Eldon S. Chapman v. Commissioner of Internal Revenue

This appeal by the Internal Revenue Service from a decision of the Tax Court calls for the construction of certain corporate reorganization provisions of the Internal Revenue Code, 26 U.S.C. §§ 354(a)(1) and 368(a)(1). 1 We must decide whether the *857 requirement of Section 368(a)(1)(B) that the acquisition of stock in one corporation by another be solely in exchange for voting stock of the acquiring corporation is met where, in related transactions, the acquiring corporation first acquires 8 percent of the acquiree’s stock for cash and then acquires more than 80 percent of the acquiree in an exchange of stock for voting stock. The Tax Court agreed with the taxpayers that the latter exchange constituted á valid tax-free reorganization. Reeves v. Commissioner, 71 T.C. 727 (1979).

The Facts

Appellees were among the more than 17,-000 shareholders of the Hartford Fire Insurance Company who exchanged their Hartford stock for shares of the voting stock of International Telephone and Telegraph Corporation pursuant to a formal exchange offer from ITT dated May 26, 1970. 2 On their 1970 tax returns, appellees did not report any gain or loss from these exchanges. Subsequently, the Internal Revenue Service assessed deficiencies in the amounts of $15,452.93 (Chapman), $43,-962.66 (Harry), $55,778.45 (Harwood), and $4,851.72 (Ladd). Appellees petitioned the Tax Court for redetermination of these deficiencies, and their cases were consolidated with those of twelve other former Hartford shareholders. The Tax Court, with five judges dissenting, 3 granted appellees’ motion for summary judgment, and thé Commissioner of Internal Revenue filed this appeal.

The events giving rise to this dispute began in 1968, when the management of ITT, a large multinational corporation, became interested in acquiring Hartford as part of a program of diversification. In October 1968, ITT executives approached Hartford about the possibility of merging the two corporations. This proposal was spurned by Hartford, which at the time was considering acquisitions of its own. In November 1968, ITT learned that approximately 1.3 million shares of Hartford, representing some 6 percent of Hartford’s voting stock, were available for purchase from a mutual fund. After assuring Hartford’s directors that ITT would not attempt to acquire Hartford against its will, ITT con *858 summated the $63.7 million purchase from the mutual fund with Hartford’s blessing. From November 13, 1968 to January 10, 1969, ITT also made a series of purchases on the open market totalling 458,000 shares which it acquired for approximately $24.4 million. A further purchase of 400 shares from an ITT subsidiary in March 1969 brought ITT’s holdings to about 8 percent of Hartford’s outstanding stock, all of which had been bought for cash.

In the midst of this flurry of stock-buying, ITT submitted a written proposal to the Hartford Board of Directors for the merger of Hartford into an ITT subsidiary, based on an exchange of Hartford stock for ITT’s $2 cumulative convertible voting preferred stock. Received by Hartford in December of 1968, the proposal was rejected in February of 1969. A counterproposal by Hartford’s directors led to further negotiations, and on April 9, 1969 a provisional plan and agreement of merger was executed by the two corporations. While not unlike the proposal Hartford had earlier rejected, this plan was somewhat more favorable to Hartford’s stockholders. 4 The merger agreement was conditioned upon approval, as required under state law, by the shareholders of the two corporations and by the Connecticut Insurance Commissioner. In addition, Hartford had an unqualified right to terminate the agreement if it believed there was any likelihood that antitrust litigation would be initiated. Although such litigation in fact materialized, Hartford’s board of directors pushed ahead with the merger, and in October 1969 a Justice Department motion to enjoin the merger was denied by the United States District Court for the District of Connecticut.

Meanwhile, on April 15, 1969, attorneys for the parties sought a ruling from the IRS that the proposed transaction would constitute a reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1954, so that, among other things, gain realized on the exchange by Hartford shareholders would not be recognized, see 26 U.S.C. § 354(a)(1). By private letter ruling, the Service notified the parties on October 13, 1969 that the proposed merger would constitute a nontaxable reorganization, provided ITT unconditionally sold its 8 percent interest in Hartford to a third party before Hartford’s shareholders voted to approve or disapprove the proposal. On October 21, the Service ruled that a proposed sale of the stock to Mediobanca, an Italian bank, would satisfy this condition, and such a sale was made on November 9.

On November 10, 1969, the shareholders of Hartford approved the merger, which had already won the support of ITT’s shareholders in June. On December 13, 1969, however, the merger plan ground to a halt, as the Connecticut Insurance Commissioner refused to endorse the arrangement. ITT then proposed to proceed with a voluntary exchange offer to the shareholders of Hartford on essentially the same terms they would have obtained under the merger plan. 5 After public hearings and the imposition of certain requirements on the post-acquisition operation of Hartford, the insurance commissioner approved the exchange offer on May 23, 1970, and three days later ITT submitted the exchange offer to all Hartford shareholders. More than 95 percent of Hartford’s outstanding stock was exchanged for shares of ITT’s $2.25 cumulative convertible voting preferred stock. The Italian bank to which ITT had conveyed its original 8 percent interest was *859 among those tendering shares, as were the taxpayers in this case.

In March 1974, the Internal Revenue Service retroactively revoked its ruling approving the sale of Hartford stock to Mediobanca, on the ground that the request on which the ruling was based had misrepresented the nature of the proposed sale. Concluding that the entire transaction no longer constituted a non taxable reorganization, the Service assessed tax deficiencies against a number of former Hartford shareholders who had accepted the exchange offer. Appellees, along with other taxpayers, contested this action in the Tax Court, where the case was decided on appellees’ motion for summary judgment. For purposes of this motion, the taxpayers conceded that questions of the merits of the revocation of the IRS rulings were not to be considered; the facts were to be viewed as though ITT had not sold the shares previously acquired for cash to Mediobanca. The taxpayers also conceded, solely for purposes of their motion for summary judgment, that the initial cash purchases of Hartford stock had been made for the purpose of furthering ITT’s efforts to acquire Hartford.

The Issue

Taxpayers advanced two arguments in support of their motion for summary judgment. Their first argument related to the severability of the cash purchases from the 1970 exchange offer. Because 14 months had elapsed between the last of the cash purchases and the effective date of the exchange offer, and because the cash purchases were not part of the formal plan of reorganization entered into by ITT and Hartford, the taxpayers argued that the 1970 exchange offer should be examined in isolation to determine whether it satisfied the terms of Section 368(a)(1)(B) of the 1954 Code. The Service countered that the two sets of transactions — the cash purchases and the exchange offer — were linked by a common acquisitive purpose, and that they should be considered together for the purpose of determining whether the arrangement met the statutory requirement that the stock of the acquired corporation be exchanged “solely for voting stock” of the acquiring corporation. The Tax Court did not reach this argument; in granting summary judgment it relied entirely on the taxpayers’ second argument.

For purposes of the second argument, the taxpayers conceded arguendo that the 1968 and 1969 cash purchases should be considered “parts of the 1970 exchange offer reorganization.” Even so, they insisted upon a right to judgment on the basis that the 1970 exchange of stock for stock satisfied the statutory requirements for a reorganization without regard to the presence of related cash purchases. The Tax Court agreed with the taxpayers, holding that the 1970 exchange in which ITT acquired more than 80 percent of Hartford’s single class of stock for ITT voting stock satisfied the requirements of Section 368(a)(1)(B), so that no gain or loss need be recognized on the exchange under Section 354(a)(1). The sole issue on appeal is whether the Tax Court was correct in so holding. 6

I.

We turn first to the statutory scheme under which this case arose. 7 The basic *860 rule governing exchanges was imported from Section 1002 of the 1954 Code, 26 U.S.C. § 1002. Section 1002 stated that, except as otherwise provided, gain or loss on the exchange of property should be recognized and taken into account in computing a taxpayer’s taxable income. 8 One exception to that rule appears in Section 354(a)(1), which provides that gain or loss shall not be recognized if stock or securities in a corporation are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in another corporation which is a party to the reorganization. 9 This exception does not grant a complete tax exemption for reorganizations, but rather defers the recognition of gain or loss until some later event such as a sale of stock acquired in the exchange. 10 Section 354(a)(1) does not apply to an exchange unless the exchange falls within one of the six categories of “reorganization” defined in Section 368(a)(1). 11 The category relevant to the transactions involved in this case is defined in Section 368(a)(1)(B):

“[T]he term ‘reorganization’ means—

(B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock ... of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition).” 12

The concept of “control” is defined in Section 368(c) as “the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.” 13 Sub *861 section (B) thus establishes two basic requirements for a valid, tax-free stock-for-stock reorganization. First, “the acquisition” of another’s stock must be “solely for voting stock.” Second, the acquiring corporation must have control over the other corporation immediately after the acquisition.

The single issue raised on this appeal is whether “the acquisition” in this case complied with the requirement that it be “solely for . voting stock.” It is well settled that the “solely” requirement is mandatory; if any part of “the acquisition” includes a form of consideration other than voting stock, the transaction will not qualify as a (B) reorganization. See Helvering v. Southwest Consolidated Corp., 315 U.S. 194, 198, 62 S.Ct. 546, 550, 86 L.Ed. 789 (1942) (“ ‘Solely’ leaves no leeway. Voting stock plus some other consideration does not meet the statutory requirement”). The precise issue before us is thus how broadly to read the term “acquisition.” The Internal Revenue Service argues that “the acquisition ... of stock of another corporation” must be understood to encompass the 1968-69 cash purchases as well as the 1970 exchange offer. If the IRS is correct, “the acquisition” here fails as a (B) reorganization. The taxpayers, on the other hand, would limit “the acquisition” to the part of a sequential transaction of this nature which meets the requirements of subsection (B). They argue that the 1970 exchange of stock for stock was itself an “acquisition” by ITT of stock in Hartford solely in exchange for ITT’s voting stock, such that after the exchange took place ITT controlled Hartford. Taxpayers contend that the earlier cash purchases of 8 percent, even if conceded to be part of the same acquisitive plan, are essentially irrelevant to the tax-free reorganization otherwise effected.

The Tax Court accepted the taxpayers’ reading of the statute, effectively overruling its own prior decision in Howard v. Commissioner, 24 T.C. 792 (1955), rev’d on other grounds, 238 F.2d 943 (7th Cir. 1956). 14 The plurality opinion stated its “narrow” holding as follows:

“We hold that where, as is the case herein, 80 percent or more of the stock of a corporation is acquired in one transaction, 18 in exchange for which only voting stock is furnished as consideration, the ‘solely for voting stock’ requirement of section 368(a)(1)(B) is satisfied.

18 In determining what constitutes ‘one transaction,’ we include all the acquisitions from shareholders which were clearly part of the same transaction.”

71 T.C. at 741. The plurality treated as “irrelevant” the 8 percent of Hartford’s stock purchased for cash, although the opinion left somewhat ambiguous the question whether the 8 percent was irrelevant because of the 14-month time interval separating the transactions or because the statute was not concerned with transactions over and above those mathematically necessary to the acquiring corporation’s attainment of control. 15

II.

For reasons set forth extensively in section III of this opinion, we do not accept *862 the position adopted by the Tax Court. 16 Instead we side with the Commissioner on the narrow issue presented in this appeal, that is, the correctness of taxpayers’ so-called “second” argument premised on an assumed relationship between the cash and stock transactions. As explained below, we find a strong implication in the language of the statute, in the legislative history, in the regulations, and in the decisions of other courts that cash purchases which are concededly “parts of” a stock-for-stock exchange must be considered constituent elements of the “acquisition” for purposes of applying the “solely for . voting stock” requirement of Section 368(a)(1)(B). We believe the presence of non-stock consideration in such an acquisition, regardless of whether such consideration is necessary to the gaining of control, is inconsistent with treatment of the acquisition as a nontaxable reorganization. It follows for purposes of taxpayers’ second argument— which was premised on the assumption that the cash transactions were part of the 1970 exchange offer reorganization — that the stock transfers in question would not qualify for nonrecognition of gain or loss.

Our decision will not, unfortunately, end this case. The Tax Court has yet to rule on taxpayers’ “first” argument. To be sure, appellees urge that in the event of our reversing the Tax Court on the single issue it chose to address, we should consider upholding its judgment on the alternative ground that the prior cash purchases in the instant case were, as a matter of law, unrelated to the exchange offer. The taxpayers are correct that an appellee may urge any contention appearing in the record in support of the decree, whether or not the issue was addressed by the lower court. Massachusetts Mutual Life Insurance Co. v. Ludwig, 426 U.S. 479, 480-81, 96 S.Ct. 2158, 2159, 48 L.Ed.2d 784 (1976) (per curiam); United States v. American Railway Express Co., 265 U.S. 425, 435, 44 S.Ct. 560, 563, 68 L.Ed. 1087 (1924). Taxpayers’ so-called first argument deserves, however, a more focused and deliberate inquiry than we can give it in the present posture of the case. The Commissioner has briefed the issue in only a cursory fashion, and oral argument was devoted almost entirely to the treatment of cash and stock transactions which, while separate, were conceded to be a part of one another. The question of what factors should determine, for purposes of Section 368(a)(1)(B), whether a given cash purchase is truly “related” to a later exchange of stock requires further consideration by the Tax Court, as does the question of the application of those factors in the present case. We therefore will remand this case to the Tax Court for further proceedings on the question raised by the taxpayers’ first argument in support of their motion for summary judgment.

We view the Tax Court’s options on remand as threefold. It can hold that the cash and stock transactions here in question are related as a matter of law — the position *863 urged by the Commissioner — in which case, under our present holding, there would not be a valid (B) reorganization. On the other hand, the Tax Court may find that the transactions are as a matter of law unrelated, so that the 1970 exchange offer was simply the final, nontaxable step in a permissible creeping acquisition. Finally, the court may decide that, under the legal standard it adopts, material factual issues remain to be decided, so that a grant of summary judgment would be inappropriate at this time. 17

III.

A.

Having summarized in advance our holding, and its intended scope, we shall now revert to the beginning of our analysis, and, in the remainder of this opinion, describe the thinking by which we reached the result just announced. We begin with the words of the statute itself. The reorganization definitions contained in Section 368(a)(1) are precise, technical, and comprehensive. They were intended to define the exclusive means by which nontaxable corporate reorganizations could be effected. See Treas. Reg. § 1.368-1 (1960); 3 J. Mertens, The Law of Federal Income Taxation § 20.86 at 364 (1972). In examining the language of the (B) provision, 17A we discern two possible meanings. On the one hand, the statute could be read to say that a successful reorganization occurs whenever Corporation X exchanges its own voting stock for stock in Corporation Y, and, immediately after the transaction, Corporation X controls more than 80 percent of Y’s stock. On this reading, purchases of shares for which any part of the consideration takes the form of “boot” should be ignored, since the definition is only concerned with transactions which meet the statutory requirements as to consideration and control. To take an example, if Corporation X bought 50 percent of the shares of Y, and then almost *864 immediately exchanged part of its voting stock for the remaining 50 percent of Y’s stock, the question would arise whether the second transaction was a (B) reorganization. Arguably, the statute can fee read to support such a finding. In the second transaction, X exchanged only stock for stock (meeting the “solely” requirement), and after the transaction was completed X owned Y (meeting the “control” requirement).

The alternative reading of the statute— the one which we are persuaded to adopt— treats the (B) definition as prescriptive, rather than merely descriptive. We read the statute to mean that the entire transaction which constitutes “the acquisition” must not contain any nonstock consideration if the transaction is to qualify as a (B) reorganization. In the example given above, where X acquired 100 percent of Y’s stock, half for cash and half for voting stock, we would interpret “the acquisition” as referring to the entire transaction, so that the “solely for . . . voting stock” requirement would not be met. We believe if Congress had intended the statute to be read as merely descriptive, this intent would have been more clearly spelled out in the statutory language. 18

We recognize that the Tax Court adopted neither of these two readings. For reasons to be discussed in connection with the legislative history which follows, the Tax Court purported to limit its holding to cases, such as this one, where more than 80 percent of the stock of Corporation Y passes to Corporation X in exchange solely for voting stock. The Tax Court presumably would assert that the 50/50 hypothetical posited above can be distinguished from this case, and that its holding implies no view as to the hypothetical. See 71 T.C. at 742. The plurality opinion recognized that the position it adopted creates no small problem with respect to the proper reading of “the acquisition” in the statutory definition. See 71 T.C. at 739, 741. In order to distinguish the 80 percent case from the 50 percent case, it is necessary to read “the acquisition” as referring to at least the amount of stock constituting “control” (80 percent) where related cash purchases are present. Yet the Tax Court recognized that “the acquisition” cannot always refer to the conveyance of an 80 percent bloc of stock in one transaction, since to do so would frustrate the intent of the 1954 amendments to permit so-called “creeping acquisitions.” 19

The Tax Court’s interpretation of the statute suffers from a more fundamental defect, as well. In order to justify the limitation of its holding to transactions involving 80 percent or more of the acquiree’s stock, the Tax Court focused on the passage of control as the primary requirement of the (B) provision. This focus is misplaced. Under the present version of the statute, the passage of control is entirely irrelevant; the only material requirement is that the ■ acquiring corporation have control immediately after the acquisition. As the statute explicitly states, it does not matter if the *865 acquiring corporation already has control before the transaction begins, so long as such control exists at the completion of the reorganization. Whatever talismanic quality may have attached to the acquisition of control under previous versions of the Code, see Part III B infra, is altogether absent from the version we must apply to this ease. In our view, the statute should be read to mean that the related transactions that constitute “the acquisition,” whatever percentage of stock they may represent, must meet both the “solely for voting stock” and the “control immediately after” requirements of Section 368(a)(1)(B). Neither the reading given the statute by the Tax Court, nor that proposed as the first alternative above, adequately corresponds to the careful language Congress employed in this section of the Code.

B.

The 1924 Code defined reorganization, in part, as “a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation).” Pub.L.No. 68-176, c. 234, § 203(h)(1), 43 Stat. 257. Although the statute did not specifically limit the consideration that could be given in exchange for stock or assets, courts eventually developed the so-called “continuity of interest” doctrine, which held that exchanges that did not include some quantum of stock as consideration were ineligible for reorganization treatment for lack of a continuing property interest on the part of the acquiree’s shareholders. See, e. g., Cortland Specialty Co. v. Commissioner, 60 F.2d 937, 939-40 (2d Cir. 1932), cert. denied, 288 U.S. 599, 53 S.Ct. 316, 77 L.Ed. 975 (1933); Pinellas Ice Co. v. Commissioner, 287 U.S. 462, 470, 53 S.Ct. 257, 260, 77 L.Ed. 428 (1933).

Despite this judicial development, sentiment was widespread in Congress that the reorganization provisions lent themselves to abuse, particularly in the form of so-called “disguised sales.” See, e. g., “Prevention of Tax Avoidance,” Report of Subcomm. of House Comm, on Ways and Means, 73d Cong., 2d Sess. (Dec. 4, 1933). In 1934, the House Ways and Means Committee proposed abolition of the stock-acquisition and asset-acquisition reorganizations which had appeared in the parenthetical section of the 1924 Act quoted above. See H.R.Rep.No. 704, 73d Cong., 2d Sess. 12-14 (1939-1 Cum. Bull. (Part 2) 554, 563-65). The Senate Finance Committee countered with a proposal to retain these provisions, but with “restrictions designed to prevent tax avoidance.” S.Rep.No. 558, 73d Cong., 2d Sess. 15 (1939-1 Cum.Bull. (Part 2) 586, 598). 20 One of these restrictions was the requirement that the acquiring corporation obtain at least .80 percent, rather than a bare majority, of the stock of the acquiree. The second requirement was stated in the Senate Report as follows: “the acquisition, whether of stock or of substantially all the properties, must be in exchange solely for the voting stock of the acquiring corporation.” Id. at 17. The Senate amendments were enacted as Section 112(g)(1) of the Revenue Act of 1934, 48 Stat. 680, which provided in pertinent part:

“(1) The term ‘reorganization’ means (A) a statutory merger or consolidation, or (B) the acquisition by one corporation in exchange solely for all or a part of its voting stock: of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of another corporation; or of substantially all the properties of another corporation . . . .”

Congress revised this definition in 1939 in response to the Supreme Court’s decision in United States v. Hendler, 303 U.S. 564, 58 S.Ct. 655, 82 L.Ed. 1018 (1938), which held that an acquiring corporation’s assumption *866 of the acquiree’s liabilities in an asset-acquisition was equivalent to the receipt of “boot” by the acquiree. Since virtually all asset-acquisition reorganizations necessarily involve the assumption of the acquiree’s liabilities, a literal application of the “solely for . voting stock” requirement would have effectively abolished this form of tax-free reorganization. In the Revenue Act of 1939, Congress separated the stock-acquisition and asset-acquisition provisions in order to exempt the assumption of liabilities in the latter category of cases from the “solely for . . . voting stock” requirement. 21 Section 112(g)(1) of the revised statute then read, in pertinent part, as follows:

“(1) the term ‘reorganization’ means (A) a statutory merger or consolidation, or (B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of another corporation, or (C) the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of substantially all the properties of another corporation, but in determining whether the exchange is solely for voting stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to liability, shall be disregarded . . . .”

The next major change in this provision occurred in 1954. In that year, the House Bill, H.R. 8300, would have drastically altered the corporate reorganization sections of the Tax Code, permitting, for example, both stock and “boot” as consideration in a corporate acquisition, with gain recognized only to the extent of the “boot.” See H.R. Rep.No. 1337, 83d Cong., 2d Sess. A118-A119, A132-A134, reprinted in [1954] U.S. Code Cong. & Admin.News, pp. 4017, 4256-4257, 4269-4271. The Senate Finance Committee, in order to preserve the familiar terminology and structure of the 1939 Code, proposed a new version of Section 112(g)(1), which would retain the “solely for . voting stock” requirement, but alter the existing control requirement to permit so-called “creeping acquisitions.” Under the Senate Bill, it would no longer be necessary for the acquiring corporation to obtain 80 percent or more of the acquiree’s stock in one “reorganization.” The Senate’s proposal permitted an acquisition to occur in stages; a bloc of shares representing less than 80 percent could be added to earlier acquisitions, regardless of the consideration given earlier, to meet the control requirement. The Report of the Senate Finance Committee gave this example of the operation of the creeping acquisition amendment:

“[Corporation A purchased 30 percent of the common stock of corporation W (the only class of stock outstanding) for cash in 1939. On March 1, 1955, corporation A offers to exchange its own voting stock, for all the stock of corporation W tendered within 6 months from the date of the offer. Within the 6 months period corporation A acquires an additional 60 percent of the stock of W for its own voting stock. As a result of the 1955 transactions, corporation A will own 90 percent of all of corporation W’s stock. No gain or loss is recognized with respect to the exchanges of the A stock for the W stock.”

1954 Senate Report, supra note 17, at 273, U.S.Code Cong. & Admin.News 1954, p. 4911. See also Treas.Reg. § 1.368-2(c) (1960).

At the same time the Senate was revising the (B) provision, (while leaving intact the “solely for . . . voting stock” requirement), it was also rewriting the (C) provision to explicitly permit up to 20 percent of the consideration in an asset acquisition to take the form of money or other nonstock property. See 26 U.S.C. § 368(a)(2)(B). The Senate revisions of subsections (B) and (C) were ultimately passed, and have remained largely unchanged since 1954. (See *867 footnote 1 for present text.) Proposals for altering the (B) provision to allow “boot” as consideration have been made, but none has been enacted. 22

As this history shows, Congress has had conflicting aims in this complex and difficult area. On the one hand, the 1934 Act evidences a strong intention to limit the reorganization provisions to prevent forms of tax avoidance that had proliferated under the earlier revenue acts. This intention arguably has been carried forward in the current versions through retention of the “solely for . . . voting stock” requirement in (B), even while the (C) provision was being loosened. On the other hand, both the 1939 and 1954 revisions represented attempts to make the reorganization procedures more accessible and practical in both the (B) and (C) areas. In light of the conflicting purposes, we can discern no clear Congressional mandate in the present structure of the (B) provision, either in terms of the abuses sought to be remedied or the beneficial transactions sought to be facilitated. At best, we think Congress has drawn somewhat arbitrary lines separating those transactions that resemble mere changes in form of ownership and those that contain elements of a sale or purchase arrangement. In such circumstances we believe it is more appropriate to examine the specific rules and requirements Congress enacted, rather than some questionably delineated “purpose” or “policy,” to determine whether a particular transaction qualifies for favorable tax treatment.

To the extent there is any indication in the legislative history of Congress’ intent with respect to the meaning of “acquisition” in the (B) provision, we believe the intent plainly was to apply the “solely” requirement to all related transactions. In those statutes where Congress intended to *868 permit cash or other property to be used as consideration, it made explicit provision therefor. See, e. g., 26 U.S.C. § 368(a)(2)(B). It is argued that in a (B) reorganization the statute can be satisfied where only 80 percent of the acquiree’s stock is obtained solely for voting stock, so that additional acquisitions are irrelevant and need not be considered. In light of Congress’ repeated, and increasingly sophisticated, enactments in this area, we are unpersuaded that such an important question would have been left unaddressed had Congress intended to leave open such a possibility. We are not prepared to believe that Congress intended — either when it enacted the 1934, the 1939, or the 1954 statutes — to permit a corporation to exchange stock tax-free for 80 percent of the stock of another and in a related transaction to purchase the remaining 20 percent for cash. The only question we see clearly left open by the legislative history is the degree of separation required between the two transactions before they can qualify as a creeping acquisition under the 1954 amendments. This is precisely the issue the Tax Court chose not to address, and it is the issue we now remand to the Tax Court for consideration.

C.

Besides finding support for the IRS position both in the design of the statute and in the legislative history, we find support in the regulations adopted by the Treasury Department construing these statutory provisions. We of course give weight to the statutory construction contemporaneously developed by the agency entrusted by Congress with the task of applying these laws. See, e. g., Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 315, 53 S.Ct. 350, 358, 77 L.Ed. 796 (1933); Edwards’ Lessee v. Darby, 25 U.S. (12 Wheat.) 206, 210, 6 L.Ed. 603 (1827); 2 K. Davis, Administrative Law Treatise § 7:14 (2d ed. 1979). The views of the Treasury on tax matters, while by no means definitive, undoubtedly reflect a familiarity with the intricacies of the tax code that surpasses our own.

Appellees point to language appearing in the regulations under the 1934 Act which seems to them to suggest that only the 80 percent of stock essential for control must meet the “solely” requirement:

“In order to qualify as a ‘reorganization’ under section 112(g)(1)(B), the acquisition by the acquiring corporation of the required amount of the stock of the other corporation must be in exchange solely for all or a part of the voting stock of the acquiring corporation. If for example Corporation X exchanges nonvoting preferred stock or bonds in addition to all or part of its voting stock in the acquisition of the required amount of stock in Corporation Y, the transaction is not a ‘reorganization’ under section 112(g)(1)(B).”

Reg. Ill, § 29.112(g)-2 (emphasis supplied). While it is possible to read the “required amount” language as equivalent to the “80 per centum” requirement of the 1934 Act, we find it equally plausible to read the language as simply reiterating the “at least 80 per centum” notion. In other words, the “required amount” does not mean that only 80 percent of the exchange need be for stock, but rather means that the bloc of shares constituting no less than 80 percent — and possibly more — -must all be exchanged for stock only. See Howard v. Commissioner, 238 F.2d 943, 945 (7th Cir. 1956).

When we turn to the regulations under the 1954 Act, the implication that the entire transaction must be judged under the “solely” test is stronger still.

“In order to qualify as a ‘reorganization’ under section 368(a)(1)(B), the acquisition by the acquiring corporation of stock of another corporation must be in exchange solely for all or a part of the voting stock of the acquiring corporation and the acquiring corporation must be in control of the other corporation immediately after the transaction. If, for example, Corporation X in one transaction exchanges nonvoting preferred stock or bonds in addition to all or a part of its voting stock in the acquisition of stock of Corporation Y, the transaction is not a *869 reorganization under section 368(a)(1)(B).” (Emphasis supplied.)

reas.Reg. § 1.368-2(c) (1960). The equaion of “transaction” and “acquisition” in the above-quoted passage is particularly significant, since it seems to imply a functional test of what constitutes “the acquisition” as opposed to a view of “the acquisition” as simply that part of a transaction which otherwise satisfies the statutory requisites. 23 The regulation also goes on to say, in explaining the treatment of creeping acquisitions:

“The acquisition of stock of another corporation by the acquiring corporation solely for its voting stock ... is permitted tax-free even though the acquiring corporation already owns some of the stock of the other corporation. Such an acquisition is permitted tax-free in a single transaction or in a series of transactions taking place over a relatively short period of time such as 12 months.”

Treas.Reg. § 1.368-2(c). 24 This regulation spells out the treatment afforded related acquisitions, some of which occur before and some after the acquiring corporation obtains the necessary 80 percent of stock in the acquiree. It would be incongruous, to say the least, if a series of stock-for-stock transactions could be combined so that the tax-free treatment of later acquisitions applied to earlier ones as well, yet a related cash purchase would be ignored as irrelevant. This section reinforces our view that all related transactions must be considered part of “the acquisition” for purposes of applying the statute.

D.

Finally, we turn to the body of case law that has developed concerning (B) reorganizations to determine how previous courts have dealt with this question. Of the seven prior cases in this area, all to a greater or lesser degree support the result we have reached, and none supports the result reached by the Tax Court. We recognize that the Tax Court purported to distinguish these precedents from the case before it, and that reasonable persons may differ on the extent to which some of these cases directly control the question raised here. Nevertheless, after carefully reviewing the precedents, we are satisfied that the decision of the Tax Court represents a sharp break with the previous judicial constructions of this statute, and a departure from the usual rule of stare decisis, which applies with special force in the tax field where uncertainty and variety are ordinarily to be avoided.

Of the seven precedents, the most significant would seem to be Howard v. Commissioner, 238 F.2d 943 (7th Cir. 1956), rev’g, 24 T.C. 792 (1955), which stands out as the one case prior to Reeves that specifically addressed the issue raised herein. In Howard, the Truax-Traer Coal Company acquired 80.19 percent of the outstanding stock of Binkley Coal Comp