Family Coupons and you can Mortgage Association v. You, 223 F. Supp. 134 (S.D. Cal. 1963)

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Francis C. Whelan, You. S. Atty., having Southern Dist. away from Ca, of the Faithful Elizabeth. Keir, Asst. U. S. Atty., Captain, Tax Section, Los angeles, Cal., getting accused.

Thereafter, towards April 19, 1957, Hollywood matched with the Family. The organization existence off Hollywood terminated however, their entire providers is actually continued versus disruption once the a part of plaintiff organization, Domestic.

The proceeding criteria were complied which have by the Plaintiff. It Courtroom possess jurisdiction because of the advantage away from twenty-eight U.S.C. 1346(a) (1) and you will 1402(a) (1), and you will twenty-six U.S.C. 7422. The income income tax, if any, would be the fact regarding Movie industry, however, House could well be accountable due to the fact transferee features reduced such as for example taxation once the transferee.

Webster, ordered all a great make certain stock of Hollywood Savings and you can Loan Connection (hereinafter known as “Hollywood”)

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One to number one thing and some secondary activities are displayed by the pleadings, but a decision to your number one thing dumps the case in its entirety.

For the February regarding 1957, Plaintiff House Discounts and Mortgage Organization, transferee (hereinafter also known as “Home”) with regards to attorneys and you may broker, Thomas C

The key issue is: Into the a great merger, do the new set-aside getting bad debts of your merged enterprise be accelerated toward earnings because of the merger? *135 Especially right here, if the pre-merger set aside to own bad debts regarding Movie industry at the time of April 19, 1957, be added to their earnings in its final return?

The problems because the framed in the pleadings plus the history of the actual situation take the basis you to Movie industry was a wholly-possessed subsidiary of Home and you can, ergo, the fresh new merger was pursuant so you can twenty-six U.S.C. 332. (All section recommendations hereinafter should be the inner Cash Password regarding 1954). not, this method disregards the unusual business framework out-of a benefit and you can loan organization according to the statutes of your own Condition regarding Ca. Whenever you are every make certain stock regarding Hollywood is actually belonging to Family, this new depositors away from Movie industry, exactly who, lower than Ca laws, have been called “shareholders,” got a straight to vote, a straight to decide members of brand new Board out-of Administrators ( not a majority of eg Board), while the vote out-of a couple of-thirds ( 2/3 rds) of these shareholders is a need for new merger. Part 332 makes it necessary that the latest mother or father business become holder out of stock “having at the very least 80 % of the total mutual voting electricity of all the groups away from stock entitled to vote.” If you find yourself significantly less than California legislation the fresh depositor-shareholder’s attention is denominated “shares” rather than “stock,” the latest controlling foundation is not the make of the latest depositor-shareholder’s attract but the quality of legal rights, needs and you can rights connected with for example notice. As an enthusiastic affirmative two-thirds vote of your own depositor-investors must agree the fresh merger, and since instance depositor-shareholders met with the straight to elect a specific amount of users of the Board out of Directors, next until Domestic in addition to had 80% of this type out-of show eligible to vote, the brand new merger cannot meet the requirements around Sec. 332 since a beneficial liquidation regarding a subsidiary. House did not individual any one of this type of express; for this reason, Section 332 was not applicable.

Following the merger from Movie industry and you may Family, the depositor-shareholders regarding Hollywood became the newest depositor-shareholders out-of Household. Thereafter, new depositor-shareholders from Hollywood met with the exact same specialist-rata continued demand for Home because they had before merger to the a beneficial consolidated base. The brand new merger ranging from Movie industry and you will Domestic are a legal merger reorganization due to the fact one term is employed during the Sec. 368(a) (1) (A). Around one concept, discover sufficient continuity of great direct express emergency cash will be introduced 2022 interest.

In the an excellent reorganization, the fresh set-aside getting money owed of your combined organization isnt expidited towards income considering the merger.

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