OPINION
Tannenwald, Judge:This matter is before the Court on petitioners’ motion for summary judgment, pursuant to Rule 121, Tax Court Rules of Practice and Procedure. The sole issue for our decision is whether the acquisition of stock of Hartford Fire Insurance Co. (Hartford) by International Telephone & Telegraph Corp. (ITT) qualified, as a matter of law, as a reorganization within the meaning of section 368(a)(1)(B),2 with the result that petitioners are not taxable on any gain on the receipt of stock of ITT in exchange for their Hartford stock. See sec. 354(a).
The table below sets forth the amount of deficiency determined by respondent in each petitioner’s Federal income tax for the calendar year 1970, the residence of each petitioner at the time' of filing the petition herein, and the place where each petitioner filed his income tax return for the year at issue:
Docket No. Deficiency Residence Place of filing3
2914-74 $42,450.71 Georgetown, S.C. District Director, District of South Carolina
4828-74 1,674.00 Portland, Ore. Ogden, Utah
4953-74 2,192.81 Newark, Del. Philadelphia, Pa.
5105-74 2,781.85 Rancho Santa Fe, Calif. Ogden, Utah
5122-74 46,207.00 Garrison, Md. Philadelphia, Pa.
5232-74 15,452.93 Worcester, Mass. Andover, Mass.
5305-74 7,651.00 Tucson, Ariz. Ogden, Utah
5309-74 43,962.66 Lynnfield, Mass. Andover, Mass.
5310-74 4,851.72 Wayne, Maine Andover, Mass.
5311-74 12,256.13 Sparks, Md. Philadelphia, Pa.
5375-74 6,601.00 Baltimore, Md. Philadelphia, Pa.
5444-74 1,248.57 Spokane, Wash. Ogden, Utah
6077-74 55,778.45 Natick, Mass. Andover, Mass.
6153-74 13,202.00 Meadville, Pa. Philadelphia, Pa.
6187-74 41,454.28 Princeton, N.J. Philadelphia, Pa.
8602-74 1,684.74 Scranton, Pa. Philadelphia, Pa.
Petitioners are all individuals who were shareholders of Hartford until they accepted ITT’s offer, dated May 26, 1970, and exchanged their Hartford stock for ITT stock.
ITT first became interested in Hartford in 1968 and approached Hartford in October 1968 to suggest the possibility of a merger. ITT’s overture was at that time rejected by Hartford, which was interested in pursuing its own program of diversification and acquisition.
In November 1968, ITT learned that a 6-percent block of Hartford’s voting stock (1,282,948 shares) was for sale and began considering purchasing it. Harold S. Geneen, chairman of the board of ITT, met twice with Harry Y. Williams, chairman of the board of Hartford, together with representatives of both companies, informed him of the prospective purchase, and assured him that ITT would not attempt to acquire control of Hartford against the will of Hartford’s board of directors and management. Upon that assurance, Williams did not object to ITT’s purchase of the 6-percent block of Hartford stock. He reiterated, at that time, that Hartford was interested in pursuing its own program of diversification and acquisition but agreed not to take any action that would preclude affiliation with ITT. On November 8, 1968, ITT offered to purchase for cash the 6-percent block of Hartford shares from a mutual fund managed by Insurance Securities, Inc.; the offer was accepted on November 10, 1968, and the purchase was subsequently consummated.
Between November 12, 1968, and January 10, 1969, ITT purchased on the open market 458,000 shares of Hartford, and on March 13, 1969, it purchased 400 shares of Hartford from Hamilton Management Corp., a subsidiary of ITT at that time. All of these purchases were made for cash. ITT then owned approximately 8 percent of Hartford’s voting stock.
Solely for the purpose of this motion, petitioners concede that all of the foregoing purchases were made for the' purpose of furthering ITT’s efforts to acquire Hartford.
On December 23,1968, ITT submitted a written proposal for a “combination and pooling of interests” of ITT and Hartford pursuant to which ITT would exchange 1 share of its new $2 cumulative convertible voting preferred stock for each share of Hartford’s issued and outstanding voting common stock (Hartford’s only stock). The proposal was rejected by Hartford, which then formulated its own proposal, and, on April 9, 1969, a provisional plan and agreement of merger was executed by both companies. Pursuant to the agreement, the ITT Hartford Insurance Corp., a wholly owned subsidiary of ITT formed for the purpose of this transaction, would be merged into Hartford. Each share of Hartford stock would be converted into a share of ITT $2.25 voting cumulative convertible preferred stock and the stock of the subsidiary would be converted into Hartford voting common stock, with the result that Hartford would be a wholly owned subsidiary of ITT. The agreement was conditioned upon the requisite approval, under State law, of the shareholders of the two corporations and of the Connecticut Insurance Commissioner. . Hartford had an unqualified right to terminate the agreement if it believed there was any likelihood that antitrust litigation would be initiated. In June 1969, the Department of Justice announced it would seek to enjoin the proposed merger under the Federal antitrust laws. On June 24, 1969, Hartford recommended that its shareholders approve the merger notwithstanding the threat of litigation. In August 1969, the Department of Justice filed in the United States District Court for the District of Connecticut a motion to enjoin the mergér, which was denied in October 1969.
On October 13, 1969, the Internal Revenue Service issued a private letter ruling stating that, for Federal tax purposes, the formation of the ITT Hartford Insurance Corp. and its merger into Hartford would be disregarded and the transaction would constitute a reorganization within the meaning of section 368(a)(1)(B) if ITT, prior to the date on which the Hartford shareholders voted to approve or disapprove, unconditionally disposed of the Hartford stock it had previously purchased by sale to third parties. Later in the same month, the Internal Revenue Service issued a supplemental ruling approving a proposed sale of such stock by ITT to an Italian bank.
On June 26, 1969, the shareholders of ITT approved the merger and on November 10,1969, the shareholders of Hartford approved it.
On December 13, 1969, the Connecticut Insurance Commissioner refused to approve the merger. ITT then proposed to proceed with an exchange offer to the shareholders of Hartford on the same terms which they would have obtained via the merger. After public hearings and the imposition of certain requirements relative to post-acquisition operation of Hartford, the Connecticut Insurance Commissioner approved the exchange offer on May 23,1970.
On May 26,1970, ITT made the exchange offer to all Hartford shareholders. More than 95 percent of Hartford’s then-issued and outstanding stock, including that held by petitioners, was tendered in response to ITT’s offer. The only consideration given or to be given in the exchange was ITT voting stock.
In 1974, the Internal Revenue Service retroactively revoked its supplemental ruling, which had approved ITT’s sale of Hartford stock acquired for cash to an Italian bank, on the grounds that the ruling request contained misstatements and omissions of material facts and that the transaction was not carried out in the manner stated. The pleadings indicate that the original ruling was also revoked retroactively. The parties agree that the revocation of the rulings is not relevant to petitioners’ motion for summary judgment. For purposes of this motion, the facts are viewed as if ITT had not disposed of the Hartford stock which it purchased prior to the tender offer.
The question presented is whether the 1970 exchange by petitioners of their Hartford stock for ITT stock was pursuant to a plan of reorganization with the result that no gain or loss should be recognized on the exchange. See secs. 354(a) and 368(a).
Petitioners claim that ITT’s acquisition of Hartford stock was a reorganization as defined in section 368(a)(1)(B)4- (hereinafter referred to as a (B) reorganization). They contend that the term “plan of reorganization” in section 354(a) encompasses only the 1970 exchange offer which did not involve any cash consideration, i.e., that the previous cash purchases were not part of the “plan” and should therefore not be taken into account or (2) that the cash purchases should in any event not be counted, since the 1970 acquisition, standing by itself, constituted a (B) reorganization because only ITT voting stock was exchanged for Hartford stock in one transaction, over 80 percent of Hartford’s stock was involved in that exchange, and therefore the “solely for * * * voting stock” requirement of section 368(a)(1)(B) has been satisfied.
Respondent’s position is that the requirements of section 368(a)(1)(B) are such that the prior cash purchases of Hartford stock by ITT disqualify the 1970 exchange from treatment as a (B) reorganization.
We address petitioners’ second contention first. In so doing, we emphasize at the outset that respondent concedes that, irrespective of the impact of the pre-1970 stock purchases, the “voting stock” requirement of section 368(a)(1)(B) and the conditions of “control” of section 368(c) have been met. The only issue, in respect of petitioners’ second contention, relates to the proper interpretation of the word “solely” in section 368(a)(1)(B). Each party has indulged in extensive analysis of the underlying legislative history and the decided cases, asserting that such sources leave no doubt of the correctness of his interpretátion. However, as will subsequently appear, the sources relied upon do not have the asserted degree of clarity and, in point of fact, the particular circumstances involved herein are different from those involved in any of the previously decided cases. As a consequence, we are confronted, in respect of petitioners’ second contention, with a case of first impression.
The legislative history of the predecessors of section 368(a)(1)(B) has been thoroughly reviewed in prior judicial opinions and we will therefore not repeat that history, except to the extent we deem it necessary to an understanding of what is involved herein. See Commissioner v. Turnbow, 286 F.2d 669 (9th Cir. 1960), affd. 368 U.S. 337 (1962); Mills v. Commissioner, 39 T.C. 393 (1961), revd. 331 F.2d 321 (5th Cir. 1964); Howard v. Commissioner, 238 F.2d 943 (7th Cir. 1956), revg. 24 T.C. 792 (1955). We note, however, the Supreme Court’s observations that the legislative history is “inconclusive” and that “no more can fairly be said of the Commissioner’s Regulations.” See Turnbow v. Commissioner, 368 U.S. 337, 344 n. 8 (1961).5
The basic policy behind the reorganization provisions is to allow deferral of taxation where a business enterprise is continued in a different corporate form and there is continuity of shareholder investment. Bazley v. Commissioner, 331 U.S. 737 (1947). The genesis of the current provisions can be traced to the Revenue Act of 1924. Sec. 203, Revenue Act of 1924, 43 Stat. 256. However, it was not until the Revenue Act of 1934, 48 Stat. 680, that Congress restricted the nature of the consideration that could be given by the acquiring corporation to obtain stock or assets of another corporation. The lack of such a restriction had enabled astute taxpayers to escape taxation on what were essentially sales by casting them in the form of reorganizations. To combat this problem, the 1934 Act restricted the consideration given by the acquiring corporation in an acquisition of stock or assets (other than a statutory merger) to voting stock.6 H. Rept. 704, 73d Cong., 2d Sess. 12-14 (1934), 1939-1 C.B. (Part 2) 554, 563-565; S. Rept. 558, 73d Cong., 2d Sess. 16-17 (1934), 1939-1 C.B. (Part 2) 586, 598-599. The predecessor of section 368(a)(1)(B) and (C) in the 1934 Act read as follows:
The term “reorganization” means * * * (B) the acquisition by one corporation in exchange solely for all or a part of its voting stock: of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of another corporation; or of substantially all the properties of another corporation * * * [Sec. 112(gXl), Revenue Act of 1934,48 Stat. 705.]
After the Internal Revenue Code was enacted in early 1939, the Revenue Act of 1939, 53 Stat. 862, was enacted later in that same year. Section 213 of that Act, 53 Stat. 870, amended section 112(g)(1) of the 1939 Code to permit the acquiring corporation in an asset acquisition to assume liabilities of the acquired corporation7 and the provisions for stock and asset acquisitions were separated. The pertinent provisions of the 1939 Code, as thus amended, read as follows:
The term “reorganization” means * * * (B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of another corporation, or (C) the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of substantially all the properties of another corporation, but in determining whether the exchange is solely for voting stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded, or (D) * * * [Sec. 112(g)(1), I.R.C. 1939.]
In 1954, the language defining a (B) reorganization was further amended to make it clear that a so-called creeping acquisition was permissible. See n. 4 swpra; S. Rept. 1622, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 273 (1954).
Respondent relies heavily upon the judicial history of the (B) reorganization provision contained in section 112(g)(1) of the Internal Revenue Code of 1939 (set forth on pp. 733-734) and its predecessor provisions. He also argues that other amendments to the reorganization provisions, enacted in and since 1954, particularly when coupled with such judicial history, support his position herein as to the construction to be given to the word “solely” in section 368(a)(1)(B).
The seminal decision, upon which the subsequently decided cases and respondent herein heavily rely, is Helvering v. Southwest Consolidated Corp., 315 U.S. 194 (1942). In that case, the taxpayer acquired substantially all of the assets of another corporation in exchange for stock, warrants, and cash. The Supreme Court held that under the 1934 Act, which described asset and stock acquisitions in a single subparagraph (see p. 733 supra), the transaction was not a reorganization because the assets of the transferor had not been acquired solely for voting stock but rather had been acquired for stock, warrants (which the Court held were not to be treated as stock for this purpose), and cash. In the course of its opinion, the Court stated: “ ‘Solely’ leaves no leeway” (315 U.S. at 198). It is this language and the reliance thereon by other courts in subsequent judicial opinions which constitute the fulcrum of respondent’s position herein. Respondent emphasizes that the Court did not say that it was enough if substantially all the assets were acquired for voting stock and that therefore the clear implication is that acquiring the requisite percentage of stock in one transaction in which no other consideration is furnished is not necessarily enough to qualify for a (B) reorganization.
We think respondent reads too much into Southwest Consolidated Corp. Perhaps the most important distinction is that that case involved an asset rather than a stock acquisition and the furnishing of nonvoting stock consideration. It is obvious that, in such a situation, i.e., an acquisition of assets, it is virtually impossible to bifurcate, the transaction and determine which assets were acquired solely for the permissible consideration. Thus, there is a basic difference between an asset and stock acquisition. In this connection, we note that the Court couched its analysis only in terms of the acquisition of assets and properties and made no reference to acquisition of stock. See 315 U.S. at 198-199. Beyond this distinction, it should be noted.that, in Southwest Consolidated Carp., stock represented only about 63 percent of the total consideration, so it could not be argued that the “boot” was a negligible part of the consideration and that therefore substantially all the assets were acquired for stock.8 Compare Turnbow v. Commissioner, 368 U.S. 337 (1961), with Mills v. Commissioner, 39 T.C. 393 (1962).
Clearly, in Southwest Consolidated Corp., the Court did not decide the issue now before us which involves a situation where, not only is a separate allocation of the consideration furnished feasible, but also where the 80-percent requirement is met in one transaction in which there is a total absence of impermissible consideration. Accordingly, while we recognize that the oft-quoted language, “ ‘Solely’ leaves no leeway” (see p. 734 supra), may well require that “solely” be literally construed (see, e.g., Mills v. Commissioner, supra at 399), we do not feel compelled to give that word a pervasive rigidity in determining whether the ITT-Hartford transaction constituted a (B) reorganization. See n. 11 infra. Our view is reinforced by the subsequent decision of the Supreme Court in Turnbow v. Commissioner, supra, wherein a similar question was left open and the Court made no reference to Southwest Consolidated Corp. See 368 U.S. at 344. See also pp. 737-738 infra.9
Nor do we think that the other cases, upon which respondent relies, are controlling herein. Although they contain language supporting respondent’s position, all of them deal with factual situations which differ from the case before us. In general, these cases fall into two categories. The first category involves a situation where the 80-percent requirement of the statute could not be met without taking into account prior acquisitions. Lutkins v. United States, 312 F.2d 803 (Ct. Cl. 1963); Commissioner v. Air Reduction Co., 130 F.2d 145 (2d Cir. 1942), revg. and remanding a Memorandum Opinion of this Court; Pulfer v. Commissioner, 43 B.T.A. 677 (1941), affd. per curiam 128 F.2d 742 (6th Cir. 1942).10 These cases are readily distinguishable on the simple ground set forth in Lutkins, namely, that, since it was necessary to look back to earlier acquisitions, the taxpayer could not pick and choose which acquisitions to use. See 312 F.2d at 805. Clearly, no such looking back is required herein to find the necessary 80 percent. Indeed the Court of Claims, in Lutkins, specifically noted that it was not dealing with a situation where 80 percent of the stock of the acquiring corporation was acquired at one time. See 312 F.2d at 805. Moreover, all these cases dealt with pre-1954 “creeping” acquisitions — a type of transaction whose status was doubtful under the 1939 Code. S. Rept. 1622, supra at 273.
The second category involves situations where there was one transaction in which more than the 80-percent amount was acquired and impermissible consideration was furnished as part of the transaction. Turnbow v. Commissioner, 368 U.S. 337 (1961); Mills v. Commissioner, 39 T.C. 393 (1962), revd. 331 F.2d 321 (5th Cir. 1964); Howard v. Commissioner, 24 T.C. 792 (1955), revd. on other grounds 238 F.2d 943 (1956).
In Mills11 and Turnbow, each shareholder whose stock was being acquired got cash. These cases are obviously distinguishable. In Howard, upon which respondent heavily relies, Truax-Traer Coal Co. acquired all of the outstanding- stock of Binkley Coal Co. in one transaction, exchanging solely its own voting stock for 80.19 percent of Binkley’s voting stock and paying cash for the balance.12 The taxpayer argued that, although the transaction involved the payment of cash, the statutory requirements of a (B) reorganization had nevertheless been met because in excess of 80 percent of the Binkley stock had been acquired solely for voting stock of Truax-Traer Coal. Although we recognized the “force” of the taxpayer’s argument that the objectives of the statute might well have been met (see 24 T.C. at 804), we felt bound by prior cases, particularly Helvering v. Southwest Consolidated Corp., 315 U.S. 194 (1942), to hold that the statute required that whatever stock was obtained in one transaction must be acquired solely for voting stock. The Seventh Circuit also recognized that there was “persuasion” in the taxpayer’s argument (see 238 F.2d at 945) but felt similarly constrained to reject it.
The fact of the matter is that Howard is factually distinguishable (aside from the circumstances set forth in n. 12 supra), because some stockholders involved in the one exchange transaction (see n. 18. infra) received cash. In Turnbow v. Commissioner, supra, which involved the application of the so-called “boot” provisions to exchanges not qualifying as reorganizations (the issue on which this Court was reversed in Howard), the Government conceded that the conclusion of Howard, insofar as it involved the issue of the existence of a (B) reorganization, was debatable13 and the Supreme Court left the question open. See 368 U.S. at 344.14
In the light of the foregoing analysis, it can hardly be said that the judicial history of the requirement of a (B) reorganization was sufficiently settled15 (at least as far as a fact situation such as is involved herein is concerned) to justify the conclusion that subsequent legislation dealing. with “consideration” in connection with the reorganization provisions of the Code implies legislative adoption of respondent’s position herein. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431-432 (1955).
On the contrary, such subsequent legislative action indicates a continuing concern on the part of Congress over too strict an interpretation of the word “solely” and can be said to support petitioners’ rather than respondent’s position. In 1954, Congress amended the provisions regarding asset acquisitions to permit the use of “boot” to the extent of 20 percent of the value of the assets acquired. Congress’ reason for allowing boot in (C) reorganizations was that the restriction to voting stock caused “difficulties in completing transactions where certain shareholders of the transferor corporation may wish to receive property instead of stock in the continuing corporation.” S. Rept. 1622, supra at 52. In 1971, when Congress added section 368(a)(2)(E),16 which created a hew type of reorganization that has some attributes of a (B) reorganization, the Congress stated that it saw no reason not to allow 20-percent nonstock consideration. S. Rept. 91-1533, p. 2 (1970), 1971-1 C.B. 622,623; H. Rept. 91-1778, p. 3 (1970).
Nor do we think that respondent can draw any sustenance from the fact that Congress amended section 368(a)(1)(B) in 1954 (permitting creeping acquisitions, see p. 734 supra) and again amended it by section 218(a) of the Revenue Act of 1964,78 Stat. 57 (permitting the use of the stock of the acquiring corporation’s parent in lieu of the stock of the acquiring corporation) without making any change in the “solely for * * * voting stock” requirement. To read such legislative action and inaction as blessing respondent’s position assumes that the state of the law was in accord with such position at those times. But, as we have seen, that was not the case and thus it is equally possible to assume that Congress made no change to cover the situation involved herein because it felt that such a situation already met the requirements of the statute — a point of view which, of course, would be as erroneous as that of respondent.
Similarly, we are satisfied that any difficulties, which may stem from the lack of a definition of the term “the acquisition” in the 1954 amendment to section 368(a)(1)(B), are not of such a character as to require rejection of petitioners’ second contention herein. Granted that amendment eliminated the use of the 80-percent requirement contained directly in that section under the 1939 Code, that same requirement remained in section 368(c) and there is not the slightest suggestion that Congress, in enacting the amendment in 1954, intended to make any substantive change in the meaning of “the acquisition” beyond the addition of liberalizing language permitting creeping acquisitions.
In oral argument, respondent stated that his position was based solely on legislative history and the decided cases, particularly Howard, and conceded that no policy considerations, such as the potential for creating “loopholes” in the statute, were involved. Nor has our own independent analysis brought forth any such considerations which might influence our interpretation of the statute and its legislative history. Compare Commissioner v. Brown, 380 U.S. 563 (1965), wherein the Supreme Court specifically referred to the fact that it found nothing in the construction of language of the Internal Revenue Code for which the taxpayer had contended and which had been adopted by this Court and the Court of Appeals as being “in a manner contrary to the purpose or policy of capital gains provisions of the Code.” (See 380 U.S. at 571-572; emphasis supplied.) See also Fullinwider v. Southern Pac. R.R. Co., 248 U.S. 409, 412 (1919) (policy may be used to resolve uncertainty in law).
Respondent’s concession that no policy is served by a pervasively rigid interpretation of “solely” in the “solely for * * * voting stock” requirement of a (B) reorganization is reinforced by his numerous rulings allowing that requirement to be circumvented by technical formalities. See Rev. Rul. 72-354, 1972-2 C.B. 216 (“purging” of transaction by transferring stock acquired for cash to an unrelated third party); Rev. Rul. 75-522, 1972-2 C.B. 215 (purchase of stock for cash directly from target corporation); Rev. Rul. 68-285, 1968-1 C.B. 147 (redemption of dissenters’ shares for cash by acquired corporation); Rev. Rul. 68-562, 1968-2 C.B. 157 (purchase of 50 percent of target corporation’s stock for cash by controlling shareholder of acquiring corporation); Rev. Rul. 73-54, 1973-1 C.B. 187 (payment of acquired corporation’s reorganization expenses by the acquiring corporation); Rev. Rul. 56-184, 1956-1 C.B. 190 (dividend of earnings from certain date to closing date of reorganization). Several of such rulings evince a willingness by respondent to imbue the word “solely” with a pristine purity by exalting form over substance — an approach which, particularly in the reorganization area, respondent and a myriad of cases, too numerous to cite, have consistently rejected.
The logic of respondent’s position could produce some odd results. If X corporation sought to acquire and did acquire only 80 percent of the outstanding stock of Y corporation solely for voting stock and was content to allow the other 20 percent to remain as a minority, respondent apparently would agree that the requirements of a (B) reorganization had been satisfied. If, however, X corporation sought to acquire 100 percent of the Y stock (a fact which may not be readily discernible) and acquired 80 percent solely for voting stock at one time but thereafter acquired the remaining 20 percent, or any part thereof, for cash before the 80 percent became “old and cold” (cf. Kass v. Commissioner, 60 T.C. 218, 223 (1973), affd. without published opinion 491 F.2d 749 (3d Cir. 1974)), the requirements of a (B) reorganization would not have been met and the exchange for the 80 percent would, under respondent’s theory, become retroactively taxable. It is, at the very least, doubtful whether Congress intended section 368(a)(1)(B) to encompass such curious consequences. See Commissioner v. Brown, 380 U.S. 563, 571 (1965).
We are not unaware of the conceptual difficulties involved in determining what is “the acquisition” for purposes of a (B) reorganization and that an argument can be made that separating out the 1970 exchange begs the question, or to put it another way, assumes the issue which requires decision. But we do not see the situation in this light. The facts of the matter are that the 1970 exchange, standing by itself, satisfied in every way the literal requirements of section 368(a)(1)(B) and that neither legislative nor judicial history nor policy17 requires that that exchange (involving in excess of 80 percent of Hartford’s stock) not be separated from the other acquisitions of Hartford stock by ITT for cash, at least for the purpose of disposing of the legal issue raised by petitioners’ second contention. We take this position with full knowledge that, for the purpose of disposing of that contention, on this motion for summary judgment, we must assume that the pre-1970 cash purchases were part of the “plan of reorganization.” But our position, simply stated, is that, in the context of this case, such assumption is of no consequence because the prior purchases are irrelevant.
We hold that where, as is the case herein, 80 percent or more of the stock of a corporation is acquired in one transaction,18 in exchange for which only voting stock is furnished as consideration, the “solely for * * * voting stock” requirement of section 368(a)(1)(B) is satisfied. Such a situation simply does not involve a transaction akin to a sale rather than an exchange, which from the beginning has been a fundamental concern of Congress with respect to granting tax-free status under the reorganization provisions. See p. 733 supra. In so holding, we emphasize that our decision herein is a narrow one. Thus, our holding does not cover the extent to which creeping acquisitions are now permissible under section 368(a)(1)(B). Moreover, taking our cue from what the Supreme Court did in Turnbow (see 368 U.S. at 344), we need not resolve the doubts which may well exist as to the current vitality of Howard in respect of the existence of a reorganization within the meaning of section 368(a)(1)(B) where 80 percent of the stock is acquired solely for voting stock from some shareholders and, at about the same time, additional shares are acquired for cash from other shareholders, i.e., the situation which existed in Howard.19
In view of our holding, we find it unnecessary to consider the other issue on which the parties locked horns, namely, that if the prior cash acquisitions of Hartford stock by ITT were relevant, they should be considered so inextricably interwoven with the 1970 exchange as to disqualify that exchange under section 368(a)(1)(B) on the ground that the “solely for * * * voting stock” requirement was not met.
Petitioners’ motion for summary judgment is granted and
Decisions will be entered for the petitioners.
Reviewed by the Court.
Drennen, Fay, Goffe, and Hall, JJ., did not participate in the consideration and disposition of this case.All section references are to the Internal Revenue Code of 1954, as amended and in effect during the year in issue, unless otherwise stated.
Unless otherwise indicated, the place of filing is an Internal Revenue Service Center.
SEC. 368. DEFINITIONS RELATING TO CORPORATE REORGANIZATIONS.
(a) Reorganization.—
(1) In general. — For purposes of parts I and II and this part, the term “reorganization” means—
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(B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition);
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(c) Control. — For purposes of part I (other than section 304), part II, and this part, the term “control” means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
Although Turnbow involved an issue not presented herein (i.e., whether the “boot” provisions applied to a transaction that was concededly not a reorganization), the legislative history and one of the regulations referred to by the Supreme Court (Treas. Regs. 118, sec. 39.112(g)-(1)(c)) dealt with the question of what constitutes a reorganization, including a (B) reorganization.
To prevent the same abuses, the courts were at this tíme developing the continuity-of-interest doctrine. See LeTulle v. Scofield, 308 U.S. 415 (1940); Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); Pinellas Ice Co. v. Commissioner, 287 U.S. 462 (1933); Cortland Specialty Co. v. Commissioner, 60 F.2d 937 (2d Cir. 1932).
The purpose of this amendment was to avoid the result mandated by United States v. Handler, 303 U.S. 564 (1938). See H. Rept. 855,76th Cong., 1st Sess. 5,18-19 (1939), 1939-2 C.B. 504, 507, 518-519; S. Rept. 648, 76th Cong., 1st Sess. 3 (1939), 1939-2 C.B. 524, 525.
Respondent claims the boot was negligible but, as we see it, the nonstock consideration was as follows:
Cash .$106,680
2,760 Class A warrants at $29 ... 80,040
18,446 Class B warrants at $26 ... 461,126
647,846
The total nonstock consideration is about 37 percent of $1,766,695, the fair market value of the assets.
It is not without significance that, in recent years, courts have loosened what had previously been thought to have been the strict interpretation of “mere change in identity, form, or place of organization” language (now contained in sec. 368(a)(lXF) mandated by the Supreme Court in Helvering v. Southwest Consolidated Corp., 315 U.S. 194 (1942). See Aetna Casualty & Surety Co. v. United States, 568 F.2d 811 (2d Cir. 1976), and Eastern Color Printing Co. v. Commissioner, 63 T.C. 27 (1974), and cases analyzed therein.
Although the decision of the Board of Tax Appeals preceded the Supreme Court’s decision in Southwest Consolidated Corp., the affirmance by the Sixth Circuit was handed down after the Supreme Court had spoken.
It is interesting to note that in Mills the Fifth Circuit considered that we had carried a literal interpretation of the word “solely” too far and that respondent has agreed with this view. See Rev. Rul. 66-365,1966-2 C.B. 116.
The facts of Howard differ from the facts herein in that all of the shareholders from whom 80.19 percent of the voting stock of Binkley was acquired did not receive only voting stock in exchange. Specifically, Truax-Traer acquired 3,683 shares (79.8 percent) of Binkley from shareholders who received only voting stock. It acquired 100 shares from Parsons College, giving voting stock in exchange for 17 shares and paying cash for 83 shares, when the 17 shares acquired from Parsons College for stock are added to the other shares acquired for stock, the total is 3,700 shares, or 80.19 percent. The balance of Binkley’s outstanding stock (831 shares) was acquired from others for cash.
In Howard, respondent argued, in the alternative, that the statute requires stockholders of at least 80 percent of the stock of the acquired corporation to receive in exchange for their stock only stock of the acquiring corporation. (24 T.C. at 804.) Such a requirement is met by this case but was not met in Howard. We did not reach this argument in Howard, although clearly, if the Parsons College shares of Binkley were eliminated from the calculation of the Binkley shares acquired solely for Truax-Traer Coal voting stock, the 80-percent requirement for a (B) reorganization would not have been met.
The following is the full pertinent text of the Government’s position:
“It cannot be said with certainty, for that matter, that there could not be ‘other property’ in a transaction qualifying as a ‘B’ or ‘C’ reorganization. While those definitions do literally require that ‘solely * * * voting stock’ be given, that requirement raises questions of interpretation (not involved in this case) that have not yet been finally resolved. For example, since sec. 112(gXl)(B) requires only that 80% of the stock of another corporation be acquired, it is arguable that the definition is met if the consideration allocable to at least 80% of the stock consists of voting stock, notwithstanding that the acquiring corporation also acquires additional shares (e.g., from dissenting stockholders) for money or other property. That was in fact the situation in the Howard case, in which the acquiring corporation gave solely voting stock for 81% of the shares but gave cash to a dissenting minority for the remaining 19%. While the Seventh Circuit held that the cash given the minority precluded a ‘B’ reorganization, the question is a debatable one and there is no assurance that other courts would follow that decision. [Brief for Government n. 7 at 21.]”
The holding of Howard that there was no (B) reorganization has also been criticized by commentators. See A. Vernava, “The Howard and Tumbow Cases and the ‘Solely’ Requirement of B Reorganizations,” 20 Tax L. Rev. 387 (1965); B. Kanter, “Cash in a ‘B’ Reorganization: Effect of Cash Purchases on ‘Creeping’ Reorganization,” 19 Tax L. Rev. 441 (1964). See also R. Merritt, “Tax-Free Corporate Acquisitions — The Law and the Proposed Regulations,” 53 Mich. L. Rev. 911 (1955); S. Toll, “Transfers of Boot in Stock-for-Stock Acquisitions,” 15 U.C.L.A. L. Rev. 1347 (1968).
Hovjard was not decided until after the enactment of the 1954 Code. In Commissioner v. Air Reduction Co., 130 F.2d 145 (2d Cir. 1942), the question was a subsidiary issue and may not have attracted much attention. That case is, in any event, factually distinguishable. See p. 736 supra.
SEC. 368(a)(2)(E). Statutory merger using voting stock of corporation controlling merged corporation. — A transaction otherwise qualifying under paragraph (1XA) shall not be disqualified by reason of the fact that stock of a corporation (referred to in this sub-paragraph as the “controlling corporation”) which before the merger was in control of the merged corporation is used in the transaction, if—
(i) after the transaction, the corporation surviving the merger holds substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction); and
(ii) in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation.
Whatever policy considerations may be involved relate, in our opinion, to creeping acquisitions where no single acquisition involves 80 percent or more of the stock of the acquired corporation, which is not the situation herein.
In determining what constitutes “one transaction,” we include all the acquisitions from shareholders which were clearly part of the same transaction.
We also note that, assuming the continued vitality of Howard, any attempt to circumvent the decision in that case by splitting what was otherwise intended to be a single transaction into two transactions in order to receive the benefit of our decision herein could be readily dealt with under the rationale of such decisions as Commissioner v. Court Holding Co., 324 U.S. 831 (1945).