## Facts

- Minnesota Tea Company, a closely held Minnesota corporation, reorganized its business and assets in 1928.
- The company caused the formation of Peterson Investment Company, transferred certain assets to it for all of its stock, and immediately distributed that Peterson stock to Minnesota Tea’s shareholders.
- Minnesota Tea then transferred substantially all remaining assets to Grand Union Company in exchange for 18,000 shares of Grand Union stock and $426,842.52 in cash.
- Minnesota Tea retained the Grand Union stock but distributed the cash to its shareholders, who assumed certain corporate debts.
- The Commissioner treated the transaction as taxable; the Board of Tax Appeals concluded no “reorganization” occurred; the court of appeals reversed and treated the transaction as a reorganization.

## Issues

1. Whether Minnesota Tea’s transfer of substantially all assets to Grand Union for stock plus cash qualified as a “reorganization” under § 112(i)(1)(A) of the Revenue Act of 1928.
2. Whether receipt of substantial cash consideration prevents reorganization treatment under § 112(i)(1)(A).
3. Whether § 112(i)(1)(B)’s “control” requirement limits the scope of § 112(i)(1)(A).
4. Whether dissolution of the transferor corporation is required for reorganization status.

## Decision

- The Supreme Court affirmed the court of appeals and rejected the Board of Tax Appeals’ conclusion that no reorganization occurred.
- The transaction qualified as a “reorganization” under § 112(i)(1)(A), which includes acquisition by one corporation of substantially all properties of another.
- A large cash component did not bar reorganization treatment because Minnesota Tea also received a substantial equity interest in Grand Union.
- Clause (B)’s control requirement did not narrow clause (A).
- Dissolution of the transferor was not required for reorganization status.

## Legal Principles

- Under § 112(i)(1)(A), an acquisition of “substantially all” of a corporation’s properties may qualify as a reorganization even if structured as an asset transfer for stock and cash.
- Continuity of proprietary interest is required for clause (A) reorganizations: the interest received in the transferee must be “definite and material” and represent a substantial part of the value of the assets transferred.
- Receipt of significant “boot” (cash) does not defeat reorganization classification where the transferor also receives a material equity stake in the transferee.
- The “control” requirement in § 112(i)(1)(B) applies to a different category of reorganizations and does not restrict § 112(i)(1)(A).
- The statute does not require dissolution of the transferor corporation as a condition of reorganization treatment.

## Conclusion

The Court held that Minnesota Tea’s transfer of substantially all assets to Grand Union for stock and cash was a reorganization under § 112(i)(1)(A) because Minnesota Tea received a definite, material continuing equity interest, and neither substantial cash consideration, lack of control, nor failure to dissolve defeated reorganization status.


Helvering v. Minn. Tea Co., 296 U.S. 378 (1935)