7 T.C. 389">*389 Respondent has determined deficiencies against the petitioner, The Peerless Theater Corporation, for the year 1941, in the amounts of 7 T.C. 389">*390 $ 37,048.37 in income tax, $ 14,978.38 in declared value excess profits tax, and $ 571.70 in excess profits tax, or total deficiencies of $ 52,598.45. He has determined a liability in this total amount against the petitioner, Cooper Foundation, as transferee in liquidation of the first named petitioner. The deficiencies determined against the alleged transferor arise by reason of the inclusion in its income, for the taxable year, of $ 117,164.32 as a gain 1946 U.S. Tax Ct. LEXIS 122">*123 realized by it upon the sale and transfer by the Cooper Foundation of certain assets received by the latter upon liquidation. Certain of the facts were stipulated and are so found. Facts set out in our findings in addition to those so stipulated are found upon evidence submitted at the hearing.

FINDINGS OF FACT.

The Peerless Theater Corporation (hereinafter referred to as "Peerless") was organized under the laws of the State of Kansas, with its principal place of business at Wichita, Kansas. It filed its income and declared value excess profits tax return and its excess profits tax return for the year 1941 with the collector of internal revenue at Wichita, Kansas.

Cooper Foundation is a corporation organized and existing under the laws of the State of Nebraska, with its principal place of business at Lincoln, Nebraska. It is a corporation organized for charitable purposes and has been formally ruled as entitled to exemption and not required to file returns of income.

During the year 1941 the officers of Peerless were:

During the year 1941 the officers of the Cooper1946 U.S. Tax Ct. LEXIS 122">*124 Foundation were:

The stockholders of record of Peerless in July 1941, on or before July 23, were:

7 T.C. 389">*391 For some years prior to July 24, 1941, Peerless was the owner of a certain leasehold for a term of years executed by L. S. Naftzger and Ida L. Naftzger and covering certain lots in Wichita, Kansas. Peerless had erected a theater building upon the leased property and had executed a lease on the theater portion of this building. This lease was owned by the Miller Amusement Co. (hereinafter referred to as Miller), which had been occupying and using the building for, inter alia, operating therein a moving picture business, and had been paying rental thereon1946 U.S. Tax Ct. LEXIS 122">*125 for some time prior to July 24, 1941. Some small stores in the building were leased to other parties. The Naftzgers, who were the original lessors under the aforesaid ground leases, were dead at the time of the transactions hereinafter detailed. Their interests, as lessors and owners of the leased parcels of land, were held by the trustees of the Naftzger estate. This estate also owned 190 shares of stock of Peerless.

The leasehold in question, held by Peerless, would expire, according to its terms, on June 30, 1946, and under the terms of the lease the theater building and all equipment therein would, on that date, become the property of the owner of the ground, the Naftzger estate. The lease from Peerless to Miller covered the entire remainder of the term of the ground lease and would terminate on June 30, 1946.

Under the terms of the ground lease by the Naftzgers, Peerless was required to pay a net rental of $ 10,000 per year for the land. In addition it paid taxes, insurance, and the maintenance cost of the improvements erected on the property. Under the lease from Peerless to Miller, the latter paid a gross rental of $ 30,000 per year.

Prior to 1941 W. D. Jochems, treasurer1946 U.S. Tax Ct. LEXIS 122">*126 and assistant secretary of Peerless, had been negotiating with the trustees of the Naftzger estate in an endeavor to secure an extension of the ground lease for an additional term beyond June 30, 1946, and made an offer of a net rental for an additional term at the rate of $ 12,500 a year. He was finally advised by the trustees of the Naftzger estate that they had received an offer direct from Miller of $ 20,000 net rental per year for a lease for a term beginning June 30, 1946. It was impossible for Peerless to meet such an offer and Jochems so advised J. H. Cooper. The Naftzger estate then executed a contract to lease the property to Miller for a term beginning June 30, 1946. J. H. Cooper was the founder and president of the Cooper Foundation, which was the largest stockholder in Peerless. Cooper was or had been active in the moving picture industry and was a friend of Sidney R. Kent, who was the president of Twentieth Century Fox Film Corporation (hereinafter referred to as Fox Films) of which Miller was a subsidiary, and who was also one of the original trustees of Cooper Foundation.

Cooper and Kent maintained their offices in New York City, and, upon hearing from Jochems1946 U.S. Tax Ct. LEXIS 122">*127 of the action of Miller in obtaining a contract 7 T.C. 389">*392 for a lease from the Naftzger estate, Cooper arranged a conference with Kent, at which he advised him of what had been done and complained of the action of the subsidiary company. Kent agreed to look into the matter and at a later conference advised Cooper that his investigation showed that Miller was entirely justified in obtaining the lease, since the transaction was purely a business matter and the lease was to the advantage of Miller. In response to this, Cooper advised Kent that he was concerned about Peerless only because the Cooper Foundation, as the largest stockholder in Peerless, would sustain a loss and that to meet the situation he intended to have the Cooper Foundation, which had sufficient funds for the purpose, build a new moving picture theater in Wichita. Since such a theater would operate in competition with Miller, Kent urged Cooper not to take such action and suggested that he would direct the vice president of Fox Films in charge of the operations of Miller and other subsidiaries to work out some plan satisfactory to Cooper Foundation.

As a result, Miller agreed to acquire from Cooper Foundation the 1946 U.S. Tax Ct. LEXIS 122">*128 lease from the Naftzger estate expiring on June 30, 1946, and the personal property of Peerless used in the operation of the theater, provided Cooper Foundation could acquire and transfer such property to Miller. Accordingly, a contract was then prepared and executed between Miller and Cooper Foundation, under which the latter agreed to use its best efforts to acquire from Peerless the remaining portion of its lease expiring on June 30, 1946, and the said personal property. Miller agreed that if Cooper Foundation was successful in acquiring the lease and personal property, it would pay the sum of $ 134,100 for an assignment thereof. Of this sum, $ 25,000 was paid in cash upon the execution of the contract and was to be repaid to Miller if Cooper Foundation were unsuccessful in its efforts to obtain the lease and personal property. This contract, executed July 23, 1941, was signed also by J. H. Cooper individually, as guarantor of the obligation of Cooper Foundation.

Prior to the execution of this contract, J. H. Cooper, representing Cooper Foundation, had negotiated with the other stockholders of Peerless for the acquisition of their stock by Cooper Foundation for the purpose of1946 U.S. Tax Ct. LEXIS 122">*129 acquiring the assets of Peerless by its liquidation. He succeeded in this effort. The price per share at which each of the other stockholders agreed to sell their stock was not the same.

At the time of the execution by Cooper Foundation and Miller of the contract of July 23, 1941, the Cooper Foundation had made arrangements with other stockholders of Peerless to acquire their stock as aforesaid and upon execution of that contract such stock was in fact acquired and an assignment of its leasehold on the property of the Naftzger estate, together with the building and improvements thereon, was executed by Peerless. This assignment, after execution, 7 T.C. 389">*393 was left by the officers of Peerless with its attorney, W. J. Jochems, with instructions that it was not to be delivered to the Cooper Foundation until after the dissolution of Peerless had been recorded in the office of the Secretary of State, after which time all assets of Peerless were to be distributed to the Cooper Foundation in liquidation. On the same date there was executed by the Cooper Foundation an assignment of the Naftzger leasehold, together with the building and improvements thereon, to Miller. This assignment1946 U.S. Tax Ct. LEXIS 122">*130 was left with Jochems, with instructions that he should forward it to S. C. Waugh, the secretary of the Cooper Foundation, for the purpose of having him attest the same as secretary and attach the seal of the corporation and, upon its return, that it was to be held by Jochems until the dissolution of Peerless had been completed and the assignment of its property to Cooper Foundation had been delivered, at which time Jochems was to deliver the assignment to Miller.

The Secretary of State of the State of Kansas issued his certificate of dissolution of Peerless on August 5, 1941. Thereafter, in accordance with the instructions, the assignment of the lease of the Naftzger property by Peerless to Cooper Foundation was delivered and, on August 19, 1941, was filed in the office of the register of deeds of Sedgwick County, Kansas. The assignment by Cooper Foundation to Miller was delivered to that company on August 14, 1941, and was placed of record on August 19, 1941, subsequent to the recording of the assignment from Peerless to Cooper Foundation. The only other asset which Peerless possessed in addition to the Naftzger lease and improvements thereon, consisting of certain cash, was 1946 U.S. Tax Ct. LEXIS 122">*131 transferred by it in distribution to Cooper Foundation subsequent to August 14, 1941. The dissolution of Peerless was effected under the law of Kansas by the execution, on July 28, 1941, by Cooper Foundation, as sole stockholder of Peerless, of a consent to dissolution as of July 31, 1941. This consent was filed with the Secretary of State of Kansas and in pursuance thereof that official issued his certificate of dissolution on August 5, 1941.

Respondent, in determining the deficiency against Peerless, treated the sale of the Naftzger lease and improvements thereon to Miller as having been made by Peerless. He computed a gain to that petitioner in the sum of $ 117,164.32, and increased its reported income in that amount.

Cooper Foundation, and not Peerless, sold to Miller the Naftzger lease and improvements thereon.

OPINION.

The petitioner, Cooper Foundation, admits the liability as transferee for any tax deficiency due from Peerless. Thus the issue presented turns wholly upon the answer to the question as 7 T.C. 389">*394 to whether the sale of the Naftzger-Peerless lease and improvements to Miller was by Peerless or by Cooper Foundation. If by Peerless, the liability determined as 1946 U.S. Tax Ct. LEXIS 122">*132 to Cooper Foundation must be sustained, but if the sale was by Cooper Foundation, the deficiency as to Peerless must fall and, with it, the liability determined against Cooper Foundation.

The question is one that has been before us in a number of cases. It is a question of fact. Other cases are helpful only to the extent that the facts there involved are substantially similar to those here.

The rule is that the actualities of the sale must govern and that, where the agreement to sell was in fact made on behalf of the corporation owning the property by stockholders or others empowered to act for it and the sale was later carried out by a liquidation of the corporation and distribution of the property to its stockholders, with a transfer by them to the purchaser, the stockholders are merely a conduit of title. The sale, in such case, is considered as one by the corporation, with the gain thereon taxable to it. ; ; ; ;1946 U.S. Tax Ct. LEXIS 122">*133 ; .

Under the rule of the cited cases, our inquiry here is, therefore, directed to the fact as to whether the evidence reveals in substance a sale by Peerless to Miller of the Naftzger-Peerless lease and improvements. We think this question must be answered in the negative.

The evidence conclusively establishes that the negotiations with Fox Films and its subsidiary, Miller, were carried out exclusively by Cooper Foundation, which was a minority stockholder in Peerless, and without power to act for or bind that corporation. The activities of Cooper Foundation in the matter were wholly in its own interest. On the other hand, there was no desire or purpose on the part of Fox Films or Miller to deal with or acquire any assets from Peerless. Indeed the evidence contradicts the existence of a situation in which Peerless would have been able to effect a sale of its property. Kent, as president of Fox Films, agreed to purchase the lease and improvements from Cooper Foundation if the latter could acquire and transfer them. The reason was a desire to satisfy1946 U.S. Tax Ct. LEXIS 122">*134 Cooper Foundation which had announced its plan to build a theater in Wichita to compete with Miller unless something was done to prevent the loss which would be occasioned to Cooper Foundation by Miller acquiring a lease from the Naftzger estate for a period subsequent to the expiration of the existing lease to Peerless.

There was no plan in so far as Fox Films or Miller was concerned that Cooper Foundation should acquire by liquidation the lease which Miller agreed to buy. It was bound to receive and pay for the lease 7 T.C. 389">*395 only if and when it was acquired by Cooper Foundation. And, as we said in :

* * * As a pure proposition of law, we think it can not be said that a stockholder can in no circumstances contract as an individual to sell property which he expects to acquire from the corporation. * * *

Here Miller at no time made any offer to or agreement with Peerless for the property. Its agreement was with Cooper Foundation, alone, which acted exclusively in its own interests. In those circumstances, Cooper Foundation, in contracting to sell the property if it could acquire it, can not be considered as acting1946 U.S. Tax Ct. LEXIS 122">*135 for Peerless when it had no authority to bind that corporation.

The recent case of , is distinguishable on the facts. There the purchaser desired the property of the corporate petitioner and negotiated with its officers and the owners of a majority of its corporate stock for the purchase and the price to be paid. The purchaser advised the stockholders acting in the corporate interest that it was immaterial to it as to whether title would be taken direct from the corporation or the latter liquidated and the deal consummated by a transfer by the stockholders. In that case the liquidation of the corporation occurred after consideration of the tax aspects when it was apparent that a saving could be effected if the sale was made by the stockholders. In the present case the offer to purchase was made to one stockholder owning a minority interest and was an offer made to it as such stockholder and the obligation by the purchaser to take the property did not arise under the contract until after it became the property of Cooper Foundation.

We think, and have so found, that the Cooper Foundation, and not Peerless, sold the Naftzger1946 U.S. Tax Ct. LEXIS 122">*136 lease and improvements to Miller. It follows that Peerless realized no gain on such sale. The deficiency against Peerless therefore falls and with it the transferee liability of Cooper Foundation.

Decisions will be entered for the petitioners.