5 T.C. 1058">*1059 The respondent determined a deficiency in petitioner's income tax liability for the taxable year ended December 31, 1939, in the amount of $ 107.46, which deficiency is the result of respondent's determination that:

(a) The transaction whereby you received 25 shares of the common stock of the National Bank of Commerce from the Bank of Commerce & Trust Company constitutes a distribution in partial liquidation, and the gain arising therefrom is taxable as a short-term gain. Subsection (c) and (i) of Section 115 of the Internal Revenue Code.

(b) Deductions claimed as business expense disallowed in that it has not been construed that you are engaged in business.

Petitioner contests the deficiency, assigning error in respondent's determination as to both (a) and (b).

FINDINGS OF FACT.

The petitioner is an individual, residing in Memphis, Tennessee. His income tax return for the taxable year was filed1945 U.S. Tax Ct. LEXIS 42">*45 with the collector of internal revenue for the district of Tennessee, at Nashville, Tennessee.

On January 15, 1934, at a cost of $ 315, petitioner acquired 30 shares of the common capital stock of the Bank of Commerce & Trust Co. (hereinafter sometimes referred to as the old bank).

The Bank of Commerce & Trust Co. is a state banking institution, organized and operated under the laws of the State of Tennessee. Its offices were located in Memphis, Tennessee. A run on the bank developed in January 1933. To insure payment of its deposits in full, it borrowed $ 13,000,000 from the Reconstruction Finance Corporation, which loan was secured by a pledge of its assets and an additional pledge of about $ 2,000,000 of their own assets by individuals who were directors, shareholders, or depositors of the bank. After the declaration of the "Bank Holiday" in February 1933, the question arose as to whether the bank should reopen or whether the interests of all concerned would best be served by the organization of a new national bank. The bank reopened after the "Bank Holiday."

A special called meeting of the bank's board of directors was held on April 27, 1933. The call for and notice of the1945 U.S. Tax Ct. LEXIS 42">*46 meeting provided that it was called:

* * * for the purpose of considering and authorizing the organization of a new national bank, subscribing for capital stock therein by the Bank of Commerce & Trust Company, the transfer of the deposits of the Bank of Commerce & Trust Company to the proposed national bank, the transfer of certain assets of the Bank of Commerce and Trust Company to the proposed national bank, to authorize the execution of a Voting Trust Agreement with respect to the stock in the national bank to be subscribed for by the Bank of Commerce 5 T.C. 1058">*1060 & Trust Company, * * * to authorize and approve the making of any and all necessary contracts and agreements with reference to any of said purposes * * *.

At the meeting the board was told by Phil M. Canale, a director and member of a committee appointed to work out a plan for the reorganization of the bank, that the Comptroller of the Currency had approved plans for the organization of a new national bank, to be known as the National Bank of Commerce in Memphis (sometimes hereinafter referred to as the new bank), with a capital of $ 2,000,000 consisting of 10,000 shares of common stock of the par value of $ 100 per share, 1945 U.S. Tax Ct. LEXIS 42">*47 paid-in surplus of $ 750,000, and paid-in undivided profits or reserves of $ 250,000, giving its stock a book value of $ 200 per share; that the stock of the new bank with the exception of qualifying shares was to be subscribed by the old bank; that the subscription to the stock of the new bank by the old was to be financed by a new loan of $ 2,000,000 to be made to the old bank, which loan was to be made by the Reconstruction Finance Corporation (hereinafter referred to as RFC) and be secured by pledge of the stock so subscribed for and a third lien on assets of the old bank theretofore pledged to RFC; that the new bank was to use the $ 2,000,000 received from the old bank in payment of its stock subscription to buy paper and other assets of the old bank held by RFC as security for its loan to the old bank, which amount was to be then credited against the indebtedness of the old bank to RFC. Canale further stated that in carrying the proposed plan into execution there were many details to be passed upon by the board, among others being that the stock which the old bank would acquire in the new bank was to be placed in a voting trust at the request of RFC and for the purpose of insuring1945 U.S. Tax Ct. LEXIS 42">*48 stability and continuity of management for the new bank; and that three of the five voting trustees selected were directors of the old bank, one was secretary of RFC, and one was manager of the Memphis branch of the Federal Reserve Bank of St. Louis.

The directors were also told by Canale:

* * * that it would also be necessary to consider a resolution authorizing the new bank to take over the deposit liabilities of the old bank, and the transfer to the new bank by the old bank of assets of equal value. * * * that the ultimate ownership of the old bank and of the new bank was practically the same, except as to the qualifying shares of the directors of the new bank, which were negligible, amounting to only one hundred and forty shares. * * * that the Committee had discussed with the Reconstruction Finance Corporation the matter of liquidating the old bank; that as he understood it, the Reconstruction Finance Corporation would permit the old bank to be liquidated in somewhat the same manner in which it was now being liquidated; that it was to be done under the supervision of a committee * * * by selling notes, * * * real estate, etc.

5 T.C. 1058">*1061 Various resolutions were then adopted1945 U.S. Tax Ct. LEXIS 42">*49 by the directors, among which were the following:

Resolved, that the Board of Directors hereby approve the plan outlined by Mr. Canale with respect to the organization of the new national bank, the liquidation of the assets of the old bank, etc.; that the officers and representatives are hereby authorized and directed to do and perform any and all things necessary or proper to the due and proper consummation thereof.

* * * Resolved that the Bank of Commerce & Trust Company subscribe and pay for the entire capital stock of the National Bank of Commerce in Memphis (except the qualifying shares of the directors thereof) amounting to 9860 shares, at and for the price of $ 200.00 per share.

Resolved That the Bank of Commerce & Trust Company deposit the stock to be subscribed for by it in the National Bank & Commerce in Memphis, in a Voting Trust Agreement, with Messrs. W. R. King, W. W. Mallory, Phil M. Canale, the Manager of the Memphis Branch of the Federal Reserve Bank of St. Louis and Secretary of the Reconstruction Finance Corporation, as Voting Trustees, the Voting Trust Agreement to be approved by Messrs. King, Mallory and Canale; and that the officers of this bank be and they are1945 U.S. Tax Ct. LEXIS 42">*50 hereby authorized in its name and on its behalf to execute the Voting Trust Agreement as so approved.

Resolved That the Bank of Commerce & Trust Company enter into a contract with the National Bank of Commerce in Memphis providing generally that the National Bank of Commerce in Memphis shall assume the deposit liabilities of the Bank of Commerce & Trust Company, after adjustment of off-set deposits, in consideration of the transfer to it of assets of equal amount, consisting of cash and other assets, to be approved by the National Bank Examiner and the directors of the new national bank, the form of agreement so to be entered into to be submitted to the Board for its approval.

Resolved that the liquidation of the assets of the Bank of Commerce & Trust Company, according to the plan outlined by Mr. Canale by a committee composed of Messrs. David Sternberg, W. W. Mallory and A. L. Pritchard, be and the same is hereby approved.

A special, duly called meeting of the stockholders of the old bank was held the following day, April 28, 1933. The call was for the purposes as set out in the call for the special called meeting of the board of directors as set out above. Phil M. Canale stated1945 U.S. Tax Ct. LEXIS 42">*51 to the meeting that subsequent to December 1932 the bank had borrowed thirteen million dollars from RFC to fulfill the obligations of the bank to its depositors and that such obligation was fulfilled, and that "Immediately thereupon we had a thorough examination made of the bank and set about to see what we could do then to fulfill the next obligation, which was to the stockholders and to the pledgers who had put up their money to insure the payment of the deposits in full." Canale further stated that three directors, including himself:

* * * then set about first, to analyzing the situation in conjunction with the Board of Directors, the officers of the Bank and the stockholders who had large interests in the bank, and as a result of many days and weeks of study, we devised one or more plans whereby we hoped, after taking care of the interests of the depositors and pledgers, to take care of others interested in the bank; that is to say, to take care of the stockholders of this bank and see, if out of an orderly liquidation of the assets of the old bank, and the 5 T.C. 1058">*1062 formation of a new bank to take over the deposits and gradually take over the departments, we could not save the1945 U.S. Tax Ct. LEXIS 42">*52 stockholders their investment in the Bank of Commerce & Trust Company. We have had this job constantly since the fifteenth day of January, and we have tried to work out what we believe to be a constructive plan * * * we finally consummated this plan which we now submit to you.

After stating that the old bank was to purchase the stock of the new bank with the $ 2,000,000 to be borrowed from RFC, Canale further stated:

* * * That means that you stockholders are the ultimate owners of the capital stock of the new bank. * * * Except for the qualifying shares of the directors of the new bank, the Bank of Commerce & Trust Company owns all of the capital stock in the new bank. I call your attention to the fact that by reason of this stock ownership, there is, practically speaking, an identity of interests between the old bank and the new bank.

The second thing in which you are interested is the orderly liquidation of the old bank so that it will net the most to the people interested in the old bank, who are the stockholders of the old bank. Of course, the Reconstruction Finance Corporation must be paid, and the assets of this bank must be liquidated in a proper and orderly way, satisfactory1945 U.S. Tax Ct. LEXIS 42">*53 to all parties concerned, in order to net the most from the liquidation of the old bank so that its debts can be paid and the equity in its assets turned over to you, as stockholders of the Bank of Commerce & Trust Company.

Canale further stated:

Now in connection with the organization of the new bank * * *. I think it is almost self-evident to you business men and you business women that some plan is necessary to insure the stability and continuity of management of the new institution. * * * To insure that stability and continuity of management, we have prepared a simple voting trust agreement, under which voting trustees will be selected by the Board of Directors of the old bank to vote the stock in the new bank. Those voting trustees have been designated and approved by the Comptroller's office and the Reconstruction Finance Corporation, * * *. The voting trustees are Mr. King, Mr. Mallory, myself [Directors of the old bank] the secretary of the Reconstruction Finance Corporation and the manager of the Memphis Branch of the Federal Reserve Bank of St. Louis. [Italics and brackets supplied.]

Canale told the stockholders the names of the fourteen directors selected and approved1945 U.S. Tax Ct. LEXIS 42">*54 for the new bank, all of which individuals were directors of the old bank. The six members of the new bank's executive committee were all directors of the old bank. The new bank was to be named the National Bank of Commerce in Memphis and was to take over as many of the employees of the old bank as possible. It was to occupy the old bank premises, using its banking fixtures and equipment, including safe deposit department, and paying $ 30,000 yearly rental therefor, which rental was to be used to liquidate indebtedness of the old bank. He also told them that:

So far as the old bank is concerned, that is a matter that will have to be worked out with a great deal of care to conserve its equity in its assets. It is proposed that the old bank be liquidated under the supervision of a Committee 5 T.C. 1058">*1063 * * *. The old bank has some seven or eight million dollars of cash on hand to pay its depositors and the new bank will of course take over this cash against deposits of the old bank, and it is proposed that the new bank will purchase as much of the assets of the old bank as the National Bank Examiner and the directors of the new bank may approve. The money so paid over to the old1945 U.S. Tax Ct. LEXIS 42">*55 bank for paper and bonds held by it, will go to liquidate its debts to the Reconstruction Finance Corporation.

Canale stated further that:

After the new bank is set up, it is proposed that the new bank take over the deposits of the old bank whatever they amount to after off-set deposits have first been adjusted, and as against the deposits assumed by it, the new bank will take over cash and paper approved by the National Bank Examiner and the directors of the new bank so that the new bank will have an equivalent amount of liquid assets against the amount of deposits assumed by it * * *.

In reply to an inquiry from a stockholder as to what was going to be done for the old stockholders, Canale said:

Answering your question, I wish to call to your attention, first, that we owe debts. Until the corporation pays its debts, it has merely an equity in its assets. Those assets will have to be liquidated in an orderly manner. The bank gets rid of a lots of its debts and corresponding amount of its assets when the deposits are turned over to the new bank. When the rest of the assets are liquidated and the creditors are paid off, what remains will be distributed to the stockholders.

The 1945 U.S. Tax Ct. LEXIS 42">*56 stockholders then adopted resolutions providing for the subscription and payment for the entire capital stock of the new bank by the old bank, except qualifying shares, and for the borrowing of the $ 2,000,000 from RFC, and finally adopted the following resolution:

Resolved That the stockholders approve the proposed plan, as discussed and outlined at this meeting, and that the directors be and they hereby are authorized to fully consummate the same and to authorize the officers of the bank to execute any and all necessary contracts and generally to do and perform any and all things incident or necessary to the full and proper consummation of the plan outlined and discussed at this meeting.

The new bank was organized May 1, 1933, and immediately took over substantially all the liquid assets and business of the old bank which were transferred to it by the old bank. The old bank discontinued its general banking business on that date. It subscribed and paid for all of the new bank's stock, except the qualifying shares required to be held by the new bank's directors, and it was in control of the new bank immediately after the transfer of the assets thereto. It was then the intention 1945 U.S. Tax Ct. LEXIS 42">*57 and part of the plan of reorganization that the stock in the new bank should ultimately be distributed to the stockholders of the old bank.

The affairs of the old bank have since been handled by its liquidating committee, which has been gradually liquidating its assets, paying off its obligations, and endeavoring through orderly business procedure to salvage as much as possible for its stockholders.

5 T.C. 1058">*1064 A special called meeting of the board of directors of the old bank was held on July 24, 1989, at which meeting the chairman of its liquidating committee read a letter dated July 21, 1939, from RFC, consenting under certain conditions to release 50 percent (4,910 shares) of the capital stock of the new bank held by RFC as collateral for the old bank's indebtedness to RFC. Appropriate resolutions were adopted to enable the bank to comply with the conditions imposed by RFC for the release of the 4,910 shares of stock in the new bank. The directors also adopted the following resolution:

(5) Resolved, that, upon compliance with the provisions of Reconstruction Finance Corporation, set forth in said letter of July 21, 1939 and the release from pledge of 4910 shares of the capital1945 U.S. Tax Ct. LEXIS 42">*58 stock of National Bank of Commerce in Memphis, there be distributed on September 1, 1939, in partial liquidation to stockholders of record of Bank of Commerce & Trust Company as of 2:30 P. M., July 24, 1939, one (1) share of the capital stock of National Bank of Commerce in Memphis for each six (6) shares of stock held by such stockholder of Bank of Commerce and [sic] Trust Company, and scrip representing fractional participation of one-sixth (1/6) of a share of the capital stock of National Bank of Commerce in Memphis for each one share (1) of stock of Bank of Commerce & Trust Company not aggregating six (6) shares or multiples thereof, which scrip shall be in such form and shall contain such conditions as the Executive Committee may authorize, provided, however, that any holder of such scrip aggregating one (1) share of stock of National Bank of Commerce in Memphis, or multiples thereof, shall be entitled to exchange such scrip for shares of stock in National Bank of Commerce in Memphis.

On August 11, 1939, the board of directors of the old bank held a special meeting at which there was unanimously adopted a resolution, the preamble to which read as follows:

Whereas, to comply with1945 U.S. Tax Ct. LEXIS 42">*59 the conditions set forth in the letter of July 21, 1939, addressed to A. L. Pritchard, Chairman of the Liquidating Committee, by Reconstruction Finance Corporation; and to carry out the distribution in kind in partial liquidation to stockholders of this corporation of 4,910 shares of the capital stock of the National Bank of Commerce in Memphis, it is necessary to reduce the capital and authorized capital stock of this corporation, as hereinafter set out.

The resolution then provided for the reduction of the par value of the old bank's 30,000 shares of stock from $ 100 to $ 50 per share and the transfer of $ 1,500,000 from capital to surplus. The charter was to be amended accordingly, and:

* * * upon the capital and capital stock being reduced and the charter amended, as above provided, a distribution in kind of 4,910 shares of the capital stock of National Bank of Commerce in Memphis will be made pro rata to the stockholders of the Bank of Commerce & Trust Company of record at 2:30 p.m., July 24th, 1939.

On August 22, 1939, a special meeting of the stockholders of the old bank was held, at which they ratified and approved the action taken by the board of directors at the meeting1945 U.S. Tax Ct. LEXIS 42">*60 held August 11, 1939, and adopted a resolution reducing the par value of the old bank's 5 T.C. 1058">*1065 shares from $ 100 to $ 50 per share and amending its charter so that its capital was reduced to $ 1,473,000 after the cancellation and retirement of 540 shares of treasury stock. The resolution further provided for the pro rata distribution to the stockholders of the old bank of the 4,910 shares of new bank stock released by RFC.

Shortly after August 22, 1939, the stockholders of the old bank, including petitioner, deposited their stock certificates evidencing the stock of the old bank with the trust department of the old bank. Each certificate was stamped with a rubber stamp to the effect that the bank's capital had been reduced from $ 3,000,000 to $ 1,473,000 and that the par value of the stock was $ 50 per share. The certificates were then returned to the stockholders, together with the shares of stock in the new bank which they were entitled to receive as part of their pro rata distribution in kind of that stock. On or about September 1, 1939, petitioner, as owner of 150 shares of old bank stock, received 25 shares of stock in the new bank as his share in this distribution. 1945 U.S. Tax Ct. LEXIS 42">*61 At that time this stock in the new bank had a fair market value of approximately $ 270 per share. Of these 25 shares of stock in the new bank, 5 shares having a value of $ 1,350 were received by petitioner with respect to 30 shares of stock in the old bank acquired by him January 15, 1934, at a cost basis of $ 315. The difference of $ 1,025 between $ 1,350 and $ 315 is treated by the respondent as ordinary taxable gain. This distribution was made pursuant to the plan of reorganization.

There have been no further distributions of stock in the new bank to stockholders of the old bank, and the latter still owns about 5,045 shares of stock in the new bank. There is no present plan to distribute the remaining stock in the near future, but the old bank expects to ultimately distribute all of it to its stockholders.

As of July 24, 1939, the balance sheet of the old bank disclosed a surplus and undivided profits deficit of $ 28,722.35. Its balance sheet as of August 22, 1939, showed a surplus and undivided profits credit of $ 51,136.02. This credit was largely the result of the old bank reestablishing a loan of "some sixty-odd thousand dollars" as an asset on its books, which loan had1945 U.S. Tax Ct. LEXIS 42">*62 been charged down to $ 1 some years before.

As of August 23, 1939, the old bank was still indebted to RFC in the amount of $ 1,989,000, secured by pledge of the stock it owned in the new bank. In the old bank's statement of condition as of that date appears the following "Note":

Liability for accrued interest on Bills Payable, amounting to $ 444,510.58, is not reserved for. Of this amount, $ 443,558.51, is due on additional $ 2,000,000 loan secured by stock in National Bank of Commerce in Memphis * * *.

A plan of reorganization was adopted by the old bank in 1933 and pursuant thereto the stock in the new bank here involved was distributed to petitioner.

5 T.C. 1058">*1066 In 1939 the petitioner rented a safe deposit box, paying $ 11 rent therefor in that year. He kept income-producing securities therein during the year 1939.

In 1939 petitioner paid out $ 1.03 in postage and registration fees to the Securities Exchange Commission on securities sold.

OPINION.

Respondent contends as to the first issue (a) that the distribution to petitioner by the old bank in 1939 of shares of stock in the new bank constituted a distribution in partial liquidation of the old bank under section 115 (i) of1945 U.S. Tax Ct. LEXIS 42">*63 the Internal Revenue Code, ¹ and that consequently there was a gain of $ 1,035 realized by petitioner therefrom, which gain is taxable as a short term capital gain in accordance with the provisions of section 115 (c) of the Internal Revenue Code. More specifically, the respondent contends that the distribution was one "in partial liquidation" under the second of the two forms of partial liquidation defined by section 115 (i), supra, viz: "one of a series of distributions in complete cancellation or redemption of all or a portion of its stock," and in support of this contention points out various expressions shown in the minutes to the effect that the old bank was to be liquidated.

Petitioner1945 U.S. Tax Ct. LEXIS 42">*64 contends as to the first issue that he received the shares of stock in the new bank in exchange for his stock in the old bank made pursuant to a plan of reorganization and that consequently no gain or loss is to be recognized under section 112 (b), (g), and (h) of the Internal Revenue Code² as operative during the taxable year.

1945 U.S. Tax Ct. LEXIS 42">*65 5 T.C. 1058">*1067 In the alternative, petitioner contends that "If the 1939 transaction was not an exchange, then it was a distribution in pursuance of a plan of reorganization and the gain, if any, is a capital gain subject to the limitations of Sec. 117" of the Internal Revenue Code.

Respondent urges the following circumstances in support of his determination and contention that petitioner received the new bank stock as a distribution in partial liquidation under section 115 (i), supra:

(1) That the distribution of the 4,910 shares of capital stock of the National Bank of Commerce in Memphis was "in partial liquidation" of the Bank of Commerce & Trust Company as characterized in the very resolution which provided for the distribution, and (2) that the reduction in par value of the capital stock of the Bank of Commerce & Trust Company was, as clearly evidenced by the corporate minutes, made for the definite purpose of reducing the amount of outstanding capital stock in order to give effect to the partial liquidation of that bank.

However, the answer to the question of whether or not the distribution was one "in partial liquidation" is not determinative of the tax consequences of the1945 U.S. Tax Ct. LEXIS 42">*66 distribution here involved if such distribution was pursuant to a plan of reorganization and there was a reorganization in fact thereunder. Sec. 115 (c), I. R. C.³ No gain or loss is recognized on such distribution. Fisher v. Commissioner, 108 Fed. (2d) 707; Peck & Peck, 42 B. T. A. 651; Anna V. Gilmore, 44 B. T. A. 881; affd., 130 Fed. (2d) 791; Hortense A. Menefee, 46 B. T. A. 865; Morley Cypress Trust, Schedule "B", 3 T.C. 84; Richard H. Survaunt, 5 T.C. 665.

1945 U.S. Tax Ct. LEXIS 42">*67 All parts of the transaction are to be considered together rather than separately, Helvering v. Alabama Asphaltic Limestone Co., 315 U.S. 179">315 U.S. 179, and if there was, in fact, a "reorganization" of the old bank, its liquidation is merely one step in an integrated transaction.

The first question arising in natural sequence is whether or not there was a reorganization embracing the old and new banks as parties 5 T.C. 1058">*1068 thereto under section 112 (g) (1) (D), supra. The only contentions of respondent as to this question are: First, that the evidence fails to establish in whom title to the stock of the new bank was vested on its issuance and consequently fails to show the requisite control; and, second, that the evidence fails to show that any assets were transferred by the old bank to the new.

As to the first contention respecting title to the stock of the new bank, we have found as a fact that the old bank subscribed to all of the new bank stock, except directors' qualifying shares, and that such stock was pledged to RFC by the old bank as security for the $ 2,000,000 borrowed therefrom by the old bank to finance the stock subscription. The stock 1945 U.S. Tax Ct. LEXIS 42">*68 when released from pledge to RFC was returned to the old bank and distributed by it to its shareholders. Furthermore, respondent's answer admits that "with the exception of qualifying shares of directors, all of the capital stock of the new bank was subscribed and paid for by the old bank which was in control of the new bank immediately after the transfer of assets to the new bank." In the face of such a record, any suggestion that the old bank did not take title to the stock of the new bank at the time of its issuance is untenable.

The second contention as to the transfer of assets from the old to the new bank is also untenable in view of the facts: That the answer of respondent explicitly admits that the old bank was "in control of the new bank immediately after the transfer of assets to the new bank"; that the evidence shows that $ 2,000,000 in cash which had been received by the old bank as a loan from RFC, thereupon becoming an asset of the old bank, was also transferred to the new bank in payment for its stock; and the uncontradicted testimony of Canale that the old bank transferred substantially all its liquid assets to the new bank. Taking these established facts together1945 U.S. Tax Ct. LEXIS 42">*69 with the further established fact that "immediately after the transfer" of such assets, the old bank, through its ownership of all the stock of the new bank, except directors' qualifying shares, was in "control" of the latter bank as the word "control" is defined in section 112 (h), supra, it is clear that there was a reorganization within the provisions of section 112 (g) (1) (D), supra.

Having concluded that there was a reorganization, further questions arise as to whether or not the other requirements of section 112 (b) (3) have been met. Respondent contends that they have not in that: First, there was no "exchange" of stock for stock in compliance with the requirement of that section as pertinent here because the stockholders of the old bank did not "surrender" their stock in the old bank when they received stock in the new bank; and, second, assuming there was a "plan of reorganization," petitioner failed to prove that the plan extended so far as to provide for the distribution of the stock of the new bank to the stockholders of the old.

5 T.C. 1058">*1069 With regard to the first contention, that there was no exchange of stock because the stockholders of the old bank did not1945 U.S. Tax Ct. LEXIS 42">*70 surrender their old stock upon receipt of the new bank stock, it is to be noted that section 112 (b) (3), supra, contains no requirement that the stock be "surrendered." The critical consideration is whether or not there was an "exchange" of stock for stock. In carrying out the plan for distribution of the stocks in the new bank to the stockholders of the old, which we hereinafter find was done, the capital liability of the bank to its shareholders had been cut in half, and the par value of the shares reduced from $ 100 to $ 50. The authorization and acceptance of this cut by the shareholders in consideration for the shares of the new bank distributed to them was, under the circumstances, in our opinion, the equivalent of an exchange of stock for stock. To that extent they had exchanged their interests as shareholders of the old bank for stock of the new bank. The status of the shareholders as between themselves and as against the corporation was identical under the method followed, with what it would have been if half of the shares of stock had been surrendered and canceled. We do not believe the mere mechanics of procedure should blind us to the realities. Cf. Walter S. Heller, 2 T.C. 371;1945 U.S. Tax Ct. LEXIS 42">*71 affd., 147 Fed. (2d) 376; certiorari denied, 325 U.S. 868">325 U.S. 868. Moreover, since it is apparent that the distribution to petitioner was in partial liquidation of the old bank, although but one step in pursuance of the plan of reorganization, we think that this first contention of respondent is disposed of by that provision of section 115 (c), supra, relating to partial distribution, which states the "amounts distributed in partial liquidation of a corporation shall be treated as in part or in full payment in exchange for the stock." This first contention of respondent can not be sustained.

With regard to the second contention of respondent, that assuming there was a "plan of reorganization" the petitioner failed to prove that the plan extended so far as to provide for the distribution of the stock of the new bank to the stockholders of the old, we think it also can not be sustained. In his statement to the stockholders at their meeting of April 28, 1933, Canale, a director and member of a committee engaged since January 1933 in devising and formulating a plan, said, inter alia, that the committee "devised one or more plans whereby1945 U.S. Tax Ct. LEXIS 42">*72 we hoped, * * * to take care of the stockholders of this bank and see, if out of an orderly liquidation of the assets of the old bank, and the formation of a new bank to take over the deposits * * * we could not save the stockholders their investment in the Bank of Commerce & Trust Company"; that "we finally consummated this plan which we now submit to you"; "That means that you stockholders are the ultimate owners of the capital stock of the new bank"; that by reason of the stock ownership by the old bank of all 5 T.C. 1058">*1070 the capital stock of the new bank "there is, practically speaking, an identity of interests between the old bank and the new bank"; that "the assets of this bank must be liquidated in a proper and orderly way, * * * in order to net the most from the liquidation of the old bank so that its debts can be paid and the equity in its assets [including the equity in the old bank's stock in the new bank] turned over to you, as stockholders of the Bank of Commerce & Trust Company"; and that "When the rest of the assets are liquidated and the creditors are paid off, what remains [including the old bank's stock in the new bank if it remained] will be distributed1945 U.S. Tax Ct. LEXIS 42">*73 to the stockholders." [Italics and brackets supplied.] After these statements were made by Canale to the stockholders at their meeting, the stockholders at that meeting passed a resolution approving "the proposed plan, as discussed and outlined at this meeting," and authorized the directors to "fully consummate the same" and to "authorize the officers of the bank * * * to do and perform any and all things incident or necessary to the full and proper consummation of the plan outlined and discussed at this meeting."

Canale had also, in presenting the plan to the board of directors of the old bank on the day preceding the meeting of the stockholders above mentioned, stated, inter alia, "that the ultimate ownership of the old bank and of the new bank was practically the same, except as to the qualifying shares of the directors of the new bank, which were negligible."

We think it is apparent from what appears on the minutes of the meeting of the stockholders and the meeting of the board of directors of the old bank, as above recited, and there is nothing in material contradiction thereof, that distributions of the stock of the new bank made to the stockholders of the old bank in 1939, 1945 U.S. Tax Ct. LEXIS 42">*74 including that made to petitioner, were made as a part of and pursuant to a plan of reorganization and in compliance therewith. In this connection it may be observed that there is no requirement that every detail of the plan, or even the plan itself, be reduced to writing. Hoboken Land & Improvement Co., 46 B.T.A. 495">46 B.T.A. 495, 46 B.T.A. 495">508; affd., 138 Fed. (2d) 104.

Our conclusion is fortified by the testimony of Phil M. Canale and A. L. Pritchard, the latter being a director in the old bank and chairman of the executive committee which continuously managed that bank from the time of its difficulties in 1933 until the hearing in this proceeding. Canale testified that the ultimate purpose of the reorganization and the "very keystone and foundation of the whole picture was that the equity in the assets in whatever form were to be preserved ultimately for the shareholders of the old bank. That is what we were trying to accomplish"; that the distribution of stock in the new bank in 1939 was a partial consummation of the plan adopted in 1933; and that a proposed plan that the pledgers and 5 T.C. 1058">*1071 guarantors of the debt of the old bank to 1945 U.S. Tax Ct. LEXIS 42">*75 RFC be permitted to subscribe for stock in the new bank was objected to and abandoned because to adopt such a plan would defeat the purpose of preserving the good will and equity for the stockholders of the old bank. Pritchard testified that he knew of the various plans that were being proposed and the one finally adopted. He testified further that at the time the new bank was being organized it was his hope and intention that the stock of the new bank should be distributed to the stockholders of the old bank in exchange for their stock in the old bank and that this was "our hope throughout the entire reorganization"; that the distribution made in 1939 was made by the old bank under his direction in pursuance of the plan adopted in 1933, which, as he understood it, was for all of the stockholders of the old bank to become stockholders of the new bank to the extent of the shares they had in the old bank; and that in the "work out" of the plan, the stockholders of the old bank would be the stockholders of the new.

Substantial delay in the stock distribution was inevitable in the "work out" of the plan. The stock was to stand pledged to RFC until the borrowed funds with which it was1945 U.S. Tax Ct. LEXIS 42">*76 acquired were repaid or other arrangements made for its partial or total release. When such partial release was obtained, pro rata distribution according to the plan was made immediately. Mere delay in such distribution, where due to reasonable cause, is immaterial, once the existence of the plan is established. D. W. Douglas, 37 B. T. A. 1122; Hortense A. Menefee, supra, and authorities cited therein. As was said in the Douglas case, where there was a delay of five years in the distribution:

* * * The original plan was not changed. The execution of a part of it was merely postponed until it could be carried out in full. In the meantime the petitioners retained their stock in the Douglas Co. Under the circumstances we are of the opinion that the lapse of time is not decisive; and in this connection it may be noted that the act contains no limitation as to time and specifies no time within which an exchange must be made.

We hold that the distribution of new bank stock received by petitioner was received in an exchange of stock in a corporation a party to a reorganization for stock of another corporation a party1945 U.S. Tax Ct. LEXIS 42">*77 to the reorganization, in pursuance of a plan of reorganization, and that no gain shall be recognized with respect thereto. Sec. 112 (b), (g), and (h), supra. In view of this conclusion it is unnecessary to consider the alternative contention made by petitioner.

The second issue involves a claimed deduction of $ 12.03 from gross income which was disallowed by respondent for the reason that "it has not been construed that you are engaged in business." The expenditure involved consisted of $ 11 rental for a safe deposit box in which petitioner kept income-producing securities, $ 1.03 for registration 5 T.C. 1058">*1072 fees to the Securities Exchange Commission, and postage paid on the sale of such securities. Petitioner relies on the provisions of section 23 (a) (2) of the Internal Revenue Code. ⁴ The respondent presents no argument on this issue and it is too obvious to merit discussion, that the claimed deduction of $ 12.03 should be allowed.

1945 U.S. Tax Ct. LEXIS 42">*78 Decision will be entered for the petitioner.