## Facts

- Pinellas Ice & Cold Storage Co. and a related, commonly owned ice company operated in St. Petersburg, Florida.
- Management negotiated to sell both companies’ properties, distribute proceeds to shareholders, and dissolve the corporations.
- A purchaser sought to acquire both companies’ properties as a single acquisition.
- Pinellas entered a written agreement describing itself as “vendor” and the buyer as “purchaser,” providing for the sale of substantially all physical property and goodwill for $1,400,000.
- The consideration consisted of $400,000 cash at closing and $1,000,000 payable in three short-term installments, evidenced by the buyer’s 6% promissory notes and secured by collateral related to a new corporation to hold title or by liens on the property.
- The transaction included noncompetition commitments by certain individuals for ten years within Pinellas County.
- Pinellas treated the transfer as a nonrecognition transaction under § 203 of the Revenue Act of 1926 and reported no gain; the Commissioner treated it as a taxable sale and assessed a deficiency.
- The Board of Tax Appeals and the Fifth Circuit upheld the deficiency.

## Issues

1. Whether transferring substantially all corporate assets for cash and short-term promissory notes qualifies as a nonrecognition “exchange” in a “reorganization” under § 203(b)(3) and § 203(h) of the Revenue Act of 1926.
2. Whether the purchaser’s short-term installment notes are “securities” within § 203(b)(3) so that gain is not recognized.

## Decision

- The Supreme Court affirmed the Fifth Circuit.
- The Court held the transaction was a taxable sale for money consideration (cash plus installment notes), not a qualifying reorganization exchange.
- Gain on the transfer was recognizable, and the Commissioner’s deficiency assessment was sustained.

## Legal Principles

- Reorganization nonrecognition under § 203(b)(3) applies to exchanges of property solely for “stock or securities” of a corporation that is a party to a reorganization; it does not shelter a cash-out sale of assets for a fixed price.
- The statutory reorganization definition may reach certain asset acquisitions beyond technical mergers, but it does not extend to purchases that are, in substance, sales for cash or its equivalent followed by distribution and dissolution.
- Short-term purchase-money promissory notes used to pay a fixed price are treated as deferred cash payments, not “securities” of the type contemplated for reorganization nonrecognition.
- A qualifying reorganization generally requires the transferor’s owners to retain a continuing proprietary stake in the acquiring enterprise; a planned liquidation and distribution of proceeds indicates a taxable sale rather than a reorganization.

## Conclusion

Because Pinellas transferred its assets for a fixed price paid in cash and short-term installment notes, with the sellers intending to distribute proceeds and dissolve, the transaction was a taxable sale rather than a nonrecognition exchange in a reorganization under the Revenue Act of 1926.


Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462 (1933)