author: MuRdock :

text:
    Gold and Stock Telegraph Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. International Ocean Telegraph Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Pacific and Atlantic Telegraph Company of the United States, Petitioner, v. Commissioner of Internal Revenue, Respondent. Southern and Atlantic Telegraph Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Franklin Telegraph Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.

      Docket Nos. 29470, 29585, 29586, 29694, 29695.
    Promulgated August 31, 1932.

      Pond E. Lesh, Esq., for the petitioners.

      A. H. Fast, Esq., and Charles E. Lowery, Esq., for the respondent.
   OPINION.

MuRdock :

The American Telegraph and. Cable Company leased its properties to the Western Union Telegraph Company in 1882 for a term of 50 years. The provisions of that lease were quite similar to those of some of the leases here in question. In October, 1925, the Board held that the entire annual rental for 1919 was income to the cable company. See American Telegraph & Cable Co., 2 B. T. A. 991, where the subject is discussed at length. The Court of Claims in December, 1925, held that the entire rental for 1922 was income to the lessor. American Telegraph & Cable Co. v. United States, 61 Ct. Cls. 326. The Supreme Court of the United States denied certiorari in that case, 271 U. S. 660. The same question for the years 1924 and 1925 was litigated before the Board, which held that the law was unmistakably clear in support of the Government. American Telegraph & Cable Co., 17 B. T. A. 783. No appeal was taken from that decision.

The petitioners admit that these cases are directly in point and that they are supported by the authorities cited therein, particularly Rensselaer & Saratoga R. R. Co. v. Irwin, 249 Fed. 726, and West End Street Ry. Co. v. Malley, 246 Fed. 625. But they argue that the two last mentioned cases were incorrectly decided and should no longer be followed. They call our attention, to the fact that the Circuit Court of Appeals for the Second Circuit in United States v. Western Union Telegraph Co., 50 Fed. (2d) 102, expressed a doubt as to the correctness of the holding of the earlier cases that a tax might be assessed against the lessor as though the lessor had money. This doubt arose by reason of the decisions of the New York courts in Bowers v. Interborough Rapid Transit Co., 121 Misc. Rep. 250; aff'd., 202 N. Y. S. 917; 208 App. Div. 768; and Peabody v. Interborough Rapid Transit Co., 124 Misc. Rep. 801; 213 App. Div. 857; aff'd., 240 N. Y. 708. In those cases the New York courts held that stockholders who had been guaranteed “ dividends ” by the lessee of property of their corporation derived certain rights under the “ guarantee.” Just how this would work out in the present cases where the lessee was also a stockholder, we do not know. Certainly as stockholder it could gain nothing from its guarantee as lessee. In some of the present cases the lessee made no direct “guarantee” to the stockholders. The petitioners nevertheless contend that under these New York cases the income belongs to the stockholders at the time of payment and therefore can not be taxed to the lessors. Some, if not all, of these cases were brought to the attention of the Board and of the Court of Claims in connection with the American Telegraph & Cable Co. cases. We still feel that they do not require a different result on the question of liability of the lessors for Federal income tax. The court in United States v. Western Union Telegraph Co., supra, avoided decision of the income question as did the court in Harwood v. Eaton, 59 Fed. (2d) 1009. We will follow the Americana Telegraph & Cable Co. cases at least until the First and Second Circuit Courts of Appeal reverse their earlier positions.

The agreement between the Southern and Atlantic Telegraph Company and the Western Union was in form not a lease but the employment of an agent. This difference does not distinguish the case of that petitioner from the others so far as the result to be reached is concerned. But before a contrary result could be reached this difference would probably have to be considered. A principal is liable for the income from the operation and use of its property even though an agent actually operates the property and disposes of the proceeds as directed in the contract of agency.

The other agreements are in form leases and no one suggests that they are anything else in fact. The four companies leased their properties for an agreed rent. Rent may be defined as a periodical payment for the use of property. It is specifically mentioned in the revenue acts as a part of gross income. The lessors owned the leased properties when the agreements were entered into. They still exist as corporations and they still own the properties. They have made no assignment of their leases. Being owners, they alone had the right to say what should be done with the rent. It was subject to their unfettered command. They were free to enjoy it at their option. They could have required that it be paid directly to them as owners, but instead they chose for their own purposes and convenience to specify that their right to receive should be enjoyed by others, their stockholders. Cf. Corliss v. Bowers, 281 U. S. 376. This was the exercise of a prerogative of ownership, an enjoyment, and a sufficient basis for the imposition of a tax. The income was nevertheless theirs from the use of their properties.

The petitioners concede that the rent would be income to them if paid to third parties in discharge of an obligation, as, for example, to bondholders or in payment of taxes of the lessor. Houston Belt & Terminal Ry. Co. v. United States, 250 Fed. 1; Old Colony Trust Co. v. Commissioner, 279 U. S. 716; United States v. Boston & Maine R. R. Co., 279 U. S. 732. But they argue that they are under no obligation to their stockholders and therefore do not own or derive any benefit from the payments to the stockholders. The use to which money is put does not determine whether or not it was income before being so used. Nor need it determine who owned the income. Rent is income of the lessor who is entitled to say what shall be done with it. Why should it make any difference what the lessee agreed to pay on behalf of the lessor, whether a debt or a dividend? In either case it has applied the rent in accordance with the wishes of the lessor. If constructive receipt applies in the one case it may just as well apply in the other. Cf. Blalock v. Georgia Ry. & Elec. Co., 246 Fed. 387. The usual purpose of stockholders in organizing and maintaining their corporation is that they may ultimately receive its earnings. The earnings of these corporations were paid directly to their stockholders at the direction of the corporations. The corporations controlled, enjoyed, and benefited by their earnings in that they fulfilled the purpose of their stockholders and justified their corporate existence. A part of their control, having been exercised, no longer exists, but the enjoyment and benefit continue as each payment comes due and is paid in accordance with the agreements. Actual receipt of income is not a prerequisite of income-tax liability, nor is control of the income at the moment it becomes due. It matters not that the corporations, having elected to enjoy their income in one way, are no longer free to enjoy it in another. Their control, benefit and enjoyment would be no greater at the moment of payment had they contracted to have the payments made to bondholders with a guarantee by the lessee to the bondholders. Cf. Second Avenue Bondholders' Appeal, 198 Fed. 747.

Counsel for the petitioners tells us that the Commissioner has been consistent in his error and has allowed the Western Union Telegraph Company to deduct the full amount of the rent reserved in the leases, even though it has paid no. one the portion applicable to the share held by it in the various companies. This fact need not influence us however. Suggestion has also been made that the payments are taxable directly to the stockholders as ordinary income and not as corporate distributions. This is a collateral question only, but if it were before us for decision we would have difficulty classifying the payments as something other than corporate distributions. They were not paid to the stockholders as rent for the use of their property, for they did not own the property at any time and they were not the lessors. They received them only because they were stockholders of the corporations.

The Commissioner has determined the liability of these petitioners for excess-profits taxes under section 328 because of his inability to determine their invested capital as provided in section 326. Error was assigned in this connection by each petitioner and certain facts were stipulated in paragraphs 17 and 18, but no argument was made on these facts except as they relate to the Gold and Stock Telegraph Company. That petitioner concedes that the facts essential to a proper computation of its full invested capital under section 326 are not known. But it argues that sections 327 and 328 were intended as relief legislation and ought not to be construed as imposing a tax where normally none would be due. It claims that in the taxable years it had realized appreciation on its assets to the extent of $12,357,401.80, as set forth in paragraph 17(cl) of the stipulation and “taking this figure alone of the assets * * * it makes up any deficiency of capital and establishes a surplus of sufficient amount under section [326] of the Act to give an excess profits credit of eight per centum thereof, plus $3,000 in excess of the total rental reserved in the lease, which was $300,000 per year.” Invested capital of $3,500,000 would entitle the petitioner to a credit more than sufficient to offset its income. If it can show that its invested capital would be at least that large, then we would agree that an excess-profits tax should not be computed under section 328.

The lease is not clear as to how the lessee is to account at the end of the term for the proceeds from the sale of securities belonging to • the lessor. The stipulation shows, however, that the lessee in 1920 and 1921 owned an account receivable from the Western Union, payable in 1981, in the amount of $12,357,401.30. The respondent argues that this amount would have to-be discounted to find its value in 1920 and 1921 for invested capital purposes. Some discounting may be proper, but the lessee is paying annually the equivalent of 6 per cent on $5,000,000 for the use of the petitioner’s property, and it is clear that the petitioner’s assets were worth at least $5,000,000 in 1920 and 1921. It had no liabilities. The $5,000,000 of assets which it had in these years must have been either earned or paid in under circumstances which would create invested capital under section 326. Obviously its invested capital was more than sufficient to give it a credit in excess of its income.

The petitioners made one additional jxfint which, they confess, finds no support in the terms of the statute or in any decided case. They claim that they were not doing business during the taxable years and the excess-profits provisions were not intended to reach them. These provisions apply to all corporations not specifically exempt.

Fwrther 'proceedings wider Rutile 6£(c).


source: Caselaw Access Project

author: Trammell :

license: Public Domain

text:
    Michigan Limestone & Chemical Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 49691.
    Promulgated August 31, 1932.

      Tracy H. Duncan, Esq., for the petitioner.

      Maxwell M. Mahany, Esq., for the respondent.
   OPINION.

Trammell :

The issue raised by the pleadings in this case concerns the proper basis for computing depreciation deductions for the year 1927 on three steamers acquired by the petitioner’s subsidiary in 1923 under the circumstances set out in our findings of fact above. The petitioner is the parent corporation, and throughout the taxable year was affiliated with the Bradley (W. Va.) Company, all of whose stock it owned. The subsidiary is not directly a party to this proceeding, but the petitioner has assumed the payment of the tax due, if any, and the controversy arises in connection with the computation of the consolidated net income for that year.

On July 1, 1923, the petitioner owned all of the outstanding stock of the Limestone, Calcite and Bradley (Ohio) companies, each of which owned a steamer used exclusively in transporting-the petitioner’s products. On September 28, 1923, the petitioner organized the Bradley (W. Va.) Company, and on October 15,1923, the latter company issued to the petitioner its own stock at par in exchange for the stock of the Limestone, Calcite, and Bradley (Ohio) companies, in an amount equal to the cost of said stock as carried on the books of the petitioner. On October 31, 1923, the Bradley (W. Va.) Company, then owning all of the stock of the Limestone, Calcite and Bradley (Ohio) companies, surrendered that stock to the respective companies for cancellation and took over their assets in final liquidation, thereafter causing said companies to be dissolved.

The petitioner contends that the transaction by which its subsidiary acquired the assets of the three companies was one giving-rise to recognizable gain or loss for tax purposes, and that the proper basis for computing depreciation deductions from consolidated income for the taxable year is an amount equal to the cost to the petitioner of the stock of the Limestone, Calcite and Bradley (Ohio) companies, since that amount represents the cost to its subsidiary of the three steamers taken over in liquidation. The respondent contends that the basis for computing allowable deductions for depreciation, under the stipulated facts, is the same as it would be if the assets had remained in the hands of the transferors.

The applicable statute is section 204 (a) (7) and (c) of the Revenue Act of 1926, set out in the footnote.

It will be noted that the statute provides that the basis upon which depreciation deductions are to be allowed in respect of property acquired by a corporation shall be the same as it would be in the hands of the transferor, under certain specific conditions. Such basis is mandatory where it appears that (a) the property was acquired after December 31, 1917, (b) by a corporation in connection with a reorganization, and (c) immediately after the transfer an interest or control in such property of 80 per centum or more remained in the same persons or any of them.

The facts of the present case fully meet every condition specified in the statute. The property in respect of which depreciation deductions are claimed was acquired by the petitioner’s subsidiary corporation on October 31,1923, which was after December 31,1917; the said property was acquired in connection with a reorganization, and prior to and immediately after the transfer the petitioner owned 100 per centum of the stock of the corporations which held legal title to the property. Thus, an interest or control in such property of more than 80 per centum remained in the same corporate person.

That the transaction by which the petitioner’s subsidiary acquired the property constituted a reorganization within the meaning of the statute is not only admitted by the petitioner in its brief, but clearly appears from the facts.

Section 203 (h) (1) of the Revenue Act of 1926 defines the term “ reorganization ” as meaning, inter alia, a transfer by a corporation of all or a part of its assets' to another corporation if immediately after the transfer the transferor or its stochholders or both are in control of the corforation to which the assets are transferred, and in. subdivision (i) of said section the term “ control ” is defined as meaning the ownership of at least 80 per centum of the voting and all other classes of stock of the corporation. In such a case neither gain nor loss is recognized for tax purposes.

In Cortland Specialty Co. v. Commissioner, 60 Fed. (2d) 937, the court in its opinion, construing the above cited statute, said:

Reorganization, merger and consolidation are words indicating corporate readjustments of existing interests. They all differ fundamentally from a sale where the vendor corporation parts with its interest for cash and receives nothing more. * * * While the term [reorganization] includes financial readjustments in ways other than by judicial sale it does not properly embrace mere purchases by one company of the assets of another. * * *
Section 203 of the Revenue Act of 1926 must be interpreted in this setting. Its purpose was to relieve those interested in corporations from profits taxes in cases where there was only a change in the corporate form in which business was conducted without an actual realization of any. gain from an exchange of properties. When describing the kind of change in corporate structure that permits exemption from these taxes, Section 203 does not disregard the necessity of continuity of interests under modified corporate forms. Such is the purpose of the word “ reorganization” in Sec. 203 (d) (3) where a corporation exchanges its property “ solely for stock or securities.” Such also is * * * the nature of the “ ireÓrganization ” described in (h) (1) (B) where a corporation transfers assets to another corporation and the transferor, or its stockholders, immediately thereafter are in control of the transferee.

In the instant case, as before pointed out, the petitioner was the sole stockholder of the transferor corporations, and immediately after the transfer of the assets was in complete control of the transferee corporation through ownership of all of its stock. No gain or loss would, therefore, be recognized under the 1926 Act if the transfer had occurred under that act. However, the assets in question were transferred in 1923, under the Bevenue Act of 1921, and section 204 (a) (7) of the 1926 Act, supra, provides that in such case “ the basis shall be the same that it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer wader the law applicable to the year in which the transfer was made? But the Bevenue Act of 1921, which is the law applicable to the year in which the transfer in question was made, contains no provision for the recognition of gain or loss to a corporation upon the transfer of its assets to its stockholders in final liquidation.

It follows that the basis for the allowance of depreciation upon the assets in question, in the process of computing consolidated net income of the petitioner and its subsidiaries for the taxable year 1927, is the same as it would be in the hands of the transferors, which is the basis used by the respondent in determining the deficiency.

In support of its contention the petitioner cites Remington-Rand, Inc. v. Commissioner, 33 Fed. (2d) 77; certiorari denied, 280 U. S. 591; and our decisions in the following cases where we applied the principle of Remington-Rand, supra, namely, Riggs National Bank, 17 B. T. A. 615; affd., 57 Fed. (2d) 980; Black River Sand Corpora tion, 18 B. T. A. 490; Canal-Commercial National Bank, 22 B. T. A. 541. The petitioner contends that its case should be governed by-application of the same principle.

The cases cited, we think, are not in point. In each of them one corporation purchased all of the stock of another corporation knd subsequently took over the assets in liquidation of the stock so purchased. Such a transaction did not constitute a “ reorganization ” within the meaning of the statute, as we have shown, since there was no continuity of interests in the transferred assets. On the contrary, a full and complete change of ownership was effected. Prior to the purchase of the stock and transfer of the assets in liquidation the transferee corporation had no interest therein. Likewise, the stockholders of the transferor corporations retained no interest in the assets after transfer. In each case the transaction was held to give rise to recognizable gain or loss to the transferee corporation and, hence, established a new basis for depreciation. A wholly different situation is presented in the case at bar, as we have pointed out hereinabove.

The determination of the respondent is approved.

Judgment will be entered for the respondent

       Sec. 204. (a) The basis for determining gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that—
      *******
      (7) If the property (other than stock or securities in a corporation a party to the reorganization) was acquired after December 31, 1917, by a corporation in connection with a reorganization, and immediately after the transfer an interest or control in such property of 80 per centum or more remained in the same persons or any of them, then, the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made *******
      (c) The basis upon which depreciation, exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the same as is provided in subdivision (a) * k * for the purpose of determining the gain or loss upon the sale or other disposition of such property * * *.


author: MaRquette :

text:
    Elliott-Granite Linen Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 48212.
    Promulgated August 31, 1932.

      David 8. Pollock, Esq., and Albert I. (Joe, O. P. A., for the petitioner.

      Lloyd W. Greason, Esq., for the respondent.
   OPINION.

MaRquette :

Petitioner contends that it is entitled, under the provisions of section 206 (b) of the Revenue Act of 1926, to deduct, from its income for its taxable period in that year, the net losses of its predecessor companies for the preceding year. There is no dispute as to the fact of the losses.

The statute relied upon provides:

(b) If, for any taxable year, it appears upon tbe production of evidence satisfactory to tbe Commissioner that any taxpayer bas sustained a net loss, tbe amount thereof shall be allowed as a deduction in computing tbe net income of tlie taxpayer for the succeeding taxable year (hereinafter in this section called “ second year ”) and if such net loss is in excess of such net income (computed without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year, (hereinafter in this section called “third year”) ; the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.

The losses in question were sustained prior to 1926 and before the petitioner came into existence. Clearly, a taxpayer not in existence when a loss occurred could not have sustained that particular loss. But petitioner insists that the separate legal entities should be disregarded in this instance and for the purpose of granting the relief sought. That viewpoint was fully considered in Athol Manufacturing Co., 22 B. T. A. 105; aff'd., 54 Fed. (2d) 230. That case arose under the Eevenue Act of 1924, the pertinent section of which was identical in wording with the statute here involved. We there held that the deduction could not be allowed, saying:

* * * the statute clearly restricts those entitled to the benefit of the net loss provisions to “ any taxpayer ” who sustained a net loss. It is undeniable that the petitioner here is a separate legal entity and is a different taxpayer from its predecessor company. Cf. Standard Silica Co., 22 B. T. A. 97. There is no question here of the rights of other parties and we see no requirement under the circumstances of this case for invocation of the rule pronounced in Chicago, Milwaukee, & St. Paul Railway Co. v. Minneapolis Civic and Commerce Association, 247 U. S. 490, that “ courts will not permit themselves to be blinded or deceived by mere forms or law but, regardless of fictions, will deal'with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require.”

In our opinion the principles followed in the Athol case, supra, are controlling here and we sustain the respondent’s determination. See also Maytag Co., 17 B. T. A. 182.

With respect to depreciation allowance, the only controversy concerns the basis on which the computation should be made. The provisions of the Eevenue Acts of 1924 and 1926 are identical. The provisions here pertinent are as follows:

Sec. 204. (c) The basis upon which depletion, exhaustion, wear and tear, and absolescence are to be allowed in respect of any property shall he the same as is provided in subdivision (a) or (b) for the purpose of determining gain or loss upon the sale or other disposition of such property * * *.
Seo. 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; except that—
* ***** *
(8) If the property * * * was acquired after December 31, 1920; by a corporation by the issuance of its stock or securities * * * then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the trans-feror upon such transfer under the law applicable to the year in which the transfer was made.

In this proceeding there is no question of gain or loss; hence, no adjustment on that score is required. Clearly, then, from the wording of the statute, the basis for determining depreciation to petitioner’s predecessors is the cost of the assets in question, undiminished by any prior accumulated depreciation. Clearly, too, petitioner is not to be subjected to any diminution of depreciation basis not applicable to its predecessors. Burlington Gazette Co., 21 B. T. A. 156.

But it does not follow that the taxpayer may, indefinitely, deduct a certain percentage of the cost of his buildings and equipment. The allowance for depreciation is based upon the principle of allowing a taxpayer a return of the capital invested in his business before subjecting his earnings therefrom to tax. * * * A taxpayer, however, is permitted to have returned to him only the capital which he has invested.” William J. Ostheimer, 1 B. T. A. 18; Gladding Dry Goods Co., 2 B. T. A. 336. When the full cost of an asset has thus been recovered. through depreciation allowances over a period of years, it is clear that no further depreciation deduction is permissible, even though the particular asset is still useful and in use. The base for computing depreciation is of no avail when accumulated depreciation allowances have fully exhausted the cost of the asset.

In this proceeding the respondent has determined that the cost of all machinery owned by petitioner’s predecessors had been entirely absorbed by previous depreciation deductions. Petitioner does not dispute that fact. It follows that no deduction respecting machinery would have been allowable to the predecessor companies for the year in question and, hence, none can be allowed to this petitioner, who, under the statute, is in the same position as the predecessors.

But with respect to the items of auto trucks, cards and designs, and furniture and fixtures, it appears that, although the cost had not been consumed by prior depreciation, yet respondent allowed depreciation only upon cost minus accumulated depreciation deductions. In so doing we think he committed error. The taxpayer is entitled, under the statute, to depreciation allowance each year upon the amount invested in the particular asset until such investment has thus become fully absorbed. The base, in cases like the present one, is not subject to diminution so long as the cost is not fully consumed by the deductions allowed. Burlington Gazette Co., supra.

Decision will be entered, under Bule 50.


author: Matthews :

text:
    Dakota Creek Lumber & Shingle Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Upright Shingle Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. G. W. Gilfilen, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 31811, 40654, 40655.
    Promulgated September 6, 1932.

      V. Peringer, Esq., for the petitioner.

      T. M. Mather, Esq., for the respondent.
   OPINION.

Matthews :

The parties have stipulated that Gilfilen and the Upright Shingle Company each received assets of the transferor in excess of the amount of the deficiency herein determined. These transferees contend, however, that there were other tranferees and that each is liable for only his pro rata share of the tax. This contention is without merit, in view of the decision of the Supreme Court in the case of Phillips v. Commissioner, 283 U. S. 589, in which the court held that each transferee is liable for the tax of the transferor in an amount equal to the total value of the assets received by him as transferee. It is clear, therefore, that the petitioners, the Upright Shingle Company and Gilfilen, are liable as transferees for the amount of the liability asserted against them in the event we decide that the Company was liable for the deficiency asserted by the respondent*

The respondent has included the entire profit from the sale of the Bellingham plant and timber in the Company’s incoóle for 1923, upon the theory that the sale took place in that year. The petitioner’s first contention is that only the amount received in that year should be included in gross income, upon the theory that the contract provided for two things, a sale of realty for $30,000 and a sale of lumber and the sawmill for approximately $34,000; that the amount paid in 1928 was for the lumber; and that the realty was not sold until the following year. To sustain this contention it intro* duced several witnesses who were instrumental in drawing tip the contract. They testified that they agreed upon $30,000 for the realty, the mill and equipment, which included the water rights, and that they estimated the personalty, which included the lumber, to be about $35,000. There is also some testimony that they considered the amount of $35,000 paid in 1923 as payment for the personalty. But we can not agree that this establishes the petitioners’ theory that there were two separate and distinct sales. The contract itself provides for a sale of personalty and realty for a lump sum and at the same time. The bill of sale and the deed were delivered in escrow and neither of them was released until the payment of the final purchase price. The vendee went into possession of both the realty and the personalty. We think that this evidence shows that this was a single contract for the sale of both realty and personalty.

The petitioners further contend that, even if this were a single sale, the action of the respondent in including the amount in gross income for 1923 was erroneous, since, under the law of Washington, no title, legal or equitable, passed to the vendee until the deed was delivered in 1924. Counsel for the petitioners cites a number of Washington cases for the proposition that where there is a forfeiture clause in a contract no title, legal or equitable, passes to the vendee until th@ final payment and delivery of the deed,

A case bolding that this question is not necessarily governed by the state law as to the passage of title is that of the Birdneck Realty Corporation, 25 B. T. A. 1084. In that case the taxpayer corporation was engaged in subdividing and selling lots. The lots were disposed of under contracts providing for a down payment by the purchaser upon signing the contract, the remainder payable in installments represented by promissory notes. The contract provided that upon default in payment the seller might at its option either cancel the contract, in which event all amounts already paid should be retained by it, or declare the unpaid installments due and payable, and it further provided: “ It is understood that the party of the first part acquires neither an equitable or legal title to the property until the same shall have been paid for in full.” The purchaser under the contract did not take possession of the property. The taxpayer vendor contended that since under State law (Virginia) there was no sale in the year the contract was entered into, it derived no profit in that year. We held that under such a contract gain was realized in the year the contract was executed and the down payment made, and, after discussing the state cases relied upon by the petitioner, said:

But we are of opinion that tlie question whether the transactions were sales is not determinative of income under these contracts. During the taxable period petitioner received under its contracts cash sums over which it acquired absolute ownership and control. While its obligation to transfer title in the lot was dependent upon payment of all installments of the purchase price, its right to the cash installments as paid was absolute and unconditional. They were not held in trust nor subject to any obligation to return in case the contractual obligations were not fulfilled. Under the statutory definition of gross income in section 213 (a), they clearly constituted income derived from dealings in property. Cf. Charles J. Derbes, 24 B. T. A. 276; Lucas v. North Texas Lumber Co., 281 U. S. 11.
* ‡ * # * * *
* * * In this proceeding, however, a default gave petitioner the option to declare the impaid remainder due and payable. The liability for the full price, therefore, became absolute at the signing of the instrument.
* $ * * * # *
But in respect of those transactions not taxable on the installment basis, it may happen that the total anticipated profit, on which petitioner is here taxed, exceeds the amount of the cash payment received. In such a situation it can not be said, as above, that petitioner is taxed only on cash paid, which upon receipt became its absolute property. But together with the cash petitioner likeioise received the unconditional obligation of the vendee to pay the remaining amount of the purchase price; and, absent evidence to the contrary, the respondent’s determination that such obligations were worth no less than par at the time of receipt is sustained. [Italics supplied.]

The contract in the instant proceeding provides that the seller may, at its option, declare the contract forfeited and the buyer shall forfeit to the seller all payments made thereunder, but makes no provision for the balance of the purchase price immediately becoming due and payable. However, as in the Birdnech case, the contract is voidable by the vendor and not by the vendee. It should be noted that the contract of sale was entered into in October, 1923, possession of the property delivered to the vendee, and a substantial part of the purchase price — in fact approximately 50 per cent — was paid in that year and the bill of sale and deed were executed and delivered to the escrow agent to be retained until the final payment of the purchase price. Thus, the seller had done all in its power to carry out the contract and nothing remained for it to do but to receive the payments on the purchase price or to declare the contract forfeited, if it so desired, in the event of failure of the purchaser to make the payments when due. We do not believe the fact that the contract does not provide that the unpaid balance shall become due and payable is material, in view of the facts present in this case which we have already mentioned, and which indicate a completed sale in the year the contract was entered into.

In the case of Commissioner v. Moir, 45 Fed. (2d) 356, a contract in writing was entered into in July, 1920, providing that $10,000 be paid at once and when the title was satisfactory, $40,000 more was to be paid, whereupon the seller was to deposit in escrow a deed and, upon payment of the balance of the purchase price one year thereafter, the deed was to be delivered to the purchaser. The contract provided that in case the purchaser failed to carry out his contract the seller might retain as liquidated damages all the money paid and the contract would then be null and void. The balance of the purchase price was paid in 1921 and the papers in escrow were then delivered to the purchaser in that year. The court held that the sale took place in 1920.

In the Moir case the court did not discuss the question of when title passed, either legal or equitable, but based the decision on the theory that there was a completed transaction in the year that the sale was entered into and hence the total profit accrued in that year. That case arose in Illinois. We do not believe that as far as Federal taxation is concerned the question of when title passes by state law should govern in this proceeding. It is not a question of a determination of property rights, but a practical one of when a taxpayer receives income.

There are a number of cases which hold that where a contract of sale is entered into and part of the purchase .price paid, the deed executed and all that remains for the vendor to do is to receive the purchase money, the sale is completed for income-tax purposes in the year the contract is entered into. See Davidson & Case Lumber Co. v. Motter, 14 Fed. (2d) 137; J. T. Pittard, 5 B. T. A. 929; Seletha O. Thompson, 9 B. T. A. 1342; Old Farmers Oil Co., 12 B. T. A. 203; Grace Harbor Lumber Co., 14 B. T. A. 996; Bailey et al., 18 B. T. A. 105; Federad Development Co., 18 B. T. A. 971; Harris Trust & Savings Bank, 24 B. T. A. 498; and W. H. Hay, 25 B. T. A. 96. While none of these cases is exactly similar to the instant proceeding, we believe that from the principles laid down therein we are justified in concluding that for income-tax purposes the sale was completed in, 1923, regardless of the fact that title had not passed to the vendee.

In reaching our conclusion we have not overlooked the decision of this Board in the case of E. K. Wood Lumber Co., 25 B. T. A. 1013, which in Docket No. 23605 involved two sales of timber in the State of Washington. In that case contracts of sale were entered into on April 21 and July 12, 1920, respectively, and about one-fifth of the purchase price was paid in that year, the remainder being payable in installments evidenced by promissory notes. We there held, see pp. 1020,1021, 1028-1030, that there was no sale in 1920 under either of the contracts such as to render the petitioner liable to tax in that year on the total anticipated profit to be derived from the contracts. While the terms of the contracts are not set forth, it appears that no deed or other conveyance was executed and that the vendor retained control of the property, the vendee having a mere license thereunder to cut timber. The situation in the present proceeding is clearly distinguishable.

The respondent has included the entire amount of the profit in the Company’s gross income for 1923. There is no evidence as to the basis upon which he computed the profit or whether the deferred payments under the contract had a readily realizable market value. In such a situation we must sustain the action of the respondent in including the entire profit in income for 1923.

Judgment will be entered for the respondent.


author: Marquette :

text:
    Lafayette Life Insurance Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 41721, 42663.
    Promulgated September 6, 1932.

      A. E. James, Esq., for tbe petitioner.

      John D. Foley, Esq., for the respondent.
   OPINION.

Marquette :

The petitioner claims as deductions the amounts equal to interest on deferred dividends paid during the taxable years to holders of a certain class of insurance policies written by the petitioner. The policy contract did not require such payment of interest, nor did it contain any optional provisions calling for such payment. Therefore, the respondent contends that such interest payments were voluntary on the petitioner’s part, were really additional dividends, and do not constitute allowable deductions within the meaning of the Nevenue Acts of 1924 and 1926. The provision here applicable is section 245 (a) (8), which is the same in both statutes, and reads as follows:

Sec. 245. (a) In the case of a life insurance company the term “ net income ” means the gross income less—
* * * * * * * *
(8) All interest paid or accrued within the taxable year on its indebtedness * * *.

The term “ interest ” has a well known meaning. It is defined in the Standard Dictionary as “an agreed or statutory compensation accruing to a creditor during the time that a loan or debt remains unpaid.” A similar definition has been followed by this Board. Cf. Greenville Textile Supply Co., 1 B. T. A. 152; Joseph W. Bettendorf, 3 B. T. A. 318; Fall River Electric Light Co., 23 B. T. A. 168.

In our opinion the’ amounts paid during the taxable years by petitioner to holders of deferred dividend policies were not interest payments within the proper meaning of the term. There was no agreement between petitioner and its policyholders calling for such payments. There was no statutory requirement compelling such payments, so far as we are advised. The deferred dividends, upon which the so-called interest was computed, were not loans made by the policyholders to the petitioner. Nor can it be said that the deferred dividends constituted debts owed by petitioner during the 20-year period of the tontine policies. A debt in its general sense is “ a specific sum of money which is due or owing from one person to another, and denotes not only the obligation of the debtor to pay, but the right of the creditor to receive and enforce payment.” J. S. Cullinan, 19 B. T. A. 930. During the tontine period none of the deferred dividends constituted “ a specific sum of money due or owing ” from petitioner to a policyholder and enforceable by the latter. Not until the end of such period could it be determined who of the policyholders might be entitled to deferred dividends. Indeed, it is quite conceivable that none would be so entitled. It is clear, we think, that under such circumstances the so-called interest payments could not properly be deemed interest. They constituted additional dividends rather than interest. In Farmers’ Cooperative Ass’n, 5 B. T. A. 61, and again in Trego County Cooperative Ass’n, 6 B. T. A. 1275, the by-laws of each group provided that interest at the rate of 8 per cent should be paid anually on all capital stock. In each case we held that such payments were not deductible as interest paid, but were dividends. We think the same principle applies here and on that point the respondent’s determination is sustained.

The next question is whether there should be included in petitioner’s gross income the rental value of space occupied by petitioner for its business purposes in a building owned by it. We have considered this question on other occasions and have held that gross income of a life insurance company may not be increased by the amount of the rental value of space so occupied, and deductions for taxes and other expenses respecting such building may not be denied or abridged because such rental value is omitted from the gross income. Independent Life Insurance Co. of America, 17 B. T. A. 757; Reserve Loan Life Insurance Co., 18 B. T. A. 359; Two-Republics Life Insurance Co., 21 B. T. A. 1355. Those cases are controlling here and the petitioner’s gross income for each taxable year should not include rental value of the space occupied by it in its own building.

The third allegation of error, relating to deductions for exhaustion, wear and tear of property in the amounts of $1,201.49 for 1926 and $2,058.34 for 1927, is admitted by the respondent. Those amounts, therefore, will be allowed as deductions for the respective years in recomputing the deficiencies.

The last question raised by the respondent is whether petitioner is entitled to deductions for depreciation of furniture and fixtures used in the underwriting portion but not in the investment portion of its business. The provisions of the Revenue Act of 1926 which are applicable here are as follows:

Seo. 244. (a) In the case of a life insurance company the term “ gross income ” means the gross amount of income received during the taxable year from interest, dividends and rents.
* * * * * * *
Seo. 245. (a) In the case of a life insurance company the term “ net income ” means the gross income less—
*******

The respondent contends that, as the statute confines petitioner’s gross taxable income to receipts of interest, dividends and rents, therefore, the deductible allowance for depreciation of property logically and properly includes only such property as petitioner used in the production of its taxable income. In our opinion that contention is not well founded. In Regulations 69, construing the revenue act, the respondent says, in article 685 (2), that “ The deduction allowed by section 245 (a) (7) for depreciation is identical with that allowed other corporations by section 234 (a) (7).” That limits the allowance for depreciation to the “ exhaustion, wear and tear of property used in the trade or business.” Unquestionably the trade or business of this petitioner covered not only investments of its funds, but the writing and issuance of life insurance policies, collecting premiums, and the like. While there were two phases of petitioner’s activities, the underwriting and the investment, the two combined constituted its business. Each was dependent upon and related to the other, and both were necessary factors for the success of the business.

Had Congress desired to limit the depreciation allowance in the manner now urged by respondent, it would undoubtedly have so worded the statute. No such limitation is expressed, however-, and we find nothing in the statute to indicate an intention to create such a restriction. In our opinion, therefore, the petitioner is entitled to the amounts claimed by it for depreciation on its furniture and fixtures, namely, $788.88 for the year 1926 and $861.40 for the year 1927.

Decision will ~be entered under Rule 50.


author: Matthews:

text:
    Keewalik Mining Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 26682.
    Promulgated September 7, 1932.

      W. H. Gorham, Esq., for the petitioner.

      P. A. Bayer, Esq., for the respondent.
   OPINION.

Matthews:

While this proceeding is one for a redetermination of a deficiency for 1922, the petitioner claims a net loss for 1921 resulting from the respondent’s refusal to allow sufficient depreciation and depletion in that year and the same question as to the proper allowance for depreciation and depletion arises for 1922, so we have to decide the correct amount allowable for both years.

The respondent has used the amount of $176,500, which represents the combined cost of the claims and the ditch and pipe line in 1911, plus the cost of additions to March 1, 1913, as the March 1, 1913 value, $83,057.21 being allocable to the ditch and pipe line, and has allowed depletion on both the mining claims and the ditch and pipe line on the unit-of-production method at the rate of $4.16 per ounce of gold produced. The petitioner attacks both the basis and the method used by the respondent, claiming that the March 1, 1913, value of the claims and of the pipe line is greater than that used by the respondent, which would result in an increase in the allowance for exhaustion of both the claims and the ditch and pipe line, and that, also, it is entitled to an allowance for depreciation on the ditch and pipe line based on its useful life, rather than an allowance for depletion computed on the unit-of-production basis of the mine.

In considering both these questions it should be borne in mind that the mining claims and the ditch and pipe line are dependent for their usefulness one upon the other. The mining claims, without water to work them, are practically worthless and the ditch and pipe line have no value without ore reserves to which they can furnish water.

In order to sustain its claim as to the value on March 1, 1913, of these properties the petitioner introduced, in addition to the documentary evidence, two witnesses, E. J. Mathews, its president, and C. L. Morris, a mine operator who had been in charge of the construction of the pipe line. These witnesses testified that the ditch and pipe line had a value on the basic date of $300,000. This was based on reconstruction cost computed on the theory that the original cost in 1907 was $251,154, and that since the cost of labor had increased it was estimated that the reconstruction cost must have been at least $300,000. However, the evidence shows that the ditch was in such bad repair in the latter part of 1912 and the early part of 1913 that it could not be used and that it was only after considerable amounts had been spent on reconditioning it that it was available for use in the late summer of 1913. Upon a careful consideration of the evidence, we are of the opinion that the ditch and pipe line did not have a value on March 1, 1913, in excess of that determined by the respondent.

As to the claims, Morris did not give any detailed explanation of the manner in which he arrived at his opinion as to the value. Although there was other mining property adjacent to that of the petitioner, there is no evidence as to whether there were any sales of it, or as to what it sold for. Between $30,000 to $40,000 worth of gold ore had been extracted on the petitioner’s property between 1906 and 1913, but there is no evidence as to exactly how much the cost of extraction had been or that Morris took this cost into consideration in arriving at his valuation. There is no other evidence as to the value of these claims on the basic date. Mathews’ opinion as to value is at most an estimate, not even based on prior production. He admitted that when he made this valuation he thought the mine could be operated from 90 to 100 days a year and that the cost of extraction would be 25 cents per cubic yard. As a matter o'f fact, due to the scarcity of water, the number of days the property was operated up to 1917 did not exceed 45 days a year, and the actual cost of extraction was 80 or 90 cents per cubic yard.

We are, therefore, of the opinion that upon a consideration of all the evidence, the respondent’s determination of the value on March 1,1913, of the mining claims and of the ditch and pipe line is correct. See Stevens County Power & Light Co., 12 B. T. A. 134; Jerecki Mfg. Co., 12 B. T. A. 1165; Preston County Coke Co., 24 B. T. A. 646; and Old Mission Portland Cement Co., 25 B. T. A. 305.

We shall now consider the question of the correct method to be used in computing the allowance. The petitioner does not contest the method used for computing the depletion on the mining claims and, therefore, we sustain the respondent’s allowance in this respect. As to the ditch and pipe line, it is immaterial whether we refer to the claimed allowance as depreciation or depletion. As we understand the situation, the real issue is whether the allowance for exhaustion of the ditch and pipe line should be computed on the same basis as that of the gold-mining claims, by the unit-of-production method, or whether on the basis of the useful life of the ditch itself.

In the case of Kehota Mining Co. v. Llewelyn, 28 Fed. (2d) 995; aff'd., 30 Fed. (2d) 817, the court held it proper to compute depreciation or depletion on coal-mining equipment on the unit-of-production basis where the life of the equipment was coextensive with the life of the mine. The petitioner contends that the useful life of the ditch was not dependent on the production of ore from the petitioner’s mining claims, but that it had a usefulness arising from the service it could render to other mining claims. Although there was testimony that the ditch and pipe line could be used for other adjoining claims, there is no evidence as to the nature of these claims or as to whether any mining was being done upon them. But the chief weakness in the petitioner’s contention is that there was not a sufficient water supply for the petitioner to mine its own claims more than 30 to 45 days a year. Moreover, while the physical life of the ditch was indefinite, and that of the pipe line was perhaps 40 to 50 years, the testimony as to the length of its useful life was merely an estimate made by one of the witnesses without giving any basis for his estimate. Upon this evidence we are unable to find that the ditch and pipe line had a useful life any longer than that of the petitioner’s mining claims and, therefore, we sustain the respondent’s action in computing the allowance on the same basis as that of the mining claims.

As to the petitioner’s contention that it sustained a net loss in 1921, the respondent determined that the petitioner had net income in that year, after allowing a deduction for depreciation computed on the same basis and in the same manner as the allowance for 1922. A net loss would result only if the petitioner was entitled to an additional allowance for depreciation or depletion for that year. In view of our decision that the respondent’s computation of depletion was correct, it is clear that there was no net loss for 1921.

Judgment will be entered for the respondent.


author: Teasooill:

text:
    Elsie Samstag, Petitioner, v. Commissioner of Internal Revenue, Respondent. J. Jacquin Rothschild, Petitioner, v. Commissioner of Internal Revenue, Respondent. Helen R. Kann, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 47929, 47930, 47984.
    Promulgated September 8, 1932.

      William J. Byrne, Esq., and Joseph Getz., C. P. A., for the petitioners.

      L. W. Greason, Esq., for the respondent.
   OPINION.

Teasooill:

The petitioners contend that for the purpose of computing their normal tax they are each entitled to an undiminished credit of $6,000, representing one-fourth of the total amount of dividends received by the residuary estate of Jacob Rothschild during 1926, and that the respondent’s action in reducing the credit so taken by them was erroneous. The respondent contends that, since the expenses of the estate exceeded the income from sources other than dividends, such excess operated to reduce the amount of dividend# distributable to the petitioners, and consequently his action in reducing accordingly the credit of $6,000 taken by the petitioners on account of such dividends for the purpose of computing normal tax was correct.

Section 219 of the Revenue Act of 1926 provides in part as follows:

Seo. 219. (a) The tax imposed by Parts I and II of this title shall apply to the income of estates or of any kind of property held in trust, including—
♦ ♦ % S>t ;t- }£
(3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and
# * * * , * * *
(b) Except as otherwise provided * * * the tax shall be computed upon the net income of the estate or trust and shall be paid by the fiduciary. The net income of the estate or trust shall be computed in the same manner and on the same basis as provided in section 212, except that—
(8) In the case of income received by estates of deceased, persons during the period of administration or settlement of the estate, * * * there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of income of the estate or trust for its taxable year which is properly paid or credited during such year to any legatee, heir, or beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the legatee, heir or beneficiary.
* * * * * * ‘ #
(d) If any part of the income of an estate or trust is included in computing the net income of any legatee, heir, or beneficiary, such legatee, heir or beneficiary shall, for the purpose of the normal tax, be allowed as credits, in addition to the credits allowed to him under section 216, his proportionate share of such amounts specified in subdivisions (a) and (b) of section 216 as are, under this section, requvretL to Z>e included in computing his net income. [Italics supplied.]

Section 216 of the Revenue Act of 1926 provides:

Seo. 216. For the purpose of the normal tax only there shall be allowed the following credits:
(a) The amount received as dividends (1) from a domestic corporation * * *.

Under the above quoted provisions of subdivisions (a) and (b) of section 219 of the Revenue Act of 1926 it seems clear that the income of an estate is to be computed separately from the shares or interests of the beneficiaries thereof. Aside from the additional deduction provided, its income is to be computed in the same manner and on the same basis as that of an individual. This means that its net income is the excess of total gross income, as defined by the act, over the total allowable deductions. The income of the estate here involved arrived at in that manner was $20,046.62. But the estate, under the statute, was entitled to an additional deduction — the amounts of income of the estate during the taxable year which were paid or credited to the beneficiaries. In the instant case these amounts were the balance remaining after deducting expenses from the total income received, or $20,046.62. Under paragraph (3) of subdivision (b) of section 219 it was the proportional part of this amount that the petitioners were required to report in their returns and include in computing their net income, and not their proportional part of the dividends amounting to $24,000 received by the estate during the year. We find nothing in section 219 or elsewhere in the act requiring the beneficiaries of an estate to report as income a total amount in excess of the net income of the estate. Nor do we find anything authorizing the beneficiaries of an estate to take as deductions in theii returns the proportional parts of expenses of the estate, which was the effect of the method used by the petitioners.

Since the income of the estate from sources other than dividends was insufficient to pay the expenses of the estate, such deficiency would have to be met from the income received as dividends, and consequently the amount remaining after making deduction for expenses represented dividends. This amount was $20,046.62. Since the petitioners were required to include in their income only their proportional part of this amount, it was only such proportional part that they were entitled, under subdivision (d) of section 219, to use as a credit in computing their normal tax. In determining the deficiencies here involved the respondent included in the income of each petitioner, as dividends received from the estate, only such petitioner’s proportional part of the amount of $20,046.62, and he allowed each as a credit for dividends received from the estate in computing normal tax the amount so included. We think the respondent’s action was in conformity with the statute, and, therefore, it is sustained.

In their brief the petitioners advance the argument that, as a result of the agreement among themselves, their ownership and control of the assets of the estate were, to all practical intents and purposes, the same as partners, and that they each received a proportional part of the full amount of dividends received by the estate and that each sustained a proportionate share of the expenses of the estate and are entitled so to treat them in their returns.

The parties have stipulated that the “ residuary legatees agreed, for the purpose of administration, and control, to keep the assets representing the residue of the Estate intact and not to make a distribution in accordance with the terms of the Will.” For 1926 a return of income was filed for the “ Residuary Estate of Jacob Rothschild,” showing Joseph J. Rothschild and J. Jacquin Rothschild as executors, and it was sworn to by each of them as “ Executor.” We find nothing in the evidence to indicate that the administration or settlement of the estate of Jacob Rothschild has been completed and the executors of the will discharged, but, much to the contrary, we have considered the estate to be in the process of administration or settlement. The estate still being in the process of administration or settlement, we think the contention of the petitioners that each received a proportional part of the full amount of dividends received by the estate and that each sustained a proportional share of the expenses and is entitled so to treat them in his return is without basis.

The effect of granting the contention of the petitioners would be to ignore the identity of the estate, which is recognized by the statute.

Judgment will be entered for the resfondent.


author: Teammell :

text:
    Sydney R. Bliss, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 55902.
    Promulgated September 9, 1932.

      Glande W. Dudley, Esq., for the petitioner.

      R. N. McMillan, Esq., for the respondent.
   OPINION.

Teammell :

It is clear that under section 161 (b) of the Revenue Act of 1928 the petitioner is not liable for the tax upon the income of the trusts unless he has reserved to himself the power to revest in himself title to the corpus of the trusts, or unless it appears that the income of the trusts may in the discretion of the grantor be distributed to him or be held or accumulated for future distribution to him.

Thi pertinent provisions of the Revenue Act of 1928 are as follows:

[Sec. 161.] (b) * * * The tax shall be computed upon the net income of the estate or trust, and shall be paid by the fiduciary, except as provided in section 166 (relating to revocable trusts) and section 167 (relating to income for benefit of the grantor). * * *
[Sec. 166.] Where the grantor of a trust has, at any time during the taxable year, either alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus of the trust, then the income of such part of the trust for such taxable year shall be included in computing the net income of the grantor.
[Sec. 167.] Where any part of the income of a trust may, in the discretion of the grantor or the trust, either alone or in conjunction with any person not a beneficiary of the trust, be distributed to the grantor or be held or accumulated for future distribution to him, or where any part of the income of a trust is or may be applied to the payment of premiums upon policies of insurance on the life of the grantor (except policies of insurance irrevocably payable for the purposes and in the manner specified in section 23 (n), relating to the so-called “ charitable contribution ” deduction), such part of the income of the trust shall be included in computing the net income of the grantor.

We think it is clear from the trust instruments that the grantor had no power to revest in himself title to any of the corpus of the trusts. The petitioner did not reserve the right to alter, amend or revoke in whole or in part the terms or conditions of the trusts, by himself or in connection with any other person. The right to revoke, alter or amend was vested exclusively ii.i Helen Jones Bliss, and it was specifically provided in the trust instruments that the grantor had no interest whatever in such right hr power. • Clearly, the trust instruments did not come within the provisions of section 166 of the Revenue Act of 1928.

Nor was any part of the income of the trusts distributable in the discretion of the grantor to himself, either alone or in conjunction with any other person, nor was it to be held or accumulated for future distribution to the grantor, nor was any part of the income to be applied to the payment of premiums upon life insurance policies upon the life of the grantor, nor were any other facts present which would in any way bring the trust instrument within the purview of section 16T of the Revenue Act of 1928.

Where the terms of a trust instrument do not bring it within section 166 or 16J of the Revenue Act of 1928, then, under section 611 (b) of the same act, the tax must be computed upon the net income of the estate or trust and shall be paid by the fiduciary.

We think it is of -no importance that, in the event of the death of the beneficiary without issue prior to her attaining the age of 85 years, the trust is to terminate and the corpus be distributed to the grantor or his heirs. See Duke et al., Executors, 23 B. T. A. 1104. Nor do we think it of any importance that the grantor or his wife had to be consulted and a written order be obtained from either of them before making payments in connection with the maintenance. >care, comfort and support of their minor, children. This does not mean that the grantor of the trust had any right to alter the trust or to revoke the trust, or to have any of the income distributed to him or accumulated for his benefit. Nor do we think it oí any importance that the grantor would have to be consulted in connection with certain discretionary powers as to investments and exchanges .or sales of securities. The fact that he should be consulted does not mean that he had any power to prevent the trustee from exercising its best judgment, and, in any event, it does not indicate that the grantor had any power of revocation or alteration, or to obtain or secure any of the income for himself.

The respondent, in his memorandum, referred to the brief filed by him in the case of Valentine Bliss, apparently upon the theory that there is some similarity between that case and this case. Any similarity between the two cases is too remote to have any bearing upon the consideration of this case.

Judgment will be entered for the petitioner.


author: Goodeich:

text:
    The Dome Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 41887.
    Promulgated September 12, 1932.

      Godfrey N. Nelson, Esq., for.the petitioner.

      Eugene Meae/iam, Esq., for the respondent.
   OPINION.

Goodeich:

Petitioner contends that Warner Brothers was the purchaser and owner of all of the outstanding stock of the Dome Company and that Robbins, with respect to the stock standing in his name was but a nominee, having no interest in the stock and no. right to possession or control of it. We are convinced that such was the fact. True, so far as the corporate record is concerned, Robbins appeared as owner of 9.6 per centum of the stock, both before and after the reduction of the company’s capital. The certificates were issued in his name; he was listed as a stockholder upon the certificates filed with the authorities of the state; the contract recited that he was a stockholder, and he was made an officer and director of the company. But, in the absence of estoppel, the corporate record will not serve to bind petitioner if it is contrary to facts, as we believe it was.

The evidence before us is convincing that Warner Brothers intended to, and did, acquire the entire outstanding stock of the Dome Company and that stock was issued in Robbins’ name only because it was necessary so to do to secure the loan of additional funds. Robbins emphatically denies any expectation of interest in or claim to the stock and he paid for none of it. He exercised none of the rights of a stockholder, he took no part in the management of the company’s business beyond the duties of his employment as theatre manager, he received none of the substantial dividends paid by the company, he received nothing in payment for the stock in his name upon its surrender, either at the time its capital was reduced or when he formally relinquished his rights by the contract of March 14, 1930. Long before that contract was drawn the stock standing in his name, which since its issuance had been in the possession of the bank, had been delivered not to Robbins, but to Warner Brothers. We conclude that Warner Brothers Pictures, Inc., was the real owner of all of the stock of the Dome Company and Robbins was its nominee. Therefore those corporations, during the period before us, were affiliated under section 240 of the Revenue Act of 1926.

Judgment will be entered for the fetitioner.


author: ARundell:

text:
    Evan V. Quinn, Petitioner, v. Commissioner of Internal Revenue, Respondent. Paul H. Quinn, Petitioner, v. Commissioner of Internal Revenue, Respondent. Martin M. Quinn, Petitioner, v. Commissioner of Internal Revenue, Respondent. W. L. Barclay, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 8544, 8574, 8598, 8743.
    Promulgated September 12, 1932.

      John E. Hughes, Esq., and William Cogger, Esq., for the petitioners.

      Arthwr Carndwff, Esq., for the respondent.
   OPINION.

ARundell:

The contention of petitioner Paul H. Quinn, that collection of the assessment against him is barred, seems to us to lack any tenable foundation. The assessment was timely made and the waivers executed kept the period for collection alive to a date beyond that on which the notice of deficiency was issued. We accordingly hold for the respondent on the limitations issue.

The principal controversy is the amount of income, if any, realized by the Quinn brothers in 1918 and 1919 out of the sale by the Quinn Party of its interest in the Koogler lease. Petitioners contend that the share of profits on the sale that came to them was a gift, inasmuch as they owned no interest in the lease. Alternatively, it is claimed that the profit should be computed on what they call the deferred payment basis, that is, that their entire cost should be recovered before any gain is realized. The respondent, by amended answer, alleged that all the profit was realized in 1918 and claims an increased deficiency for that year.

We have set out in the findings of fact the several representations of Paul H. Quinn that he was the owner of an interest in the Koogler lease, and that he had acquired his interest at the stated cost. Counsel for the parties agreed that the evidence in Paul’s case should be taken as the evidence in the "other cases. From this we take it that the other two Quinn petitioners made the same representations. Thus we have three petitioners, beginning with returns filed in June, 1919, alleging consistently over a period of years that they were owners of an interest in the property. As late as January, 1929, each of the three by amended petition asserts that he “ does not dispute the cost determined by the respondent ” in his computation of gain realized for 1919. Now, as against these cumulative representations of three of the interested parties, one of them testifies that he and the other two did not own any interest. We are not disposed to accept this testimony as overcoming the fact previously represented and insisted on and as found by the respondent. We accordingly hold that the three Quinn brothers each acquired an interest in the Koogler lease in 1917 at a cost to each of $53,333.33.

The respondent computed the profit realized by the Quinns on the theory that under the contract with the Magnolia Petroleum Company each sold one-half of his interest in the Koogler lease. The parties are now agreed that under that contract each sold two-thirds of his interest. As the parties are further agreed on the cost of the interest of each petitioner and the amount received on the sale thereof, the next question we are concerned with is the year or years in which the profit was realized.

The respondent has not established to our, satisfaction his claim that the entire profit was realized in 1918. He offered no evidence to establish that the promise of the Magnolia Petroleum Company to pay for the assigned interests had any value. As the claim in this respect is one for an increased deficiency, the burden is on the respondent to establish it, and he has failed to do so.

In determining the deficiencies the respondent spread the receipts over the three years in which they came in, and determined the profit by treating as cost of the portion sold in each year a sum which was in the same ratio to total cost as the amount received within the year was to total receipts.

Counsel for petitioners were requested to furnish the Board with a method of computation that, in their opinion, would correctly reflect income on the basis of the cost and selling prices which are in the record in these proceedings. They have failed to do so. In their brief they take the position that none of the receipts constitute taxable income until such time as the full cost is recovered, relying principally on United States v. Bolster, 26 Fed. (2d) 760, and Logan, v. Burnet, 42 Fed. (2d) 193; aff'd., 283 U. S. 404. In the Bolster case a widow elected to take under her husband’s will in lieu of dower, and the question was whether the annual payments she received pursuant to her election were income before they aggregated a sum equal to the value of her relinquished dower rights. The court held that they were not, on the theory that the case was similar to the purchase of an annuity and that there could be no income until the premiums were returned. That is not the case here. This case involves the sale of property. Nor is the Logan case in point. There, a part of the consideration was a promise to pay, which was contingent on the amount of ore removed from a mine, and there was no requirement for the mining of either a minimum or maximum tonnage. Here, we have promises to pay definite specified amounts in no way contingent upon operation.

By respondent’s method- he spreads cost in proportion to receipts. Under other circumstances this method might not be proper. But under the facts developed here, the respondent’s method seems to us to reflect income more correctly than any other method proposed. We accordingly affirm the respondent’s allocation of income from the sale over the period in which payments were received, subject to correction of amounts as stipulated by the parties.

Our holding on the question of income from the sale of the Koogler lease, while so far directed to the Quinn cases, is equally applicable to the Barclay case. In all of them the parties have agreed on the amount of income realized if the respondent’s method is correct.

The next question, which is in the Barclay case only, is the amount of loss sustained, if any, by reason of the claimed worthlessness of stock occurring in 1919. Prior to 1919 Barclay bought stock in several corporations at an aggregate cost of $18,132. In addition to this, he advanced $4,000 to one of the companies in 1919 to help it meet its expenses. He claims that all the stock became worthless in 1919 and that he is entitled to a loss deduction by reason thereof in the amount of $22,132.

We are satisfied that the stock of the California National Gold Mining Company became worthless in 1919. The company operated during part of 1919, but it was evident before the close of the year that the venture was hopeless. Early in 1920 the promoter of the enterprise visited the properties and immediately thereafter they were abandoned. It is in evidence that Barclay sold the stock to his son in 1920 for $10. This is explained, however, as due to Barclay’s belief that it was necessary to make some sort of a sale to establish a loss. We accordingly hold that a deduction for the cost of the stock, $5,000, is proper for the year 1919.

The sum of $4,000 advanced to the California Company, while technically not an assessment on the stock, was nevertheless paid in to meet operating expenses solely by reason of petitioners’ stock-holdings. It was evident within the year that no recovery hould be had. We think the sum is deductible as a loss.

The Penn-Kansas Oil Syndicate went into the hands of a receiver in October 1919, and the stockholders never received any distributions on their stock. Olcott Payne, a director and general manager of the company, and Hartman, secretary to Barclay, testified to the worthlessness of the stock in 1919. We are satisfied that the loss was suffered in that year, and the deduction should be allowed.

The evidence respecting the status of the other companies in 1919 is too meager to permit the finding of any facts. Barclay’s former bookkeeper testified that he was told in 1919 by “ the stock manager of Elkins, Morris & Company ” that the stock of the Emerson Motors Company had no value. He further testified that Barclay was told in 1918 or 1919 by M. F. Quinn that the Mapes-Johnson Mining Company “had become defunct.” This evidence is obviously insufficient to support the claim of worthlessness in the year 1919. There is no evidence concerning the Palmer-Utah Oil stock, except the statement of the bookkeeper that it became worthless in 1919.

The original petitions filed in the Quinn proceedings alleged error in the depletion deductions computed by the respondent. At the hearing counsel for the parties agreed that if the respondent’s contention as to 1918 is correct, then depletion is not an issue, but if incorrect, depletion would be computed under Rule 50. It is not exactly clear to us what the parties meant by this agreement; consequently we leave the matter of depletion open for settlement under the rule mentioned. We may say, however, that we understand from statements of petitioners’ counsel at the hearing that claim for depletion on discovery valuation has been abandoned, and they are foreclosed from making any further claim on that basis.

Decision will he entered wider Rule 50.


text:
    Nibley-Mimnaugh Lumber Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 17527.
    Promulgated September 13, 1932.

      A. A. Smith, Esq., for the petitioner.

      Eugene Meacham, Esq., for the respondent.
   OPINION.

Matthews :

This is a question (1) whether the gain derived from the sale of certain timber lands is taxable to the petitioner as a corporation, as respondent contends, in view of petitioner’s contention that the sale was made by the stockholders through a liquidating trustee and the corporation dissolved; and (2) whether the gain was derived in 1923, when the contract of sale was executed and possession delivered to the purchaser, as petitioner contends, or in 1924, as respondent contends, when the legal title was formally conveyed.

1. The first question raised is, who was the vendor? The petitioner contends that the sale was made by petitioner’s stockholders through Eavenscroft as liquidating trustee, while the respondent argues that it was made by the petitioner in its corporate capacity. We find it impossible to escape the conclusion that the petitioner as a corporation made the sale, and, as the facts supporting this conclusion are set out fully in our findings, we think it unnecessary to dwell on them here.

If the petitioner intended to dissolve and have the sale of its assets made by a liquidating trustee, it took no steps to convey to the trustee. On the contrary, as the evidence shows, every instrument from the original contract of sale to the final conveyance was executed by the petitioner as a corporation, acting through its proper officers. And, finally, dissolution of petitioner was completed only after all formalities of sale had also been completed. The fact that Eavenscroft, as liquidating trustee, also executed all the instruments does not make the sale one by the stockholders.

Even if tbe petitioner’s intention bad been carried out, it is very doubtful whether the gain would be taxable to the stockholders. Hellebush et al., Trustees, 24 B. T. A. 660. We hold that the contract was made by the petitioner as a corporation and any gain arising therefrom is taxable income to the petitioner corporation.

2. Before answering the second question raised we must determine whether we are to be governed by the rules of local law in deciding when taxable income is received on a sale. Ordinarily, of course, local law would determine whether a contract to convey timber lands effected a transfer when the contract was made and possession delivered or only when legal title was conveyed, but neither the petitioner nor the respondent has argued this point in his brief with respect to the law of Oregon. Moreover, we do not consider it necessary, for the purpose of deciding whether income under a Federal tax statute was derived in 1923, to decide whether under local law the sale was completed in that year. Birdneck Realty Corporation, 25 B. T. A. 1084, and Dakota Creek Lumber & Shingle Co., 26 B. T. A. 940. Respondent in his brief points out that the Government’s view of the determinants of a transfer for income-tax purposes is set out in Law Opinion 988, C. B. No. 2, p. 84 (1920), and that the rule there laid down has been subsequently accepted in other decisions of the Commissioner. The rule accepted is as follows:

No realization of gain or loss arises from a mere contract to sell real estate in the future. The sale is held to occur at the time a deed passes or at the time possession and the burdens and benefits of ownership are from a practical standpoint transferred to the buyer, whichever occurs first. Payments made prior to the sale are to be applied in reduction of cost so far as they do not exceed cost; being treated as income to the extent, if any, to which cost is exceeded.

There is no dispute upon the facts. A contract was executed by the petitioner corporation, by petitioner’s liquidating trustee, and by certain of its stockholders (joined by the Grande Ronde Company as a covendor) with the Bowman-Hicks Company as purchaser on August 2, 1923, for the sale of all of petitioner’s assets except cash on hand and accounts receivable. Immediately thereafter, at 4.30 p. m. on August 3, the purchaser took physical possession of the property — the right to have immediate possession of the property being expressly stated in paragraph 7 of the contract to be one of the most important considerations inducing the purchaser to enter into the contract because of the purchaser’s plans for logging before the winter snows should begin — and throughout the remainder of 1923 and thereafter exercised all rights of dominion and ownership. The purchaser sawed logs and sold the lumber for its own benefit and expended, according to the testimony of several witnesses, something like $100,000 in laying new railroad tracks, regrading and extending petitioner’s railroad. It would be difficult to conceive acts more clearly indicating the purchaser’s understanding that it had bought the property when the contract was signed on August 2, 1923, or, at any rate, when the stockholders had, in accordance with the contract, formally ratified the sale at their meeting on August 11, 1923. After the latter date nothing remained for the vendor except to furnish the purchaser’s attorneys With satisfactory abstracts of title to the several tracts covered by the contract, which was done in 1923, and to make a formal conveyance of title by deed.

Accepting, then, the test above laid down, we think it clear that “ possession and the burdens and benefits of ownership ” in the instant proceeding were transferred by the petitioner in 1923, when unconditional possession was delivered to the purchaser, which thereupon and thereafter derived from the subject matter of the sale all the benefits and assumed all the burdens (1923 taxes, for instance, which were on the evidence not paid by the petitioner and presumably, therefore, were paid by the purchaser) incident to ownership. The opening words of the contract themselves show the clear intention of the parties: “ That the Seller has contracted to sell and the Purchaser has contracted to buy the property set forth and described * *

Moreover, it will be observed that the purchase-money mortgage was made as of August 3, 1923, and the notes, although not given by the purchaser until 1924, were dated August 3,1923, and bore interest from that date. The purchaser did not hesitate in 1923 to manufacture and sell for its own benefit lumber in a substantial amount. A substantial portion of the purchase money, $450,000 of the total $1,150,000 of the contract, passed to the vendor in 1923.

Much is made by the respondent of the forfeiture clause in paragraph 9 of the'contract, by which the purchaser was allowed to cancel the contract if the vendor should be unable to give a good title to the mill site or to as much as 20,000 acres of “ sound, merchantable timber,” or, if the stockholders should not ratify the contract, or the vendor should be unable to give a general warranty deed. But it should be pointed out that all of these required conditions were met by the vendor before the end of 1923, so that the purchaser’s obligation to purchase had become unconditional in 1923. Nor does the other major objection of the respondent carry great weight. He urges that the subsequent agreement between the parties of January 15, 1924, by which the purchase price was reduced 'in the amount of $66,508.07, supports his contention that no unconditional liability rested on the purchaser in 1923. We are unable to accept this view. The contract provided, in paragraph 1, expressly for such a contin gency as arose — the inability of the vendor to give good abstracts of title to all the land conveyed- — -and it provided that in such case such lands should be omitted and a corresponding abatement of the purchase price allowed. No conditions of termination or forfeiture on the part of the purchaser are laid down except those already referred to under paragraph 9. Because the exact amount of the indebtedness was not finally determined in 1923, the purchaser’s obligation does not on that’account become conditional and contingent.

We are of the opinion that, all prerequisite conditions having been fulfilled in 1923, the purchaser was under an unconditional obligation in that year to pay the vendor the purchase price for that part of its timber lands for which the vendor had supplied good abstracts of title. The clear intent of the parties and the uncontradicted fact of the possession taken and dominion exercised over the vendor’s lands by the purchaser in 1923 clearly establish a transfer for income-tax purposes in 1923. The case of Davidson & Case Lumber Co. v. Motter, 14 Fed. (2d) 137, is sufficiently similar on its facts to merit quotation here:

A contract of sale by the corporation of certain real estate on which it had operated a lumber yard was made to solvent purchasers, able to- pay at any time, on November 20, 1919. At that time §10,000 was paid in cash and a contract in writing was entered into between the corporation and the purchasers, conditioned alone on the title being found satisfactory to the purchasers. Some time in the month of December, 1919, the purchasers, having examined the title, removed this condition from the contract by advising the corporation the title to the property was satisfactory to them, and the contract of sale was thus made absolute. The contract provided for the payment of the remainder of the purchase price, §100,000, on June 1, 1920, and that conveyance should be delivered by the corporation to the purchasers at this time. Also, the corporation, not being able to remove its business from the property, agreed to pay one-half the taxes for the year 1920 as a consideration for being permitted to remain on the premises. However, the dominion, control, burdens, and benefits of the property were passed to the purchasers in the year 1919 at the time the contract of sale was made absolute. * * *
* * * * * * * *
The question is, who owned this property in the latter days of the year 1919? As the right of the corporation to compel compliance with the terms of the contract was by the contract made dependent on the corporation delivering a good title to the purchaser, the contract remained conditional and dependent until the title had been examined and approved by the purchasers. As the corporation was notified this condition was met in the month of December, 1919, thereafter the conditional contract of sale became absolute in its terms, and any loss to the property or any benefits or advantage accruing thereto was the loss or benefit of the purchasers. To this end come not only the adjudicated cases on the question but the very reason of the thing itself. * * *
*******
As the contract for the sale of the property, fixing the terms of the sale made, the amount of the purchase price to be paid, and all other of its terms, including the present payment of $10,000, was performed in the year 1919, the amount of profits taxable must have been determined as of that year as readily and absolutely as of the date the conveyance was delivered and the deferred payment made. I therefore find as a fact the sale of the real estate in this case, while not perfected by conveyance and full payment of the purchase price until June, 1920, was made in the year 1919, as contended by the plaintiff in this case, and that the profit made in the transaction should have been included in the income and excess profits taxes of the corporation for the year 1919.

The Davidson case it seems to us is on all fours with the instant proceeding and conclusive of the issue involved. If any difference exists — and it is not clear that such a difference may be inferred from the facts of 'the Davidson case, as stated — it is merely that here the amount of abatement of the agreed purchase price may not have been definitely known before the close of 1923. We have already said that we do not regard this fact as important. The rule requiring inclusion in income for a particular year of amounts undetermined at the end of that year finds sanction in a line of cases involving income of railroads under the Transportation Act, considered by this Board and the Supreme Court. Continental Tie & Lumber Co. v. United States, 286 U. S. 290. Inclusion is predicated upon the taxpayer’s unconditional right to the money. Here the vendor’s right to payment had ripened in 1923, and the exact amount due might reasonably have been known or ascertained in that year, as is amply shown by the amending agreement fixing that amount having been made on January 15, 1924, only a fortnight later. The full sale price therefore must be regarded as having accrued to the petitioner in 1923.

It is unnecessary to multiply citations, but it should be noted that we- have followed a course similar to that of the Davidson case on frequent occasions. J. T. Pittard, 5 B. T. A. 929; Grace Harbor Lumber Co., 14 B. T. A. 996; Ohio Brass Co., 17 B. T. A. 1199. Cf. Federad Development Co., 18 B. T. A. 971. The cases cited by respondent’s counsel in his brief tend to support, for the most part, this conclusion rather than that for which he contends. The Supreme Court’s decision in Lucas v. North Texas Lumber Co., 281 U. S. 11, is clearly distinguishable from the instant case, for in that case the purchaser’s notice (given in the earlier year) that it would exercise its option to purchase created, the court held, only an execu-tory contract, since no tender of title or possession was made by the vendor until the following year. Cf. Brunton v. Commissioner, 42 Fed. (2d) 81.

We hold, therefore, that the profit from the sale was derived by the vendor in 1923.

Judgment will be entered under Rule 50.


author: Leech :

text:
    Boggs-Burnam & Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 46379.
    Promulgated September 15, 1932.

      Elwood Hamilton, Esq., for tbe petitioner.

      Paul E. Waring, Esq., and William E. Davis, Esq., for the respondent.
   OPINION.

Leech :

The only issue presented in this proceeding is whether the transactions detailed in our findings of fact, by which all of the assets of petitioner, except intangibles, cash, notes, accounts and bills receivable, were conveyed and transferred to the Kentucky Consolidated Stone Company, constituted a sale by the petitioner of its assets resulting in a taxable profit of $207,124.94 to it, as determined by the Commissioner, or constituted a distribution in kind by petitioner to its stockholders, resulting in no taxable gain to petitioner.

No fraud is here alleged or proven and therefore it is immaterial, in determining the issue involved, that the method of effecting the transfer may have been used by petitioner for the purpose of avoiding taxes. Gould v. Gould, 245 U. S. 151; Weeks v. Sibley, 269 Fed. 155; Jemison et al., Trustees, 3 B. T. A. 780.

Petitioner contends that it had divested itself of both legal and oquitable title to the assets in question by the joint resolution of the directors and stockholders adopted May 3,1928, and the trust instrument executed and delivered by the corporation to the three trustees on July 5,1928, and that thereafter, when the conveyance from these trustees to the Kentucky Consolidated Stone Company was made, the corporation had no title to the assets conveyed, did not participate in the transfer, received nothing therefrom, no income resulted, and, a fortiori, no tax attached to the petitioner.

In Taylor Oil & Gas Co., 47 Fed. (2d) 108; certiorari denied, 283 U. S. 818, which affirms the Board’s decision in Taylor Oil & Gas Co., 15 B. T. A. 609, the same issue was raised upon substantially similar facts, and the court held the sale to have been made by the corporation and not the stockholders. In that case, after holding article 547, of Treasury Regulations 45, which is identical with article 548, of Regulations 69, in effect during the year here involved, reasonable and effective, the court said:

It may be doubted that tbe contract of sale was merely executory. Except for executing the formal deed, there was nothing to be done. The price, the thing, and the effective time of delivery, December 15, 1919, had been agreed upon. But, if it was executory, it was still the contract of the company to be executed before there could be any liquidation of its affairs. Conceding for the purpose of argument that the legal title to the property vested in the trustees by the dissolution, no part of the title passed to the stockholders thereby. The real owner was still the company until such time as its affairs were liquidated, the debts paid, and the residue distributed to the stockholders. The profit on the transaction was earned by the corporation, and the assessment of the taxes based thereon was valid.

We believe the instant case presents a stronger situation for respondent than there before the court. Here, as distinguished from the Taylor case, petitioner corporation was entitled to possession and control of the corporate assets until actual completion of the controverted conveyance. There was no change whatever in the beneficial ownership in the corporate property until the ultimate sale to the Kentucky Consolidated Company. The petitioner, was functioning as an active corporation until after the sale in issue. The agreement of July 5 between the corporation and the three trustees was not executed for upwards of two months after the authorizing resolution and not until the proposed sale to the Kentucky Consolidated Company was absolutely assured. This was evidenced by the fact that both the agreement mentioned and the deed from the trustees therein named to the Kentucky Consolidated Company were executed and delivered on the same day.

In Hellebush et al., Trustees, 24 B. T. A. 660, the Board followed the decision of the court and the Board in Taylor Oil & Gas Co., supra, holding that even though the prior conveyance in trúst was for the specific benefit of the stockholders, nevertheless, the stockholders were not entitled to anything until after the corporate debts were paid, and that, therefore, until the actual distribution to the stockholders of the balance after payment of the corporate debts, the trustees were acting for the corporation and not the stockholders.

On brief the taxpayer relies principally on the Jemison case, supra, and Snead v. Elmore, 59 Fed. (2d) 312, both of which are clearly distinguishable on tlreir facts from those giving rise to the present controversy. In the Jemison case, supra, the Board held not only that the taxpayer was nonexistent, except for winding up its business, when the controverted sale occurred, but that there had been an actual distribution of its assets in kind to the stockholders, who were entitled to possession of the same and who specifically assumed its obligations. In the Snead v. Elmore case, supra, there had been an actual and valid sale of the assets by the corporation to its stockholders in consideration of their assumption of the corporation’s liabilities and assignment of all its capital stock, before the dissolution and liquidation of the corporation. In the instant case, there was neither a sale by the corporation, nor a distribution of its assets in kind before the transfer to the Kentucky Consolidated Comp any,-since the stockholders assumed no corporate liabilities, did not assign their capital stock, and neither they nor their “ trustees ” were at any time entitled to possession ox the corporate property.

We therefore hold that the transaction here involved was a sale by the corporation, the profit on the transaction was earned by it, and the assessment of the taxes based thereon was valid.

Judgment will be entered for the respondent.

       A.UT. 548. Gross income of corporation in liquidation. — When a corporation is dissolved, its affairs are usually wound up hy a receiver or trustees in dissolution. The corporate existence is continued for the purpose of liquidating the assets and paying the debts, and such receiver or trustees stand in the stead of the corporation for such purposes. (See section 282 and articles 1293 and 1294.) Any sales of property by them are to be treated as if made by the corporation for the purpose of ascertaining the gain or loss. No gain or loss is realized by a corporation from the mere distribution of its assets in kind upon dissolution, however they may have appreciated or depreciated in value since their acquisition. (See further articles 622 and 1545.)