of the legal title.to,

the bonds, regardless of the time or manner

of the delivery of the bonds or agreement

or memorandum of sale. The provisions

-of articles 34 to 39, both inclusive, of these .

regulations, relating to sales or transfers

of stock, are controlling also in respect of

sales or transfers of bonds, insofar as

consistent with the previsions of Schedule

A-9 .and insofar. as not inapplicable to.

the matter of sales or transfers of bonds.

__ Loans.of bonds and the return of bonds

leaned are subject to tax. :

_ A bill or.memorandum, such as provided

in article 36, is required in respect of every

sale or transfer of a bearer bond.

* " * ‘ 6 >

; GO S GOVERAEENT PRINTING OFFICE: 1943

or

~