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Taxation-Income Tax-Exempt Reorganizations-Recapitalization As Device For Distributing Earnings, Bayard E. Heath S.Ed.

Michigan Law Review

Petitioner owned more than three-fourths of the stock in a corporation whose shares had a par value of $100. Except for one share, his wife owned the remainder. Under a plan of recapitalization the stockholders received in exchange for each old share, five shares of no par stock with a stated value of $60 per share plus a portion of $400,000 worth of callable debentures issued by the corporation. At the time of this exchange the earned surplus of the corporation exceeded $850,000. The commissioner held that the full value of the debentures received was chargeable to the taxpayer as …