At 5 p. m. the stockholders met, approved the resolution of the directors, and, thereupon, a deed to the bridge was executed and delivered to Samuel Biern, Jr. The necessary steps were taken to 11 T.C. 789">*793 dissolve Steubenville and on the same day Samuel Biern, Jr., executed and delivered a deed for the bridge to the State of West Virginia.

The liquidation of Steubenville and the sale of the bridge were the culmination of events which began in 1936. In that year the Ohio Bridge Commission wrote Steubenville requesting the opening of negotiations for the sale of the bridge to the State of Ohio, with the implication that the alternative thereto was a condemnation proceeding. The only immediate action taken by Steubenville was to obtain the opinion of an attorney as to whether or not Ohio had power to condemn the bridge. Later in the year Ohio purchased a newly constructed bridge one1948 U.S. Tax Ct. LEXIS 34">*42 and six-tenths miles north of the Steubenville bridge, crossing the Ohio River. The tolls on the new bridge were immediately lowered and signs placed on the highways recommending the use of the north bridge. As a result revenues of Steubenville dropped from 18 to 20 per cent.

At that time West Penn Railways Co. (hereinafter called West Penn), which then owned or controlled a majority of the stock of Steubenville, sent one Fritsch to the Ohio Bridge Commission to discover what Ohio proposed to do with reference to the Steubenville bridge and, if possible, to get an offer of a price. After many efforts, however, no offer was ever received from Ohio, either to purchase the stock of Steubenville or to purchase the bridge itself. In 1938, the Steubenville, Wellsburg & Weirton Railway Co. (hereinafter called S. W. W.), the owner of 265 shares of stock in Steubenville, which stock was controlled by West Penn, went into bankruptcy, and thereby, West Penn lost control of Steubenville and Union Trust acquired 260 of the shares. In 1939 all contact and negotiation with the State of Ohio collapsed, but prior thereto one Yost, a Steubenville stockholder, and Victor Sheronas, one of the trustees1948 U.S. Tax Ct. LEXIS 34">*43 of Union Trust, also participated in the conference, with, however, no result. While these negotiations were in progress a firm of brokers, Baron & Hastings, proposed to the negotiators a contract to sell the bridge for Steubenville on a commission basis, but the offer was refused by Yost and not presented to Steubenville. In June 1941 the brokerage firms of Field, Richards & Co. and Smith, Barney & Co. obtained options from each of the holders of the preferred and common stock of Steubenville to purchase the same at $ 2,000 per share. The optionees endeavored to sell the bridge to the Ohio Bridge Commission, but were unsuccessful, and the options expired on August 11, 1941.

In October 1941 Baron & Hastings obtained from each of the holders of preferred and common stock of Steubenville an option to purchase said stock at prices ranging from $ 1,425 to $ 4,332 per share, the option to expire December 8, 1941. Baron & Hastings also attempted to sell 11 T.C. 789">*794 the bridge to Ohio, but in late November 1941 all negotiations for that purpose broke down. In December 1941 Samuel Biern, Sr., heard of the failure to sell the bridge to Ohio and organized a syndicate consisting of himself, 1948 U.S. Tax Ct. LEXIS 34">*44 Stanley M. Cooper, George I. Neal, S. J. Hyman, Erma Hyman, Ricca Hyman, and Samuel Biern, Jr., for the purpose of selling the Steubenville bridge to West Virginia. The syndicate arranged with Baron of Baron & Hastings to obtain extensions on the old options or new options for the sale of the stock in Steubenville. Baron and Cooper procured extensions of the options, and the options as originally taken and as extended are as follows:

1948 U.S. Tax Ct. LEXIS 34">*45 The extended options on December 24 were assigned by Baron & Hastings to the syndicate in consideration of a promise to pay $ 25,000 when the options were exercised.

On December 23, 1941, the syndicate, acting through Samuel Biern, Jr., entered into a contract with the State Road Commission of West Virginia to sell the Steubenville Bridge to West Virginia for $ 1,300,000, the sale to be completed on or before December 29, 1941. Thereafter, the syndicate arranged with underwriters to purchase West Virginia bonds in the amount of $ 1,300,000, which West Virginia agreed to issue in payment for the bridge. An agreement was entered into with the Guaranty Trust Co. of New York City to lend to Samuel Biern, Jr., on December 29, 1941, $ 1,150,000. The security for this loan was to be the certificates for the 750 shares of Steubenville stock as they were taken up and paid for out of the money loaned, and an assignment of Samuel Biern, Jr.'s, interest in the contract to sell the Steubenville bridge to West Virginia. On December 29, 1941, the stockholders of Steubenville presented their respective stockholdings at a designated place and, after considerable negotiation in which some of them1948 U.S. Tax Ct. LEXIS 34">*46 were persuaded to reduce the price which they had agreed to take in their options, the various certificates of stock were assigned and delivered to Samuel Biern, Jr., and payment was made as follows: 11 T.C. 789">*795

1948 U.S. Tax Ct. LEXIS 34">*47 In the case of two of the stockholders additional consideration of $ 700 and $ 800, respectively, was paid, but it is not shown on the above list. After the stock was procured the transactions hereinbefore set forth which culminated in the sale to West Virginia occurred.

Out of the total sale price of $ 1,300,000 received by Samuel Biern, Jr., for the bridge, he paid $ 1,134,789 for the stock, $ 25,000 to Baron & Hastings for servics in procuring the options, and $ 17,500 to himself for services under the provisions of the syndicate agreement, and in addition thereto he made the following expense distributions:

From the balance, 1948 U.S. Tax Ct. LEXIS 34">*48 the following distributions were made to the syndicate members:

11 T.C. 789">*796 In addition to the above amounts distributed there was a small amount of cash remaining in the treasury of Steubenville after the outstanding debts were paid from the current assets. This cash was distributed to the syndicate.

In 1936 West Penn was desirous of disposing of the bridge, and when Union Trust acquired the stock of S. W. W. in 1936 the trust also desired to effect a sale, but the subject was never formally discussed in any directors' or stockholders' meeting of Steubenville. No plan of sale was ever presented to Steubenville, nor considered by it. In June 1941, when the stockholders gave their option to brokers, whereby each stockholder agreed to sell his stock at $ 2,000 per share, neither the1948 U.S. Tax Ct. LEXIS 34">*49 stockholders nor the corporation attempted to exercise any control over the optionee as to whether or not the bridge was to be sold or operated, and any plans the optionees may have had were never submitted to the stockholders or directors for discussion.

About October 1941, when Baron & Hastings procured their options, there was no longer any unity of opinion among the stockholders, either as to the value of their stock or the desirability of a sale. Some of them were wholly adverse to selling the bridge at all. If the brokers had a plan of action, it was not disclosed to the stockholders generally, nor was it discussed at any corporate meeting. The option prices varied greatly, and their time of expiration and conditions varied to some degree. In a number of cases the terms of the option granted to individual stockholders were not imparted to other stockholders.

When the options were renewed in December 1941, considerable skepticism, together with an active opposition, had developed among some of the stockholders. Union Trust, which had consistently been desirous of selling its stock, nevertheless required the optionees to deposit $ 25,000 as evidence of financial ability. 1948 U.S. Tax Ct. LEXIS 34">*50 Many of the stockholders did not know the purpose for which these options were being extended and at least one stockholder thought that West Penn was endeavoring to resume control of the bridge. Whatever plan the 11 T.C. 789">*797 optionees may have had was not disclosed generally to the stockholders or discussed at any corporate meeting.

At March 1, 1913, the fair market value of the physical assets of Steubenville was the cost thereof shown on its balance sheet as of December 31, 1912, less allowable depreciation, and the value of the assets of the enterprise was $ 236,066.92. Intangible assets, if any, had no measurable value.

The income tax, declared value excess profits tax, and excess profits tax returns of Steubenville for the calendar year 1941 were filed February 4, 1942, with the collector of internal revenue for the twenty-third district of Pennsylvania, and they disclosed by riders attached that Steubenville had been dissolved on December 29, 1941, "by appropriate resolutions of the stockholders authorizing the discontinuance and the surrender of the corporate charter and franchises." The income tax return also disclosed by rider that the capital assets had been distributed 1948 U.S. Tax Ct. LEXIS 34">*51 in liquidation "to Samuel Biern, Jr., * * * the sole stockholder of the corporation, either of record or of assignment."

The respondent examined said returns and allowed overassessments of income tax of $ 26.04 and of excess profits tax of $ 55.99, scheduled April 24, 1942. On June 28, 1945, the respondent issued a notice of deficiency determining a deficiency in income tax of $ 252,724.95, a deficiency in declared value excess profits tax of $ 114,699.21, and an overassessment of excess profits tax of $ 8,794.71. This notice was mailed on June 28, 1945, more than three years but less than five years after the due date of the returns and the date of actual filing thereof.

On March 14, 1946, Steubenville paid an additional income tax in the amount of $ 5,450.16, and interest thereon in the amount of $ 1,308.04, for the year 1941. The adjustments by the Commissioner which caused the additional payments were correct. Such payments were made more than three years after the due date of the income tax return of Steubenville for 1941, and more than three years after the actual filing of such return. At the time of such payments the assessment and collection thereof was barred by the 1948 U.S. Tax Ct. LEXIS 34">*52 applicable statute of limitations. They were paid after the filing of Steubenville's petition in these proceedings. No part of the said amount nor any part of the interest paid thereon has been refunded. Steubenville made an overpayment of tax in respect of the taxable year 1941 in the amount of $ 5,450.16.

OPINION.

A corporation possessed of assets and desiring to liquidate may legally take either of two courses. It may sell the assets and distribute the cash to its stockholders, or it may distribute the assets to its stockholders in kind. The Internal Revenue Code sets 11 T.C. 789">*798 forth the tax consequences of both proceedings. However, there is nothing in the code, the regulations, or the decisions requiring a corporation to choose that course in liquidation which will result in the greatest tax consequences. When a corporation ostensibly makes a distribution in liquidation in kind, but actually carries out thereby a prior agreement to sell the assets involved, then the courts have considered the distribution in liquidation to be a step in a sale by the corporation itself and have taxed the transaction accordingly. The question involved is largely one of fact, and it is along1948 U.S. Tax Ct. LEXIS 34">*53 this line of factual distinctions that the authorities cited by the Commissioner and the petitioner divide.

As was said by Judge Hand in , in a case involving a sale by a partnership of assets formerly belonging to a corporation: "The question always is whether the transaction under scrutiny is in effect what it appears to be in form." Also, in , the Board of Tax Appeals said:

A corporation may clearly do what it has a legal right to do, even for the sole purpose of reducing its tax liability. It is not required to pursue a course which gives rise to a greater tax liability if another course is open to it which will give rise to a less tax.

The basic question in all of these cases involving the tax liability of the corporation or the stockholders on the gain resulting from the sale of corporate assets is as to who made the sale. As to the effect of corporate officers or fiduciaries negotiating a sale while the corporation is still functioning and before any steps in liquidation have been taken, upon the taxability of the gain from the1948 U.S. Tax Ct. LEXIS 34">*54 sale, the remarks of the Court in ; affd., , are much in point:

If, in fact, the sale of petitioner's elevator properties was conceived and negotiated by its president, acting in its behalf prior to its dissolution, and such sale was carried out through an arrangement whereby petitioner was dissolved and the properties to be sold were conveyed to a liquidating agent or to its stockholders and the formal contract to sell was executed by the party or parties then holding legal title, such sale was, for tax purposes, made by the corporation.

If the sale, however, is made by the stockholders after definite measures have been taken by the corporation to liquidate in kind, the cases generally have held the resulting tax on the gain to be the obligation of the stockholders.

An attempt to reconcile all the cases on this point with very complicated factual distinctions would be a voluminous and unfeasible task. We shall limit ourselves to a review of the litigated situations sufficiently to illustrate the distinctions which the courts have generally drawn.

A corporation 1948 U.S. Tax Ct. LEXIS 34">*55 had but two stockholders owning the entire stock and 11 T.C. 789">*799 these stockholders orally agreed with a prospective purchaser to sell an apartment building, the corporation's sole asset, and the stockholders accepted a down payment thereon. Thereafter they discovered that the tax on the resulting gain to the corporation would be heavy and decided to liquidate the corporation with a distribution of the assets in kind to the stockholders. The stockholders then, as individuals, completed the sale and applied the original down payment made to them, as representatives of the corporation, to the purchase price. This Court held that such a sale, contracted for before steps in liquidation were consummated, was in fact a sale by the corporation. This opinion was sustained by the Supreme Court in Court .

A corporate stockholder conceived a plan to procure options on all corporate stock with the intention, of which the corporation general counsel was fully informed, to procure control over and sell the corporate assets. The corporate counsel conferred with the stockholders and informed them that a direct sale of the1948 U.S. Tax Ct. LEXIS 34">*56 assets themselves by the corporation was undesirable because of the "extraordinary tax" to be paid. At a special stockholders' meeting thereafter the president informed the stockholders of the desirability of the corporation going out of business. Five of the stockholders then formed a partnership to engage in the same business as that formerly conducted by the corporation under a name almost identical with that of the corporation and at the same location as the corporation. The corporation transferred its assets to the partnership, which operated the business for two weeks. The partnership then sold the assets to a vendee procured by the stockholder who had obtained options on the corporate stock. The corporation then liquidated. The Court held that the sale had in fact been made by the corporation, which was liable for the tax on the resulting gain. . In this decision the court distinguished , where the partnership that ultimately sold the assets was a bona fide and continuing entity, not created for the purpose of 1948 U.S. Tax Ct. LEXIS 34">*57 evading taxes.

For a similar conclusion based upon the ultimate fact that the sale involved was that of the corporation, even though an effort was made in some way to create a different impression, see ; affd., ; ; ; affd., ; certiorari denied, ; and .

On the other hand, where the sale has been made by the stockholders after liquidation has been initiated and with no contractual obligations assumed by the corporation prior to the negotiation of 11 T.C. 789">*800 liquidation, the courts have generally taxed the resulting gain to the stockholders. Thus, in , the corporate officers and directors had received a number of offers to purchase the corporate assets, but rejected all of them because of the heavy taxes involved1948 U.S. Tax Ct. LEXIS 34">*58 in a sale. Some stockholders consulted an attorney and then sought to procure a purchaser of the corporation stock, but without success. The attorney then suggested distribution of the assets in liquidation and the stockholders thereupon chose three trustees to receive and dispose of the assets. The assets were delivered to the trustees and the corporation dissolved. The trustees later negotiated with and sold the assets to an individual who had theretofore had some negotiations with the corporation. In that case the Commissioner contended that the trustees were merely the representatives of the corporation perfecting the sale. This Court, however, held that the sale was made by the stockholders and not by the corporation.

In ; affd., , a corporation owning oil leases had received, after negotiation, an offer in writing to purchase certain of its leases, but the directors definitely decided not to sell for the principal reason that the sale would result in very large taxes. The stockholders thereupon passed a resolution to distribute the leases in kind in liquidation in return1948 U.S. Tax Ct. LEXIS 34">*59 for 60 per cent of the stock. The sale of the leases by the stockholders followed and this Court held that the stockholders, not the corporation, were taxable for the gain.

In , a corporation, all of the stock of which was owned by Williams on March 25, 1941, passed necessary resolutions to dissolve and liquidate. While necessary steps in liquidation were in progress Williams signed a contract to sell corporate assets which he expected to receive. This Court held that the resulting profits were not taxable to the corporation. See also .

Applying the above law to the facts in the case at bar, the corporate stockholders of Steubenville, prior to their sale of the stock on December 29, 1941, had taken no common action which could be construed as a step in the sale of the bridge to the State of West Virginia. In fact, few if any of them knew of the contemplated sale. None of them, either directly or through their own corporate officers, had ever negotiated in any way with the State of West Virginia. When these stockholders renewed the options which they had1948 U.S. Tax Ct. LEXIS 34">*60 given to Baron & Hastings, they did not know the prices that other stockholders were receiving for their options and the sale prices of the stock varied from $ 1,325 to $ 4,332. There is no precedent which has been submitted to us or which we have found under these circumstances that would 11 T.C. 789">*801 justify these stockholders being taxed for any gain other than the gain which they realized from the sale of their stock.

When the syndicate contracted with the State Road Commissioner of West Virginia to sell the Steubenville bridge, the syndicate did not even have options on the Steubenville stock, as the contract was made on December 23, 1941, and the assignment of the options to the syndicate occurred on December 24, 1941. At the time of the formation of the contract of sale with West Virginia the syndicate members had no connection with the corporation and no responsibility to the corporation. Their only connection with Steubenville was an agreement with Baron & Hastings that, if a renewal of the options on the Steubenville stock could be procured and the sale of the bridge consummated, the syndicate would pay Baron & Hastings $ 25,000 for their services. In attempting to procure1948 U.S. Tax Ct. LEXIS 34">*61 the assets of the corporation by obtaining all of the corporate stock, the syndicate was taking a step that has been repeatedly recognized as proper and legal. See ; ; and . After the members of the syndicate procured the stock on December 29, 1941, they promptly called a special meeting of the stockholders at 4 p. m. of the same day to accept the resignation of the old directors and elect new ones. At 4:30 p. m. the new directors met and passed a resolution to dissolve and liquidate the assets in kind to the owner of all the corporate stock. At 5 p. m. this liquidation was approved at the stockholders' meeting. There is not one act set forth in the record which was performed by the syndicate, the stockholders, the newly elected officers, the directors, or Steubenville after the syndicate procured the stock on December 29, 1941, that could be remotely construed, in our opinion, as an act or a step in the sale of the bridge prior to the approval1948 U.S. Tax Ct. LEXIS 34">*62 of the resolution of liquidation.

On these facts the case at bar is distinguishable from every case which has been cited to this Court or with which this Court is otherwise acquainted where a corporation has been taxed for a capital gain from the sale of assets formerly belonging to a corporation.

Having found, therefore, that petitioner Steubenville Bridge Co. did not make a sale of the bridge involved herein, there is no transferee liability against any of the stockholders of the Steubenville Bridge Co.

Our decision in favor of petitioner Steubenville Bridge Co. makes unnecessary consideration of the additional questions raised herein except as to the payments made by that corporation on adjustments by the Commissioner to its tax computation after the three-year period of limitations had run. As shown in our findings, Steubenville, on March 14, 1946, paid additional income tax in the amount of $ 5,450.16 and interest thereon in the amount of $ 1,308.04 for the year 1941. We have found as a fact that it made an overpayment of tax in respect 11 T.C. 789">*802 of the taxable year 1941 in the amount of $ 5,450.16. With respect to the interest of $ 1,308.04, this Court is without jurisdiction1948 U.S. Tax Ct. LEXIS 34">*63 to find an overpayment. See ; .

Decision of no transferee liability will be entered in all dockets except Docket No. 9212. Decision that there is an overpayment in the amount of $ 5,450.16 will be entered in Docket No. 9212.