## Facts

- Bausch & Lomb Optical Company (B&L) manufactured and sold ophthalmic products and owned 9,923¼ shares (about 79.95%) of Riggs Optical Company (Riggs).
- B&L sought operating economies by combining Riggs into B&L through a prearranged plan.
- On April 22, 1950, B&L issued 105,508 shares of its unissued voting stock to acquire all Riggs assets; 433 additional B&L shares were issued to 12 Riggs employees.
- On May 2, 1950, Riggs dissolved and distributed its only asset (B&L stock) pro rata to Riggs shareholders under the same plan.
- In the distribution, B&L received 84,347 shares of its own stock (as treasury stock) and the remaining 21,161 shares went to Riggs minority shareholders.
- The Commissioner determined the transaction’s substance was an acquisition of Riggs assets partly for B&L voting stock and partly for B&L’s Riggs stock, producing taxable long-term capital gain to B&L on Riggs’s liquidation in 1950.
- The Tax Court sustained the deficiency, treating the steps as a single transaction and the surrender of B&L’s Riggs shares as additional consideration; B&L sought review.

## Issues

1. Whether B&L’s acquisition of Riggs’s assets followed by Riggs’s dissolution qualified as a tax-free “C” reorganization under I.R.C. 1939 § 112(g)(1)(C), or instead was a taxable liquidation producing recognizable gain.
2. Whether, considering the plan as an integrated transaction, B&L furnished consideration beyond its voting stock—specifically, its Riggs shares—so the assets were not acquired “solely for” voting stock as required for a “C” reorganization.

## Decision

- The Second Circuit affirmed the Tax Court.
- The court treated the asset transfer and subsequent dissolution/distribution as one integrated, prearranged transaction.
- In substance, B&L acquired Riggs’s assets in exchange for both (i) 21,161 shares of B&L voting stock ultimately delivered to Riggs minority shareholders and (ii) B&L’s Riggs shares, which were surrendered as part of the plan.
- Because the acquisition was not “solely for” B&L voting stock, it did not qualify as a “C” reorganization under § 112(g)(1)(C).
- The Commissioner properly treated the transaction as a taxable liquidation of Riggs, with taxable gain to B&L in 1950.

## Legal Principles

- Courts may collapse formally separate steps into a single transaction when they are prearranged parts of one plan and produce one intended result (step-transaction analysis).
- For a “C” reorganization under I.R.C. 1939 § 112(g)(1)(C), the acquiring corporation must receive substantially all target assets in exchange “solely” for the acquirer’s voting stock; any additional consideration disqualifies the transaction.
- A shareholder’s surrender of target stock as part of an integrated plan can constitute additional consideration to the target’s shareholders for the asset transfer.
- Substance controls over form in determining whether nonrecognition provisions apply and whether gain from a liquidation must be recognized.

## Conclusion

The Second Circuit held that B&L’s planned two-step combination with its subsidiary was a single transaction that included consideration beyond voting stock, so it failed the “solely for voting stock” requirement for a “C” reorganization and was taxable as a liquidation with recognized gain in 1950.


Bausch & Lomb Optical Co. v. Commissioner, 267 F.2d 75 (2d Cir. 1959)