author: Matthews :

text:
    Olive Hume Oliver, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 65640.
    Promulgated July 31, 1934.

      8. Leo Buslander, Esq., for the petitioner.

      B. U. Steele, Esq., for the respondent.
   OPINION.

Matthews :

The question involved is the basis to be used in computing gain or loss from sales of the stock and rights of the American Radiator & .Standard Sanitary Corporation, which were sold in 1929. The pertinent provisions of the Revenue Act of 1928, which is here applicable, are set forth in the margin. The stock and rights sold were acquired in 1929 upon an exchange of Standard Sanitary-stock for stock of the American Radiator & Standard Sanitary Corporation, upon a statutory reorganization. The exchange, therefore, was a nontaxable transaction (sec. 112 (b) (3)) and the basis of the stock and rights received is the cost of the Standard Sanitary stock exchanged. Sec. 113 (a)(6).

The shares of Standard Sanitary stock exchanged were acquired in March 1928 in a three-for-one exchange of stock previously acquired by gift and stock dividend. Under the provisions of section 112 (b) (2), no gain or loss was recognized on the exchange in March 1928, and the basis of the stock received is the same as in the case of the stock exchanged. Sec. 113 (a) (6).

The stock exchanged in March 1928 consisted of the 5,000 shares received as a gift in 1923, the 1,250 shares received as a stock dividend in February 1925, and the 100 shares received as a gift in June 1925. The stock dividend, not being taxable when it was received, takes a pro rata portion of the cost of the stock with respect to which it was distributed. Therefore, the basis of the stock exchanged in 1928 was the basis of the stock received by gift and this basis is the same as it would be in the hands of the donor. Sec. 113 (a) (2).

There are no records of the deceased husband available to show the actual cost of the Standard Sanitary Manufacturing Co. stock purchased after March 1, 1913. In determining the cost of the shares purchased after March 1,1913, and through October 1919, and of the 100 shares given to his wife on June 30, 1925, respondent used the market quotations on the Pittsburgh and Louisville exchanges on the dates nearest the dates of purchase. Petitioner accepted these values as representing cost of the lots purchased on .those dates and offered in evidence the market quotations of the stock on the date nearest each purchase made subsequent to October 1919, as the cost of the stock purchased on such dates. The stock was traded in on the Pittsburgh exchange and the quotations offered were the prices at which the stock sold. In the absence of evidence as to actual cost to petitioner’s husband, such values represent the cost of the stock to petitioner’s husband. Sec. 113 (a)(2), and also sec. 202 (a)(2), Revenue Act of 1921.

The 100 shares given to petitioner by her husband in June 1925 cost him $10,150. The 5,000 shares given to petitioner by her husband were acquired by him in February 1923, upon an exchange of his then holdings of 2,948 shares of $100 par value stock for 11,792 shares of $25 par value stock. The cost to Oliver of the 2,948 shares was $249,573. The question is, what was the basis to Oliver of the 5,000 shares given to petitioner?

The petitioner contends that the cost to Oliver of the 2,948 shares of stock exchanged, $249,573, should be averaged over the 11,792 shares received on the exchange and that this will give the basis of each of the 5,000 shares received by gift. This method would give $105,823 as the basis of the 5,000 shares. Petitioner cites Christian, W. Von Gunten, 28 B.T.A. 702, as authority for her contention.

Respondent contends that the first in, first out rule of article 58 of Regulations 74 is applicable. In applying this rule, he took the purchases made by Oliver through October 1919 as being the first five lots purchased, which, when increased by the 100 percent and 40 percent stock dividends and the four-for-one exchange in 1923, amounted to 40 shares over 5,000. He eliminated the 40 shares and the cost attributable thereto from lot 5 and arrived at the number of shares in the several lots and their cost as follows:

He then computed the number of shares in each lot after the stock dividend of February 1925, and the three-for-one exchange in March 1928. He next computed the number of shares of American Radiator stock at the rate of 1.09043 to which the number of Standard Sanitary shares in each lot would be equivalent; eliminated certain portions of the fractional share in each lot; allocated the cost of the several lots of the Standard stock to the American Radiator stock and rights to which it was equivalent; and determined that the 663 shares of the American Radiator stock sold were part of lot No. 1, acquired by Oliver prior to March 1, 1913, at a cost of $14,698. Pie computed that lot No. 1 was equivalent to 4,519% shares of American Radiator stock with a cost of $14,012.98 after eliminating part of the fractional share, and the cost allocable to the rights, or $3.05977 per share. He used this figure as the basis of each of the 663 shares sold in determining the amount of the gain.

In Christian W. Von Gunten, supra, we held that upon a reorganization the cost of the stock exchanged is the basis of the stock received and must be allocated equally to all the shares received. That case involved only one exchange, that upon reorganization. Respondent had sought to apply the first in, first out rule of article 58 of Regulations 74 in determining the gain on the sale of some of the stock received upon reorganization. With respect to this we said:

* * * The courts and this Board have approved of this rule when properly-applied because some simple and uniform rule was needed and the Commissioner by his regulations supplied one. Cf. Burdett Stryker, 21 B.T.A. 561; David Stewart, 17 B.T.A. 604; Snyder v. Commissioner, 54 Fed. (2d) 57, affirming John A. Snyder, 20 B.T.A. 778. The situation to which the regulations apply is where there has been a sale “ from lots purchased at different times and at different prices and the identity of the lots can not be determined.” In such cases the regulations charge the earliest sales against the earliest purchases. There is no analogy between cases expressly covered by those regulations and the present case, which is not covered by any regulation. Here the petitioner sold Borden stock. He had acquired all of his Borden stock at one time. Thus the sale was not made “ from lots purchased at different times and at different prices.”
Furthermore, there is no need for any rule in a case like this except the rule that the basis for all shares acquired at one time shall be prorated equally among thp shares. The petitioner disposed of all of his Averill stock at one time by exchanging it for Borden stock. This exchange was “ in pursuance of the plan of reorganization” and section 112(b)(3) expressly provides that no gain or loss shall be recognized in such an exchange. Were it not for this provision the general rule of section 112(a) would apply. That rule is that “ upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall b,e recognized.” The gain or loss upon that exchange would have been the difference between the total cost of the Averill stock and the fair market value of the Borden stock at the date received. The basis for subsequent gain or loss on the Borden stock would bare been its fair market value at tb,e time received. This basis would have been allocated pro rata to each Borden share. But because of other provisions no gain or loss was recognized on that exchange. Consequently the basis for subsequent gain or loss on the Borden stock “ shall be the same as in the case of the property exchanged.” S,ec. 113(a)(6). * * *

Under the authority of the above case, the respondent was wrong in attempting to allocate the 663 shares of American Radiator ■stock sold to any particular lot of shares exchanged. That case, however, does not cover such exchanges as we have in the instant case in the four-for-one exchange in 1928, and the three-for-one •exchange in 1928. However, the statute itself specifically covers such an exchange as was made in 1928, section 112 (b) (2), and the ■reasoning of the opinion applies with equal force to such an exchange.

The first in, first out rule was adopted as a rule of convenience, in the absence of clear evidence as to the identity of lots sold and their cost. When all lots purchased and acquired by stock dividend distributions are exchanged for new shares of a different par value, the cost of all of the shares exchanged becomes the basis of the total .shares received. The shares received are one lot acquired at the same time, whether the number of shares acquired is represented by one or more certificates. Hence, there is no necessity for such a rule. The question here involved was suggested in Mickler Holding Co., 29 B.T.A. 300, but was not decided.

The rule does not in terms apply to a sale of stock acquired by a nontaxable exchange or by gift, but only to stock “ purchased ” at ■different times and at different prices.

We are of the opinion that the rule does not apply to property received on any nontaxable exchange. The rule first appeared as paragraph 60 of Regulations 33, Revised, issued under the Revenue Acts of 1916 and 1917. It has been continued in ail subsequent regulations in substantially the same form. It has legislative sanction, therefore, but this sanction does not go beyond the literal terms .thereof.

At the time it was first adopted the basis of property acquired by gift was the fair market value at the date of the gift. An exchange ■of property for other property under the Revenue Acts of 1913, 1916, and 1917 was held to result in gain or loss if the fair market value of the property received was greater or less than the cost of the property exchanged. This ruling was included in the Revenue .Act of 1918 in section 202 (b), which provided, when property is ■exchanged for other property, the property received in exchange •shall for the purpose of determining gain or loss be treated as the •equivalent of cash to the amount of its fair market value, if any.” This section .also provided that in the case of a reorganization no gain or loss was deemed to occur where the stock or securities received were of no greater aggregate par or face value than the stock exchanged, but that if the stock received was of a greater aggregate par or face value, a like amount of par or face value should be treated as taking the place of the stock or securities exchanged, and the amount of excess in par or face value must be treated as a gain to the extent that the fair market value of the new stock or securities was greater than the cost of the stock or securities exchanged.

In the Revenue Act of 1921 section 202 was considerably enlarged. The provisions with respect to reorganization were changed to provide that no gain or loss would result even though the securities received had a greater aggregate par or face value and provisions covering other nontaxable exchanges were added. This section also for the first time carried the provision that property acquired by gift, after December 31, 1920, should take the donor’s basis. Section 202 (c) (1), (2), and (d) (1) of the 1921 Act, which relates to exchanges, provides:

(c) For the purposes of this title, on an exchange of property, real, personal or mixed, for any other such property, no gain or loss shall be recognized unless tile property received in exchange has a readily realizable market value; but even if the property received in exchange has a readily realizable market value, no .gain or loss shall be recognized—
(1) When any such property held for investment, or for productive use in trade or business (not including stock in trade or other property held primarily for sale), is exchanged for property of a like kind or use;
(2) When in the reorganization of one or more corporations a person receives in place of any stock or securities owned by him, stock or securities in a corporation a party to or resulting from such reorganization. The word “ reorganization,” as used in this paragraph, includes 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 of substantially all the properties of another corporation), recapitalization, or mere change in identity,. form, or place of organization of a corporation (however effected) ; * * *
(d)(1) Where property is exchanged for other property and no gain or losá-is recognized under the provisions of subdivision (c), the property received shall, for the purposes of this section, be treated as taking the place of the-property exchanged therefor, except as provided in subdivision (e).

Subdivision (e) has no application here.

With respect to these provisions the Senate Finance Committee-report on the bill stated:

Section 202 (subdivision c) provides new rules for those exchanges or “trades” in which, although a technical “gain” pray be realized under the-present law, the taxpayer actually realizes no cash profit.
Under existing law “when property is exchanged for other property, the property received in exchange shall, for the purpose of determining gain or-loss, be treated as the equivalent of cash to the amount of its fair market value, if any * * Probably no part of the present income tax law has been productive of so much uncertainty or has more seriously interfered with necessary business readjustments. The existing law makes a presumption in favor of taxation. The proposed act modifies that presumption by providing that in the case of an exchange of property for property no gain or loss shall be recognized unless the property received in exchange has a readily realizable market value, and specifies in addition certain classes of exchanges on which no gain or loss is recognized even if the property received in exchange has a readily realizable market value. These classes comprise the cases where productive property (other than stock in trade or property held primarily for sale) used in a trade or business is exchanged for property of a like kind or use; where in any corporate reorganization or readjustment stock or securities are exchanged for stock or securities of a corporation which is a party to or results from such reorganization; and where an individual or individuals transfer property to a corporation and after such transfer are in control of such corporation.
* * * * * * *
Proper safeguards are found in subdivision (d), which provides that where property is exchanged for other property or where property is involuntarily converted into cash and the proceeds of such conversion are used to replace the property converted, or where a wash sale is not recognized, the property received in exchange shall be treated as taking the place of the original property.

Similar comments were made in the report of the Ways and Means Committee of the House.

This same report states, as the reason for incorporating into the 1921 Act the provision that property received by gift after December 31, 1920, shall take the same basis as it had in the hands of the donor, that the previous rule had been subjected to abuse by the owner of property transferring it to his wife or relatives, who then sold it at the increased value without taxable results.

Paragraph (1) of subdivision (c) of section 202 was amended March 4, 1923, to take effect January 1, 1923, to read as follows:

AVhen any such property held for investment or for productive use in trade or business (not including stock-in-trade or other property held primarily for sale, and in the ease of property held for investment not including stock, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest), is exchanged for property of a like kind or use.

The provisions of section 202 (c) (2), as amended, were carried into the Revenue Act of 1924 and appear in section 203 (b) (1) with this added provision:

* * * or if common stock in a corporation is exchanged solely for common stock in the same corporation, or if preferred stock in a corporation is exchanged solely for preferred stock in the same corporation.

To increase the number of shares of a corporation solely by decreasing the par value of the shares is not a “ recapitalization ” and does not, therefore, constitute a reorganization within the meaning of the statute. Congress evidently had in mind, in including the above quoted provision in the Revenue Act of 1924, just such exchanges of stock for stock as we have in the instant case. The provision has been continued in all the later acts. Sec. 203 (b) (1) r Revenue Act of 1926; sec. 112 (b) (2), Revenue Acts of 1928, 1932,. and 1934.

This provision apparently embodied in the law a ruling which the Commissioner had been following, although such ruling does not appear in his regulations. It does appear, however, in T.B.R. 39r which was published in Cumulative Bulletin 1, December 1919, page 45. The ruling was made under section 202 of the Revenue Act of 1918. It provides that the mere multiplication of the number of shares of a corporation (resulting from the exchange of one old share of $100 par value for four new shares each having a par value of $25) when not accompanied by conversion of surplus into capital stock or revaluation of assets, does not give rise to taxable gain or income to stockholders making the exchange.

It is interesting to note what the Senate Finance Committee Report, which is substantially the same as the House Ways and Means Committee Report, says with respect to exchanges in its comments on section 203 of the Revenue Act of 1924 and its comment on the provisions of section 204, which corresponds to section 202 (d) (1) of the 1921 Act. These comments are:

Section 203: The existing law provides in section 202 (c) that no gain or loss is recognized from an exchange of property unless the property received in exchange has a readily realizable market value. Great difficulty has been experienced in administering this provision. The question whether, in a given case, the property received in exchange has a readily realizable market value is a most difficult one, and the rulings on this question in given cases have been far from satisfactory. Furthermore, the construction placed upon the term by the department has restricted it to such an extent that the limitation contained therein has been applied in comparatively few eases. The provision can not be applied with accuracy or with consistency. It appears best to ijrovide generally that gain or loss is recognized from all exchanges and then except specifically and in definite terms those cases of exchanges in which it is not desired to tax the gain or allow the loss. This results in definiteness and accuracy and enables a taxpayer to determine prior to the consummation of a given transaction the tax liability that will result therefrom.
Section 203 (b) : (1) Paragraph (1) of subdivision (b) of the bill corresponds to section 202 (c) (1) of the existing law as amended by the act of March 4, 1923. The existing law provides that no gain or loss is recognized if property held for investment or for productive use in trade or business is exchanged for property of a “like kind or use.” The contention was made that this provision divided all property into two classes: Property held for investment and property held for productive use in trade or business; and, consequently, that if any property held for investment was exchanged for other investment property, or if any property held for productive use was exchanged for other property to be held for productive use, the exchange was for property of a ■“ like kind or use,” and the gain was exempt from tax. In the bill the language is changed to provide that the property held for investment or for productive use must be exchanged for a like kind of property. If the property received is of a like kind, it is immaterial whether it is to be held for investment or for productive use. The intention of the party at the time of the exchange is difficult to determine, is subject to change by him, and does not represent a fair basis of determining tax liability. Consequently it is provided in the bill that no gain or loss is realized if the property received is of a like kind, to be held either for investment or for productive use. In the bill as reported, a provision, not contained in the House bill, has been added whereby if common stock is exchanged solely for common stock or preferred stock for preferred stock in the same corporation, no gain or loss shall be recognized.
(2) Paragraph (6) corresponds to section 202 (d) (1) of the existing law. The general theory of this paragraph is that where no gain or loss is recognized as resulting from an exchange, the new property received shall for purposes of determining gain or loss from a subsequent sale, and for depreciation and depletion, be considered as taking the place of the old property given up in connection with the exchange. The provisions of section 203 of the bill that no gain or loss is recognized from certain exchanges do not grant an exemption and are not so intended. These provisions are based upon the theory that the types of exchanges specified in section 203 are merely changes in form and not in substance, and consequently should not be considered as effecting a realization of income at the time of the exchange. In other words, these provisions result not in an exemption from tax but in a postponement of tax until the gain is realized by a pure sale or by such an exchange as amounts to a pure sale. It follows, therefore, that in the case of such an exchange, the property received should be considered as taking the place of the property exchanged. If in connection with the exchange money is received which is not taxed, obviously the basis of the old property should be reduced to that extent since the taxpayer has in part received a return of capital. But if money is received in connection with the exchange and the money is taxed, it is equally obvious that the basis of the old property should not be affected.

It would appear from these comments that it was the intention of the framers of the act that the cost of all the property exchanged should be considered to be the cost of all property received. This being the case, and the language of the statute carries this meaning, there is no occasion for treating any particular part of stock received on a nontaxable exchange as taking the place of any particular stock exchanged, and the cost of all the stock exchanged is to be the basis of all the stock received.

Although an exchange of stock for stock in the same corporation made in 1923 would appear to have been a taxable transaction under the Revenue Act of 1921, as amended, the respondent did not treat it as such, presumably under T.B.R. 39 referred to above. Congress approved this ruling by incorporating it in all subsequent acts. This being the case, the exchange was a nontaxable exchange, and under the provisions of section 202 (d) (1) the basis of the shares received on such an exchange is the cost of the shares exchanged. Both the exchange in 1923 and the exchange in 1928 of stock for stock in the same corporation call for the same rule with respect to the basis of the stock received. We hold, therefore, that under both the exchange in 1923 and the exchange in 1928 the cost of the stock exchanged should be averaged over the total shares received on the exchange.

An exchange of stock for stock in the same corporation was considered by the Board in William P. Jenks, 22 B.T.A. 910. In that case the taxpayer owned stock in an oil company which he surrendered in 1923 and received therefor in stock of the same company new shares in the ratio of two of the new for five of the old, the converse of what happened here. It was contended by the Commissioner with respect to the disposition of two blocks of this new stock (one a gift) made after this exchange, that the exchange of stock made the application of the “ first in, first out ” rule impracticable and resort should be had to average cost. This Board thought otherwise. We said:

* * * The disposition in 1923, of two lots of stock of 1,000 shares and 4,000 shares, the former a gift by the petitioner to his daughter and the latter an exchange for stock of the Mount Kemble Corporation, should be considered as having been made at cost. The exchange of all holdings for new stock is merely one step in determining cost of the stock sold in 1925. The new shares take the same cost as the old shares for which they were given in exchange.

The Board’s reasoning does not appear. We think that this question did not receive adequate consideration in the Jenlcs case, and as it conflicts with the view here expressed, that case is now overruled.

The cost to Oliver of the 2,948 shares, which he exchanged in 1923 for 11,192 shares, was $249,573. This cost becomes the basis of the 11,792 shares, 5,000 of which Oliver gave to his wife. The basis in the hands of Oliver of the 5,000 shares was $105,823, hence that is the basis to petitioner.

The shares which petitioner exchanged in March 1928 in the three-for-one exchange had a basis in her hands of $105,823, plus $10,150, or a total basis of $115,973. She received on this exchange 19,050 shares, which take the same basis of $115,973, or $6.0878 per share. Sec. 112 (b)(2) and sec. 113 (a)(6). Petitioner sold 100 of these shares in December 1928. Respondent treated the 100 shares sold as being part of 300 shares received in exchange for the 100 shares acquired by gift in June 1925, which had cost the donor $10,150. He also treated as the basis of the remaining 200 shares two thirds of such cost, or $6,766.67. Petitioner has not questioned this method. However, respondent was wrong in determining that 200 of the shares received on the three-for-one exchange in March 1928 Rad a cust basis of $6,166.67. The basis of the stock received on this exchange was $6.0878 per share. Therefore, the basis of the remaining 18,050 shares which were subsequently exchanged for 20,663 and a fraction shares of American Radiator stock was $115,361.22. This amount, reduced by the amount received for the fractional share, is the basis to be apportioned to the American Radiator stock and rights.

Reviewed by the Board.

Judgment will te entered under Bule 50.

Tkammell dissents.

       Sec. 111. (a) Computation of gain or loss. — Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis provided in section 113, and the loss shall be the excess of such basis over the amount realized.
      *******
      (c) Amount realized. — The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received.
      (d) Recognition of gain or loss. — In the case of a sale or exchange, the extent to which the gain or loss determined under this section shall be recognized for the purposes of this title, shall be determined under the provisions of section 112.
      * * * . * * * *
      Sec. 112. (a) General Rule. — Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.
      (b) Exchanges solely in Wnü.—

        (2) Stock foe stock of same corporation. — No gain or loss shall be recognized if common stock in a corporation is exchanged solely for common stock in the same corporation, or if preferred stock in a corporation is exchanged solely for preferred stock in the same corporation.
      (3) Stock foe stock on reorganization. — No gain or loss shall he recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
      *******
      Sec. 113. (a) Property acquired after February 28, 1918. — The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1013, shall be the cost of such property; except that—

        *******

      (2) Gift after December si, 1920. — If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not' acquired by gift. If the facts necessary to determine such basis are unknown to the donee, the Commissioner shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Commissioner finds it impossible to obtain such facts, the basis shall be the fair market value of such property as found by the Commissioner as of the date or approximate date at which, according to the best information that the Commissioner is able to obtain, such property was acquired by such donor or last preceding owner;
      *******
      (6) Tax-free exchanges generally. — If the property was acquired upon an exchange described in section 112(b) to (e), inclusive, the basis shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized upon such exchange under the law applicable to the year In which the exchange was made. If the property so acquired consisted in part of the type of property permitted by section 112(b) to be received without the recognition of gain or loss, and in part of other property, the basis provided in this paragraph shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. This paragraph shall not apply to property acquired by a corporation by the issuance of its stock or securities as the consideration in whole or in part for the transfer of the property to it.


source: Caselaw Access Project

author: McMahon:

license: Public Domain

text:
    Georgia, Florida & Alabama Railroad Company, Petitioner v. Commissioner of Internal Revenue, Respondent.
    Docket No. 60035.
    Promulgated August 7, 1934.

      A. 8. Holtz, Esq., for the petitioner.

      E. G. Algire, Esq., for the respondent.
   OPINION.

McMahon:

This is a proceeding for the redetermination of the petitioner’s liability as a transferee, for a deficiency in income taxes of the Georgia, Florida & Alabama Railway Co. (hereinafter referred to as the Railway Co.) for the year 1927 in the amount of $11,141.73. In the petition, as amended, it is alleged in substance (numbering ours) that the respondent erred in:

(1) Finding that the petitioner is a transferee of the Railway Co. under section 280-of the Revenue Act of 1926;
(2) Denying the right to take as a deduction organization expenses in the amount of $59,568.08;
(3) Denying the right to take as a deduction organization expenses in the amount of $36,956;
(4) Denying the right to take as a deduction salaries paid in the amount of $6,122.82;
(5) Denying the right to take as a deduction the amount of $4,562.09 expended for clerical hire; and
(6) Not allowing a deduction of $66,676.78 on account of the retirement from service or abandonment of certain road facilities, cars, locomotives, and shop machinery, and on account of additional depreciation on freight cars.

The petitioner prays that the Board find that there is no deficiency in tax, but that, on the other hand, the tax has been overpaid for the year 1927; hence the petitioner is entitled to a refund.

In his answer the respondent denied all of the petitioner’s allegations of error and asserted a claim for any increased deficiency which might result from the redetermination.

1. The petitioner is a Georgia corporation, with principal legal office in Bainbridge, Georgia, and principal accounting office in Portsmouth, Virginia.

On June 9, 1927, the Railway Co., a Georgia corporation, and Leon S. Freeman, F. L. Fuller, and J. S. Fuller, acting for and on behalf of a corporation to be formed under the laws of Georgia and to be called the Georgia, Florida & Alabama Railroad Co. (the petitioner in the instant proceeding), entered into an agreement whereby it was provided in¡ part that the Railway Co. would transfer and the new corporation would receive all the right, title, and interest of the Railway Co. in its lines of railway and other property and assets, real, personal, and mixed; that the deed of conveyance should provide that the new corporation, as part of the consideration for such properties, should assume and pay “ all obligations and liabilities of whatsoever character payable by the Railway Company whether then due or thereafter to become due ”; that the new corporation, in addition to assuming the obligations and liabilities of the Railway Co., should transfer and deliver to the Railway Co. $1,750,000 principal amount of first mortgage 6 percent bonds, to be secured by mortgage and deed of trust upon the property to be received by the new corporation, $1,000,000 par value of the full paid and nonassessable 5 percent first preferred stock of the new corporation, consisting of 10,000 shares of $100 par value each, $500,000 par value of the full paid and nonassessable second preferred stock of the new corporation, consisting of 5,000 shares of $100 par value each, and 10,000 shares of the no par value common stock of the new corporation; that the new corporation should enter into an agreement of lease with the Seaboard Airline Railway Co. (hereinafter referred to as the Seaboard); that the Railway Co. would promptly make application to the Interstate Commerce Commission for authority to transfer and deliver all of the securities to be received by it from the new corporation to its stockholders pro rata in proportion to their holdings as a liquidating dividend of the Railway Co., such company to be ultimately dissolved; that the expenses in connection with the incorporation of the new corporation and the issuance of several classes of its capital stock, the preparation and delivery of the proposed mortgage and bonds issued thereunder, and the preparation of the lease to the Seaboard, and all stamps, recording fees, proceedings before the Interstate Commerce Commission, printing bills, trustees’ counsel fees, and the reasonable fees and expenses of Van Vorst, Siegel & Smith in connection with the foregoing, the reasonable fees and expenses of Philip Weltner, and 50 percent of the reasonable fees and disbursements of Hornblower, Miller & Garrison in connection with the foregoing, should be recognized as liabilities and obligations of the Railway Co. and payable out of its assets, but that no other expenses or disbursements whatsoever in connection with the proposed transfer and conveyance of the properties, the incorporation of the new corporation, the issuance of its securities, and the making of the lease should be paid from the assets of the Railway Co. except, however, in addition thereto, any Other expenses or disbursements which might be expressly approved in writing by J. L. Resbit and the Seaboard; and that the obligations of the Railway Co. under the agreement should be predicated upon the contemporaneous execution by Freeman and the Fullers of a contract with the Seaboard providing for an agreement of lease. In this agreement the Railway Co. represented that its assets and liabilities as of September 30, 1926, were correctly set forth in an attached balance sheet, and that at the time of the agreement the company was in at least as good financial condition as that set forth in the balance sheet. Such balance sheet shows that the Railway Co. had an investment in road and equipment and miscellaneous physical property of $3,994,966.24; current assets of $386,095.84, of which $103,660.72 was cash; long term debt of $784,986.13; and current liabilities of $317,752.80. The excess of all assets over all liabilities, without taking into consideration capital stock, ivas $3,195,752.59.

On the same date, June 9,1927, Leon S. Freeman, F. L. Fuller, and J. S. Fuller, acting on behalf of the new corporation to be organized (the petitioner), entered into a second agreement, which was with the Seaboard, providing for the execution of a lease by the petitioner to the Seaboard of the properties it was to acquire from the Railway Co. Therein the Seaboard was designated the sole representative and attorney of the petitioner for the purpose of making all the inspections, examinations, and audits as provided in the first or sale agreement above referred to. Therein the Seaboard agreed to make application to the Interstate Commerce Commission for authority to acquire control of the petitioner by a lease and by the purchase of all of the voting common stock of the petitioner. Therein Freeman and the Fullers, individually and not on behalf of the petitioner, agreed to cause to be transferred to the Seaboard as a consideration for making the lease and agreeing to pay as rental the dividends upon the preferred stock, 10,000 shares of the common stock of the petitioner. Therein it was recognized that the expenses in connection with the incorporation of the petitioner referred to in the first agreement of June 9, 1927, above referred to, constituted liabilities and obligations of the Railway Co. and were payable out of its assets. It was also agreed therein that upon the effective date of the lease the written resignations of all directors and officers of the petitioner would be tendered to the petitioner and that there would be elected to fill the vacancies as directors such directors as might be designated by the Seaboard.

The petitioner was duly organized under the laws of Georgia on July 16, 1927. By deed dated August 1, 1927, but which became effective as of January 1, 1928, the Railway Co. transferred all of its assets to the petitioner. Such deed provided in part as follows:

That the said Grantor, for and in consideration of the delivery to it of One Million Seven Hundred and Fifty Thousand Dollars (.$1,750,000) principal amount of First Mortgage and Refunding 6% Gold Bonds, Series A, of the Grantee, of One Million Dollars ($1,000,000) First Preferred Stock, of Five Hundred Thousand Dollars ($500,000) Second Preferred Stock and of 10,000 shares without par value of Common Stock on the Grantee, at the sealing and delivery of these presents, the receipt of all of which is hereby acknowledged, and in further consideration of the assumption by the Grantee of the obligations and liabilities of the Grantor, has granted, bargained, sold, aliened, conveyed and confirmed and by these presents does grant, bargain, sell, alien, convey and confirm unto the said Grantee, its successors and assigns: [Then follows description of property.]

The petitioner executed a lease of all of such assets to the Seaboard for 99 years. Such lease is dated August 1, 1927, but it became effective as of January 1,1928, by subsequent agreement entered into January 6, 1928. The Seaboard took over all the net current assets and liabilities of the Railway Co. under the lease and entered them upon its books. The Seaboard credited the petitioner, upon the receipt of the assets, and as the Seaboard made payments out of the net assets it charged the petitioner’s account on its books. The petitioner on its books credited the Seaboard with any payments which the Seaboard made out of the net assets. The Seaboard was acting as agent in the handling of these net current assets.

As of December 31,1927, the Railway Co. made entries in its books of account recording the transfer of its assets to the petitioner. The balance sheet as of December 31, 1927, attached to the return filed by the Railway Co. for the j^ear 1927, shows investments in the amount of $4,098,557.45, including road and equipment in the amount of $4,092,680.66, current assets of $358,738.77, of which $170,2T8.73 consisted of cash, current liabilities of $100,121.40, and long-term debt of $650,000. The excess of assets over liabilities, without taking into consideration capital stock, was $3,408,519.67. At this same time the petitioner recorded the assets upon its books of account. In determining the value of the property, rights, and franchises for this purpose, the petitioner used the values ascertained by the Interstate Commerce Commission as of June 30, 1917, in its valuation docket 674, reported in 121 I.C.C. Valuation Reports at page 419, plus additions and betterments made from July 1, 1917, to December 31, 1927. The value thus fixed for road and equipment was $4,210,009.98, which was in excess of the amount at which the Railway Co. carried road and equipment on its books. Assets other than “ property, rights and franchises ” shown as received from the Railway Co. were valued at $435,059.51.

The preferred stock and the bonds of the petitioner were, under instructions and resolutions of the Railway Co., issued directly to the stockholders of the Railway Co. The provision in the agreement that the 10,000 shares of common stock of the petitioner were to be delivered to the Railway Co. was, by agreement, deviated from to the extent that such stock was issued directly to the Seaboard, the party designated by the Railway Co. to receive it. The Seaboard, in consideration therefor, paid $1,000 in cash and joined in the lease. The common stock carried voting rights, but the preferred stock did not, except under specified conditions, such as default in payment of dividends, which we need not detail here. The Seaboard was not a stockholder of the Railway Co.

The Railway Co. has never been dissolved. It could not be dissolved while the equipment trust was outstanding. It has had no assets since the transfer of its assets to the petitioner. It never directly .received any of the securities which were issued by the petitioner.

As appears from the notice dated July 29, 1931, which forms the basis for this proceeding, the respondent determined that the petitioner is liable as transferee of the Railway Co. under section 280 of the Revenue Act of 1926, for a deficiency in taxes of that company for the year 1921 in the amount of $11,141.13. This amount was assessed by the respondent on December 6, 1930, against the Railway Co. together- with interest to December 6, 1930, in the amount of $1,821.14. This assessment has never been collected from the Railway Co.

The net fair market value of the assets received by the petitioner from the Railway Co. was, at the time the assets were received, in excess of the tax liability herein in controversy.

The first question presented is whether the petitioner is liable, as transferee, for any deficiency in tax due from the Railway Co. The date of the conveyance of the assets of the Railway Co. to the petitioner was January 1, 1928, at which time all the events had transpired which gave rise to the tax liability of the Railway Co. for the year 1927, although such liability had not been determined. The securities of the petitioner which constituted part payment for the assets of the Railway Co. were paid directly to the stockholders of the Railway Co. and the evidence shows that after transferring its assets to the petitioner the Railway Co.- has never had any assets. The net assets received by the petitioner had a value in excess of the tax liability here involved. As a part of the consideration for the assets of the Railway Co., the petitioner assumed and agreed to pay the obligations and liabilities of the Railway Co. Clearly under these circumstances the petitioner is liable both at law and in equity for any deficiency in tax which there may be against the Railway Co. Continental Baking Co., 27 B.T.A. 884, and cases therein cited; American Equitable Assurance Co. of New York, 27 B.T.A. 247; affirmed in American Equitable Assurance Co. of New York v. Helvering, 68 Fed. (2d) 46; and United States Trucking Corp., 29 B.T.A. 940.

The petitioner contends that before the respondent may proceed against the transferee he must first exhaust all available remedies against the transferor, and that the respondent must here fail because he has not shown that he has proceeded to collect from the transferor. This contention is, in our opinion, entirely without merit as to the petitioner’s liability at law under its contract with the Railway Co. American Equitable Assurance Co. of New Yorh, supra, and American Equitable Assurance Co. of New York v. Helvering, supra. Furthermore, even in cases where the equitable liability of a transferee is being asserted, where proceedings against the transferor would be futile, the transferee liability may be asserted without exhausting the remedies against the transferor. B. F. Fairless, 19 B.T.A. 304; Mrs. U. H. Butler, 24 B.T.A. 506; John Thomson, Jr., 20 B.T.A. 1; United States v. Fairall, 16 Fed. (2d) 328; and United States v. Garfunkel, 52 Fed. (2d) 727. Here the evidence shows that it would have been futile to proceed against the Railway Co., since it had no assets.

2, 3. The expenses incurred in the organization of the petitioner for which the Railway Co. became liable under the terms of the sale agreement of June 9,1927, amounted to $59,568.08. During the year 1927 the Railway Co.’s accounts were kept on the accrual basis. The full amount of $59,568.08 was paid out of the assets of the Railway Co. by the Seaboard in accordance with its lease agreement of the same date, except $1,486.17 which was paid out in 1927 by the Railway Co. All that amount which was paid out by the Seaboard was paid out during 1928, except one $2 item which was paid in 1929. Of the total amount of $59,568.08, only $49,941.40 was recorded on the books of the Railway Co. This amount of $49,941.40 was accrued and charged to profit and loss account on the books of the Railway Co. prior to closing its accounts for 1927.

In its return for the year 1927 the Railway Co. claimed a deduction on account of expenses in the organization of the petitioner in the amount of $49,970.40, which was disallowed by the respondent on the ground that they were capital expenditures.

The organization expenses incurred by the Railway Co. at its own inception can not be ascertained from its records. The items are not segregated in the accounts. G. R. Summerson, valuation auditor of the Seaboard, made an attempt to ascertain such organization expenses, but was unable to do so. In the Interstate Commerce Commission’s valuation docket 674, reported in 121 I.C.C. Valuation Reports, at page 419, which is a report on a proceeding for the purpose of fixing final value for rate-making purposes of the property of the Georgia, Florida & Alabama Railway Co. as of June 30, 1917, the Interstate Commerce Commission listed organization expenses, general officers and clerks, law, stationery and printing, taxes, and other expenses, general, in the aggregate amount of $36,956. This figure does not purport to be the actual cost of such items to the Railway Co., but represents cost of reproduction new. The figure of $36,956 is not allocated in such report as among the various items.

We will first consider the petitioner’s contention with regard to the deductibility by the Railway Co. of expenditures made by it and by the Seaboard, as agent, in the amount of $59,568.08 in connection with the organization of the petitioner, to which the Railway Co. transferred its assets. In Odorono Co., 26 B.T.A. 1355, we held under somewhat similar circumstances that attorney fees paid are not deductible as ordinary and necessary business expenses or as losses. We there stated in part:

Regardless of whether or not the amounts here in dispute may be classified as capital expenditures, we are of opinion that they were not ordinary and necessary expenses of carrying on a business.
The petitioners contend, in the alternative, that the attorney’s fees, if representing capital expenditures, are nevertheless deductible as losses, under the provisions of section 23 (f) of the 1928 Act, which losses were incurred upon their dissolution within the taxable year.
There is no merit in this contention. There is nothing in the evidence to indicate, and it is not claimed by the petitioners, that there was any loss upon the transfer of the petitioners’ assets to the Northam Warren Corporation. We assume, in the absence of evidence to the contrary, that the transaction was mutually beneficial to all of the parties concerned and that value was received by the petitioners on account of the expenditures for the attorney’s fees.

What was said in the above quoted case applies with equal force here. We hold that the amount of $59,568.08 is not deductible in computing net income of the Railway Co. for the year 1927.

Respondent contends that the amount of $59,568.08 is not deductible as a loss, since it was in connection with a reorganization within the meaning of section 203 (b) (3) of the Revenue Act of 1926, which provides that no gain or loss shall be recognized in the case of an exchange of property for stock or securities of another corporation, a party to a reorganization. However, in view of the conclusion we have here reached on this issue, it is unnecessary to decide whether there was such a reorganization within the meaning of this section.

The petitioner contends, in the alternative, that if the Railway Co. is not entitled to deduct the above amount then it, the Railway Co., should be allowed to deduct in 1927 the organization expenses incurred by it at its own inception, on the theory that, since after 1927 it ceased to function, such expenses became a loss in that year. Such organization expenses can not be ascertained from the records of the Railway Co. The items are not segregated in the accounts. G. R. Summerson, valuation auditor of the Seaboard, made an attempt to ascertain the organization expenses, but was unable to do so. He testified that a comparable figure of this organization expense was found by the Interstate Commerce Commission in its valuation docket, above referred to, in the amount of $36,956. However, that figure purports to represent organization expenses, general officers and clerks, law, stationery and printing, taxes, and other expenses, general, in an amount of $36,956. This figure does not purport to be the actual cost of such items to the Railway Co. but purports to represent cost of reproduction new. Furthermore, we are not advised as to what portion of the $36,956 is allocable to organization expense. It should be further noted that the evidence shows that the Railway Co. has never surrendered its charter. However, whether the original organization expenses of the Railway Co, might be deducted by it in 1927 under the circumstances here shown if such expenses were proved, we find it unnecessary to decide. Suffice it to say that we are precluded from allowing them for the reason that the amounts thereof which were actually expended have not been shown.

4. At an annual meeting of the board of directors of the Railway Co. held on April 19, 1927, R. B. Coleman, D. B. Scott, W. A. OlifE, and L. J. Papy were elected, respectively, general manager, auditor, traffic manager, and secretary-treasurer and purchasing agent, to hold office according to the bylaws of the Railway Co., their salaries to be upon an annual basis, but payable monthly. During the period from January 1 to April 17, 1928, there was paid to these officers the sum of $6,122.82 on account of salaries for such period. These salaries were paid by the Seaboard and were charged to the account of the Railway Co. The Railway Co. had ceased to do any business after January 1, 1928, but these salaries were paid because the officers had been elected on April 19, 1927, on an annual salary basis for one year, payable monthly.

The petitioner contends that in computing the tax liability of the Railway Co. for the year 1927 the above amount of $6,122.82 should be allowed as a deduction. As stated above this amount represents salaries paid to four of the Railway Co.’s officers for the period January 1 to April 17, 1928, during which time the Railway Co. was, for all practical purposes, dormant. It is contended by the petitioner that the election of the officers on April 19, 1927, for the term of one year thereafter carried with it the obligation to pay the salaries for the full term; that since such obligation arose in 1927 the salaries are ordinary and necessary expenses of that year within the purview of section 234 (a) (1) of the Revenue Act of 1926, and are hence deductible. It is to be noted that section 234 (a)(1), supra, provides for the deduction of a reasonable allowance for salaries or other compensation for personal services actually rendered. Here the amount in question does not even purport to be for any services actually rendered in the taxable year 1927. As we interpret the statute the amount in question is not an allowable deduction.

5. During 1928 and 1929 the Seaboard paid out of the net assets of the Eailway Co. a total amount of $4,562.09 to cover salaries and expenses of a clerical force employed in closing the accounts of the Eailway Co. and in preparing governmental reports with regard to that company. The services for which this amount was paid were rendered in 1928 and 1929.

The petitioner contends that there should be allowed as a deduction in computing the net income of the Eailway Co. for the year 1927 the above amount of $4,562.09. The services for which this amount was paid were not rendered in 1927. The evidence shows that the services were rendered during 1928 and 1929. Under the provisions of section 234 (a) (1) of the Eevenue Act of 1926 herein quoted, this amount is not deductible in computing the net income of the Eailway Co. for the year 1927.

It may be observed in passing that section 234 (a) (1), supra, provides for the deduction of a reasonable .allowance for salaries or other compensation. The petitioner has not shown that the amounts in question, $6,122.82 and $4,562.09, constituted reasonable allowances within the meaning of the statute.

6. During 1927 the Eailway Co. withdrew from transportation service certain road facilities. They are not shown on the books of the Eailway Co. as having been retired in 1927, one reason being that D. B. Scott, the auditor, had no supporting papers from the roadway department showing that these items had been closed out. J. L. Nisbet, president of the Eailway Co. in 1927, had issued general instructions that all property which was not in use and had been abandoned should be retired at the end of the year. These assets were included in the statement of assets transferred to the petitioner as of January 1, 1928. No report to the Interstate Commerce Commission was made at the end of the year 1927 or in January 1928 of the retirement of these facilities, as was customary. All these facilities were in bad physical condition in 1927, were unusable, and some were unsafe. They were not actually torn up and carted away. Such assets, together with their cost, when proved, and their net salvage values, which include the cost of effecting abandonment, are as follows:

Those facilities, the cost of which is here shown, were constructed after June 30, 191T. The others were constructed before that date.

The Eailway Co. carried no depreciation charge on the right of way, the theory being that the roadbed and. right of way appreciated from year to year. That contention has been made before the Interstate Commerce Commission for years. When any of the roadbed material became obsolete or was worn out it was retired outright and charged off directly against whatever might have been the proper account, less the salvage value. That was customarily done at the end of every year.

In 1927 J. L. Nisbet ordered locomotive No. 102 to be withdrawn from service because it was unfit and the cost of repairs would be excessive. He also ordered withdrawn passenger train cars Nos. 50 and 91 subsequent to October 15, 1927. These cars had wooden underframes. The cars were in very poor condition and were becoming dangerous. Nisbet also ordered fourteen freight cars and a cab withdrawn from service in the latter part of 1927. They all had wooden underframes. All of this equipment had become obsolete and practically worn out. It was all withdrawn from transportation service in 1927. This property had been acquired at various dates between 1898 and 1923. The locomotive, one passenger car, and five freight cars were acquired after March 1, 1913, but the remainder of the property was acquired prior to that time. In 1927 it had a total net salvage value of $3,828. All this property was taken over by the petitioner when it acquired the assets of the Eailway Co.

In 1927 the Eailway Co. withdrew from service a wheel press which had been bought in the summer of 1923 for a price of $2,400. Its net salvage value in 1927 was $15. This wheel press was cracked in two. No depreciation was ever written off on this wheel press during the time the Eailway Co. had it.

In 1927 the Eailway Co. owned 133 freight cars and three cabs, which were acquired from 1898 to 1925. The total cost of all this property was $83,761.80, and its salvage value at December 31, 1927, was $14,954. All of these cars were of wooden underframe construction. They were in bad condition in 1927. They had been maintained through 1926, but in 1927 the Eailway Co. had acquired steel underframe equipment and as a matter of safety the company in 1927 was using the old equipment as little as possible. Furthermore, it cost as much to repair one of these old cars as to buy a new wooden one. This equipment was obsolete in 1927. It had only salvage value at the end of the year 1927. It had been known for years that these cars were expensive to operate and were becoming obsolete. The only reason the company did not replace them earlier was because it could not afford to do so. None of the cars were dismantled in 1927. The company could not find a market for them.

This last issue relates to the deduction in the amount of $66,676.78, claimed by the petitioner as a deduction in computing the net income of the Eailway Co. for the year 1927. This amount is made up of an amount of $9,401.70 claimed as a loss upon the retirement of “ road facilities ” consisting of turn tables, track, platforms, depots, sidings, switches, etc.; an amount of $11,305.36 claimed as a loss upon the retirement of a locomotive, two passenger train cars, 14 freight train cars, and a cab; an amount of $9,912 claimed as a loss upon the retirement of shop machinery; and an amount of $36,057.72 claimed as depreciation sustained on freight cars and cabs in addition to the amount previously claimed by the Eailway Co. We are concerned with section 234 (a) (4) and (7), section 204 (a) and (b), and section 202 (a) and (b)(1) and (2) of the Revenue Act of 1926.

With regard to road facilities, the petitioner showed the cost of only three of the items. These three items were acquired after June 30, 1917. The remainder were acquired prior to that date and may have been acquired prior to March 1, 1913, for all we know. As to such remaining items we have no proof as to either their cost or their fair market value at March 1, 1918. The locomotive, one passenger train car, and five freight cars, which were retired in 1927, were acquired after March 1, 1913, but the other passenger train car and the remaining freight cars, which were retired, were acquired prior to March 1, 1913. There is no proof of the cost or March 1, 1913, value of this property. The petitioner proved that certain amounts were entered on the books as cost, but this was not received as proof of the actual cost. It was received merely to show that such book entries were made. With regard to the amount of $9,912 claimed as a deduction for shop machinery, the petitioner proved the retirement of only one item, namely, a wheel press which had been purchased in the summer of 1923. With regard to each and every one of these items of property retired the petitioner has failed to show the amount of depreciation which since the acquisition of the property has been allowable in respect of such property under the Revenue Act of 1926 or prior income tax laws, or the amount of any depreciation which may have been actually sustained upon any of such property prior to March 1. 1913. The petitioner has thus failed to meet the requirements of section 202 (b) (2), supra,. Since the petitioner has not proved the elements required by the statute, we are precluded from allowing any deduction whatsoever in this regard. It is true that with regard to some of the items the petitioner has shown the depreciation as recorded on its books, but we have no way of knowing that this is the correct amount of depreciation. At the hearing counsel for the respondent stated that he did not object to this proof for the purpose of showing depreciation entered on the books, but that he did not thereby admit that those figures were the correct amount of depreciation. The exhibits were received for the limited purpose of showing the depreciation recorded upon the books and not •for the purpose of showing the correct amount of depreciation. In spite of this the petitioner did not introduce any evidence as to the actual depreciation.

The amount of $36,057.72 claimed as depreciation sustained on freight cars and cabs, in addition to the amount of $2,085.81 previously claimed by the Railway Co., is arrived at by the petitioner by subtracting from the depreciated cost as shown by the entries in the books of the Railway Co. at December 31, 1926, the salvage value as of December 31,1927, and then deducting from the remainder the depreciation already claimed by the Railway Co. during the year 1927. The petitioner’s claim is founded on section 234 (a) (7) of the Revenue Act of 1926. It is not claimed that a loss was sustained from retirement of these cars and cabs from service. An exhibit was received in evidence in part showing the accrued depreciation at December 31, 1926, as shown by the books of the Railway Co., the depreciated cost at December 31,1926, as shown by these books, and the depreciation accrued during the year 1927 as shown by the same books. This exhibit, in so far as these three items are concerned, was received for the limited purpose of showing that these three items were entered in the books; not for the purpose of showing the actual amount of depreciation sustained in 1927 or prior thereto. There is no evidence to prove that the depreciation as shown on the books is the correct amount of depreciation sustained. We do know from the evidence that for many years it had been known that the cars in question were becoming obsolete. Obsolescence is deductible over the period of obsolescence. Loewers Garribrinus Brewery Co. v. Anderson, 282 U.S. 638. It appears here that the obsolescence period extended over an undisclosed number of years prior to 1927. Thus an undisclosed portion of the amount here claimed by the petitioner as depreciation was sustained in prior years as obsolescence. From the evidence we can not determine what portion of the obsolescence was sustained in the year in question. This contention of the petitioner therefore fails.

Reviewed by the Board.

Decision, will be entered for the respondent.'

VAN FossaN and Leech concur in the result.

       Sec. 234. (a) In computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
      (1) All the ordinary and necessary expenses Paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered * * *.

       Sec. 234. (a) In computing tile net income of a corporation subject to tbe tax Imposed by section 230 there shall be allowed as deductions:
      * ******
      (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise. * * * The basis for determining the amount of the deduction for losses sustained shall be the same as is provided in section 204 for determining the gain or loss from the sale or other disposition of property;
      * ******
      (7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence;
      Sec. 204. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; * * *
      * ******
      (b) The basis for determining the gain or loss from the sale or other disposition of property acquired before March 1, 1913, shall be (A) the cost of such property (or, in the case of such property as is described in paragraph (1), (4), or (5) of subdivision (a), the basis as therein provided), or (B) the fair market value of such property as of March 1, 1913, whichever is greater. * * *

        Sec. 202. (a) Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis provided in subdivision (a) or (b) of section 204, and the loss shall be the excess of such basis over the amount realized.
      (b) In computing the amount of gain or loss under subdivision (a) —
      (1) Proper adjustment shall be made for any expenditure or item of loss properly chargeable to capital account, and
      (2) The basis shall be diminished by the amount of the deductions for exhaustion, wear and tear, obsolescence, amortization, and depletion which have since the acquisition of the property been allowable in respect of such property under this Act or prior income tax laws; but in no case shall the amount of the diminution in respect of depletion exceed a depletion deduction computed without reference to discovery value or to paragraph (2) of subdivision (c) of section 204. In addition, if the property was acquired before March 1, 1913, the basis (if other than the fair market value as of March 1, 1913) shall be diminished in the amount of exhaustion, wear and tear, obsolescence, and depletion actually sustained before such date.


author: SteRNHagen :

text:
    Evert A. Bancker, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 70322.
    Promulgated August 7, 1934.

      A. W. Olapp, O.P.A., for the petitioner.

      De~Witt M. Evans, Esq., for the respondent.
   OPINION.

SteRNHagen :

The petitioner, in 1930, being the owner of ■ shares in the Coca-Cola Corporation of Delaware, exchanged snch shares with another individual for shares of Coca-Cola International, a different corporation, also of Delaware. The value of the International shares which petitioner received was substantially greater than the cost to him of his Coca-Cola shares, but he did not include the difference in the gross income stated on his individual return for 1930, because he regarded the two corporations as essentially identical, and the exchange as merely one of form. The Commissioner held that the difference was a taxable gain, and by including it in the taxpayer’s income determined a deficiency for 1930 of $27,796.82. The facts are contained in a written stipulation which it is not necessary to set forth.

When International was organized as a separate corporation, in 1922, its purpose was, as a holding corporation, to carry on the function of a preexisting voting trust among the majority shareholders of Coca-Cola, so as to preserve the control of Coca-Cola in the hands of a Southern group. Whether its powers were restricted does not appear, for the articles of incorporation are not in evidence. Actually, it never owned anything but Coca-Cola shares and a little cash. In 1926, by resolution, International adopted the practice of issuing its own shares in exchange for Coca-Cola shares, and, at the election of any shareholder, again exchanging Coca-Cola shares for its own, which were immediately canceled and the outstanding shares thus reduced, “ until all of the common capital stock of the company, if exchanged, has been so retired.” The shares of both corporations, it is stipulated, were listed on the New York Stock Exchange. By virtue of the aforesaid resolution, the petitioner, being a shareholder of Coca-Cola, had the right, if he had elected, to transfer his shares to International in exchange for International shares. He would have been required to pay International 15 cents per share for transfer expenses. For reasons of his own, he chose not to make such an exchange directly with International, but to make an exchange with an individual shareholder of International.

The petitioner’s argument rests largely upon decisions involving earlier revenue acts, more particularly Weiss v. Stearn, 265 U.S. 242 involving the Revenue Act of 1916.

The controlling statute is the Revenue Act of 1928. Congress has steadily, in the successive revenue acts, progressed in the legislative treatment of gain and loss. Therefore it is of primary importance that a decision under the 1928 Act shall promote the purpose of that statute. While the earlier acts set forth generally a definition of net income which was the result of applying specific deductions to a general concept of gross income, leaving the general concept to be shaped by administrative and judicial interpretation, the later acts have expressly dealt with specific classes and types of transactions and prescribed their tax results.

The computation of net income appears in Supplement B of the statute, consisting of sections 111 to 120. The scheme of these sections is to tax all gains generally, permitting only those to escape tax that are expressly excepted, Sarther Grocery Co., 22 B.T.A. 1273. An exchange of shares in one corporation for shares in another, without more, is a taxable transaction, the measure of which is the difference between the cost of what is given up and the value of what is received. This is accomplished by “ recognizing ” the gain. David B. Gann, 23 B.T.A. 999; 61 Fed. (2d) 201. The exceptions are set forth in section 112. Not only is such a transaction as this omitted from the excepted classes, but the intent to omit it from the exceptions is unmistakable. The petitioner’s OAvnership of Coca-Cola shares was an investment, and the acquisition of International shares Avas also for investment. Section 112 (b) (1) expressly excepts an exchange of property held for investment for other such property, but with equal clarity it excludes an exchange of stocks from the exception. Hence the present exchange of shares for shares is left within the general provision for the recognition of gain or loss. Paragraph 112 (b) (2) treats of the exchange of common stock in a corporation solely for common stock in the same corporation, or preferred for preferred, thus by unmistakable inference excluding the exchange of common stock in one corporation for common stock in another. Where, hoAvever, stock in-one corporation is exchanged for stock in another, the tax-free exception is expressly limited to reorganization exchanges. Nowhere is it suggested that the effect of the statutory language is to be varied in accordance with a judicial analysis of the practical or economic incidents of the particular' stock in question. We therefore find it impossible to believe that Congress intended that the gain from the exchange before us was not to be recognized for tax purposes.

The decisions cited by the petitioner are in themselves not controlling of the present situation. Southern Pacific Co. v. Lowe, 247 U.S. 330, and Weiss v. Stearn, supra, have in later decisions been limited in their application to their peculiar facts. Cf. Marr v. United States, 268 U.S. 536. That corporations shall be treated under the taxing statutes as separate legal entities has been so generally recognized in the later decisions of the Supreme Court that there is scant room for exception. Planters Cotton Oil Co. v. Hopkins, 286 U.S. 332; Dalton v. Bowers, 287 U.S. 404; Burnet v. Clark, 287 U.S. 410; Burnet v. Commonwealth Improvement Co., 287 U.S. 415; New Colonial Ice Co. v. Helvering, 292 U.S. 435. The caveat of Burnet v. Commonwealth Improvement Co., supra, that “ unusual cases may require disregard of corporate form ”, only indicates the general recognition of the corporate form and the narrow field for applying an exception in deference to a compelling justice. We see no reason for construing this caveat as a mandate to examine and appraise the practical and economic, as distinguished from the legal, effects of stock involved in an exchange, and by such an elusive standard to determine whether they are “substantially” or “ essentially ” different. Under the present statute there seems to be no reason whatever for the application of such a tacit exception to the recognition of gain to an individual from an exchange of one corporate stock for another. Whatever may be the scope of the caveat in Burnet v. Commonwealth Improvement Co., supra, we can see no occasion in the present case for its application. The Commissioner’s determination was, in our opinion, correct.

The parties have stipulated mutual settlement of another issue, and hence the deficiency must be recomputed.-

Reviewed by the Board.

Judgment will be entered under Rule 50.

Tkammell, Arundell, and Adams dissent.

      The Commercial and Financial Chronicle for the year 1930 shows that Coca-Cola was bought and sold daily oyer a wide price range, hut fails to disclose any transaction in International.


author: SteRnhagen :

text:
    W. R. Prescott, Petitioner, v. Commissioner of Internal Revenue, Respondent. Mrs. W. R. Prescott, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 61596-61597.
    Promulgated August 7, 1934.

      A. W. Glapp, G.P.A., for the petitioners.

      Frank B. Bchlosser, Esq., for the respondent.
   OPINION.

SteRnhagen :

The respondent determined income tax deficiencies for 1929 of $4,802.96 as to W. R. Prescott, and $7,009.82 as to Mrs. W. R. Prescott, by treating exchanges. which they had made of Coca-Cola International shares for Coca-Cola shares as resulting in gain which they should have included in their incomes. The facts are all stipulated.

Before the transactions in question, petitioners owned shares of International. That corporation had been theretofore organized for the purpose of maintaining control of the Coca-Cola corporation, and a majority of Coca-Cola shareholders had turned in their Coca-Cola shares to International and received International shares. By a resolution of 1926, International gave each shareholder the right, whenever he elected to exercise it, of turning back at a small cost his International shares and receiving Coca-Cola shares. International’s assets consisted entirely of Coca-Cola shares and a little cash, but whether by its charter its powers and privileges were restricted to such ownership does not appear, since the articles of incorporation are not in evidence. The aforesaid resolution also provided that whenever a shareholder of International turned in any of his shares for Coca-Cola shares, the International shares should be canceled and its stock reduced accordingly “ until all of the common capital stock of the company, if exchanged, has been so retired.” Pursuant to this resolution, petitioners turned in their International shares to the International corporation and received Coca-Cola shares. Their purpose in doing this was to realize some cash, and the Coca-Cola shares were more easily marketable than International shares, although, it is stipulated, both were listed on the New York Stock Exchange.

In their returns, petitioners treated the transactions as mere insubstantial exchanges without tax significance, because they regarded the Coca-Cola shares received as essentially the same as International shares given up. The Commissioner treated the shares as substantially different and held that the gain, measured by the value of the Coca-Cola shares received in excess of the basis of the International shares given up, was required by the controlling statute of 1928 to be recognized. In our opinion, the Commissioner was correct, Evert A. Bancker, just decided, 31 B. T. A. 14.

There is in this case the additional ground that, by virtue of the clear language of the International resolution, the transfer of Coca-Cola to petitioners was in cancellation of their International shares and hence a distribution in “ partial liquidation,” as that term is defined in section 115 (h), and taxable as an exchange under section 115 (c). The petitioners’ contention, that if it was such a liquidation distribution it occurred in 1926, when the resolution was passed, can not be sustained. The liquidation was authorized, it is true, in 1926, but was inchoate until the shareholder elected to turn in his shares, which was in 1929. Before 1929 he neither actually nor constructively received the Coca-Cola shares.

Reviewed by the Board.

Judgment will be entered for the respondent.

Trammell, AetjNdell, and Adams dissent.


author: Goodrich::

text:
    Guaranty Trust Company of New York, Executor, Estate of James Gordon Bennett, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 62739, 69550.
    Promulgated August 7, 1934.

      Marion N. Fisher, Esq., for the petitioner.

      E. A. Tonjes, Esq., for the respondent.
   opinion.

Goodrich::

Respondent determined deficiencies in income tax of $13,963.09 for 1929 and $14,339.94 for 1930, resulting from his refusal to allow as deductions from the estate’s-income for these years $94,500 and $92,694.14, respectively, being the amounts paid pursuant to will to various annuitants, except decedent’s widow.. In these proceedings, which upon motion were consolidated, petitioner assails respondent’s determinations as erroneous on the ground that the payments to the annuitants should be deducted from the income of the estate, under the provision of section 162 (a), Revenue Act of 1928.

The parties, by counsel, submitted a stipulation of facts, which we adopt as our findings, but which we do not here set out in full, since the requirements of this report may be served ’by a briefer statement.

James Gordon Bennett, a citizen of New York, died testate, on May 14,1918. By his will (we are concerned only with his American will, of which this petitioner is the surviving executor) he provided an annuity of $50,000 to his widow, made a number of specific bequests, and directed the payment to 19 other persons of certain annuities aggregating $98,000. No limitation was made respecting the funds from which the annuities should 'be paid, the will authorizing the executors, in their absolute discretion, to dispose of any property of the estate, real or personal, for the payment of debts, expenses, and annuities.

The will further directed the executors to organize “ as soon as practicable ” the “ James Gordon Bennett Memorial Home for New York Journalists” (hereinafter called the home), whose general object should be to furnish pecuniary aid to New York newspaper employees who, because of age, illness, or adverse circumstances should be in need of assistance. To the home to be organized, testator left the residue of his estate, subject to taxes, annuities, and other charges, bequeathing it for the meantime to his executors, Higgins, Wanamaker, and Stillman. The home was organized in 1919, and during the years now before us was an institution exempt from tax under the provisions of section 103, Revenue Act of 1928.

The estate amounted to $5,929,030.44 in the gross, and the debts, specific bequests, state and Federal taxes totaled $2,229,807.24. The executors’ account, filed in the Surrogate’s Court for the County of New York, shows that by November 30, 1921, they had set aside to the home, but subject to taxes, annuities, and other charges, assets of a value of $3,132,810. Later accounts filed by the executors disclose that on March 8, 1928, and April 30, 1930, such assets were of a value of $3,405,505.14 and $3,412,920.31. Upon their books, the executors “ earmarked ” these assets as a part of the residuary estate and the property of the home. Income, however, was carried in the executors’ accounts without designation as to the end for which it might be used. Since the organization of the home, the executors have consulted with its directors concerning investments, disbursements, and other matters bearing on the residuary estate.

Prior to December 30, 1919, the annuities were paid out of corpus of the estate, but since that time they have been paid out of income. Since its organization and through 1930, the executors have paid to the home, for its uses, $220,678.81, of which $25,000 was paid it in 1929, and $23,518.81 in 1930.

In 1929 the executors paid the annuitants $148,403.75, and in 1930, $146,421.88, and upon their returns claimed these amounts as deductions from the estate’s income. Of these payments $5.0,000 was paid in each year to testator’s widow. Of the amounts paid in each year to other annuitants respondent has disallowed as deductions $94,500 in 1929 and $92,694.14 in 1930.

We have heretofore considered another question in connection with this estate — see Ronald de Reuter, 7 B.T.A. 600, wherein we set out such portions of the will relating to the annuities and the charitable bequest as are there arid here material. That case involved the taxability to the recipients of the annuities. We held that each annuity was a bequest, but not a bequest of income; that the annuities did not constitute taxable income in the hands of beneficiaries; and, further, that each and all of the annuities were charges upon the whole estate. Our decision was affirmed by both the Circuit Court of Appeals for the First Circuit (Burnet v. Whitehouse, 38 Fed. (2d) 162) and the Supreme Court (283 U.S. 148), the latter saying, through Mr. Justice McReynolds:

* * * the bequest * * *' was not one to be paid from income, but of a sum certain, payable at all events during each year so long as the annuitant should live. * * * The will directed payment without reference to the existence or absence of income. * * * the gift * * * did not depend upon income but was a charge upon the whole estate during the life of the legatee to be satisfied like any ordinary bequest.

In our decision in the cle Renter case we said: “We have not before us the question of the extent to which the income of the estate of James Gordon Bennett is taxable and express no opinion on that question.” That question is the issue in the case now at bar. Respondent, pointing out that unless the income, less the amounts paid to the home, is here taxed, the substantial earnings of this estate will escape taxation, since the annuities are received tax-free, has denied the deduction of the amounts of the annuities paid from income, with the exception of that paid to the widow. Petitioner, reminding us that the purpose of these provisions granting deductions from income was to encourage charity and to permit funds for such uses to pass undiminished by tax, and that to lay a tax on the income of this estate is to reduce the unspent earnings which might increase the residuary estate which will ultimately go to the home, contends that all the earmarked assets and the income annually arising therefrom were permanently set aside for the home and, therefore, these deductions should be allowed.

With petitioner’s view we cannot agree. Limiting the purpose to encourage charity is another statutory intendment to levy a tax upon all earnings. In Helvering v. Butterworth, 290 U.S. 365, where the Supreme Court was dealing with deductions granted under these statutory provisions as applied in connection with payments pursuant to will to trust beneficiaries, the Court said, “the evident general purpose of the statute was to tax in some way the whole income from trust estates,” and continued to explain that it was intended that the tax, if not paid by the fiduciary, should be paid by the beneficiary. And in considering the case of Estate of Calvin Pardee, 290 U.S. 365, which was another case of the group disposed of by the cited decision, the Court (affirming 23 B.T.A. 846) denied to the fiduciary the deduction of amounts paid to the beneficiary in discharge of the testator’s bequest of an annuity which, clearly, was of the exact nature of the annuities granted under will of the testator in the case now at bar, that is, an annuity payable at all events, whether from income or corpus, and constituting a charge upon the whole estate.

In view of these decisions it is quite evident that petitioner is not entitled to the deductions claimed unless the estate’s income was paid or permanently set aside for charitable uses, within the terms of section 162 (a), which, being an exemption provision, must be strictly construed. The plain fact is that the amounts paid to the annuitants were not paid to or set aside for the home or its uses. Amounting to about six times as much in the years before us as the payments to the home, they were paid to the annuitants in discharge of the bequests, which were a charge upon the whole estate. That they were paid out of income, which is the usual procedure if sufficient income is available, did not necessarily conserve nor increase the corpus ultimately to go to the home, for the residuary estate was subject to taxes, amvwities, and other charges. Consequently, the earmarking of the estate’s assets as the property of the home upon the executors’ books did not make definite the amount which would ultimately be used for charity, nor serve to set aside the income therefrom to charity. While it so happened that in the years here before us the income of the estate was sufficient to pay the annuities and other charges and still permit the application of a part of it to the uses of the home, and that meantime the value of the assets had increased, it cannot be foretold whether that situation will always obtain. There is always the possibility that, because of economic changes or unsuccessful management, the income will diminish, with the result that the annuities will have to be paid in whole or in part from the corpus, as they were during the period immediately following the testator’s death, and the residuary estate for charitable usés thus reduced. Clearly, until by complete discharge of all the annuities upon death of the several beneficiaries the estate is freed from the charge laid upon it for their payment, no amount certain, either of corpus or income, can be said to be definitely and permanently set aside exclusively for charitable uses. Meantime, respondent has made no attempt to lay a tax upon those amounts actually paid for the uses of the .home.'

We conclude that respondent did not err in denying the deductions claimed. Boston Safe Deposit & Trust Co. et al., Executors, 26 B.T.A. 486; affd., 66 Fed. (2d) 179; Gertrude Hemler Tracy et al., Trustees, 30 B.T.A. 1156, and cases there cited.

Respondent erred in allowing the deductions from the income of the estate of $50,000 paid in each year under the bequest to decedent’s widow — Helvering v. Butterworth, supra — but as no claim for an increased deficiency on that account has been made, none can be allowed. Sec. 272 (e), Revenue Act of 1928; Lucinda Pitman, 24 B.T.A. 244, reversed on another issue, 64 Fed. (2d) 740; Davison v. Commissioner, 60 Fed. (2d) 50, 52.

Judgment will ~be entered for the respondent.

      SEC. 162. NET INCOME.
      ■ The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that—
      (a) There shall be allowed as a deduction (in lieu of the deduction for charitable, etc., contributions authorized by section 23 (n)) any part of the gross income, without limitation, which pursuant to the terms of the will or deed creating the trust, is during the taxable year paid or permanently set aside for the purposes and in the manner specified in section 23 (n), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit.
      SEC. 23. deductions FROM GROSS INCOME.
      In computing net income there shall be allowed as deductions:

        *******

      (n) Charitable and other contributions. — In the case of an individual, contributions or gifts made within the taxable year to or for the use of:
      * * * * * * *
      (2) any corporation, or trust, or community chest fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.


author: Van Fossan :

text:
    Charles H. Oshei, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 63639.
    Promulgated August 7, 1934.

      Benjamin J. Manley, Esq., for the petitioner.

      B. M. Coon, Esq., for the respondent.
   OPINION.

Van Fossan :

The respondent determined a deficiency of $2,404.28 for the year 1929. This finding was consequent on his action in holding a certain sale of stock to be a short sale not completed within the taxable year. The specific error set out is the failure to allow a deduction of $41,575.91 alleged loss on a sale of 2,000 shares of stock of the Trico Products Corporation.

During 1929 petitioner maintained margin accounts’ with various brokers. In December of that year the firm of Hornblower & Weeks in New York was calling for additional margin. Petitioner, on December 23, 1929, asked another broker in Detroit, Hentz & Co., to sell 2,000 shares of Trico stock being carried in the Hornblower & Weeks account, send the money to Hornblower & Weeks, and pick up the stock for delivery, thus putting their account in better shape. All instructions were oral. The petitioner left Detroit on December 24 and was out of touch with the situation until early in January 1930.

Hentz & Co. put through the order to sell 2,000 shares of Trico stock in due course. That evening they sent two letters to petitioner’s office for signature, one being authority to Hentz & Co. to receive the stock, and the other being an order on Hornblower & Weeks to deliver the stock to Hentz & Co. against payment of a named amount ($60,000). Being unable to locate petitioner, Hentz & Co. used 700 shares of Trico stock in its hands and borrowed from business friends sufficient additional stock to accomplish delivery on the sale. The exact date of such delivery was not proved.

Petitioner returned to Detroit sometime in January and thereafter signed the letters authorizing Hentz & Co. to receive the stock and ordering Hornblower & Weeks to deliver the stock against payment. The stock was actually delivered by Hornblower & Weeks to Hentz & Co. on January 27, 1930.

On December 24, 1929, petitioner had no Trico Products Corporation stock with Hentz & Co. On the books of Hentz & Co. under date of December 24, 1929, an entry appears indicating sale by them of 2,000 shares of Trico, followed by the letter “ S ”, which was explained'as an abbreviation for “Short.” On December 31 the accounts of Hornblower & Weeks showed petitioner’s account to contain 4,967 shares of Trico, followed by the letter “L”; on January 31, 1930, the books of Hornblower & Weeks showed petitioner with 2,967 shares of Trico “ Long.”

Albeit the books of Hentz & Co. recorded the sale of December 24, 1929, as a short sale, and although the representative of that company testified that “ for the time being it was a short sale ”, we do not deem it necessary to this opinion to determine whether or not technically it should be defined as a short sale. In our judgment, the contention of petitioner must be denied, because the transaction was not completed as to petitioner until January 1930. Assuming that the borrowed stock was delivered in 1929, a fact not proved, does not conclude the transaction. If the sale was a “ short ” sale, there remained the purchase to replace the borrowed stock. If the sale was not a short sale, it was not concluded until January 1930. We are primarily concerned Avith the transaction from the point of the petitioner. As to him, the transaction was never closed until his instructions were carried out and the stock in the hands of Hornblower & Weeks had been delivered to Hentz & Co. upon the jjayment of $60,000. This did not occur until January 27, 1930. Petitioner contends that the sale intended by him was that of 2,000 shares held by Hornblower & Weeks. But such sale Avas not consummated until the payment for and release of the stock held by them. Petitioner contends he did not intend to make a short sale. This is but one horn of the dilemma in which petitioner finds himself. If the sale was a short sale it was not consummated in 1929. If it was not a short sale, the same conclusion follows. .

The simple and obvious fact is that the sale of 2,000 shares of petitioner’s Trico stock held by Homblower & Weeks was not a closed transaction on any theory until late in January 1930. Thus the loss could not be deducted in 1929. Nor may petitioner profit from the fact that the Commissioner may have assigned an erroneous basis for disallowing the deduction.. When the facts show the deduction improper it will be disallowed, regardless of the reason assigned in the notice of deficiency.

Decision will be be entered for the respondent.