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March 2, 1961


The opinion of the court was delivered by: CLARY

This matter is presently before the Court on plaintiff's and defendant's crossmotions for summary judgment. Plaintiff seeks to recover a claimed overpayment of Federal Income Tax in the amount of $ 9,494.02 resulting from the disallowance of a loss which plaintiff suffered in 1952 upon the sale of certain shares of its own stock.

 The facts, to which both parties to this action have agreed, and all the facts necessary for decision here, are as follows: Girard Trust Corn Exchange Bank is a banking corporation organized and existing under the laws of the Commonwealth of Pennsylvania. On June 15, 1951, the Corn Exchange National Bank and Trust Company, a national banking association, merged with the Girard Trust Company, pursuant to Federal and Pennsylvania banking laws. Coincident with the merger, Girard Trust Company, the surviving corporation, changed its name to Girard Trust Corn Exchange Bank, the taxpayer herein. The joint plan of merger provided that each outstanding share of Corn Exchange capital stock was to be converted into one share of $ 15 par value capital stock of the surviving institution. Under the Federal statute authorizing the merger, shareholders of the Corn Exchange voting against the merger were entitled to receive the cash value of their shares as of the effective date of the merger.

 At the time of this merger, holders of 5,802 shares of Corn Exchange capital stock, who had voted against the merger, demanded that the taxpayer pay them the value of their shares as of May 31, 1951, the date upon which the proposed merger was approved. The dissenting shareholders, in accordance with the procedure outlined in Federal banking law, applied directly to the Comptroller of the Currency to value their shares which he determined on July 11, 1952 to be $ 57.43 as of May 31, 1951. On June 29, 1951, and October 15, 1952, the plaintiff purchased, in two blocks, all the outstanding shares in the hands of the dissenters. All shares were purchased at the price fixed, or to be fixed, by the Comptroller of the Currency. The market value of this stock as of May 31, 1951 was $ 47.50 per share.

 Two thousand five hundred shares were purchased from one of the dissenters on June 29, 1951, for which the taxpayer paid a total of $ 144,702.95. The remaining 3,302 shares were acquired on October 15, 1952 at a price of $ 183,364. The certificates representing the acquired shares were, in each instance, immediately cancelled by the plaintiff. After each purchase, the officers and directors of the plaintiff considered whether to hold the stock for speculation in the market, or to immediately reissue and sell the shares, thereby promptly cleaning up the situation. They chose to do the latter. Accordingly, the 2,500 shares were sold on July 2, 1951, three days after purchase, for $ 116,366.25. Similarly, the 3,302 shares were sold in two blocks: 2,500 on October 16, 1952, the day following purchase, at a price of $ 133,091.14; and 802 shares the following month at a price of $ 44,094.08.

 On its 1952 Income Tax return, the taxpayer sought to deduct $ 36,515.48 as a loss from the sale of capital assets, this amount representing the difference between the payments made to dissenting shareholders and the amounts received on the issuance of the new shares. The District Director of Internal Revenue disallowed the loss of $ 36,515.48. Accordingly, a deficiency was assessed against the taxpayer. Plaintiff paid the deficiency and filed a timely claim for refund of $ 9,494.02, plus interest, with the District Director, which claim was rejected on March 13, 1958. Plaintiff then instituted the present action.

 The decision of this matter rests upon an interpretation of Treasury Regulation 118, Section 39.22(a)-15, promulgated under the Internal Revenue Code of 1939, which is set forth in part below:

 'Sec. 39.22(a)-15. Acquisition or disposition by a corporation of its own capital stock.

 '(a) Whether the acquisition or disposition by a corporation of shares of its own capital stock gives rise to taxable gain or deductible loss depends upon the real nature of the transaction, which is to be ascertained from all its facts and circumstances. * * *

 '(b) However, if a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed in the same manner as though the corporation were dealing in the shares of another. * * * Any gain derived from such transactions is subject to tax, and any loss sustained is allowable as a deduction where permitted by the provisions of the Internal Revenue Code.'

 The issue presented, therefore, is whether the taxpayer, Girard Trust Corn Exchange Bank, on the facts here involved, was dealing in its own shares as it might deal in the shares of another corporation within the meaning of Section 39.22(a)-15 of Treasury Regulation 118.

 '(a) Nonrecognition of gain or loss. -- No gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including Treasury stock) of such corporation.'

 Both the Senate Report (No. 1662) and the House Report (No. 1337) on this section, at pages 5069 and 4410 of the 1954 United States Code Congressional and Administrative News, stated that the purpose of this new section is to remove the uncertainties of present law.

 At the time Section 1032 was enacted there is no doubt that the law was uncertain as to the question here involved. However, it is believed, though plaintiff contends otherwise, that the problem was subsequently resolved in 1955 by the Supreme Court of the United States in United States v. Anderson, Clayton and Company, 350 U.S. 55, 76 S. Ct. 25, 100 L. Ed. 43.

 The circumstances leading up to the Anderson, Clayton and Company case have been very ably presented by counsel for the Government in ...

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