GEORGE WHITTELL & COMPANY, INC., A CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.George Whittell & Co. v. CommissionerDocket No. 72414.United States Board of Tax Appeals34 B.T.A. 1070; 1936 BTA LEXIS 604; October 7, 1936, Promulgated *604  Pursuant to a plan of reorganization a newly organized Nevada corporation exchanged all of its stock with the sole stockholder of a California corporation for all of the stock of the California corporation, and as a final step in the plan acquired all the assets and liabilities of the California corporation, which thereupon dissolved.  The Nevada corporation then had the same capitalization, stockholders, officers, assets, and liabilities as its California predecessor.  Held, that no gain was recognizable to the Nevada corporation on its receipt of assets from the California corporation, since, taken as a whole, the transaction was in substance an exchange of the property of the California corporation for the stock of the Nevada corporation, both parties to a reorganization.  George J. Hatfield, Esq., Mabel Walker Willebrandt, Esq., W. F. Williamson, Esq., and George E. H. Satchell, C.P.A., for the petitioner.  Ralph E. Smith, Esq., for the respondent.  ARUNDELL*1070  This proceeding involves a deficiency in income tax for the year 1929 in the sum of $1,016,936.93.  The issue is whether the transfer of assets from a California corporation*605  to a Nevada corporation was a taxable transfer in liquidation or whether it comes within the nonrecognition provisions of the Revenue Act of 1928.  *1071  FINDINGS OF FACT.  The petitioner, hereinafter called the Nevada corporation, was incorporated September 17, 1929, for the purpose of taking over the assets of a California corporation, the Whittell Investment Co.The California corporation was organized May 19, 1924, to take over the assets of the estate of George Whittell, Sr., who died in 1922.  Its capitalization was $100,000, represented by 100 shares of stock of which 75 shares were issued to Anna L. Whittell, the widow, and 25 shares to George Whittell, Jr., son of the decedent.  On the date of issuance, Anna L. Whittell made a gift to her son of 25 shares and on October 10, 1929, just prior to the organization meeting of the Nevada corporation, she gave him her remaining 50 shares, so that after that date George Whittell, Jr., was the sole stockholder of the California corporation.  During the time when Anna L. Whittell held 50 percent of the stock of the California corporation she contributed $600,000 to its capital.  In February of 1929 the auditor of the*606 California corporation, George E. H. Satchell, a certified public accountant, called to the attention of the manager of the California corporation, E. P. Connelly, a bill pending before the California Legislature imposing a 4 percent franchise tax on corporations doing business in California based on dividends received from non-California corporations.  He pointed out that this tax would amount to some $23,000 annually on the California corporation, and recommended that, inasmuch as its principal assets were stocks and bonds, it divest itself of its real estate and change the state of its incorporation and business from California to Nevada.  This suggestion was subsequently embodied in a letter to the California corporation which was submitted to its president, George Whittell, Jr.  He approved the plan and ordered that it be effectuated as quickly as possible.  Satchell suggested that a lawyer be retained and Whittell directed Connelly to employ one Platt Kent, and to instruct him that the new Nevada corporation was to have "the same set-up, the same records, the same officers, the same capital stock, the same number of shares, everything the same except the name which was to be*607  George Whittell & Company, Inc., in Nevada." Kent and Satchell conferred on the method of procedure, and Kent wrote Whittell on July 5, outlining the plan of reorganization as follows: Mr. Satchell and I have very carefully investigated the advantages and disadvantages of incorporating a company in the State of Nevada to handle the securities now owned by the Whittell Investment Company, a California corporation.  * * * In order to carry out the proposed transfer we would suggest the incorporation in Nevada of a company similar in character in every respect to the present Whittell Investment Company.  This would mean, of course, that the new company would have to have capital stock in the amount of $100,000, *1072  which stock, upon issuance, would be transferred to the present owners of the Whittell Investment Company in exchange for all of the assets of this corporation.  In June or July the United Security Bank & Trust Co. at San Francisco, which held the approximately $15,000,000 of securities of the California corporation for safekeeping, and part of them as collateral for a $1,700,000 loan, was consulted regarding the proposed change and was asked if it had any objections*608  thereto.  After consulting its legal department, the bank reported that it would have no objections to the change and would make the necessary transfers when notified.  Pursuant to his recommended plan, Kent, on September 17, 1929, caused the petitioner, "George Whittell & Company, Inc.", to be incorporated in Nevada with a capitalization of $100,000, represented by 100 shares of stock, its principal place of business being Reno, Nevada.  Its organization meetings were held on October 16-17, 1929, in Reno, attended by Satchell, the auditor, Kent, the attorney, and Connelly and Clair, two officers of the California corporation.  A formal offer and acceptance passed between the board of directors of the Nevada corporation and George Whittell, Jr., for the exchange of the Nevada corporation's shares for all of the California corporation's shares which were owned by Whittell.  The exchange was immediately accomplished and all except the qualifying shares of the Nevada corporation were issued to Whittell.  Having received all the stock of the California corporation, the Nevada corporation forthwith by resolution authorized its officers "to take such steps as may be necessary to transfer*609  to this corporation all of the assets of Whittell Investment Company, a California corporation, and to take such steps, as may be necessary under the laws of the State of California, to disincorporate said corporation", and they were further authorized to assume all the liabilities of the California corporation.  George Whittell, Jr., was elected president and director of the Nevada corporation and Anna L. Whittell was elected vice president and director.  The Nevada corporation then had the same officers and directors as the California corporation, the same capitalization represented by the same number of shares, held by the same stockholders, and had indicated its intention to take over all the assets and the liabilities of the California corporation.  On the 17th of October Whittell and the qualifying shareholders of the California corporation signed a written consent to the transfer of all its assets to the Nevada corporation.  The California corporation then notified the bank to proceed with the transfer of the assets.  This proved more complicated than was anticipated, due to the preparation of a great number of stock transfer powers and the requirement of additional corporate*610  authorizations *1073  and agreements for the bank's protection.  Resolutions required by the bank were passed by the board of the California corporation on November 29, 1929, and further resolutions by the boards of both corporations on December 9, 1929.  The transfer was consummated shortly after December 9, 1929.  At that time all the assets of the California corporation were transferred to the Nevada corporation and the Nevada corporation assumed the indebtedness of the California corporation.  The books of both companies reflected the transfer of assets and liabilities as of November 30, 1929.  The California company had divested itself of its real estate at some time prior to the transfer.  The closing balance sheet of the California corporation and the opening balance sheet of the petitioner were identical.  After the transfer the California company transacted no business.  It was dissolved by court decree on May 14, 1930.  OPINION.  ARUNDELL: The whole question here is whether the transaction at bar can be broken into its component steps and a gain held recognizable where if considered as a single transaction pursuant to a plan of reorganization no gain would result. *611  The plan here was simply to change the state of incorporation from California to Nevada for the purpose of avoiding a California corporation franchise tax.  The result intended and accomplished was that assets and liabilities of the California corporation were taken over by the Nevada company, which had the same capitalization and stockholders as the California corporation.  The respondent concedes that if the California corporation had received in exchange for its assets the Nevada corporation's stock and then distributed the stock to its stockholders, no gain would be recognizable.  The procedure here, however, was that the sole stockholder of the California corporation exchanged his stock for that of the Nevada corporation and then the assets of the California corporation were transferred to the Nevada corporation and the California corporation dissolved.  The same result was accomplished as under the former method, but the respondent claims that the acquisition of assets was a separate transaction from the exchange of stock and must be taxed as a distribution in liquidation.  If the transfer of assets is to be considered a separate transaction from the exchange of stock, the respondent's*612  position is correct.  However, we are convinced that the transaction should be treated as a unit rather than as separate steps.  "For income tax purposes, the component steps of a single transaction cannot be treated separately." . The substance of the transaction was a transfer of assets of the California corporation in exchange for stock of the Nevada corporation and we so regard it.  There is authority in somewhat analogous cases for considering the steps *1074  pursuant to a plan of reorganization as a single transaction rather than as isolated, unrelated transactions.  ; affd., ; ; ; ; We think that the nature of the transaction at bar brings it within the type of business readjustment intended to be exempt from tax under the reorganization provisions of the statute.  It was exactly*613  what the statute defines as one kind of reorganization: "A mere change in identity, form, or place of organization" of the corporation.  As to whether the particular procedure followed takes any part of the transaction out of the nonrecognition provisions, the intention of Congress is indicated by the Committee Reports 1 accompanying the Revenue Bill of 1924, which first contained the counterpart of section 112(b)(4): Congress has heretofore adopted the policy of exempting from tax the gain from exchanges made in connection with a re-organization, in order that ordinary business transactions will not be prevented on account of the provisions of the tax law.  If it is necessary for this reason to exempt from tax the gain realized by the stockholders, it is even more necessary to exempt from tax the gain realized by the corporation.  This objective of exempting the gain to the corporation from a reorganization would be defeated if a reorganization could be split into parts and a tax levied on the isolated steps.  The opinion of the drafters of the Revenue Act of 1924 that such a transaction as the one at bar is one type of reorganization is indicated by the statement of A. W. Gregg*614  which accompanied the Treasury draft of the 1924 Revenue Bill. 2We have decided a series of cases involving the basis for property received in connection with a reorganization where the facts were similar to those of the present case in that the exchange of stock was made as a separate, and in some instances a prior, step to the transfer of assets.  ; *615 ; affirmed on this point, ; ; ; ; ; and . In those cases we emphasized the *1075  unity of the whole transaction when carried out pursuant to a plan of reorganization and refused to consider the transfer of assets as a distinct transaction apart from the entire scheme. The unity of the whole plan in the instant case is unquestionable.  The liquidation and dissolution of the California company was not an afterthought separate and distinct from the transfer of the stock, but rather was the whole object of the plan, which was to get the corporation out of the State of California as quickly as possible to avoid the impending California franchise tax.  The very first outline of the proposal was that the Nevada corporation should take over the assets and not merely the stock of the California corporation, and this objective*616  was stated in every subsequent step in the formulation of the plan, whether formal or informal.  It was embodied in the resolutions of the Nevada corporation at its organization meeting and the transfer of assets went forward as rapidly as the circumstances permitted.  Dissolution followed shortly after the transfer of assets.  The conclusion is inescapable that the assets were transferred in consideration of stock in the Nevada company, although in point of time the transfer of assets followed the issuance of the stock.  Since the assets then were in substance exchanged for stock in the Nevada corporation, no gain is recognizable to the Nevada corporation, since the issuance by a newly organized corporation of its stock in exchange for assets is a capital transaction and no income is realized therefrom.  The reorganization here is within either subdivision (A), (B), or (D) of the reorganization definition (sec. 112(i)(1), Revenue Act of 1928).  Our disposition of the case makes it unnecessary to decide whether the contribution of $600,000 by Anna L. Whittell to the capital of the California company should go to increase the basis of the assets to the California company, as contended*617  by the petitioner, but we express our opinion that the petitioner's point is well taken.  Reviewed by the Board.  Judgment will be entered under Rule 50.Footnotes1. Report of the Committee on Ways and Means, H.R. Rept. No. 179, p. 13; Report of the Committee on Finance, S.R. No. 398, p. 14.  ↩2. "A corporation in connection with a reorganization may dispose of its assets in one of three ways: It may transfer them to a new corporation in exchange for stock or cash; it may transfer them to the new corporation, the consideration being the payment by the new corporation of stock or cash to the stockholders of the old corporation; or the new corporation may buy, with its stock and cash, from the stockholders of the old corporation their stock and then liquidate the old corporation. * * *" ↩