## Facts

- ITT sought to acquire Hartford Fire Insurance Company as part of a diversification strategy.
- Between November 1968 and March 1969, ITT purchased about 8% of Hartford’s outstanding shares for cash on the open market and from mutual funds.
- By April 1969, ITT and Hartford agreed on a stock-for-stock transaction aimed at giving ITT control while Hartford continued as a corporate entity.
- Hartford shareholders approved the plan on November 10, 1969, but the Connecticut Insurance Commissioner refused approval on December 13, 1969, halting that approach.
- ITT then made a formal exchange offer dated May 26, 1970, offering ITT voting stock directly to Hartford shareholders in exchange for Hartford shares.
- More than 17,000 Hartford shareholders participated; the exchange resulted in ITT acquiring well over 80% of Hartford stock through voting stock consideration.
- Taxpayers reported no gain or loss, claiming nonrecognition treatment as a “B reorganization” under I.R.C. §§ 368(a)(1)(B) and 354(a)(1).
- The IRS asserted deficiencies, arguing the “solely for voting stock” requirement was not met because ITT had acquired a minority block for cash before the exchange.

## Issues

1. Whether ITT’s earlier cash purchases of Hartford stock must be considered together with the later stock-for-stock exchange when determining if there was an “acquisition” made “solely” for voting stock under I.R.C. § 368(a)(1)(B).
2. Whether the Tax Court could, on summary judgment, treat the May 1970 exchange as a stand-alone B reorganization without resolving whether the transactions were part of the same overall acquisition.

## Decision

- The First Circuit vacated the Tax Court’s summary judgment for the taxpayers and remanded.
- The court held that the Tax Court erred by treating the May 1970 exchange in isolation as a matter of law.
- The court directed further proceedings to determine whether the cash purchases and the later exchange were part of the same acquisition for purposes of the “solely for voting stock” requirement.
- The court did not decide whether the transaction ultimately qualified as a B reorganization.

## Legal Principles

- For a B reorganization under I.R.C. § 368(a)(1)(B), the acquisition of target stock must be “solely” in exchange for the acquirer’s voting stock.
- When an acquirer uses mixed consideration across related steps (e.g., cash purchases followed by a voting-stock exchange), the proper analysis may require determining whether the steps are part of a single acquisition rather than isolating the final step.
- Summary judgment is improper where qualification turns on unresolved factual questions about whether multiple transactions are sufficiently related to constitute the same acquisition, including timing, intent, and the relationship between steps.

## Conclusion

The First Circuit required the Tax Court to develop and decide factual questions bearing on whether ITT’s earlier cash purchases and later voting-stock exchange were parts of one acquisition; only then could the “solely for voting stock” requirement for B reorganization treatment be properly applied.


Chapman v. Comm’r, 618 F.2d 856 (1st Cir. 1980)