TAXATION - FEDERAL INCOME TAX - DISTINCTION BETWEEN SALE AND TAX EXEMPT REORGANIZATION UNDER SECTION 112

The recent Supreme Court decision in Le Tulle v. Scofield, disapproving the views of four out of five circuit courts of appeals, appears to add a new and more specific requirement to the already complex law on the subject of statutory reorganization under the Revenue Act of 1928 -- that the consideration received by the transferor corporation include some stock of the transferee corporation. In the subject case, the Gulf Coast Irrigation Company transferred substantially all its assets to the Gulf Coast Water Company in exchange for $50,000 in cash and $750,000 in mortgage bonds, four-fifths of which matured serially over a period of twelve years. The Irrigation Company dissolved immediately after the exchange, and its assets were distributed to Le Tulle as sole stockholder. In Helvering v. Tyng, considered at the same time, Associated Gas & Electric Corporation acquired nearly all the stock of two corporations in exchange for approximately $34,000,000 in cash and approximately $15,000,000 in unsecured bonds. The Court stated that the transferors did not retain any proprietary interest in the transferee corporations and held in both cases that gain on the transaction was recognizable for income tax purposes