dissenting: I must disagree with the opinion of the majority both with respect to the facts and with respect to the law.
With respect to the facts, the majority opinion concludes:
Reliance’s purpose in purchasing the stock of Old Nassau was to acquire the underlying assets of that corporation through the vehicle of New Nassau. The organization of New Nassau, the transfer of all the assets of Old Nassau to New Nassau, and the accompanying transfer to Reliance of the stock of New Nassau in exchange for the stock of Old Nassau and the payments by New Nassau to minority shareholders of Old Nassau were each steps in a single plan to accomplish that purpose.
It must be recognized that whether Reliance continued to operate the business through Old Nassau as a subsidiary corporation or organized a new corporation for that purpose was of concern to the sellers of the stock of Old Nassau only insofar as it went to the security for the notes which they had taken in payment. The incorporation of and the transfer of the assets to New Nassau was not intended to meet any conditions imposed by the sellers. Its sole purpose was to meet the advice of Reliance’s counsel that in so doing a “stepped-up” basis could be obtained for the assets. Reliance always intended to operate the terminal through a subsidiary corporation and except for tax considerations Old Nassau would fulfill its objectives just as well as New Nassau.
In substance, there was nothing more than the purchase by Reliance of the stock of Old Nassau for cash. The second step, whereby Old Nassau transferred its assets to New Nassau in exchange for stock which was thereupon distributed to Reliance, had no business purpose. Its only purpose was to get a “stepped-up” basis for the assets of Old Nassau. As such, it may be disregarded. Davant v. Commissioner, 366 F. 2d 874 (C.A. 5, 1966) ,1 In this respect, the facts are distinguishable from The South Bay Corporation v. Commissioner, 345 F. 2d 698 (C.A. 2, 1965), reversing 41 T.C. 888 (1964).
Furthermore, to treat the purchase of the stock of Old Nassau for cash and the transfer of its assets to New Nassau some 9 months later for stock as an “abortive” reorganization in order to give New Nassau a “stepped-up” basis for the assets is wholly incompatible with the objectives of the Congress in enacting section 334(b) (2). See Pacific Transport Co. v. Commissioner, 483 F. 2d 209 (C.A. 9, 1973). It puts us right back where we started from before the enactment of section 334(b) (2) as a part of the Revenue Act of 1954.
The purchase by Reliance of the stock of Old Nassau standing by itself did not change the basis for the underlying assets of Old Nassau. The addition of a second step whereby New Nassau was organized to take over such assets changed nothing. Casco Products Corp., 49 T.C. 32 (1967). It was the type of “rinky dink” which has long been disregarded by the courts under the doctrine enunciated in Gregory v. Helvering, 293 U.S. 465 (1935).
See also “A Proposed Treatment of Reineorporation Transactions,” 25 Tax L. Rev. 2S2 (1070) ; Nicholson, “Recent Developments in the Reincorporation Area,” 19 Tax L. Rev. 123 (1904) ; Rice, “When Is a Liquidation Not a Liquidation for Federal Income Tax Purposes?,” 8 Stan. L. Rev. 208 (1956).