Francis C. Whelan, U. S. Atty., having Southern Dist. regarding Ca, of the Devoted Elizabeth. Keir, Asst. You. S. Atty., Captain, Income tax Area, La, Cal., to have offender.

Thereafter, toward April 19, 1957, Hollywood matched into House. The organization lifestyle out-of Movie industry terminated however, its entire team is actually proceeded in the place of interruption while the part of plaintiff relationship, Domestic.

Most of the proceeding conditions was complied having from the Plaintiff. It Courtroom have jurisdiction of the advantage out-of twenty eight You.S.C. 1346(a) (1) and you can 1402(a) (1), and you will 26 U.S.C. 7422. The amount of money income tax, if any, would be the fact of Movie industry, but Domestic would-be accountable due to the fact transferee features paid back including income tax since the transferee.

Webster, ordered every an excellent verify stock off Movie industry Coupons and you can Loan Association (hereinafter named “Hollywood”)

You to definitely first point and many additional factors is actually shown because of the pleadings, but a decision towards first situation dumps the case with its entirety.

During the February from 1957, Plaintiff House Offers and you can Loan Organization, transferee (hereinafter named “Home”) the help of its attorney and you may broker, Thomas C

The main concern is: When you look at the good merger, do the fresh new put aside to have money owed of your merged corporation end up being expidited toward money considering the merger? *135 Specifically right here, should the pre-merger set-aside getting bad debts off Hollywood at the time of April 19, 1957, be included in its earnings within its final return?

The difficulties since the framed on pleadings as well as the history of the outcome take the foundation you to Hollywood is actually an entirely-possessed subsidiary of Family and you may, hence, this new merger try pursuant to help you twenty-six U.S.C. 332. (Every area references hereinafter are to the inner Money Code away from 1954). Yet not, this method disregards the uncommon corporate structure of a cost savings and you may loan organization according to the regulations of the State regarding California. While you are every be certain that stock out-of Hollywood is owned by Domestic, this new depositors out-of Movie industry, which, around Ca legislation, have been called “investors,” got a straight to vote, a directly to elect members of the latest Panel of Directors ( not a lot of like Board), and choose away from two-thirds ( 2/3 rds) of these investors is a need for the fresh new merger. Part 332 necessitates that the latest mother corporation function as the manager away from stock “having at least 80 % of one’s overall combined voting electricity of the many kinds out of stock entitled to vote.” If you are around California law the fresh new depositor-shareholder’s desire try denominated “shares” as opposed to “stock,” the controlling factor isn’t the label of this new depositor-shareholder’s notice although quality of rights, tastes and you will benefits about such desire. As the an enthusiastic affirmative a couple of-thirds vote of your own depositor-shareholders had to accept the fresh new merger, and since such as for example depositor-shareholders met with the directly to choose a specific amount of people of your own Board out-of Directors, upcoming until House also possessed 80% of this kind regarding share permitted vote, new merger couldn’t be considered under Sec. 332 given that a beneficial liquidation out of a subsidiary. House did not individual any of these types of express; for this reason, Point 332 wasn’t appropriate.

Pursuing the merger out-of Hollywood and you may Household, brand new depositor-shareholders off Movie industry became the depositor-shareholders from House. Afterwards, new depositor-shareholders out-of Hollywood encountered the exact same specialist-rata carried on interest in Home because they had till the merger to your a beneficial consolidated basis. Brand new merger between Hollywood and you will House try a statutory merger reorganization because the one name is used within the Sec. 368(a) (1) (A). Significantly less than any principle, there is enough continuity of interest.

Into the an effective reorganization, this new reserve to have bad debts of your own merged organization isnt expidited towards earnings due to the merger.