dissenting: I respectfully disagree with the holding of the majority in this case as to the basis of the assets acquired by New Nassau. As I understand the majority holding, the basis of these assets is not being determined under either the provisions of section 384(b) (2) or the doctrine of Kimbell-Diamond Milling Co., 14 T.C. 74 (1950), affirmed per curiam 187 F. 2d 718 (C.A. 5, 1951). Therefore, under the provisions of section 1012 of the Code, the basis of the assets “shall be the cost” of such assets, and under section 1.1012-1 (a), Income Tax Regs., “the cost is the amount paid for such property in cash or other property.” Here, the 'assets of Old Nassau were paid for by New Nassau with stock and assumption of liability.
We have long recognized that where assets are exchanged for stock in a taxable transaction, the cost of the assets is the fair market value of the stock issued therefor, and if the fair market value of the stock cannot be otherwise ascertained and all or substantially all of the corporate stock is issued for the assets, the value of the stock is to be measured by the fair market value of the property received in exchange for the stock. MacCallum Gauge Co., 32 B.T.A. 544, 549 (1935). Of course, if liabilities are assumed as part of the property paid for the assets acquired, the amount of the liabilities assumed is added to the fair market value of the stock. Kalmon Shoe Manufacturing Co. v. Commissioner, 321 F. 2d 189 (C.A. 8, 1963), affirming a Memorandum Opinion of this Court.
Here the facts show that Reliance acquired approximately 85 percent of the Old Nassau stock on September 14,1961, nearly 9 months prior to the date of the sale of the assets of Old Nassau to New Nassau. It is, in my view, incorrect to hold, as the majority in effect does, that the amount paid by Reliance for the shares of Old Nassau represents the fair market value 9 months later of the stock of New Nassau exchanged for the stock of Old Nassau in consideration for the assets of Old Nassau.
The cases relied upon by the majority do not support the proposition that the cost, as distinguished from the fair market value at the date of the exchange, of stock exchanged for assets is determinative of the basis of those assets. In Montana-Dakota Utilities Co., 25 T.C. 408, 415 (1955), the transaction was held to constitute a purchase by the taxpayer of the properties of another company under the holding of Kimbell-Diamond Milling Co., supra.
The stock of the old company was purchased by the taxpayer the same day that the old company was dissolved. On this basis we held that the cost of the property acquired was the amount paid for the stock. In Illinois Water Service Co., 2 T.C. 1200 (1943), we specifically held that the basis of the properties acquired was the fair market value of the securities exchanged therefor and further held under the facts in that case that the fair market value of the stock was the same as the amount paid for the stock. In American Wire Fabrics Corporation, 16 T.C. 607, 615 (1951), we specifically held that the cost of the assets acquired by the taxpayer was the fair market value of the stock exchanged for those assets.
As we pointed out in Montana-Dakota Utilities Co., supra, in a closed transaction the “cost of property includes * * * the liabilities to which the property is subject or which are assumed by the purchaser.” The clear inference from the facts found in the majority opinion is that New Nassau assumed all liabilities of Old Nassau including its liability to minority stockholders and under the agreement the minimum liability so assumed was $40 a share. In my view the majority is incorrect in not including this liability as part of the basis of the assets acquired.