Handbird Holding Corp. v. Commissioner , 32 B.T.A. 238 ( 1935 )

HANDBIRD HOLDING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Handbird Holding Corp. v. Commissioner

Docket No. 72200.

United States Board of Tax Appeals

32 B.T.A. 238; 1935 BTA LEXIS 976;

March 15, 1935, Promulgated

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G. S. & D. Corporation, engaged in the coal business, agreed to sell its real property and other fixed assets used in the business, its good will, franchises, and right to its name to P. & B. Corporation for $315,000, which would result in a large profit. In order to get a stepped-up basis for the assets and thus avoid the tax which would result from a direct transfer, F. and H. Corporations were organized and G. S. & D. transferred the assets to F. in exchange for all its stock. S. Corporation was organized by P. & B. to take over the assets and operate the business, and as soon as the transfer was completed it was to change its name to G. S. & D. P. & B. owned all of the stock of S., for which it paid $400,000 cash. H.'s authorized capital stock was 300 shares of a par value of $10 a share. At the first meeting of the directors of H. a funded indebtedness of $500,000, to be represented by two year 6 percent income debenture bonds, was created. S. paid $191,000 cash to H. and received a certificate for 100 shares and $190,000 debentures. Immediately after this transaction F. exchanged the assets for the balance of H.'s authorized stock, 200 shares, and balance of bonds, $310,000, at a premium of $3,000. H. then transferred assets to S., and S. paid $124,000 cash and returned the stock and bonds to H. and both were canceled. All transfers of assets were made within four days and H. dissolved within year. Held:

(1) Neither transfer of assets from G. S. & D. to F. nor from F. to H. are reorganizations within the meaning of the statute, Gregory v. Helvering,293 U.S. 465">293 U.S. 465, but both transactions are non-taxable under the provisions of section 112(b)(5), Revenue Act of 1928.

(2) The payment of $191,000 by S. to H. under the circumstances was payment on the purchase price and since F. was in control of H., basis of assets in hands of H. is same as in hands of transferor.

Leroy B. Iserman, Esq., for the petitioner.

M. B. Leming, Esq., for the respondent.

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MATTHEWS

This proceeding is for the redetermination of a deficiency in income tax asserted against the petitioner for the period February 4 to December 31, 1930, inclusive, in the amount of $22,348.56. The respondent determined that in March 1930 the petitioner corporation realized a profit in the sum of $197,284.28 upon the sale of certain assets. The petitioner denies that it sustained any profit or loss upon the sale in question, it being contended that the basis for computing gain was the exact amount for which the assets were sold by the petitioner. The material facts are not in dispute and the parties agree that the sole issue presented is the basis to be used for determining gain, under the particular circumstances of this case.

FINDINGS OF FACT.

Greason, Son & Dalzell, Inc., a New York corporation which was organized in 1912, was engaged in business as a retail coal dealer. In 1930 it was the owner of certain improved real estate in Kings County, New York, on which its coal yards were located, and also owned automobiles, horses, harness, trucks, wagons, and other property, including office furniture and fixtures, which were used in the operation of its coal business.

Pattison & Bowns, Inc., was a wholesale dealer in coal in New York. Prior to February 6, 1930, Pattison & Bowns, Inc., and Greason, Son & Dalzell, Inc., had reached an agreement whereby Pattison & Bowns, Inc., was to acquire certain assets then belonging to Greason, Son & Dalzell, Inc., for the amount of $315,000. These assets had a basis in the hands of Greason, Son & Dalzell, Inc., of $117,715.72. On February 6, 1930, the agreement was put in writing in the form of a letter addressed to Greason, Son & Dalzell, Inc., and Joseph L. Greason and Edward T. Dalzell, which letter was signed by Pattison & Bowns, Inc., by its vice president, and attested by its assistant secretary, and accepted by Greason, Son & Dalzell, Inc., and Joseph L. Greason and Edward T. Dalzell. The pertinent terms of the agreement are as follows:

This will confirm as follows the agreement which we made with you, viz:

1. You jointly and severally represent and warrant:

(a) That Greason, Son & Dalzell, Inc., (hereinafter called the Company) is a New York corporation with an authorized capitalization consisting of 2,000 shares of stock of the par value of $100 each; that 1248 shares of such stock and no more are now outstanding and are owned as follows:

Joseph L. Greason	640 1/3 shares
Edward T. Dalzell	541 1/3 shares
Ella M. Greason	41 1/3 shares
Harry A. Greason	25 shares

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2. You agree to accomplish the reorganization of the Company by causing to be incorporated at your expense under the laws of the State of New York, Fidelis Coal Corporation, with a capitalization of one hundred (100) shares without par value, and by acquiring from Fidelis Coal Corporation all of its capital stock in exchange for the sale, conveyance, transfer, assignment and delivery to Fidelis Coal Corporation, in accordance with law, of the following:

(A) All of the then property, rights, privileges and franchises of the Company, including its good will and the right to use its corporate name, and including the Coal Exchange Bond, valued at $100.00, and all fixed assets (embracing in such term all real estate in Kings County, plants, automobiles, horses, harness, trucks and wagons, office furniture and fixtures) but excluding cash on hand and in bank, bills and accounts receivable, investments and securities, inventories of coal, insurance and real estate outside of Kings County.

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3. We agree to cause to be incorporated at our expense under the laws of the State of New York, Sentinel Coal corporation, with a capitalization of one thousand (1,000) shares without par value; and we agree to subscribe for all of the capital stock of Sentinel Coal Corporation at and for the total sum of Four Hundred Thousand Dollars ($400,000) in cash.

4. We agree to cause the incorporation under the laws of the State of New York of Handbird Holding Corporation with a capitalization of three hundred (300) shares of the par value of Ten Dollars ($10.00) per share. We agree to cause Handbird Holding Corporation to authorize the issuance of Five Hundred Thousand Dollars ($500,000) principal amount of its Two-Year 6% Income Debenture Bonds (hereinafter called the "Debentures" and which Debentures may be in typewritten form), and to cause Sentinel Coal Corporation to subscribe for one hundred (100) shares of the capital stock, all full-paid and non-assessable, of Handbird Holding Corporation at and for the total price of One Thousand Dollars ($1,000); and to cause Sentinel Coal Corporation to purchase from Handbird Holding Corporation One Hundred Ninety Thousand Dollars ($190,000) principal amount of said Debentures at and for the total price of One Hundred Ninety Thousand Dollars ($190,000).

5. You agree thereupon to accomplish the reorganization of Fidelis Coal Corporation by its acquiring from Handbird Holding Corporation two hundred (200) shares of the capital stock and Three Hundred Ten Thousand Dollars ($310,000) principal amount of Debentures at a premium of Three Thousand Dollars ($3,000) of Handbird Holding Corporation, in exchange for the sale, conveyance, transfer, assignment and delivery by Fidelis Coal Corporation to Handbird Holding Corporation of all of the assets of Fidelis Coal Corporation, to wit: all of the assets described in Paragraph A of Section 2 hereof.

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6. We agree to cooperate with you in the accomplishment of said reorganization of Fidelis Coal Corporation and to that end we agree to cause Handbird Holding Corporation to issue and deliver to you full-paid and non-assessable two hundred (200) shares of stock of Handbird Holding Corporation and Three Hundred Ten Thousand Dollars ($310,000) principal amount of its debentures at a premium of Three Thousand Dollars ($3,000) in exchange for the sale, conveyance, transfer, assignment and delivery by Fidelis Coal Corporation to Handbird Holding Corporation of all of the assets described in Paragraph A of Section 2 hereof.

7. You agree that thereupon you will cause all stock of Handbird Holding Corporation owned by Fidelis Coal Corporation to vote in favor of causing, and we agree that we will cause all stock of Handbird Holding Corporation owned by Sentinel Coal Corporation to be voted and the directors and officers of Handbird Holding Corporation to do all things necessary for causing Handbird Holding Corporation to sell, convey, transfer, assign and deliver to Sentinel Coal Corporation, and Sentinel Coal Corporation to buy and acquire from Handbird Holding Corporation all of the assets of Handbird Holding Corporation (except the $191,000 of cash theretofore received by it from Sentinel Coal Corporation), to wit: the assets described in Paragraph A of Section 2 hereof, at and for the following total aggregate consideration:

One Hundred Twenty-four Thousand Dollars ($124,000) in cash; and

One hundred (100) shares of stock of Handbird Holding Corporation; and

One Hundred Ninety Thousand Dollars ($190,000) principal amount of the Debentures.

You agree as part of the aforesaid sale, conveyance, transfer, assignment and delivery to Sentinel Coal Corporation of the assets described in Paragraph A of Section 2 hereof, that all of the real estate owned by Handbird Holding Corporation * * * shall be conveyed to Sentinel Coal Corporation free and clear of all liens and encumbrances by full covenant and warranty deed or deeds.

8. Immediately upon the conclusion of the aforesaid sale, conveyance, transfer, assignment and delivery of the assets described in Paragraph A of Section 2 hereof from Handbird Holding Corporation to Sentinel Coal Corporation, you agree to cause the Company to change its name to Dalgre Liquidating Corporation and to furnish us with whatever documents, certificates and cooperation in the form of stockholders' act, directors' action, or otherwise, as our counsel may require to enable us to cause the name of Sentinel Coal Corporation to be changed to Greason, Son & Dalzell, Inc.

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11. Notwithstanding anything hereinbefore or hereinafter stated or implied to the contrary, neither Pattison & Bowns, Incorporated nor Sentinel Coal Corporation nor their successors nor assigns, shall assume or be responsible for any obligations or liabilities of Handbird Holding Corporation, Fidelis Coal Corporation, or of the Company, existing at the time of the sale, conveyance and transfer of the assets described in Paragraph A of Section 2 hereof, as aforesaid, from Handbird Holding Corporation to Sentinel Coal Corporation, or which may subsequently arise in connection with or growing out of the activities or business of Handbird Holding Corporation, Fidelis Coal Corporation or of the Company, prior to the time of such sale, conveyance and transfer to Sentinel Coal Corporation or which may be imposed upon such sale or upon any profit derived from said sale. You jointly and severally agree to hold Pattison & Bowns, Incorporated and Sentinel Coal Corporation and their successors and assigns harmless against any and all such obligations and liabilities, and this representation and warranty shall survive the aforesaid sale, conveyance and transfer to Sentinel Coal Corporation and the performations hereunder. signed and by Sentinel Coal Corporation of all of their obligations hereunder.

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13. Upon the purchase and acquisition of the assets described in Paragraph A of Section 2 hereof, as aforesaid, by Sentinel Coal Corporation from Handbird Holding Corporation, Joseph L. Greason and Edward T. Dalzell shall each enter into an agreement with Pattison & Bowns, Incorporated and with Sentinel Coal Corporation and their respective successors and/or assigns providing that for a period of ten (10) years from the date of said agreement each of them will not engage in or carry on, directly or indirectly, or be financially interested in any coal or fuel business, wholesale or retail, located within an area which shall embrace the City of Greater New York as constituted from time to time during that period, and a territory extending five (5) miles beyond the boundary of the City of Greater New York as so constituted from time to time during such period, or in any business which concerns the sale or delivery of coal or other kinds of fuel to consumers, dealers or other persons located within said area except that each of them may be an employee, stockholder, officer or director of Sentinel Coal Corporation, or its successors or assigns, and/or of Pattison & Bowns, Incorporated, and its subsidiaries.

14. Upon the purchase and acquisition of the assets described in Paragraph A of Section 2 hereof, as aforesaid, by Sentinel Coal Corporation from Handbird Holding Corporation, Sentinel Coal Corporation shall enter into an agreement with Joseph L. Greason providing for his employment by Sentinel Coal Corporation for a period of one (1) year at an annual salary of Twelve Thousand Dollars ($12,000) payable monthly; and shall enter into an agreement with Edward T. Dalzell providing for his employment by Sentinel Coal Corporation for a period of one (1) year at an annual salary of Ten Thousand Dollars ($10,000) payable monthly. Joseph L. Greason and Edward T. Dalzell hereby agree to enter into these employment agreements respectively, each of which said contracts shall provide that the employee shall devote his entire time during such period of employment to the business and affairs of said Sentinel Coal Corporation and shall devote his best efforts thereto.

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17. You agree that you will vote or give consent with respect to all shares of stock of the Company and of Fidelis Coal Corporation and of Handbird Holding Corporation, owned or controlled by you, in favor of the consummation of the undertakings, agreements and transactions herein provided for, and that you will use your best efforts to obtain similar votes or consents from all other stockholders of the Company; and that you will do all other things, within your power and control to cause the fulfillment of such undertakings, agreements and transactions. * * * You further agree not to permit the sale or other disposition of any of the shares of stock of Fidelis Coal Corporation or of any shares of stock or Debentures of Handbird Holding Corporation, other than is herein provided, prior to the conclusion of such sale, conveyance and transfer.

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19. We all agree to perform our respective obligations under the terms of this agreement promptly, and that the aforesaid sale, conveyance and transfer of property, rights, privileges and franchises from Handbird Holding Corporation to Sentinel Coal Corporation shall be concluded within sixty (60) days from the execution of this agreement. * * *

20. You agree to pay all expenses in connection with the organization of Fidelis Coal Corporation and the issuance of its capital stock and all counsel fees in connection therewith and in connection with all reorganizations thereof and of the Company and in connection with the change of name of the Company to Dalgre Liquidating Corporation. We agree to pay all expenses in connection with the organization of Sentinel Coal Corporation and the issuance of its capital stock and all counsel fees in connection therewith and in connection with all transactions between Sentinel Coal Corporation and Pattison & Bowns, Incorporated and in connection with the change of name of Sentinel Coal Corporation to "Greason, Son & Dalzell, Inc." All counsel fees and expenses relating to transactions between Handbird Holding Corporation and Fidelis Coal Corporation shall be borne by you; and to transactions between Handbird Holding Corporation and Sentinel Coal Corporation shall be borne by you and by us as the same affect our respective interests.

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22. This agreement shall be for the benefit of and shall be binding upon the parties hereto, and all of them, their respective heirs, personal representatives, successors and assigns.

Fidelis Coal Corporation was incorporated on February 4, 1930, under the laws of the State of New York, with an authorized capitalization of 100 shares of stock without par value. Handbird Holding Corporation, petitioner herein, was also incorporated on February 4, 1930, under the laws of the State of New York, with a capitalization of 300 shares of stock of the par value of $10 each. Sentinel Coal Corporation was likewise incorporated on February 4, 1930, with an authorized capitalization of 1,000 shares of stock without par value. These three corporations will be hereinafter referred to as Fidelis, Handbird, and Sentinel, respectively.

Thereafter all of the formal steps required to be taken by the several corporations in carrying out the agreement between Greason, Son & Dalzell, Inc., and Pattison & Bowns, Inc., were taken by the three corporations in the order contemplated.

On March 27, 1930, at a special meeting of the stockholders of Greason, Son & Dalzell, Inc., held at 11 a.m., a "plan and agreement of reorganization" proposed to be entered into by and between Fidelis and Greason, Son & Dalzell, Inc., which provided for the sale and conveyance of certain assets (those named in the agreement) to Fidelis, in exchange for the entire capital stock of Fidelis, was approved and the board of directors authorized to enter into such plan and agreement of reorganization. The directors held a special meeting at 11:30 a.m. and executed the agreement.

At 2 p.m. the same day, March 27, the first meeting of the board of directors named in the certificate of incorporation of Fidelis was held, at which time the proposed plan and agreement between Fidelis and Greason, Son & Dalzell, Inc. , was approved and the officers were directed to execute the plan and agreement and to issue the entire 100 shares of capital stock to Greason, Son & Dalzell, Inc. The directors also adopted a resolution adjudging the value of the assets to be at least equal to $315,000. A bill of sale for the personal property and a deed of real estate were executed by Greason, Son & Dalzell, Inc., and delivered to Fidelis.

At 11 a.m. March 28, 1930, the First meeting of the directors of Sentinel Coal Corporation was held, at which time an offer from Pattison & Bowns, Inc., to subscribe for all the authorized capital stock, namely, 1,000 shares without par value, for $400,000 was accepted and the stock authorized to be issued. The chairman stated that Handbird Holding Corporation had authorized capital stock of 300 shares of the par value of $10 a share, and had created or was about to create a "funded indebtedness" represented by two year 6 percent income debentures in the aggregate principal amount of $500,000, and it was resolved that the corporation subscribe for 100 shares of the capital stock at $10 a share and for $190,000 principal amount of the debentures, payment for both to be made in cash.

At 11:30 a.m. March 28, 1930, the first meeting of the board of directors of Handbird took place, at which time the directors created and authorized the execution of $500,000 principal amount of two year 6 percent debenture bonds and the issuance thereof in whole or in part from time to time for such consideration or on such terms as the board of directors might determine. The offer of Sentinel to subscribe for 100 shares of stock and $190,000 principal amount of bonds was read and accepted. The meeting adjourned at 11:50 a.m., to reconvene at 12:10 p.m. At 12:10 p.m. the meeting reconvened, at which time the chairman stated that the aforesaid offer of subscription of Sentinel had been duly executed and delivered, that the 100 shares of capital stock and $190,000 principal amount of bonds had been issued and delivered to Sentinel, and $191,000 cash had been received from Sentinel. These so-called "debenture bonds" were typewritten in form and were redeemable in whole or in part at any time at the principal amount thereof, and interest accrued to the date fixed for redemption on 10 days notice to the holder.

At this same adjourned meeting a "plan and agreement of reorganization" by and between Fidelis and Handbird was read and approved, under which Fidelis was to transfer the property theretofore acquired by it from Greason, Son & Dalzell, Inc., in exchange for 200 shares of the capital stock of Handbird at par and $310,000 principal amount of the two year 6 percent income debenture bonds. The officers were authorized and directed to execute and carry out the plan. A resolution was adopted to the effect that the assets of Fidelis had a value to the corporation of at least $315,000 and that upon receipt of the property and the issuance of stock and bonds to Fidelis, $3,000 be set up on the books as paid-in surplus.

Later in the same day, at 4:30 p.m., the sole stockholder of Fidelis, Greason, Son & Dalzell, Inc., authorized the execution of the agreement, and at 5 p.m. the directors met and executed the agreement. A bill of sale covering the personal property and a deed conveying the real estate were executed by Fidelis and delivered to Handbird, and Fidelis received the 200 shares of stock and $310,000 of debentures of Handbird.

At a special meeting of the board of directors of Sentinel, at 11:30 a.m., March 31, 1930, a resolution was adopted authorizing the purchase of the assets formerly owned by Greason, Son & Dalzell, Inc., including the good will and the right to use the corporate name of Greason, Son & Dalzell, Inc., which assets had an aggregate value to Sentinel of $315,000, and providing that payment be made for such assets by transferring to Handbird all the stock and debenture bonds of Handbird held by Sentinel of a total face value of $191,000, and the payment by Sentinel to Handbird of $124,000 cash.

At 2 p.m. on March 31 a special meeting of stockholders of Handbird was held, approving the sale to Sentinel for $315,000 of assets acquired by Handbird on March 28 for $315,000 from Fidelis, payment to be made by Sentinel paying $124,000 in cash, 100 shares of capital stock of Handbird, and $190,000 of debenture bonds issued by Handbird.

At 2:30 p.m. the directors of Handbird held a special meeting and accepted the offer of Sentinel and received the cash, stock, and bonds and transferred the assets to Sentinel by bill of sale and deed.

The several deeds to the real estate, the one from Greason, Son & Dalzell, Inc., to Fidelis, and from Fidelis to Handbird, and from Handbird to Sentinel were all recorded on April 1, 1930, in the order named at 2:39 p.m., 2:40 p.m., and 2:41 p.m., respectively.

The certificate for 100 shares of its stock and the six typewritten debenture bonds aggregating $190,000 were canceled on March 31, 1930, when they were received by the petitioner from Sentinel, together with $124,000 cash, in payment for the assets which petitioner transferred to Sentinel. Upon the cancellation of the certificate for 100 shares of stock, Fidelis was the sole stockholder of petitioner and likewise owned all the outstanding debenture bonds which had been issued by petitioner.

On April 2, 1930, Greason, Son & Dalzell, Inc., the company to which the assets involved herein originally belonged, changed its name to Dalgre Liquidating Corporation, and on the same day Sentinel Coal Corporation changed its name to Greason, Son & Dalzell, Inc.

On April 3, 1930, Joseph L. Greason and Edward T. Dalzell entered into contracts of employment with Greason, Son & Dalzell, Inc. (formerly Sentinel Coal Corporation), on the terms set out in paragraph 14 of the agreement dated February 6, 1930, quoted above.

Neither Greason, Son & Dalzell, Inc., nor Fidelis nor Handbird, nor any of the stockholders of these corporations, had any interest in Sentinel at the date of its incorporation or after it acquired the assets involved herein and changed its name, as hereinabove set out.

The petitioner corporation was legally dissolved by a certificate of dissolution filed with the Secretary of State of the State of New York on December 29, 1930.

In its corporation income tax return for the calendar year 1930 the petitioner reported a loss of $11,046.25. In reply to the question whether the corporation was in any way an outgrowth, result, continuance, or reorganization of a business or businesses in existence during this or any prior year since December 31, 1917, the following statement was made:

Handbird Holding Corporation was organized in 1930 and legally dissolved in the same year. It was not the continuation of any predecessor business. It was, however, a party to a plan and agreement of reorganization, the other companies involved being Fidelis Coal Corporation and Sentinel Coal Corporation. Its capital stock was issued and its assets were exchanged pursuant to such plan and agreement of reorganization, resulting in no taxable profit to the corporation. On such exchange of assets, such asset values were neither increased nor decreased.

The respondent included in the petitioner's income for 1930 the sum of $197,284.28, representing an alleged profit on the sale of the assets conveyed by the petitioner to Sentinel, and determined a deficiency of $22,348.56. This alleged profit of $197,284.28 represents the difference between the sale price of $315,000 and the sum of $117,715.72, which was the basis of the assets in the hands of the original Greason, Son & Dalzell, Inc.

OPINION.

MATTHEWS: The record clearly establishes, and it is not denied by the petitioner, that all of the steps set out in our findings were part of one plan and purpose, to effect a stepped-up basis for the property sold and thus to avoid or at least to "postpone" the tax upon the profit from the sale of the assets belonging to Greason, Son & Dalzell, Inc., on February 6, 1930, which assets were used in the conduct of its business as coal dealer and which it agreed to sell to another corporation also engaged in the coal business.

Respondent does not question the organization of Handbird and Fidelis and Sentinel corporations. He recognizes that they were separate legal entities properly organized under the laws of the State of New York. Neither does he deny that these corporations took the formal steps contemplated by the agreement dated February 6, 1930, between Greason, Son & Dalzell, Inc., and Pattison & Bowns, Inc. He does contend, however, that Sentinel never purchased any of the stock of petitioner nor any of its bonds, and that, stripped of all unessential details, Sentinel purchased the assets of Handbird for $315,000 in cash. It is the respondent's position that the basis of these assets in the hands of Handbird is the same as that in the hands of the transferor, namely, $117,715.72.

Petitioner contends (1) that the transaction between Greason, Son & Dalzell, Inc., and Fidelis was a reorganization within the meaning of section 112(i)(1)(B) of the Revenue Act of 1928 and nontaxable because of the provisions of section 112(b)(4); that both Greason, Son & Dalzell, Inc., and Fidelis were parties to a reorganization within the meaning of section 112(i)(2) and that under section 113(a)(7) the basis of the assets to Fidelis was the same as the basis of the same assets in the hands of Greason, Son & Dalzell, Inc.; (2) that the transaction by which Fidelis transferred the assets it had received from Greason, Son & Dalzell, Inc., to Handbird, the petitioner, was a statutory reorganization between Fidelis and Handbird within the meaning of section 112(i)(1)(A) and a nontaxable transaction to Fidelis; (3) that the assets acquired by Handbird from Fidelis for $315,000 had a valuation in the hands of Handbird of $315,000, irrespective of cost or basis to either Fidelis or Greason, Son & Dalzell, Inc., for the reason that although the exchange between Fidelis and Handbird was such an exchange as is described in section 112(b) to (e), inclusive, and ordinarily the property in Handbird's hands would take the same basis as it had in the hands of the person from whom received, the last sentence of section 113(a)(6) specifically excludes such transaction; that section 113(a)(7) does not apply because the interest of Fidelis in the property was less than 80 percent at the time of the transaction, since Fidelis acquired only 66 2/3 percent interest in the stock of Handbird, and only 62 percent of the bonds of Handbird; and that by the plain terms of these sections, therefor, "the reorganization between Handbird and Fidelis and the transfer of property for stock and securities are within the very exceptions named in these sections, and it is equally clear that the value of these assets in the hands of Handbird was $315,000, the amount that it paid for the assets and property and the amount which the directors of Fidelis had adjudged them to be worth." Counsel for petitioner argues that legal avoidance or postponement of taxation is entirely proper and it is insisted that the petitioner comes within the "protection" of those sections of the statute relating to reorganizations and nonrecognition of gain or loss, and that petitioner is entitled to the stepped-up basis. It is pointed out that "in the corporate proceedings every I was dotted and every T was crossed."

The contention of petitioner is not sustainable. Under the principle announced by the Supreme Court of the United States in , the transfer of the assets of Greason, Son & Dalzell, Inc., to Fidelis for all the stock of Fidelis, and the transfer of the same assets by Fidelis to Handbird for stock and bonds of Handbird, under the circumstances outlined above, were not reorganizations within the meaning of the statute even though they may come within the letter of the statute. But the transfer of the assets by Greason, Son & Dalzell, Inc., to Fidelis for all the stock of Fidelis was a nontaxable transaction under section 112(b)(5) and we are of the opinion that the transfer of assets by Fidelis to Handbird for stock and bonds of Handbird is also a nontaxable transaction falling under section 112(b)(5). This being the case, under section 113(a)(8) the basis of the property in the hands of Fidelis is the same as the basis in the hands of Greason, Son & Dalzell, Inc., and the basis of Handbird is the same as the basis to Fidelis.

The applicable sections of the statute follow:

SEC. 112. RECOGNITION OF GAIN OR LOSS.

(b) (5) TRANSFER TO CORPORATION CONTROLLED BY TRANSFEROR. - No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporation; but in the case of an exchange by two or more persons this paragraph shall apply only if the amount of the stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange.

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(j) Definition of control. - As used in this section the term "control" means the ownership of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation.

SEC. 113. BASIS FOR DETERMINING GAIN OR LOSS.

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(a)(8) SAME - CORPORATION CONTROLLED BY TRANSFEROR. - If the property was acquired after December 31, 1920, by a corporation by the issuance of its stock or securities in connection with a transaction described in section 112(b)(5) * * * 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.

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In the light of the whole agreement between Greason, Son & Dalzell, Inc., and Pattison & Bowns, Inc., and the admitted purpose of the incorporation of Fidelis and Handbird, it is clear that the payment to Handbird of $191,000 by Sentinel on March 28, 1930, was in reality a part of the purchase price which Pattison & Bowns, Inc., had agreed to pay for the assets of Greason, Son & Dalzell, Inc., and that stock and bonds of the face amount of $191,000 were issued to Sentinel, to be held until the assets to be purchased could be transferred to Sentinel, merely as an accommodation to Greason, Son & Dalzell, Inc., in its scheme to handle the sale so that the property would have a stepped-up basis in the hands of Handbird. Handbird was created solely for the benefit of Greason, Son & Dalzell, Inc., and was the legal entity designated to transfer the assets to Sentinel and to receive the $315,000 cash from Sentinel. Under the circumstances here present Sentinel never was the real owner of any stock of Handbird and was the record owner only from March 28, when Handbird received the $191,000 cash, until the transfer to Sentinel on March 31 of the assets acquired from Fidelis, upon the payment by Sentinel of the balance of the purchase price, $124,000, and the return of the stock and bonds. Pattison & Bowns, Inc., never intended for Sentinel to become a real owner of stock of debentures of Handbird. The stock was issued to Sentinel only a few hours before the assets were acquired from Fidelis and the balance of the stock issued to Fidelis. In view of these circumstances, to hold that, because 100 shares of Handbird's stock were in the name of Sentinel at the time it acquired the assets from Fidelis for the balance of its stock and so-called debentures, Fidelis did not have control of Handbird would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose. Cf. ; . Viewing the transaction as a whole, Fidelis was in control of Handbird immediately after the exchange, which brings the transaction sequarely within section 112(b)(5), and under section 113(a)(8) the basis of the property in the hands of Handbird is the same as it had in the hands of Fidelis.

The organization of the petitioner corporation, and its dissolution within the taxable year after it had served the purpose for which it was incorporated, was a part of the preconceived plan which is clearly set forth in our findings of fact and which had as its sole object not the reorganization of any business, but the sale and transfer of certain assets for a specified price. The basis of these assets in the hands of Greason, Son & Dalzell, Inc., was $117,715.72, which was also the basis thereof in the hands of Fidelis and of Handbird, and the sale price to Sentinel was $315,000. We hold, therefore, that the difference between the two figures, or $197,284.28, represents the gain realized by the petitioner in the taxable year. The respondent, in determining the deficiency, computed the profit in this way and we approve his action. Cf. ; .

Reviewed by the Board.

Judgment will be entered for the respondent.