Gallum v. Commissioner

ALBERT F. GALLUM, TRUSTEE, ESTATE OF FRANKLIN P. MANN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

JOHN S. LAWSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FREDERICK C. PRITZLAFF, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

MATHILDA W. BERGER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

WALTER J. BERGER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

PHILIP W. HERZOG, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Gallum v. Commissioner

Docket Nos. 6101, 6108-6111, 6245.

United States Board of Tax Appeals

10 B.T.A. 747; 1928 BTA LEXIS 4043;

February 14, 1928, Promulgated

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">*4043 The seizure by the Alien Property Custodian of the United States of securities of American citizens in 1918 under the facts of this case constituted a loss which was at least equal to the amount of dividends received in 1918.

Edgar Allen Poe, Esq., J. Kemp Bartlett, Esq., and Edgar L. Wood, Esq., for the petitioners.

S. Duffield Mitchell, Esq., for the respondent.

---

TRAMMELL

">*747 These proceedings, which were consolidated for the purpose of trial and decision, are for the redetermination of deficiencies in income tax for the year 1918, as follows:

	Docket No.	Deficiency
Estate of Franklin P. Mann	6101	$102,012.66
John S. Lawson	6108	10,928.59
Frederick C. Pritzlaff	6109	65,092.09
Mathilda W. Berger	6110	103,351.77
Walter J. Berger	6111	1,359.22
Philip W. Herzog	6245	47,568.52

The deficiencies result from the respondent including in the taxable income of the petitioners, dividends in the following amounts:

Estate of Franklin P. Mann	$232,005.94
John S. Lawson	58,088.44
Frederick C. Pritzlaff	116,176.89
Mathilda W. Berger	232,005.94
Walter J. Berger	23,536.83
Philip W. Herzog	116,071.44

">*4044 ">*748 FINDINGS OF FACT.

Franklin P. Mann, prior to his death was a citizen and resident of the United States. The other petitioners are also citizens and residents of the United States.

In March, 1915, Richard G. Wagner, a brother of Mathilda W. Berger, an uncle of Walter J. Berger, a life-long friend of the remaining petitioners and a native-born citizen of the United States, caused a corporation called the American Transatlantic Corporation to be formed and organized under the laws of Delaware for the purpose of engaging in a general shipping business. The amended charter of the company authorized it to issue 25,000 shares of preferred stock of a par value of $100 each and 100,000 shares of common stock of no par value. Eleven steamships mentioned more particularly hereinafter were transferred by bills of sale to the American Transatlantic Co. and thereafter by it to individual ship-owning companies, all the shares of the stock of which were issued to the American Transatlantic Co.

After the organization of the American Transatlantic Co., Wagner placed certain shares of its stock as hereinafter more particularly set out in the names of the petitioners. It is">*4045 the amounts received by the petitioners as distributions from that corporation and from the Foreign Transport & Mercantile Corporation, a corporation hereinafter more particularly referred to, which are in controversy in these proceedings.

The facts and circumstances with regard to the placing of the shares of stock in the names of the petitioners, the nature and effect of the transaction and the distributions by the corporations are hereinafter set out.

At the time of the outbreak of the World War and for a number of years prior thereto, Albert Jensen, a citizen of Denmark and residing in Copenhagen, was engaged in business as a ship broker and as manager of a corporation known as the Copenhagen Coal & Coke Co., of Copenhagen, Denmark. Hugo Stinnes, a German citizen and subject, was practically the sole owner of this corporation. At that time, as well as for some years prior thereto, Jensen was agent of the shipping firm of Robert M. Sloman, Jr., of Hamburg, Germany. Ocean freights increased so rapidly in 1914 after the breaking out of the World War that Jensen decided as a business venture on his own account, to purchase as large a number of steamships as it was possible">*4046 for him to secure funds to pay for. Not having sufficient capital of his own but having become well acquainted with Stinnes and with the firm of Robert M. Sloman, Jr., he applied to them for large commercial loans. These loans were granted, and with the proceeds Jensen purchased a number of steamships, including the eleven heretofore referred to.

">*749 During January, 1915, Jensen became acquainted with Wagner. At the time of their meeting, Jensen had been investigating the desirability of organizing a corporation under the laws of the United States to take over and operate some of the steamships he had already purchased and others for the purchase of which he was then negotiating. To that end, he had been endeavoring to interest some American citizens with him. The considerations that influenced him were that the United States was distant from the scene of the actual operations of the war and the probability that the United States, then a neutral power, would not became a party to the conflict and that ocean shipping if carried on under the flag of the United States would occupy a more advantageous position than under the flag of a small neutral country such as Denmark. ">*4047 Under an arrangement thereupon entered into between Jensen and Wagner, Jensen transferred to the American Transatlantic Co., as soon as it had been organized, absolute title to the eleven steamships previously referred to, and under the arrangement became entitled to have issued to him the capital stock of the company to an amount equal to the cost of the ships.

All of the ships were purchased from owners who were citizens of neutral countries and none of them had been purchased from German owners, although the money used in their purchase had been borrowed from German citizens. Although the transfer of the registrations and flags of the ships was a transfer from one neutral country to another neutral country, namely, to the United States of America, difficulty was at once encountered at the United States Department of Commerce when Wagner applied for registry for the steamships. The point was made by the Department of Commerce that it might embarrass the United States to issue registry to ships owned by an American company in which a foreigner was such a large stockholder, particularly in view of the fact that this foreigner, Jensen, had been blacklisted by Great Britain, he">*4048 being under suspicion because of his close connection in business with Stinnes. Wagner was advised that under the circumstances registry of the ships would be denied notwithstanding the fact that under the law, the foreign status of stockholders is immaterial so long as the corporation owning the ships is a domestic one. He was informed, however, by the Department of Commerce that if he would eliminate Jensen as a stockholder of the American Transatlantic Co., American registry would be granted to the eleven steamships. As the transaction was a larger one than Wagner could handle on a cash basis, the Department of Commerce agreed that the elimination of Jensen as a stockholder of the corporation might be accomplished by the purchase by Wagner from Jensen of the latter's stock interest in the ">*750 company and the payment to Jensen by Wagner of the cost of the eleven steamships by the promissory notes of Wagner, which was done.

These notes amounted to the sum of $2,654,850, and were delivered by Wagner, to Jensen in July, 1915. They were payable at the rate of $500,000 in intervals of one year. Payment of the notes was punctually made by Wagner until the seizure by the">*4049 Alien Property Custodian of the United States during August, 1918, of all the shares of stock of the American Transatlantic Co. and of the Foreign Transport & Mercantile Corporation, a corporation hereinafter more particularly referred to, together with other property belonging to Wagner.

The amounts borrowed by Jensen from Stinnes and the firm of Robert M. Sloman, Jr., were, with accrued interest and banking commissions thereon, repaid by Jensen on or before November 29, 1916, with the exception of a balance of approximately 375,000 marks which was repaid on July 6, 1917.

At the time when the Department of Commerce through the Commissioner of Navigation refused to grant American registry to the eleven ships, Wagner appealed to the Secretary of Commerce, and in the hearing held on the appeal Wagner was informed that the elimination of Jensen as a stockholder in the American Transatlantic Co. would be necessary before American registry would be granted to the eleven ships, or any of them. It was suggested to Wagner by the officials of the Department of Commerce who heard and determined the appeal that, because of the suspicions attaching to Jensen and the sources of the money">*4050 which he had used in the purchase of the steamships, it would be expedient for Wagner to associate with himself a group of persons known to be American citizens free from German affiliations or connections of any character. Thereupon, Wagner, desiring to act upon the suggestion made to him by the officials of the Department of Commerce, conceived the idea of placing a portion of the stock of the American Transatlantic Co. owned by him, and which he had acquired by purchase from Jensen and for which he had given his promissory notes in payment, with certain of his friends, business associates and relatives, most of whom resided in Milwaukee, Wis., where he had formerly resided. At this time Wagner's residence was in the City of New York, to which he had moved in order to take charge of the operations of the American Transatlantic Co.

Wagner, during July, 1915, transferred to his friends, Franklin P. Mann, John S. Lawson, Frederick C. Pritzlaff, and Philip W. Herzog, to his sister, Mathilda W. Berger, to his nephew, Walter J. Berger, and others, shares of stock of the American Transatlantic ">*751 Co. owned by him, reserving to himself and retaining any and all dividends which">*4051 might thereafter be declared and paid upon the shares of stock so transferred until the aggregate amount of such dividends equaled the par value of the shares, with interest thereon at the rate of 6 per cent per annum, when the stock, excepting that transferred to Mathilda W. Berger and Walter J. Berger, was to become-the property of the persons to whom it had been transferred. The number of shares of stock so transferred to the above named persons were as follows:

	Shares
Franklin P. Mann	2,000
John S. Lawson	500
Frederick C. Pritzlaff	1,000
Philip W. Herzog	1,000
Mathilda W. Berger	2,000
Walter J. Berger	200

In addition to the foregoing number of shares transferred to the above named petitioners, there had been placed shortly before to their respective names the following number of shares, making the number of shares standing in their names after July, 1915, as indicated below:

	Number of shares previously placed in petitioner's name	Number of shares standing in petitioner's name after July, 1915
Franklin P. Mann	1	2,001
John S. Lawson	1	501
Frederick C. Pritzlaff	2	1,002
Philip W. Herzog	1	1,001
Mathilda W. Berger	1	2,001

">*4052 At the time of the organization of the American Transatlentic Co., there was placed in the name of Walter J. Berger three shares of the company's stock, which, together with the 200 shares placed in his name in July, 1915, made a total of 203 standing in his name after that time.

Upon delivery by Wagner to the petitioners of the certificates of stock transferred by him to them, they endorsed the certificates and gave them back to Wagner, after which the petitioners never saw them again.

During October, 1915, Wagner, wishing to further "americanize" the American Transatlantic Co. in order to avoid the suspicions which still prevailed concerning the alleged German ownership of the fleet of eleven ships and because of the recent seizure by the French Government ">*752 of one of the ships, wrote the following letter to one Elcock of Chicago:

DEAR MR. ELCOCK:

Last January, whilst I was in Europe, a proposition was put up to me by some Danish Parties to go into the ocean steamship business, which on account of the war is very profitable.

The plan was to purchase neutral ships, place them under the American flag, and operate them from New York Strictly as a legitimate">*4053 money proposition. The American flag was desired because it was feared that all Europe might become embroiled in the war.

Because the beet sugar business without tariff protection has no future, I consented to undertake the New York end of the proposition, and am now in charge of the American Transatlantic Company, a Delaware Corporation which I organized upon my return to this country. The capital stock of the company is $2,500,000.00, all paid up and, of course, non-assessable, and at present this stock is all in my control.

For certain confidential reasons, it is desirable that a part of this stock should be distributed, and I have taken the liberty of putting $200,000.00 in your name. There is no liability of any kind or nature connected with the ownership of this stock, and the only question that may come up is whether or not you own it, and according to the records you do. The question of how much or in what manner you paid for it concerns no one, and need not be answered. The fact that the records show it to be in your name, and you admit it, serves my purpose. Inquiry as to the American citizenship of the owner of the stock of the American Transatlantic Company">*4054 may come up in connection with one of our steamships, the steamship "Saginaw" (i.e. "Solveig"), seized by the French Government, and now in the French Prize Court. This ship was purchased for delivery to our company at Marseilles, France, from its former Norwegian owner while in transit to Marseilles with a cargo of merchandise for the French Government.

After delivery to us at Marseilles, it was held on suspicion that there was a German interest in the ownership. I will have to show that the ship is all American owned, and for this purpose want your name as a stockholder. That is all there is to it.

Now if for any reason you disapprove of my action, and want your name removed from the list of stockholders, frankly write to me to that effect, and I will promptly transfer the stock. The stock is in one certificate for two thousand shares.

The company now owns eleven steamers free and clear of any incumbrance, and they represent a value of more than $3,000,000.00. All of the ships were always under neutral flags, and were purchased direct from neutral owners. None of the stock in the company was ever in the name of a citizen of any of the belligerent countries. There">*4055 is, therefore, no valid reason for seizing the ship.

Very sincerely yours,

R. G. WAGNER

P.S. The officers of the company are: President, R. G. Wagner, Vice-President, W. J. Berger; Secretary and Treasurer, J. P. Wagner.

Elcock declined to allow the shares to stand in his name, whereupon Wagner wrote him another letter sending him a certificate for ">*753 one share of a par value of $100, but Elcock returned it, refusing to have anything to do with Wagner's proposal.

Mann, at the request of Wagner, executed and delivered to Wagner an affidavit which Wagner caused to be filed in the British prize court proceedings in regard to three of the company's ships which had been seized as prizes of war pending before an admiralty court sitting in Great Britain. The affidavit was as follows:

STATE OF WISCONSIN, CITY OF MILWAUKEE, ss:

Franklin P. Mann, being sworn says he is a stockholder in the American Transatlantic Company, a corporation duly organized under the laws of the State of Delaware, and having a place of business in the City of New York, State of New York, #17 Battery Place, that he is a citizen of the United States, and that he holds the stock of said company">*4056 in his own interest, and that no other person, firm, association or corporation has any present or prospective interest in any of the said stock so owned and held by him.

Signed: FRANKLIN P. MANN.

Subscribed and sworn to before me this 20th day of November, 1915.

Signed: W. H. HYDEMAN,

Notary Public.

May commission expires March 3, 1918.

Identical affidavits were executed under the same circumstances by Lawson, Pritzlaff, Walter J. Berger, and Herzog, and were used for the same purpose as that executed by Mann.

The actual cost to the American Transatlantic Co. of the four ships belonging to the company which were seized as lawful prizes of war by the Kingdom of Great Britain and the Republic of France, and condemned by the prize courts of those nations as prizes, was $775,850. The four ships were purchased by the company during the spring of 1915. Their actual value at the time of their seizure in the fall of 1915 was in excess of their cost.

On October 2, 1917, Wagner caused to be organized under the laws of Delaware a corporation by the name of Foreign Transport & Mercantile Corporation with power to conduct a general shipping business. This corporation">*4057 was authorized by its charter to issue 25,000 shares of preferred stock of a par value of $100 each and 250,000 shares of common stock without any nominal or par value. The same persons who were acting as executive officers and directors of the American Transatlantic Co. became executive officers and directors of the Foreign Transport & Mercantile Corporation.

On November 21, 1917, the executive committee of the board of directors of the American Transatlantic Co. met, and the following minute of their meeting was recorded:

A meeting of the American Transatlantic Company was held at the office of the Company, #17 Battery Place, New York City, New York, on November ">*754 21, 1917, at 10 A.M. There were present R. G. Wagner, P. W. Herzog and J. P. Wagner, constituting the full executive committee of the Board of Directors of the American Transatlantic Company.

Mr. R. G. Wagner, the President, asked for authority, in accordance with the authority granted to the Board of Directors at the adjourned meeting of the stockholders held at the office of the Company, January 16, 1917, authorizing them, at their discretion, for the benefit of the Company and its stockholders, to">*4058 sell any of its property, securities, vessels or other assets and that the ratification of such transaction by the stockholders is not necessary to consummate such deals, and in accordance with the powers granted the executive committee by the By-laws of the Company, to consummate the following contract between the company and the Foreign Transport and Mercantile Corporation, said contract reading as follows:

AGREEMENT

It is this day agreed between the American Transatlantic Company, a corporation incorporated and existing under the laws of the State of Delaware, hereinafter called the party of the first part, and the Foreign Transport and Mercantile Corporation, a corporation incorporated and existing under the laws of the State of Delaware, hereinafter called the party of the second part, as follows:

To wit: For and in consideration of twenty-four thousand nine hundred and ninety (24,990) fully paid and non-assessable shares of the 7% preferred stock of the par value of one hundred dollars ($100.00) of the Foreign Transport and Mercantile Corporation, and two hundred and forty thousand (240,000) fully paid and non-assessable shares of the common stock of no par value of the">*4059 Foreign Transport and Mercantile Corporation the party of the first part agrees to sell and hereby does sell unto the party of the second part, and the party of the second part agrees to purchase and hereby does purchase from the party of the first part the following securities:

3,600 shares of the capital stock of the par value of $100.00 each of the Alleguash Steamship Corp.

2,100 shares of the capital stock of the par value of $100.00 each of the Ausable Steamship Corp.

3,600 shares of the capital stock of the par value of $100.00 each of the Manitowoc Steamship Corp.

1,750 shares of the capital stock of the par value of $100.00 each of the Maumee Steamship Corp.

1,750 shares of the capital stock of the par value of $100.00 each of the Muskegon Steamship Corp.

3,300 shares of the capital stock of the par value of $100.00 each of the Winnebago Steamship Corp.

1,850 shares of the capital stock of the par value of $100.00 each of the Winneconne Steamship Corp.

IT IS FURTHER AGREED and guaranteed by the party of the first part that the securities heretofore mentioned are all of the capital stock of the various named corporations issued.

IT IS FURTHER AGREED">*4060 that the operating control of the steamships Alleguash, Ausable, Manitowoc, Winnebago, Muskegon, Maumee and Winneconne shall pass from the party of the first part to the party of the second part on December 1st, 1917, or as soon thereafter as these ships shall have respectively returned to a U.S. port and discharged cargo.

">*755 The issuing and transfer of the stocks heretofore set forth and the delivery of the operating control of the vessels named shall constitute the fulfillment of this agreement.

IN WITNESS WHEREOF the parties hereto have hereunto subscribed their names by their duly authorized officers and have hereunto affixed their seals this twenty-first day of November, 1917.

AMERICAN TRANSATLANTIC COMPANY

(Signed) R. G. WAGNER,

President.

Attest:

J. P. WAGNER,

Secretary.

FOREIGN TRANSPORT & MERCANTILE CORPORATION.

P. W. HERZOG,

President.

Attest:

J. B. QUINLAN,

Secretary

Mr. Herzog moved that the President be authorized to enter the fore going contract and the motion was duly seconded and unanimously carried.

On motion by Mr. R. G. Wagner, duly seconded and unanimously carried, the Treasurer was authorized to made">*4061 the necessary assignments of the securities involved in the foregoing contract.

There being no further business before the executive committee, the meeting was adjourned.

(Signed) J. P. WAGNER,

Secretary.

The Foreign Transport & Mercantile Corporation, having been formed for the purpose of taking over the remaining seven of the original fleet of eleven ships, acquired from the American Transatlantic Co. all of the capital stock of the seven individual ship-owning corporations mentioned in the agreement set out above and issued to the American Transatlantic Co. in payment therefor 24,990 shares of its preferred stock and 240,000 shares of its common stock in accordance with the agreement. The operation of the seven remaining ships of the fleet was at once taken over by the new corporation and the American Transatlantic Company discontinued business and proceeded during December, 1917, and thereafter to liquidate its affairs.

After the consummation of the transaction mentioned above, the American Transatlantic Co., having in its treasury 24,990 shares of the preferred stock and 240,000 shares of the common stock of the Foreign Transport & Mercantile Corporation, proceeded">*4062 to exchange the 24,990 shares of the preferred stock for a like number of shares of its own outstanding preferred stock and to exchange the 240,000 shares of common stock for 90 per cent of the 100,000 shares of its own outstanding common stock. Before such exchanges of shares had been accomplished, the Alien Property Custodian seized, under ">*756 demands issued by him in accordance with the provisions of the Trading With The Enemy Act, all of the shares of stock, both preferred and common, of both of the corporations.

The only dividends declared and paid by the American Transatlantic Co. and the Foreign Transport & Mercantile Corporation, prior to the seizure in August, 1918, by the Alien Property Custodian of the United States of all of the shares of stock of the companies and the taking over of their management by him, were as shown by the resolutions of the boards of the two companies as set out below.

On January 16, 1917, the board of directors of the American Transatlantic Co. adopted the following resolution:

Mr. Pritzlaff called the attention of the Board to the large earnings of the company up to October 31st, and stated that he thought that a dividend upon">*4063 the capital stock should be declared, and upon motion duly made, seconded and carried, it was

RESOLVED that a dividend of thirty per cent (30%) upon the capital stock, payable on March 10, 1917, be paid to all stockholders of record at the close of business March 1, 1917.

On February 19, 1917, the following resolution was adopted by the executive committee of the board of directors of the American Transatlantic Co.:

The committee discussed the financial conditions of the Company in connection with the Prize Court proceedings, and the following motion was duly made, seconded and carried:

WHEREAS the Board of Directors at their annual meeting held on January 16, 1917, declared a dividend of thirty per cent. (30%) upon the capital stock payable on March 10, 1917, to be paid to the stockholders of record at the close of business March 1, 1917, and

WHEREAS, it is desirable to maintain a large proportion of liquid assets, it was

RESOLVED that the payment of the above dividend be indefinitely postponed.

On February 9, 1918, the following resolution was adopted by the executive committee of the boare of directors of the American Transatlantic Co.:

WHEREAS, the Board of Directors">*4064 at their annual meeting held at the office of the company, January 16, 1917, declared a dividend of thirty per cent. (30%) on the capital stock of the company, payable on March 10, 1917, to stockholders of record at the close of business March 1st, and

WHEREAS, the Executive Committee at a meeting held on February 19, 1917, at the office of the company, indefinitely postponed the payment of this dividend, and

WHEREAS, owing to the sale and transfer of the control of the ships formerly owned by this company, it is no longer necessary to maintain a large working capital.

RESOLVED, that the dividends of thirty per cent. (30%) should be paid on April 8, 1918, to stockholders of record at the close of business March 1, 1917.

">*757 This 30 per cent dividend amounted to the sums indicated below so far as the shares of stock standing in the names of the petitioners are concerned:

Franklin P. Mann	$60,030
John S. Lawson	15,030
Frederick C. Pritzlaff	30,060
Mathilda W. Berger	60,030
Walter J. Berger	6,090
Philip W. Herzog	30,030

On June 17, 1918, the board of directors of the American Transatlantic Co. adopted the following resolution:

Inasmuch">*4065 as the American Transatlantic Company has sold its ships and consequently is not engaged in active business, therefore, be it

RESOLVED that the proper officers of the company are hereby authorized and instructed to convert all of its surplus assets into liquid funds and forthwith distribute the same as dividends pro-rata among the stockholders of the American Transatlantic Company in proportion to the number of shares of stock held by each of them, as shown upon the record books of the company at the close of business on the 29th day of June, 1918, and that he the President of this company, shall take the proper receipts from the persons to whom said distribution is made and cause same to be filed in the records of the company.

Two distributions were made under the aforesaid resolution in the amounts indicated so far as the shares standing in the names of the petitioners are concerned:

Stockholder	Amount
Franklin P. Mann	$6,225.11	$129,932.93
John S. Lawson	1,558.61	32,531.93
Frederick C. Pritzlaff	3,117.22	65,063.87
Mathilda W. Berger	6,225.11	129,932.93
Walter J. Berger	631.53	13,181.60
Philip W. Herzog	3,114.11	64,998.93

On June 10, 1918, the">*4066 board of directors of the Foreign Transport & Mercantile Corporation adopted the following resolutions:

It was moved and carried that the following dividends are hereby declared payable on June 15, 1918, by distributing securities now in the treasury of the company in an amount equal at face value to three and one-half per cent. (3 1/2%) on the outstanding preferred stock to cover the cumulative period for six months ending May 21, 1918, and $1.50 per share on the outstanding common shares.

It was further moved and carried that the President be instructed to obtain the required amount of securities and make arrangements for their proper distribution to shareholders of record as of this date.

">*758 The share of this dividend allotted to each of the petitioners was as follows:

Franklin P. Mann	$35,817.90
John S. Lawson	8,967.90
Frederick C. Pritzlaff	17,935.80
Mathilda W. Berger	35,817.90
Walter J. Berger	3,633.70
Philip W. Herzog	17,928.40

With reference to the 30 per cent dividend declared by the American Transatlantic Co. and the dividend declared by the Foreign Transport & Mercantile Corporation, the checks issued in payment thereof to Mann, ">*4067 Lawson, Pritzlaff, and Herzog were either endorsed by them and forwarded to Wagner or cashed and the proceeds used to purchase Liberty bonds which were delivered to Wagner. So far as the stock standing in the names of Mann, Lawson, Pritzlaff, and Herzog was concerned, the payment of the dividend declared by the directors of the American Transatlantic Co. on June 17, 1918, was effected not by cash or checks but by an exchange of receipts, the petitioners signing receipts that they had received the respective amounts, and Wagner giving them receipts that he had received such amounts from them.

Checks for the dividends on the stock standing in the names of Mathilda W. Berger and Walter J. Berger were endorsed by them and turned over to Wagner.

None of the petitioners kept any of the dividends nor did they ever get any money or anything of value from the corporations which they did not turn over to Wagner.

During the latter part of August, 1918, A. Mitchell Palmer, Alien Property Custodian of the United States, issued and served upon the petitioners, and all of the other persons in whose names the stock of the American Transatlantic Co. and the Foreign Transport & Mercantile">*4068 Corporation stood, his demands for the immediate surrender and delivery to him of all of the shares of stock, both preferred and common, of both the corporations and threatened to take action in accordance with the provisions of the Act of Congress known as the Trading With The Enemy Act unless immediate compliance with his demands should be made. The President of the United States, through the Alien Property Custodian, had found and determined, in pursuance of the powers conferred upon him by the Act of Congress, that all of the shares of stock, both preferred and common, of both of the corporations were owned by an enemy or enemies of the United States with whom the United States was then at war. Thereupon the certificates representing the shares of stock, both preferred and common, of both of the corporations standing in the names of the petitioners were surrendered to the Alien Property Custodian, the persons in whose names the ">*759 certificates stood being advised that they had no recourse or power to prevent the seizure of the shares of stock. The Alien Property Custodian then caused all of the certificates representing the shares of stock, except 5,000 shares of the">*4069 common stock of the Foreign Transport & Mercantile Corporation standing in the name of Fred B. Lynch, to be canceled and new certificates of stock therefor to be issued in the anme of the Alien Property Custodian, and took possession of the new certificates. On August 29, 1918, the Alien Property Custodian demanded the resignations of all of the directors and executive officers of each of the corporations and, by voting the shares of stock of the corporations which he had seized and caused to be transferred to his name, he elected directors of his own selection, none of whom had had any prior knowledge of or experience in the shipping business, and caused the new directors of each of the corporations to elect executive officers of his own selection, none of whom had had any prior knowledge of or experience in the shipping business. From August 29, 1918, until shortly after June 19, 1923, A. Mitchell Palmer and his successors in the office of Alien Property Custodian conducted the business of the corporations through directors and officers who from time to time were personally selected by these officials.

At all times subsequent to the seizure of the shares of stock by the Alien">*4070 Property Custodian, their cancellation upon the books of the company and the issuance of new certificates therefor in the name of the Alien Property custodian, the petitioners were not permitted to exercise any acts of ownership over the stock. They received no dividends thereon and were deprived of the possession of the stock certificates. At the time of the seizure of the stock, the American Transatlantic Co. and the Foreign Transport & Mercantile Corporation were prosperous and flourishing companies and the shares of stock seized by the Alien Property Custodian had an actual cash value equal at least to their par value, or $100 per share.

Towards the latter part of 1919 the petitioners who resided in Milwaukee instituted a suit in the United States District Court for the Eastern District of Wisconsin against the Alien Property Custodian and the Treasurer of the United States, for the purpose of recovering the shares of stock which had been seized and taken possession of by the Alien Property Custodian, and also for damages arising out of such unlawful seizure. Much testimony was taken throughout Europe on behalf of the plaintiffs and also of the defendants in these suits and">*4071 a similar suit which was later instituted by Wagner and others in the United States District Court for the Southern District of New York.

While this litigation was pending before the courts, Jensen came to America in the summer of 1921 for the purpose of endeavoring to ">*760 collect the balance due him on the notes of Wagner heretofore mentioned. All of the notes which had matured prior to the seizure by the Alien Property Custodian had been paid, but there remained unpaid notes in the principal sum of $1,500,000. All of Wagner's property having been seized by the Alien Property Custodian, he was unable to pay the notes. The situation was explained to the Attorney General of the United States and the testimony that had been taken in the litigation previously mentioned was referred to as establishing beyond question the fact that the fleet of eleven ships had never been tainted by German ownership. The Alien Property Custodian, under the advice of the Attorney General, paid over to Jensen, out of the money and securities of Wagner which he had seized and taken possession of, a sum sufficient to enable Jensen to purchase from the petitioners all of the right, title and interest">*4072 in and to the shares of stock standing in their names respectively which had, during August, 1918, been seized by the Alien Property Custodian. This transaction enabled Jensen to pay to the petitioners during the month of December, 1921, the sum of $20 per share for the shares of the preferred stock of the American Transatlantic Co. and such other stock as was appurtenant thereto. The number of shares so purchased and the amounts paid therefor were as follows:

	Number of shares	Amount paid
Franklin P. Mann	2,001	$40,020.00
John S. Lawson	501	10,020.00
Frederick C. Pritzlaff	1,002	20,040.00
Mathilda W. Berger	2,001	$40,020.00
Walter J. Berger	203	4,060.00
Philip W. Herzog	1,001	20,020.00

The checks received by Mathilda W. Berger and Walter J. Berger in payment of the above indicated amounts were endorsed by them and turned over to Wagner. The other petitioners kept the checks that they received.

All the petitioners reported the receipt of the amounts paid by Jensen, included such amounts in their taxable income for the year 1921, and paid the proper income tax thereon. Wagner furnished the money to the Bergers with which they paid the">*4073 income tax on the amounts paid by Jensen.

On July 19, 1923, the President of the United States, upon the advice of the Attorney General, who through his representatives had made an exhaustive investigation in Europe and America, directed the Alien Property Custodian and the Treasurer of the United States to deliver to Jensen all of the capital stock of the American Transatlantic Co. and the Foreign Transport & Mercantile Corporation, together with what was left of the property of these corporations which had been seized by the Alien Property Custodian during the ">*761 summer of 1918. Delivery was made to Jensen by virtue of the assignments which he had obtained from the petitioners and other shareholders of the corporations during December, 1921, as set out above. Jensen, upon delivery to him of the shares and other property by the Alien Property Custodian and the Treasurer of the United States, surrendered to Wagner $1,000,000 of Wagner's promissory notes, and caused the resignation of the directors and the executive officers of the corporations who since August 29, 1918, had represented and acted for the Alien Property Custodian in the management of the corporations to">*4074 be accepted and caused his own representatives to be substituted for them. He proceeded to liquidate the Foreign Transport & Mercantile Corporation by disposing of the remaining ships of the fleet and applying the proceeds of such sales on account of the payment of the indebtedness of the corporation which had been incurred and allowed to accrue during the administration thereof by the Alien Property Custodian. In directing the delivery of the shares of stock and property to Jensen, the President of the United States approved the opinion of the Attorney General in the following words:

Favorable to allowance, in that the claimant, a citizen of Denmark, is the assignee of the owners of the property seized, and there appears to be no enemy interest of any character in and to the property at the time of its seizure by the Alien Property Custodian.

The petitioners in their income-tax returns did not include as taxable income the amounts of the dividends received by them in 1918.

The respondent, in his audit of the returns, determined that such dividends should be so included and determined the deficiencies here involved with respect to the amounts received by the petitioners as">*4075 dividends as follows:

Estate of Franklin P. Mann	$232,005.94
John S. Lawson	58,088.44
Frederick C. Pritzlaff	116,176.89
Mathilda W. Berger	232,005.94
Walter J. Berger	23,536.83
Philip W. Herzog	116,071.44

OPINION.

TRAMMELL: The petition as amended in the case of the petitioner Herzog assigns the following as errors on the part of the respondent in determining the proposed deficiency: (1) In holding that the seizure by the Alien Property Custodian in August, 1918, as enemyowned, of the shares of stock in the American Transatlantic Co. and the Foreign Transport & Mercantile Corporation standing in the name of the petitioners was not taking of such without compensation resulting in a loss or destruction in the value of the shares to the petitioner and did not constitute a deductible loss allowable ">*762 against the dividends paid on the shares in 1918; (2) in holding that the 30 per cent dividend declared by the American Transatlantic Co. on January 16, 1917, payable on March 10, 1917, but the payment of which was postponed indefinitely and no payment actually made until April 8, 1918, when payment was made to the stockholders of record at the close">*4076 of business March 1, 1917, constituted income for 1918 and was legally taxable as income for 1918 to the stockholder receiving it; (3) in holding that the dividend declared by the American Transatlantic Co. on June 17, 1918, was not a liquidating dividend or distribution of capital assets in whole or in part as distinguished from dividends declared and paid out of earnings and was therefore taxable as income for the year 1918 to the stockholder receiving it.

The petitions, as amended, in the cases of the other petitioners assign, in addition to the foregoing, the following as errors on the part of the respondent: (1) In holding that the transfer of the shares of stock by Wagner to the petitioners constituted a sale as contra-distinguished from a gift, and (2) in holding that the dividends paid in 1918 upon the stock of the American Transatlantic Co. and the Foreign Transport & Mercantile Corporation standing in the names of the petitioners belonged to them and not to Wagner.

The respondent denies that any error was committed in determining the proposed deficiencies.

In determining the deficiencies involved herein the respondent included in the taxable income of the respective">*4077 petitioners as dividends the following amounts:

Franklin P. Mann	$232,005.94
John S. Lawson	58,088.44
Frederick Co. Pritzlaff	116,176.89
Mathilda W. Berger	232,005.94
Walter J. Berger	23,536.83
Philip W. Herzog	116,071.44

The above amounts represent the total of the 30 per cent dividend and the two distributions of the American Transatlantic Co. and the dividend of the Foreign Transport & Mercantile Corporation.

In determining that the dividends and distributions were taxable income, the respondent held that Wagner had sold the stock to the parties whose tax liability is involved herein, with the privilege of paying for it from the dividends paid on such stock.

While much evidence was submitted to show that Wagner and not the petitioners was the owner of the stock on which the dividends and distributions involved in these proceedings were declared and made, we think that a decision as to this is not necessary to a determination of the liability of the petitioners for the proposed deficiencies.

">*763 Granting, for the sake of argument, that the petitioners purchased the stock in 1915 from Wagner and that as the purchase price thereof he was">*4078 to retain the dividends until they amounted to the par value of the stock plus 6 per cent interest, the petitioners, as owners of the stock, under our decision in , would have sustained a loss thereon in 1918, as a result of its seizure by the Alien Property Custodian in that year, to the extent of the dividends.

On the other hand, if Wagner and not the petitioners was the owner of the stock, the dividends clearly would not be taxable to the petitioners.

Reviewed by the Board.

Judgment will be entered on 15 days' notice, under Rule 50.

PHILLIPS dissents.