*3392 1. The term "reorganization" in section 202(b), Revenue Act of 1918, is general and does not exclude reorganizations resulting from proceedings in equity on a creditors' bill for the appointment of a receiver.
2. The payment by a shareholder of cash, together with the deposit of shares, for all of which he receives new securities in the reorganization, held to be an exchange under section 202(b), Revenue Act of 1918.
*1138 Deficiency of $15,216.09 in income tax for 1920. The respondent disallowed a deduction of $26,297.10 taken by the decedent on his 1920 return as a loss sustained by him in connection with the surrender by him of stock and cash and the acquisition of new securities.
FINDINGS OF FACT.
David Sears, the petitioners' testator, died a resident of Boston, on December 22, 1923, and George L. DeBlois and Arthur N. Maddison are the executors of his estate.
Decedent acquired prior to March 1, 1913, 366 preferred shares of Massachusetts Electric Companies at a cost of $29,224.12. Their aggregate fair market price or value*3393 on March 1, 1913, was $27,816. In 1920, in conformity with the plan hereinafter referred to, he disposed of these shares and paid $3,660 ( $10 a share) and received in place of each share the following:
| Par value | Market Value | |
| Refunding mortgage 5's, 1948 | $10.00 | $7.00 |
| Adjustment stock | 2.00 | .48 |
| Option warrants | 25.00 | 1.87 |
| Common stock | 27.00 | 5.40 |
| 64.00 | 14.75 |
Thus, in place of his 366 shares he received stock and securities having a total par value of $23,424 and a market value of $5,398.50.
Massachusetts Electric Companies owned all the common stock and part of the preferred stock of Bay State Street Railway Co., which owned and operated a street railway system in and near Boston, Mass. It was also a substantial creditor of Bay State Street Railway *1139 Co. The said Bay State Co. was made defendant in a proceeding in the United States District Court brought by creditors for the appointment of a receiver of its property and business, alleging facts to indicate that the Bay State Co. was in financial difficulty, and on December 12, 1917, the court appointed a receiver. Foreclosure proceedings were also instituted.
By Special Act of*3394 the Massachusetts Legislature, approved June 3, 1918, the directors of the Bay State Co. were authorized to organize a "new company" to acquire and operate the properties of the Bay State Co.
On March 5, 1919, the receiver made a report to the court in the aforesaid proceeding, stating:
That a Plan of Reorganization of the Bay State Street Railway Company has been prepared by committees representing the principal classes of securities and shares interested in the property. The foreclosure proceedings instituted by the trustees under the Refunding Mortgages are intended to be a first step in carrying out this Plan. It is expected that the property of the company will be acquired by the Eastern Massachusetts Street Railway Company, a corporation organized for the purpose under Chapter 188 of the Special Acts of 1918. This new company is to be managed for a period of ten years by Public Trustees. The Governor of the Commonwealth has recently appointed as such Public Trustees for the first five years Messrs. Homer Loring (Chairman), Arthur G. Wadleigh, Fred J. Crowley, Isaac Sprague, and Earle P. Charlton. It may be expected therefore that this receivership will shortly terminate.
*3395 * * *
It is the opinion of your Receiver that the Bay State Street Railway system with the expenditure of this money on the property and with the control over fares and service by the responsible managers of the property can be fully maintained, give good service to the community and earn the return on the investment authorized by the special act. Neither of these factors (available money to spend or control over rates) exists during the receivership. The interest of the public and also of the holders of securities of the Bay State Street Railway Company will therefore best be served by a speedy reorganization and a termination of the receivership.
The plan and agreement was dated March 6, 1918, and was submitted by Lee, Higginson & Co., "Reorganization Managers," under the title "Reorganization of Bay State Street Railway Company and Massachusetts Electric Companies." The introductory statement is as follows:
The following plan and agreement contemplate reorganization under the special act of Massachusetts providing for the acquisition of the properties of the Bay State Street Railway Company by a new corporation and their operation for a period of ten years under the*3396 control of a board of five trustees appointed by the Governor.
The new company has been organized with the name Eastern Massachusetts Street Railway Company, and the Governor has appointed as public trustees Messrs. Homer Loring (Chairman), Arthur G. Wadleigh, Fred J. Crowley, Isaac Sprague and Earle P. Charlton.
*1140 The plan has been approved by the committees organized for the protection of the security holders.
It is anticipated that the plan will among other things accomplish the following: -
(a) Provision for the immediate capital requirements of the new company.
(b) Payment or adjustment of all securities in default.
(c) Operation on a service-at-cost basis, the public trustees having full authority over rates.
Attention is called to the following copy of the report which was filed by the receiver March 5, 1919, in the United States District Court for the District of Massachusetts, in which the receivership of the Bay State Street Railway Company is pending.
The undersigned have been appointed and requested to act as Reorganization Managers, have formed the underwriting syndicate referred to in the plan, and invite all security holders entitled*3397 to do so promptly to deposit their securities in the manner provided in the plan.
Among the many and varied "Securities Which May Participate" were Massachusetts Electric Companies preferred shares. Different methods of participation were prescribed for different classes of securities. As to many of the classes, no payment or deposit of money was required. The "method of participation by stockholders and shareholders" of Bay State Street Railway Company preferred stock, Massachusetts Electric Companies preferred shares, and Massachusetts Electric Companies common shares was as follows:
Holders of the stock and shares following: -
Bay State Street Railway Company Preferred Stock,
Massachusetts Electric Companies Preferred Shares,
Massachusetts Electric Companies Common Shares,
may on or before March 25, 1919, deposit with the Old Colony Trust Company, the depositary for that purpose, certificates for their stock or shares, or in lieu of share certificates for Massachusetts Electric Companies Preferred Shares, warrants for such shares or fractions thereof issued under the vote of the Trustees of Massachusetts Electric Companies passed December 27, 1911, or certificates*3398 of deposit issued for such certificates or warrants under the Preferred Shareholders Protective Agreement dated November 26, 1917, or in lieu of share certificates for Massachusetts Electric Companies Common Shares, certificates of deposit therefor issued under the Common Shareholders Protective Agreement dated November 26, 1917; and each such depositing stockholder or shareholder shall be deemed to have exercised his rights of purchase under this plan and agreement.
The purchase price payable by each such depositing stockholder or shareholder in respect of his purchase so made shall be payable to the depositary as follows:
| By depositors of - | First payment | Second | Third |
| at time of | payment on | payment on | |
| deposit | call | call | |
| Bay State Street Railway Co. preferred | |||
| stock, on each share of $ 100 par value | $6 | $6 | $3 |
| Massachusetts Electirc Cos. preferred | |||
| shares, for each $100 of par value | |||
| computed as specified in part two of | |||
| this plan | 4 | 4 | 2 |
| Massachusetts Electric Cos. common | |||
| shares, for each share of $100 par | |||
| value | 2 | 2 | 1 |
*1141 Each such depositor shall also have the right at his option to prepay at the time of deposit the*3399 entire purchase price payable by him.
To each payment shall be added interest thereon at the rate of five (5) per centum per annum, from January 1, 1919, on payments in respect of Bay State Railway Company Preferred Stock and on payments in respect of Massachusetts Electric Companies Preferred Shares, and from February 15, 1919, on payments in respect to Massachusetts Electric Companies Common Shares.
No holder of Bay State Street Railway Company Preferred Stock or of Massachusetts Electric Companies Preferred or Common Shares, whether such shares are represented by share certificates or by warrants or by certificates of deposit, will have any rights under this plan and agreement unless he shall on or before March 25, 1919, exercise the right of deposit herein provided for.
No stockholder or shareholder will be entitled to deposit his stock or shares without making at the time of deposit the first payment above specified, or in lieu thereof, full payment as above specified.
Upon such deposit and such payment each such depositing stockholder or shareholder shall be entitled to receive a transferable certificate or certificates of deposit of said depositary in form approved*3400 by the Reorganization Managers, upon the acceptance of which he shall be entitled to participate in and shall become bound by the provisions of this plan and agreement. Each such certificate of deposit shall specify the amount of the payments which shall have been made in respect thereof as above provided and the amount of the payments, if any, remaining due in respect thereof.
The calls for the second and third payments, fixing the days therefor, will be made by the Reorganization Managers. Not less than fifteen days prior to the day set apart for payment in each such call notice thereof will be mailed to each holder of a certificate of deposit in respect of which such payments are due whose address is registered with the depositary. Not less than thirty days shall intervene between the days so set for the second and third payments. Such thirty-day period may, however, be shortened by the Reorganization Managers if and to the extent they certify in their opinion to be necessary or expedient to further the consummation of the plan.
Failure to make the second or the third purchase payment when payable will forfeit all rights under the certificates of deposit in respect of*3401 which such payments are due and all rights to, under or in respect of the securities therein specified as deposited or the new securities which might have been deliverable thereon upon the consummation of the plan and all rights in respect of the purchase payment or payments already made.
Each such depositor of Bay State Street Railway Company Preferred Stock is entitled under the plan to receive upon the consummation of the plan and the completion of his purchase payments Refunding Mortgage Bonds, Preferred B Stock and Adjustment Stock in the amounts specified in Part Two, and upon request therefor at the time of making his deposit shall be entitled to receive, in lieu of one certificate of deposit evidencing his rights in respect of all such securities, two certificates of deposit, the first evidencing his rights to receive Preferred B Stock, and the second evidencing his rights to receive Refunding Mortgage Bonds and Adjustment Stock. The second such certificate shall specify the amount of purchase payments remaining due, and failure to make the second or the third payment will forfeit all rights under the second such certificate, but will not affect the rights represented by*3402 the first such certificate. In the event of the plan being declared non-operative, or otherwise failing of consummation, the rights of withdrawal arising in respect of the deposit of the Bay State Street Railway Company Preferred Stock shall be vested in the *1142 holder of the first such certificate, and the rights of withdrawal arising in respect of the making of one or more purchase payments shall be vested in the holder of the second such certificate, the charges payable on withdrawal being apportioned between the holders of the first and second such certificates by the Reorganization Managers in their discretion.
The "Terms of Participation" were as follows:
All persons participating in the plan and their successors in interest and all securities and claims becoming subject to the plan are and shall be in all respects subject to each and every of the provisions of this plan and agreement with the same effect as if such persons and all persons having or claiming any right in or to such securities or claims had sighed this plan and agreement.
No estimate, statement, explanation or suggestion, and no table, contained in this plan and agreement or in any circular issued*3403 or which may hereafter be issued by any committee herein referred to, or by the Reorganization Managers, or by any of the depositaries, or by anyone else is intended to be or is to be accepted as a warranty or a representation or as a condition of or inducement to deposit or assent under this plan and agreement. No defect or error shall release any deposit under this plan and agreement or affect or release any assent thereto or affect or release any demand made or action taken pursuant thereto except by writen consent of the Reorganization Managers.
In part two of the plan and agreement is the "Treatment of Participating Securities and Claims" under which some 18 classes of securities are listed, with principal amount par value outstanding, and the "New Security and Basis of Exchange" applicable to each class listed. Of this list Item Q is as follows:
| Name of present security | Principal amount |
| par value outstanding | |
| Q. Massachusetts Electric Companies Preferred Shares | $ 24, 206,338 |
| (including warrants issued under the vote of December | |
| 27, 1911, and including as of a par value of $117.75 | |
| shares in respect of which the accrued dividends of | |
| $17.75 referred to in said vote have not been | |
| transferred to the Companies under the said vote). |
*3404 New security and basis of exchange
Each $100 par value to give the right to purchase for
$10 and interest as specified in Part One, the following:
$10.00 in Five Per Cent Refunding Mort gage Bonds due
January 1, 1948, carrying interest from January 1,1919
$2.00 in Adjustment Stock.
$25.00 in Option Warrants.
An allotment of Common Stock determined on the basis below specified in section S of this Part Two.
In part three is the "Description and Issue of New Securities," containing, among others, the following:
A. NEW COMPANY.The new securities provided for in the plan, other than the Three Year Six Per Cent Notes and the Option Warrants, are to be issued by Eastern Massachusetts Street Railway Company, the corporation, herein called the new company, organized under chapter 188 of the special acts of the Commonwealth of Massachusetts of the year 1918, herein called the special act. The new company is to acquire substantially all the assets of the Bay State Street Railway Company, including the Massachusetts leases, the Rhode Island lease or its *1143 proceeds, and in the discretion of the Reorganization Managers a lease of all or any of the properties*3405 of the Nashua Street Railway Company.
The Massachusetts leases above referred to are the leases made to the Bay State Street Railway Company or its predecessors or constituents by Boston & Chelsea Railroad Company under date of November 12, 1880, by Boston & Revere Electric Street Railway Company under date of July 1, 1895, by East Middlesex Street Railway Company under date of April 21, 1893, and by Winnisimmet Railroad Company under date of December 18, 1879. The Rhode Island lease above referred to is the lease made to Old Colony Street Railway Company by Newport & Fall River Street Railway Company under date of July 1, 1901.
Item C describes the refunding mortgage bonds and contains the following:
Five Per Cent Refunding Mortgage Bonds, due January 1, 1948, carrying interest from January 1, 1919, payable January 1 and July 1, redeemable at 110 and accrued interest on any semi-annual interest day up to and including July 1, 1938, at 109 and accrued interest on any semi-annual interest day in the calendar year 1939, at 108 and accrued interest on any semi-annual interest day during the next calendar year, and so on at a price of one per cent less each calendar year.
| For sale to holders of Bay State Street Railway Company Preferred | |
| Stock | $449,775 |
| For sale to holders of Massachusetts Electric Company Preferred | |
| Shares | 2,420,634 |
| Total | 2,870,409 |
*3406 Item G describes adjustment stock and states:
Adjustment Stock is to be available for issue under the plan as follows:
| To holders of Bay State Street Railway Company Preferred Stock | |
| exercising their rights of purchase under the plan | $359,820 |
| To secure Three Year Six Per Cent Notes | 7,875,000 |
| For sale to holders of Massachusetts Electric Companies Preferred | |
| Shares | 484,126 |
| Total for above purposes | 8,718,946 |
| In exchange, par for par, for claims against Massachusetts Electric | |
| Companies participating in the plan other than claims in respect | |
| of securities expressly provided for | as required |
Item H describes common stock and states:
Common Stock is to be issued under the plan to the amount permitted by the special act. The Reorganization Managers shall have full authority in their discretion to settle and agree upon this amount. If at the time of the transfer of the principal properties to the new company there are any funds or other assets which the Reorganization Managers shall have received, acquired or controlled in any way in carrying out the plan and which in the opinion of the Reorganization Managers it is not feasible to capitalize, or it is*3407 desirable to withhold as a fund for the payment of debts or discharge of liabilities not assumed by the new company the Reorganization Managers may in their discretion cause such funds or assets to be withheld from transfer to the new company and held and administered on the following terms: that such funds or such assets or their proceeds or so much thereof as may remain after the payment of such debts and discharge of such liabilities ultimately be transferred *1144 to the new company, and that additional Common Stock of the new company be issued against the same and when issued be transferred to those persons or their representatives who would have received such Common Stock had it been issued simultaneously with the transfer to the new company of the principal properties. Pending the issue of such additional common stock the right to receive the same may be represented by such transferable evidence thereof as the Reorganization Managers shall determine.
Common Stock is to be available for issue under the plan as follows:
| For sale to holders of Massachusetts Electric | |
| Companies Common Shares | $1,424,450 |
| For sale to holders of Massachusetts Electric | |
| Companies Preferred Shares | the balance |
*3408 Item K describes option warrants and states:
The option Warrants shall give the right to purchase Adjustment Stock deposited as collateral for the Three Year Six Per Cent Notes at the price and on the terms hereinbefore stated in the preceding section, J, of this Part Three. Option Warrants are referred to as of the par value of the Adjustment Stock which they give the right to buy.
Option Warrants are to be available for issue under the plan as follows:
| For sale to holders of Massachusetts Electric | |
| Companies Preferred Shares | $6,051,585 |
| For sale to holders of Massachusetts Electric | |
| Companies Common Shares | 1,424,450 |
| For other purposes of the plan | 398,965 |
| Total | 7,875,000 |
Part four contains the "Underwriting and other Provisions." In Item A, "Underwriting," is the following:
2. The underwriters are to exercise the rights of purchase of all holders of Bay State Street Railway Company Preferred Stock who fail to exercise their rights of purchase, of all holders of Massachusetts Electric Companies Preferred Shares who fail to exercise their rights of purchase, and the rights of purchase pertaining to $2,591,820 par value of Massachusetts Electric Companies*3409 Common Shares less the par value of all Massachusetts Electric Companies Common Shares the holders of which exercise their rights of purchase under the plan. Upon exercising such rights of purchase, the underwriters are to make the payments called for by such rights of purchase respectively, and receive the securities issuable upon the exercise of such rights of purchase, that is to say, all securities which would have been delivered to the respective holders of such Bay State Railway Company Preferred Stock and Massachusetts Electric Companies Preferred and Common Shares upon their exercising their respective rights of purchase, including the Adjustment Stock offered to holders of Bay State Street Railway Company Preferred Stock exercising their rights of purchase.
B. Provisions for Declaring the Plan Operative:The Reorganization Managers in their absolute discretion may determine whether and when a sufficient amount of the securities of the various classes shall have been deposited to render it advisable to declare the plan operative. In case the Reorganization Managers shall declare the plan operative, they shall publish notice to that effect at least twice a week for two*3410 successive weeks, *1145 beginning on any day in the week, in the Boston Evening Transcript and the Boston Herald two newspapers of general circulation in the City of Boston.
D. Disposition of Present Securities:All bonds, notes, stock and other securities and all obligations of Bay State Street Railway Company, of any of its constituent or predecessor corporations, or of Massachusetts Electric Companies held by Bay State Street Railway Company or by Massachusetts Electric Companies, whether unpledged, pledged, in sinking fund, or otherwise held, and all securities and obligations of Bay State Street Railway Company or of any of its constituent or predecessor corporations paid or acquired by the Receiver, and all securities and claims participating in the plan, may be used by the Reorganization Managers in any manner not inconsistent with the plan for the consummation of the plan, and after the consummation of the plan, so far as then available and except as otherwise provided in the plan, may in the discretion of the Reorganization Managers be transferred to the new company or held for its benefit as a protection to its titles, or as a protection to the holders of its*3411 securities, but all in such manner as is calculated to prevent the reissue, transfer or negotiation thereof as obligations of the new company or charges upon its property, or with other prejudicial effect upon the new company or the holders of its securities.
E. Certain Powers of Reorganization Managers:The securities, claims and moneys deposited or paid under the plan or by the terms hereof becoming subject to the plan shall be held by the respective depositaries subject to the order and control of the Reorganization Managers, as provided in this plan and agreement.
The Reorganization Managers shall also have power to make adjustments with the holders of any claims against the Bay State Street Railway Company or the Massachusetts Electric Companies who do not participate in the plan and for this purpose may in their discretion use any securities issuable by the new company under the plan and not required for other purposes of the plan, or procure the issue of additional amounts of any class of stock. The statements of capitalization in the plan omit consideration of any additional securities which may be issued in exchange for, or issued or used for the purpose of adjusting, *3412 any such claims not represented by securities herein specified.
Under date of March 11, 1919, the court made its decree in the aforesaid proceedings and ordered the sale of the properties of the Bay State Co. The sale took place and the property was purchased for the Eastern Massachusetts Street Railway Co., the "new company" referred to in the special act and in the reorganization plan.
Under date of March 31, 1919, the following notice went to holders of preferred shares of Massachusetts Electric Companies:
To the Preferred Shareholders of
MASSACHUSETTS ELECTRIC COMPANIES
Your committee is informed that, a sufficient number of shares having been deposited under the Plan of Reorganization, the Reorganization Managers have declared the underwriting effective.
For the benefit of those shareholders who have not yet deposited their shares the time for making deposits under the Plan has been extended until the close of business April 4, 1919.
*1146 You are hereby notified of this extension in order that you may have every opportunity to take part in this successful Reorganization.
Respectfully submitted.
MASSACHUSETTS ELECTRIC COMPANIES
PREFERRED SHAREHOLDERS*3413 PROTECTIVE COMMITTEE
ROBERT C. MORSE, Chairman.
HENRY H. CRAPO,
S. H. FESSENDEN,FREDERIC A. FISHER,
ALFRED D. FOSTER,
FRANCIS R. HART,
GEORGE WIGGLESWORTH.
PHILIP M. REYNOLDS, Secretary,
84 State Street, Boston, Mass.
BOSTON, MASS., March 31, 1919.
The following notice was sent by the reorganization managers on May 15, 1920:
REORGANIZATION OF BAY STATE STREET RAILWAY COMPANY AND MASSACHUSETTS ELECTRIC COMPANIES
PLAN AND AGREEMENT DATED MARCH 6, 1919 AS AMENDED
To Holders of Certificates of Deposit Representing
MASSACHUSETTS ELECTRIC COMPANIES PREFERRED SHARES
The securities of Eastern Massachusetts Street Railway Company to which you are entitled, except the allotment of common stock, are now ready for delivery. Upon presentation of your certificates of deposit to Old Colony Trust Company, Depositary, you will receive with respect to each $100 par value of the shares represented thereby
(a) $10 in 5% refunding mortgage bonds, Series "B", due January 1, 1948, with the coupon due July 1, 1920, and all subsequent coupons attached, or scrip exchangeable for such bonds. The bonds are in denominations of $50, $100, $500 and $1,000.
*3414 (b) $2 par value in adjustment stock or scrip exchangeable for such stock.
(c) $25 par value in option warrants or scrip exchangeable for such option warrants. Each $100 par value of option warrants gives the right to purchase one share of adjustment stock at $38 a share until May 1, 1921, and at $40 a share until May 1, 1922.
The allotment of common stock to which you are entitled is not distributed at this time, as the total amount of common stock available has not yet been established. Your certificates of deposit will, accordingly, be stamped with a notation that all securities to which you are entitled under the plan have been delivered, except the allotment of common stock, and when so stamped will be returned to you.
At the same time payment will be made of the interest instalments due July 1, 1919, and January 1, 1920, on said 5% refunding mortgage bonds to all holders of certificates of deposit who have not already received such payment, *1147 and such holders must present ownership certificates (form 1001) duly executed in accordance with the requirements of the federal income tax law.
LEE, HIGGINSON & COMPANY,
Reorganization Managers.
BOSTON, *3415 MASS., May 15, 1920.
Decedent received his allotment under this notice on June 10, 1920. The common stock was ready in 1922 and in a notice of June 21, 1922, of the reorganization managers appears the following:
The common stock of Eastern Massachusetts Street Railway Company to which you are entitled is now ready for delivery. Upon presentation and surrender of you certificates of deposit to Old Colony Trust Company, Depositary, you will be entitled to receive for each $100 par value of the Massachusetts Electric Companies preferred stock represented thereby, $27 par value of common stock of Eastern Massachusetts Street Railway Company.
OPINION.
STERNHAGEN: The Commissioner has treated the situation disclosed by the foregoing facts as governed by section 202(b) of the Revenue Act of 1918, and has disallowed the deduction taken by the decedent. Section 202 is as follows:
SEC. 202. (a) That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, the basis shall be -
(1) In the case of property acquired before March 1, 1913, the fair market price or value of such property as of that*3416 date; and
(2) In the case of property acquired on or after that date, the cost thereof; or the inventory value, if the inventory is made in accordance with section 203.
(b) When property is exchanged for other property, the property received in exchange shall for the purpose of determining gain or loss be treated as the equivalent of cash to the amount of its fair market value, if any; but when in connection with the reorganization, merger, or consolidation of a corporation a person receives in place of stock or securities owned by him new stock or securities of no greater aggregate par or face value, no gain or loss shall be deemed to occur from the exchange, and the new stock or securities received shall be treated as taking the place of the stock, securities, or property exchanged.
When in the case of any such reorganization, merger or consolidation the aggregate par or face value of the new stock or securities received is in excess of the aggregate par or face value of the stock or securities exchanged, a like amount in par or face value of the new stock or securities received shall be treated as taking the place of the stock or securities exchanged, and the amount of the*3417 excess in par or face value shall be treated as a gain to the extent that the fair market value of the new stock or securities is greater than the cost (or if acquired prior to March 1, 1913, the fair market value as of that date) of the stock or securities exchanged.
If the Commissioner is correct in holding that the new stock or securities were received by decedent in place of the Massachusetts Electric preferred shares and that this was in connection with the reorganization of a corporation, his disallowance of the deduction *1148 was necessarily proper, and it is unnecessary to consider whether there was otherwise a realized or sustained loss in any year or particularly in the year 1920 as claimed.
The argument for the petitioner is (1) that the reorganizations contemplated by the statute are only voluntary reorganizations and do not include reorganizations which result from what are called adversary proceedings; and (2) that, even so, this was not an exchange, but a purchase.
We find no justification in the language of the statute for restricting the reorganizations covered thereby to such as the petitioner calls voluntary; and if we could discern such a classification*3418 within its intendment, there is much in the evidence to indicate that this case would fall within the statutory class. The fact that one of the events upon which the reorganization was planned was a receivership instituted by a creditors' bill in equity does not stamp all that follows as a contest or prove that the corporations involved or their stockholders were not voluntarily effecting the reorganization. From the evidence, it would appear that in the circumstances there was substantial cooperation in the plan for the purpose of handling the traction business so that all concerned might fare better than under the old organization. The word reorganization is general and may include a variety of plans and devices. The parties to this plan used the work quite properly but not with any precise or technical meaning, and we see no reason to believe that when Congress in this general statute used the same work at approximately the same time it intended to exclude such situations as this.
We think also that this was an exchange within the meaning of the statute. Under the plan, there were many securities outstanding to be taken care of. The object apparently was to give each a*3419 fair place so that each in relation to the others would have a proportionate interest. One new corporation was being organized to represent many interests. Some of the old securities were exchanged for one class of the new and others for different classes. The particular shares of decedent were apparently applied so that only by the addition of cash could they be balanced. The primary idea as to these shareholders was that they should be enabled to carry on their interest in the business, and the cash requirement was incidental. No stranger could purchase the new securities at the same figure. The holder of stock rights is in a position somewhat analogous. When he buys his new stock he commingles it with the old and both old and new take the same basis on future sale or disposition. . See also .
We are of opinion that the respondent correctly applied section 202(b) to the facts in evidence.
Judgment will be entered for the respondent.