15 T.C. 832">*832 Respondent has determined deficiencies in income tax for the years 1944 and 1946 in the amounts of $ 604.67 and $ 933.70, respectively. He determined that liquidating dividends received by petitioner, on account of assigned deposit claims against a closed bank, were not received1950 U.S. Tax Ct. LEXIS 25">*26 from the sale or exchange of capital assets, and included the entire amounts of the gains in petitioner's taxable income in the respective years. The question to be decided is whether the liquidating dividends represented amounts received upon the retirement of evidence of indebtedness issued by a corporation in registered form within the meaning of section 117 (f) of the Internal Revenue Code. Some of the facts have been stipulated.

15 T.C. 832">*833 FINDINGS OF FACT.

The facts which have been stipulated are found as facts.

Petitioner, a resident of Cedar Rapids, Iowa, is the widow of Harry C. Lynn, deceased. He died on July 19, 1942. Petitioner filed her returns with the collector for the district of Iowa.

Subsequent to the appointment, on December 28, 1932, of a receiver of the assets and liabilities of the Union Savings Bank and Trust Co. of Davenport, Iowa, hereinafter called the bank, Harry C. Lynn purchased from the owners at a discount, with the intention of making a profit, claims against the bank in the face amount of $ 44,989.22. Title to the claims was taken under the following designation: "Harry C. Lynn or Winifred H. Lynn: Payable to either or survivor." Harry C. Lynn 1950 U.S. Tax Ct. LEXIS 25">*27 was not an original depositor of the bank. He purchased the claims against the bank, deposit claims, under written assignments by owners of the claims.

There was a market in Davenport, Iowa, for the claims against the bank, and the claims were actively traded by local investment dealers all during the period of the receivership of the bank. Quotations of the bid and asked prices were published among the quotations of prices of unlisted securities in the daily newspapers of Davenport.

The bank was in receivership from December 28, 1932, until December 1, 1947, when the liquidation was completed. During this period its charter remained in existence. The receiver paid liquidating dividends on the outstanding claims in 1935, 1940, 1942, 1943, 1944, 1946, and 1947.

Prior to 1944 the entire cost or other basis of the claims to petitioner had been recovered by her through the receipt of liquidating dividends. In 1944 and 1946 petitioner received liquidating dividends in the aggregate amounts of $ 4,498.91 and $ 6,748.36, respectively, and the amounts received represented gains.

In her income tax returns for 1944 and 1946 petitioner reported the above amounts as long term capital gains1950 U.S. Tax Ct. LEXIS 25">*28 and included one-half thereof, or $ 2,249.45 and $ 3,374.18, respectively, in her taxable income for 1944 and 1946. Respondent held that the full amount of the payments was includible in the income of each taxable year.

The facts relating to the closing of the bank, and the handling of claims against the bank are as follows:

On December 28, 1932, the Superintendent of Banking of the State of Iowa was appointed the receiver of the bank by the District Court of the State of Iowa in and for Scott County, and the court issued an order allowing certain claims and fixing the time for filing other claims and allowing offsets. By this order the court allowed the claims of depositors in the amounts and to the persons shown in the books of the bank without further proof of the claims. The order 15 T.C. 832">*834 further provided that all other claimants, including parties making claims for deposits not shown by the books, must file proof of claim on or before March 30, 1933, or be forever barred. No certificates of claim were issued to claimants, their claims being evidenced by the books of the bank which were considered prima facie evidence of claim to original depositors. The liability of the1950 U.S. Tax Ct. LEXIS 25">*29 bank for deposits at the date of its closing in 1932 was about $ 14,000,000. There were about 37,000 deposit claims against the bank. A dividend of 40 per cent was paid immediately to the depositor-claimants. They then had approved claims for the unpaid balance, 60 per cent of the amounts of the claims.

When the receiver took over the bank for liquidation, records were kept in the following way:

Each account of the bank with its depositors was transcribed to a ledger sheet bearing the printed caption "Liability of Bank to Customer." Each liability ledger sheet thus set up was given a number which was never changed. The indebtedness was fully described, i. e., the name of the depositor was set forth, together with his or her address, the original number of the account, and the amount and nature of the indebtedness of the bank. There was provided a separate space for entry of the payments which might be made by the bank, through the receiver, upon the indebtedness.

The receiver retained the numbered liability sheets, and, in his records, they were the evidence of the approved claims against the bank, and of the ownership of the claims. Payments on the bank's indebtedness were 1950 U.S. Tax Ct. LEXIS 25">*30 made only to the owners of the claims as shown on the liability sheets. If there were changes of ownership of the claims, the name of the new owner was recorded on the numbered record of the claim.

The receiver required that any assignment of a claim must be made under a written assignment on a standard form approved by the State Banking Department, executed in duplicate; that the assignment be presented to him for acknowledgment and recording in the records of the claims, and that the original copy of the assignment be filed with him. The assignee retained the duplicate copy. When a claim was reassigned, the receiver required the first assignee to turn in his duplicate assignment. Upon the receipt of assignments, the receiver gave numbers to each assignment. He entered upon the numbered ledger sheet upon which a claim had been recorded (as above described), the assignment of the claim against or indebtedness of the bank. For example, on the ledger sheet of approved liability of the bank to Mrs. E. M. Harrison, No. 13914, which was assigned to Harry C. Lynn, the entry of assignment is: "Assignment #2012 $ 3,517.94 to Harry C. Lynn or Winifred H. Lynn, Payable to either or the1950 U.S. Tax Ct. LEXIS 25">*31 survivor." In 15 T.C. 832">*835 this way each assignment of an indebtedness of the bank was recorded upon the numbered ledger record of an indebtedness of the bank.

No payments were made to an assignee of a claim without presentation of the duplicate copy of the assignment. Dividend payment checks were made payable to the last owner of record of a claim. The assignments were non-negotiable. A new document of assignment was executed for each transfer of a claim. All of the claims which were purchased by Harry C. Lynn were assigned in the manner above described.

The standard form of Assignment of Claim contained the usual terms of a sale, assignment, and transfer of all of the right, title, and interest of the owner in the claim to the assignee, and contained a description of the claim, including the number thereof, the amount of the balance of the claim which was due and unpaid, and the date of the assignment. The assignment form provided for acknowledgment before a notary public by the owner-assignor, and for acknowledgment of receipt of notice of the assignment by the receiver of the bank and acceptance by him of the assignment.

The payments to petitioner were not received upon the 1950 U.S. Tax Ct. LEXIS 25">*32 retirement of any evidences of indebtedness issued by any corporation in registered form.

OPINION.

Whether there was a redemption of "certificates or other evidences of indebtedness issued by any corporation * * * in registered form" so as to result in capital gain under section 117 (f), Internal Revenue Code, ¹ does not on these facts depend so much on whether there was registration, cf. Alice McCourt Lamm, 15 T.C. 305, as on what instrument was issued and by whom. There was not as in Norman Buckner, 43 B. T. A. 958, and Rieger v. Commissioner (CA-6), 139 Fed. (2d) 618, even a receivers' certificate of claim which could be registered and transferred.

1950 U.S. Tax Ct. LEXIS 25">*33 The instruments we are concerned with here, as described by petitioner herself, are the "assignments of claims against the closed * * * Bank * * *." These could not be evidences of indebtedness issued by a debtor corporation, still less could they have been registered by the issuer. See Alice McCourt Lamm, supra. And that this description of the subject matter of the redemption was not inadvertent is shown by another statement in petitioner's brief that "in this case non-negotiable assignments of claim are involved."

The facts show that only because the claims were purchased from others did petitioner have any documents as evidence. Even they 15 T.C. 832">*836 were non-transferable and if the claims had again been assigned, not that instrument, but a new one, would have evidenced the second assignment. Depositors of the bank who did not assign their claims apparently had no "evidence of indebtedness" of any kind. ²

1950 U.S. Tax Ct. LEXIS 25">*34 To conclude that these assignments, issued by individuals who were not debtors, see Kanawha Valley Bank, 4 T.C. 252, and recorded not by them but on the receivers' books, see Gerard v. Helvering (CA-2), 120 Fed. (2d) 235, could comply with the carefully exclusive language of the statute would require disregarding its terms completely. This we are unable to do.

Decision will be entered for the respondent.

Harron, J., dissenting: The rule is generally accepted now that bank deposits represent indebtedness of a bank. ¹ If the premise is incorrect, the petitioner has no case here. The first question is whether the corporate-debtor ever issued any evidence of its indebtedness to depositors. The evidence, as I understand it, shows that the bank originally issued passbooks to depositors which were evidence of its indebtedness to depositors. 1 The claims in question are claims for payment of savings accounts, and the general practice of banks today is to issue passbooks which are numbered. This is so obvious that it appears that the taxpayer's representatives in this proceeding have not emphasized the1950 U.S. Tax Ct. LEXIS 25">*35 point. The specific evidence that there were passbooks consists of two exhibits -- the receiver's records of approved depositors' claims in which the number of the passbooks is entered, as I understand an exhibit, and the market quotations in a daily paper of Davenport, Iowa, which describes the subject being traded as "Union Savings Passbooks." Also, part of a stipulation of facts in this case, which is mentioned in a footnote, has been misconstrued. The part of the stipulation in question is in a text which relates to the procedure which was followed in the receivership proceeding in the Iowa District Court in which the District Court did not require any other proof of the claims of the depositors than the bank's records of depositors' accounts, and to other procedures followed by the receiver. This means that the bank's accounting records would control if any discrepancies existed between them and the passbook balances, but a reasonable presumption is that the passbook balances were the same as the bank's records of the balances. If the foregoing understanding is not correct, then the petitioner has stipulated herself out of court, but I cannot believe that she intended to 1950 U.S. Tax Ct. LEXIS 25">*36 do so. And so, I 15 T.C. 832">*837 regard the evidence before us as showing that the bank originally issued evidence of its debt to its depositors.

The second question is whether that evidence of the indebtedness was in registered form. The majority opinion does not reach this question, but the evidence shows clearly that there was a record which constituted a register which the bank, through its receiver, set up after the District Court approved the depositers' claims, and that payment on these claims could be made only to the registered owners.

The third question is whether section 117 (f), in its reference to "other evidence of indebtedness," embraces indebtedness of a bank to depositors evidenced by passbooks which have been put in registered form. The case of Rieger v. Commissioner, 139 Fed. (2d) 618, is authority for holding that section 117 (f) applies. Candor compels saying that1950 U.S. Tax Ct. LEXIS 25">*37 this Court in this case indicates its reluctance to follow the Rieger case which reversed our opinion which is reported sub nom Virgil Schaeffer, et al., 47 B. T. A. 727. In this proceeding, we again rely upon Gerard v. Helvering, 120 Fed. (2d) 235, which we cited in Virgil Schaeffer, supra, which, however, the Sixth Circuit Court of Appeals considered as inapplicable in its Opinion (p. 622) in the Rieger case.

Because I believe we should recede from the view we expressed in the Virgil Schaeffer case, and follow the rule of the Rieger case, and that the first and second questions above set forth should be answered affirmatively, on the evidence, I respectfully dissent from the conclusion reached in this proceeding.

The foregoing might suffice but I believe the question is of sufficient importance to taxpayers in general, as well as to the petitioner, to warrant a more extended discussion of the evidence, and, indeed, the brevity of the majority opinion seems to make such discussion necessary. Furthermore, I think the close similarity of the situation in this case to that1950 U.S. Tax Ct. LEXIS 25">*38 in the Rieger case, upon which the petitioner relied, should be demonstrated. This case differs from the Rieger case only with respect to the formal procedures of the respective receivers of the bank there involved and of the bank here involved. Since taxation is a practical matter, and the equal treatment of taxpayers is the desirable objective, I believe this petitioner should receive the same treatment as did the taxpayers in the Rieger case.

There is no difference between the parties on the point that the Davenport Union Savings Bank continued in existence and that its receiver represented the bank and acted for it. See Rieger v. Commissioner, supra. What was done by the receiver is to be regarded as done by the bank. The point of difficulty here is that the bank did not issue to depositors a new instrument in the form of a certificate of proof of claim as was done by the bank in Dayton, Ohio, in the Rieger case. The issuance of a certificate of claim facilitated transfers 15 T.C. 832">*838 of claims of depositors of the Ohio bank. In this case, however, there was issuance of an instrument which the petitioner contends was for all1950 U.S. Tax Ct. LEXIS 25">*39 practical purposes the same as the certificate of claim involved in the Rieger case. With that contention I agree, recognizing, of course, that the caption on the instrument "Assignment of Claim" gives the appearance at first that the instrument was the same as an ordinary assignment. It was not, but if it had been, the petitioner still should not fail because, as I understand the situation, the claim was evidenced by passbooks and they were registered instruments, as is pointed out above. Petitioner's representatives have made this case difficult by placing too much reliance upon the method by which depositors' claims were assigned. Even so, the matter has been clarified and explained by the testimony of the receiver who was in charge of the Davenport bank. I come to the conclusion that the receiver of the Davenport bank, hence the bank, issued the printed instruments called "Assignment of Claim." These were printed forms, approved by the Iowa Superintendent of Banks, and they were evidence of approved depositors' claims. A depositor was required to execute the instrument, and it was executed also, by the bank, through the receiver. A depositor could not simply assign 1950 U.S. Tax Ct. LEXIS 25">*40 his claim, as the holder of the ordinary claim against a debtor can assign his claim. A depositor who wished to liquidate his approved claim by selling and assigning it had to do the following: He applied to the bank for its printed form consisting of an original white sheet and a duplicate pink sheet. No other form could be used. The depositor executed both copies and left them with the receiver who also executed it and gave it a number. The bank retained the original copy, giving the purchaser, or assignee, the duplicate. If the assignee desired to retransfer the claim, he had to surrender the instrument to the bank, and the bank issued a new instrument to the new assignee, repeating the procedure. Also, no payments could be made on a claim unless the pink duplicate of the instrument was presented to the bank for endorsement. I am unable to see any difference, in substance, between the issuance of one certificate of claim for each approved claim, as was done by the Ohio bank in the Rieger case, under which each assignment was registered, without the necessity of issuing a new certificate as ownership changed through assignments, and the issuance of a separate, recorded1950 U.S. Tax Ct. LEXIS 25">*41 instrument each time the ownership of a claim changed, as was done by the Davenport bank in this case. In both instances, the respective banks issued the instrument. It appears to me that the method followed by the Davenport bank more closely resembles the procedure which is followed where bonds are put in registered form, i. e., when ownership changes, a new bond is issued in the name of the new owner. I think the majority view in this proceeding proceeds from a misunderstanding of the evidence, 15 T.C. 832">*839 which I must admit has not been clearly presented by petitioner's representatives. But we should be able to understand the situation upon our own study and analysis of the record before us.

I think there can be no doubt whatever that the "instrument" issued by the Davenport bank, whether it be regarded as the original evidence of the bank's indebtedness -- the passbooks -- or the printed instruments captioned "Assignment of Claim," which, also, was issued by the bank, was in registered form. The receiver set up a record of the approved claims of depositors after they were approved by the District Court which certainly was a "register" of the bank's obligations, and must be 1950 U.S. Tax Ct. LEXIS 25">*42 distinguished from the bank's accounting records which were separate and distinct. The receiver's new record is mistakenly classified by the respondent as a record of accounts payable, which is what the bank's original accounting records were, but not the new record which the receiver set up. His register determined what could be paid and to whom. Payments could be made only to the owners of claims as shown by his record, or "register," which in every respect satisfies the requirements of section 117 (f). See Matilda S. Puelicher, 6 T.C. 300, 303. Registration means that the obligation runs only to the registered owner. See 47 Harvard Law Review 741. In this record was noted the number of the passbook, the name of the original owner of the claim, the amount of the claim, payments made, and the name of an assignee, if any, and of the amount of the claim as owing to him.

The authorities cited in the majority opinion are not applicable to this proceeding. In the case of Alice McCourt Lamm, the debtor-corporation issued nothing to purchasers of its notes, but they entered into an agreement among themselves and appointed1950 U.S. Tax Ct. LEXIS 25">*43 a collection agent to collect note payments for them. Such facts do not exist here. In the case of Kanawha Valley Bank, the indebtedness in question was that of individuals rather than a corporation, because of which section 117 (f) could not possibly apply.

I respectfully dissent.