The indenture of lease also provided that petitioner shall pay all charges against said property for which William Jewell College would be liable as owner if it actually operated the properties, except general state, city, and school taxes. The charter issued to William Jewell College by the State of Missouri exempts it from payment of general state, city, and school taxes.

Petitioner was prohibited from assigning the lease, except with the consent of the college, and could not by any assignment be relieved of its obligations under the lease. Nor could petitioner sublease except for foundry purposes, and no sublease could relieve petitioner from its obligations under the lease.

The1950 U.S. Tax Ct. LEXIS 54">*64 college could forfeit the lease for a default of petitioner.

The lease indenture prescribes the following conditions for accelerating the ending of such lease:

A. This lease is divided into eight separate and distinct periods of time; the first such period is for twenty-five (25) years; beginning at midnight on November thirtieth, 1943, and ending at midnight on November thirtieth, 1968. If the lessee shall desire to terminate this lease on the thirtieth day of November, 1968, it has full power and authority so to do, provided it shall serve upon lessor at least ten years prior to said date written notice and declaration that this lease will terminate on said date; if the lessee shall desire to terminate this lease at the end of any of the next succeeding six ten-year periods of this lease, then it is agreed that the lessee has full power so to do, provided it shall serve upon lessor on or before the first day of any such ten-year period its written notice and declaration of such termination, so that lessor will have ten years notice of the termination of this lease before it actually terminates.

B. If no written notice is given lessor by lessee of an intention to terminate this 1950 U.S. Tax Ct. LEXIS 54">*65 lease, as herein provided, then this lease shall continue from period to period hereof as a continuing lease, until the final ending hereof at midnight on the thirtieth day of November in the year 2038.

At the end of the lease there is to be yielded up to lessor the foundry property with the improvements thereon in good state and condition, 15 T.C. 581">*586 subject to reasonable use and wear and to damage or destruction by fire, providential cause or external violence.

Petitioner is not a dealer in real estate.

During the spring of 1943 petitioner was approached by a number of real estate agents including M. H. Rodemeyer, Wilbur Thomas, and LeGrand Jones, who suggested that petitioner sell some of its real property and take back a lease on the same property. LeGrand Jones was himself approached by other real estate agents, including Charles E. Richardson, Fred Dubinsky, the Glick Real Estate Co., and others, who made the same suggestion. It had always been petitioner's policy to own the property which it operated and utilized, and petitioner declined to make any such sale.

At about the same time, in the spring of 1943, E. L. Black (now deceased), vice president of Mercantile-Commerce Bank1950 U.S. Tax Ct. LEXIS 54">*66 and Trust Co., where petitioner principally deposited its funds and one of four banks from which petitioner borrowed in 1943, also suggested that petitioner should sell some of its real property and take a lease back on the same property. The suggestion was made to J. F. Culver, petitioner's treasurer, who was in charge of petitioner's financial affairs. Black was in charge of petitioner's account at the bank and all petitioner's financial arrangements with the bank, including the obtaining and repaying of loans, were made through him. Culver saw Black frequently, usually three or four times a month. Black pointed out that the proceeds of such a sale plus the tax saving if a loss should occur on the sale would improve petitioner's cash position, which Black considered low.

The ratio of petitioner's current assets to its current liabilities at the close of the years 1935-1945 stated with current liabilities represented by 1 was as follows:

The foundry sale proceeds of $ 150,000 in cash increased the 1943 ratio of assets to1950 U.S. Tax Ct. LEXIS 54">*67 liabilities from 1.74 to 1.80. The loss deduction here in question and consequent tax saving would have changed the ratio approximately twice as much as did the receipt of the $ 150,000.

The ratio of current assets to current liabilities was considered by the Mercantile-Commerce Bank and Trust Co. an important factor in determining the bank's attitude on the financial condition of a borrower.

15 T.C. 581">*587 The assets and liabilities of petitioner at the beginning and end of the taxable year 1943 were as follows:

On December 31, 1942, petitioner owned land, the cost of which to petitioner was $ 704,096.35 and buildings and improvements thereon with a depreciated cost of $ 1,198,455.81, or a total depreciated cost of all of petitioner's land and buildings and improvements of $ 1,902,552.16.

15 T.C. 581">*588 On December 31, 1942, and at the end of each month during the year 1943, petitioner had actual cash on hand as shown by the following schedule:

1950 U.S. Tax Ct. LEXIS 54">*70 During the year 1943 petitioner made cash quarterly dividend distributions in the total amount of $ 226,705.69 to its stockholders and also made a contribution of $ 42,500 to Washington University, St. Louis, Missouri. Exclusive of petitioner's actual cash on hand and the above distributions, petitioner had tax anticipation notes and Series G bonds totaling $ 2,000,000 which were readily convertible into cash and available to liquidate its outstanding 1943 tax liability of $ 1,592,298.83 and its two outstanding 90-day bank notes totaling $ 400,000 which were due and payable January 20, 1944.

It has been petitioner's policy to operate its business in part on borrowed capital. Its average daily borrowed capital in 1943 was $ 1,138,089.86 ($ 896,986.30 relative to the aforesaid 90-day bank loans and $ 241,103.56 relative to other miscellaneous loans). Petitioner's practice has always been to liquidate its outstanding 90-day bank loans as they became due by payment or renewals. Petitioner had an established written open line of credit in 1943 of $ 300,000 with Chase National Bank, New York, and of $ 300,000 with Boatmen's National Bank of St. Louis. Petitioner never asked the Mercantile-Commerce1950 U.S. Tax Ct. LEXIS 54">*71 Bank and Trust Co. for a confirmed written line of credit in 1943 and was never informed that it had one. Mercantile did not always send commitment letters on lines of credit. However, Black, vice president of Mercantile, was authorized at his discretion to lend petitioner up to $ 400,000, and petitioner's line of credit with Mercantile remained at this figure throughout 1943. No request for a loan made by petitioner was rejected by Mercantile in 1943 and at the end of that year petitioner had outstanding loans of $ 600,000 from Mercantile. The loan of $ 200,000 above petitioner's line of credit of $ 400,000 was approved by Mercantile's executive committee and board of directors.

Culver relayed to petitioner's president, E. S. Pillsbury, and other officers Black's suggestion that petitioner sell and lease back some of its property. The conclusion of petitioner's officers at that time, in the spring of 1943, was that they would not be interested, first, because of the company's policy of owning its operating properties and because of the risk, if it became a lessee, of entirely losing the use of this essential property in the event of another depression and petitioner's 15 T.C. 581">*589 1950 U.S. Tax Ct. LEXIS 54">*72 inability to pay the stipulated rentals, and, secondly, because the tax advantage of which Black spoke if the property had to be sold at a loss was not an unmixed blessing inasmuch as petitioner would also lose part of its invested capital credit and its depreciation deduction on the foundry property.

In July 1943 Black told Culver that it would be a good thing for petitioner to pay off its loans in order to demonstrate its ability to do so. Accordingly, on July 26, 1943, petitioner borrowed $ 375,000 for 90 days from the First National Bank of St. Louis, putting up as collateral $ 400,000 in tax anticipation notes, and on September 8, 1943, an additional $ 375,000 for 90 days from First National Bank, putting up another $ 400,000 in tax anticipation notes. With the aid of the funds thus borrowed petitioner by September 27, 1943, paid off its loans of $ 350,000 from Mercantile, and $ 300,000 each from Boatmen's National Bank of St. Louis and Chase National Bank of New York. These were open-line commercial unsecured loans.

Petitioner obtained new open-line unsecured loans for 90 days of $ 300,000 from Mercantile-Commerce Bank and Trust Co. and of $ 100,000 from Boatmen's National1950 U.S. Tax Ct. LEXIS 54">*73 Bank on October 22, 1943, and of $ 300,000 more from Mercantile-Commerce Bank and Trust Co. and of $ 100,000 from Chase National Bank on December 7, 1943.

Petitioner's board of directors, at a meeting on September 2, 1943, had a discussion, quoting the minutes:

* * * regarding the possibility of the sale and rental of the foundry property by Mr. Smith, Mr. Pillsbury, Mr. Culver, and others along lines that have been employed by other companies whose property amounts to considerable proportions. All were very much interested, and finally a resolution was offered by Mr. Baker and seconded by Mr. Culver.

Resolved, that the executive committee study the situation and present, if possible, a plan covering the sale and rental back by Century Electric Company of the foundry property.

This decision to sell and lease back the foundry property, if possible, was conveyed to Black.

After petitioner concluded to sell and lease back the foundry property the head of the real estate department of Mercantile-Commerce Bank and Trust Co. submitted an offer of $ 110,000 for the property on behalf of a Chicago syndicate whose identity was not disclosed to petitioner. This offer was rejected by petitioner1950 U.S. Tax Ct. LEXIS 54">*74 on the ground that the price was inadequate. Culver concluded at this time that the property should bring not less than $ 150,000, and that conclusion was adopted by petitioner.

LeGrand Jones, a real estate agent who had handled most of petitioner's real estate transactions over a period of about 40 years, was called in early in September 1943 to seek a purchaser for the foundry. 15 T.C. 581">*590 He was told by petitioner's president, E. S. Pillsbury, that petitioner had decided to sell the foundry for no less than $ 150,000, provided it could get a lease for a term of years on the property. He was told that if he cared to offer the property to Missouri Baptist Hospital petitioner would have no objection, but that inasmuch as Pillsbury was president of petitioner and also president of the board of managers of Missouri Baptist Hospital, he would take no part in any negotiations or in any decision on the part of the Hospital. A meeting of the executive committee of the Hospital was held and the proposed purchase and lease-back of the foundry property was approved, with two dissenting votes. A meeting of petitioner's stockholders was held on November 24, 1943, for the purpose of approving1950 U.S. Tax Ct. LEXIS 54">*75 or disapproving the proposed sale to Missouri Baptist Hospital and petitioner's stockholders approved the sale. However, as a result of the forceful opposition of two members of the board of managers of the Missouri Baptist Hospital, who doubted the value of such an investment for the Hospital, the Hospital withdrew its offer and the sale was not consummated.

The Millstone Construction Co. represented by its president, in November 1943, offered $ 150,000 for the property and an additional 4 acres of land contiguous to the foundry property. When he learned the contiguous 4 acres were not for sale the offer was withdrawn.

While petitioner's stockholders' meeting of November 24, 1943, was in session, a telegram was received from Glik-Watell Real Estate Co. offering $ 160,000 for the foundry property. This offer was never authenticated and the name of the offerer was not disclosed.

Petitioner never publicly offered or advertised its foundry property for sale. It was concerned with getting a friendly landlord to lease the property back to it, as there was never any intention on the part of petitioner to discontinue its foundry operations.

After the proposed transaction with Missouri1950 U.S. Tax Ct. LEXIS 54">*76 Baptist Hospital was rejected by the Hospital, William Fitch, who was a member of the board of managers of Missouri Baptist Hospital and also of the board of trustees of William Jewell College, asked and obtained petitioner's permission to offer the property on a sale and lease-back basis to William Jewell College. William Jewell College was a stockholder of petitioner corporation. E. S. Pillsbury, president of petitioner, has been a member of the board of trustees of William Jewell College for the past 40 years. Pillsbury welcomed the suggestion as to William Jewell College and informed Fitch that the transaction would have to be closed by early December 1943.

OPINION.

Petitioner corporation as of December 1, 1943, conveyed certain foundry property described in our findings of fact 15 T.C. 581">*591 to the Trustees of William Jewell College. The consideration stated in the deed was $ 150,000, which amount was paid in cash to petitioner. It is stipulated that the adjusted basis of the property was $ 531,710.97, and that the property was used in petitioner's business. As of the date of the conveyance petitioner leased back from the Trustees of William Jewell College the same property. 1950 U.S. Tax Ct. LEXIS 54">*77 It is petitioner's position that it incurred a deductible loss in 1943 of $ 381,710.97 under section 112 (a), ¹ Internal Revenue Code.

Respondent disallowed the claimed loss. One of the grounds given by respondent for his position, among several alternative grounds, is that "the transfer of property in consideration for $ 150,000.00 and a leasehold constitutes an exchange of like property under which no deductible loss is recognizable" under sections 112 (b) (1)²1950 U.S. Tax Ct. LEXIS 54">*78 and 112 (e), ³ Internal Revenue Code, and Regulations 111, section 29.112 (b) (1)-1. ⁴

1950 U.S. Tax Ct. LEXIS 54">*79 Respondent asserts, and petitioner does not dispute, that the leasehold received by petitioner, the lessee, to the foundry property herein constituted "a leasehold of a fee with 30 years or more to run." (See Regulations 111, section 29.112 (b) (1)-1, supra.) The indenture of lease provided:

* * * the term of this lease shall be divided into eight periods, the first of which shall be for twenty-five (25) years, and the seven remaining periods shall each be for ten years and shall run consecutively, so as to make this lease continuous in its operations from the beginning until its final termination; 15 T.C. 581">*592 provided that the lessee shall have the absolute power to terminate this lease at the end of any one of said eight periods, as hereinafter set forth.

There seems no question, therefore, but that the lessee, petitioner, received a lease for a term of 95 years, subject only to its, the lessee's, right of cancellation. It is not disputed that petitioner was "not a dealer in real estate". (See the cited regulations.)

But petitioner urges that the foundry property was not "exchanged" for the leasehold in that the transaction consisted of a sale of the property to William Jewell1950 U.S. Tax Ct. LEXIS 54">*80 College for $ 150,000 in cash, and a leaseback by the College to petitioner. To be sure, the only consideration stated in the deed conveying the property was the sum of $ 150,000. But in the special meeting of petitioner's board of directors on December 9, 1943, at which the proposed transaction was approved, petitioner's board of directors specifically adopted a resolution that "as a condition of said sale of property and rights, this corporation will acquire from Trustees of William Jewell College, a Missouri Corporation, an Indenture of Lease." The term and rentals of the lease in the resolution were identical with those incorporated in the actual indenture of lease. The facts clearly show, and petitioner agrees, that the foundry property was necessary in its business and that there was thus never any intention on petitioner's part to discontinue its foundry operations. Hence it is indisputable that petitioner would have made no sale unless along with such sale it could receive a leaseback on the property. Thus the successive steps of sale and lease-back were integrated parts of a single transaction and accordingly that transaction must be adjudged to have consisted of an 1950 U.S. Tax Ct. LEXIS 54">*81 exchange of real property for cash and a leasehold.

But petitioner contends that "if the transaction be reduced to its substance", it was not an exchange, but "a sale of the fee in the foundry property with the leasehold reserved." However, the facts show, and we see no justification for disregarding them, that petitioner conveyed to William Jewell College a fee simple estate in possession, not in reversion, and that from that estate in possession William Jewell College executed a lease to petitioner.

But, petitioner argues, the type of leasehold contemplated by Regulations 111, section 29.112 (b) (1)-1, supra, "is one already in existence -- as the usual 99 or 999 year lease possibly partly expired -- which can be the property of one person and can be exchanged for real estate belonging to another. Here there was at no time one party with a leasehold and another with real estate." We see no merit in this argument. There is no requirement in the cited regulation of prior existence or of partial expiration for a leasehold to be considered property of like kind with a fee. There is no reason why a leasehold at the beginning of its term may not be so considered. Furthermore, 15 T.C. 581">*593 1950 U.S. Tax Ct. LEXIS 54">*82 there is no requirement in the statute or regulations that for a transaction to constitute an exchange under section 112 (b) (1), both parties to the transaction must own the properties to be exchanged before the transfer of either property is made. We see no reason why one party may not "exchange" property, within the meaning of the statute, for property the other party is to acquire simultaneously or thereafter. We think that the test of an exchange is not whether the transfers are simulteneous but whether they are reciprocal. As we have already pointed out, petitioner only transferred the foundry property pursuant to resolutions of its board of directors that it receive cash and a lease in return.

But petitioner contends that a fee in property can not be property of like kind with a lease in the same property. We do not agree. There is no requirement in the statute or the regulations that to constitute an exchange of properties of like kind the properties exchanged must not be properties or rights in the same property. Previous decisions of this Court and of the Board of Tax Appeals have, if not explicitly, at least implicitly, rejected the idea that there is such a requirement. 1950 U.S. Tax Ct. LEXIS 54">*83 In Standard Envelope Manufacturing Co., 15 T.C. 41, where the taxpayer sold and subsequently leased back certain property, this Court, though regarding the sale and lease-back as "one interrelated transaction," held that since the lease was for a term of less than 30 years, it therefore "was not the equivalent of a fee under the terms of section 29.112 (b) (1)-1 of Regulations 111." In Midfield Oil Co., 39 B. T. A. 1154, the taxpayer contended that "the exchange of the Holmans oil and gas payment due out of oil and gas to be produced from the Mitchell lease for the Dawson overriding oil and gas royalty out of the Mitchell lease" was a nontaxable exchange of properties of like kind under section 112 (b) (1). The Mitchell lease had an area of 2.6 acres on which one producing oil well was situated. The Board held that the exchange was not nontaxable, simply on the ground that the rights were substantially different and not of like kind. The implication is that if the rights had been substantially similar, even though from the same lease on the same piece of property, the Board would have held the transaction to be an 1950 U.S. Tax Ct. LEXIS 54">*84 exchange of properties of like kind.

Petitioner cites Pembroke v. Helvering (CA-DC, 1934), 70 Fed. (2d) 850; Skemp v. Commissioner (CCA-7, 1948), 168 Fed. (2d) 598, and Imperator Realty Co., 24 B. T. A. 1010, to support his position that the transaction here was not an exchange. These cases are not applicable. In Pembroke v. Helvering, supra, the taxpayer leased certain real estate to a tenant for a term of 99 years at an annual rental. As part of this transaction the taxpayer also received from the lessee a conveyance in fee of certain other real estate subject to a mortgage. 15 T.C. 581">*594 The court held that there was no exchange but that the value of the equity in the premises conveyed to the taxpayer at the beginning of the term constituted in effect a payment of rental and was taxable accordingly. Here it would be plainly absurd to regard the conveyance by petitioner of the fee itself in the foundry property as a mere payment of rental on the lease to that same property, nor do we understand petitioner to advocate any such theory. Such a theory1950 U.S. Tax Ct. LEXIS 54">*85 would, even if otherwise tenable, leave unexplained the purpose of the payment to petitioner of $ 150,000.

In Skemp v. Commissioner, supra, it was held that the rents paid under a sale and lease-back arrangement were deductible by the lessee, a question not at issue here.

In Imperator Realty Co., supra, it was held that the assignment of a second mortgage on a certain piece of property in part satisfaction of the sales price of another piece of property was not an exchange of properties of like kind. Clearly that holding has no application to the facts here.

Petitioner does not challenge the validity of Regulations 111, section 29.112 (b) (1)-1, supra, directly but he does argue that "the lease, even if it could be said to have been made in exchange for the fee simple title, is not 'property' within the meaning of section 112 (b) (1)". However, it is fundamental that a lease of real estate is property in the hands of the lessee. Am. Jur., "Taxation," para. 435. Moreover, we regard the 95-year lease herein as property of like kind with real property within the meaning of section 112 (b) (1) of the code. Though1950 U.S. Tax Ct. LEXIS 54">*86 Tiffany, Real Property, para. 3, points out that leaseholds are personal property under the common law, it adds:

* * * the courts frequently, however, use the expressions "real estate" and "real property" in a broad sense as applicable to any estates in land, whether freehold or less than freehold, as well as to land itself, regarded as the object of rights. And such use of these expressions by the legislatures is exceedingly frequent, * * *.

Here regulations 111, section 29.112 (b) (1)-1, plainly recognizes as an exchange of properties of like kind the exchange of a leasehold of a fee with 30 years or more to run for real estate, and, as we have pointed out, we regard the transaction here as such an exchange. Furthermore, we do not consider the validity of the cited regulation as open to challenge. The validity of Regulations 94, article 112 (b) (1)-1, in all material respects identical with Regulations 111, section 29.112 (b) (1)-1, was upheld in Commissioner v. Crichton (CCA-5, 1941), 122 Fed. (2d) 181, though there was no question in that case of an exchange of a leasehold of a fee with 30 years or more to run for real estate. The provision1950 U.S. Tax Ct. LEXIS 54">*87 in the regulations administratively classifying 15 T.C. 581">*595 a leasehold of a fee for 30 years or more as property of like kind with real estate within the purview of the taxing statute was adopted by the Commissioner in his regulations relating to the Revenue Act of 1924 (Regulations 65, article 1572) and such construction has received successive reenactment in subsequent regulations promulgated by the Commissioner. The provision in the statute that no gain or loss be recognized if property held for productive use in trade or business or for investment is exchanged for property of a like kind was first enacted as section 202 (c) (1) of the Revenue Act of 1921 and has been reenacted in successive revenue acts since that time. The long-continued administrative construction has thus been given the force of law by the reenactment of the statutory provision without material change. Commissioner v. Wheeler, 324 U.S. 542">324 U.S. 542; Helvering v. Reynolds Tobacco Co., 306 U.S. 110">306 U.S. 110; United States v. Dakota-Montana Oil Co., 288 U.S. 459">288 U.S. 459; Brewster v. Gage, 280 U.S. 327">280 U.S. 327.1950 U.S. Tax Ct. LEXIS 54">*88

It is accordingly our holding that petitioner having exchanged its foundry property for a leasehold with a term of 95 years and $ 150,000 in cash, respondent did not err in disallowing the claimed loss of $ 381,710.97 in 1943 here in question. Despite the receipt of cash the claimed loss is not recognizable under section 112 (e) of the Code, supra, the exchange being otherwise within the provisions of section 112 (b) (1) of the Code, supra, and Regulations 111, section 29.112 (b) (1)-1, supra.

The second issue in this proceeding, which is dependent on our disposition of the first issue, is whether, if the claimed loss is not allowed, petitioner is entitled to depreciation on the foundry building or on the lease after December 1, 1943, and in what amount for 1943. Since petitioner was only the lessee of the foundry property after December 1, 1943, it is not entitled to any depreciation on the foundry building after that date. Weiss v. Wiener, 279 U.S. 333">279 U.S. 333. However, petitioner is entitled to depreciation on the leasehold which it acquired in exchange for the foundry property. City Nat. Bank Bldg. Co. v. Helvering (CA-DC, 1938), 98 Fed. (2d) 216.1950 U.S. Tax Ct. LEXIS 54">*89 Section 113 (a) (6) of the code provides that the basis for gain or loss of property acquired on a tax-free exchange "shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer." Regulations 111, section 29.113 (a) (6)-1, makes similar provisions. These provisions apply also to the basis for depreciation of property acquired upon an exchange. Bureau Bulletin "F", January 1942. The adjusted basis of the foundry property on December 1, 1943, the date of the exchange, being $ 531,710.97, and the amount of money received by petitioner being $ 150,000, the basis for depreciation of the leasehold on December 1, 1943, is $ 381,710.97. Petitioner 15 T.C. 581">*596 is entitled to depreciation thereon, not over the useful life of the foundry building on the land remaining on December 1, 1943, as contended by petitioner, but over the 95-year term of the lease. City Nat. Bank Bldg. Co. v. Helvering, supra;Minneapolis Security Bldg. Corp., 38 B. T. A. 1220. The deduction for December 1943 is computable as follows:

1950 U.S. Tax Ct. LEXIS 54">*90 We accordingly hold that petitioner is entitled to a deduction for depreciation of its leasehold of $ 334.83 in 1943.

Decision will be entered under Rule 50.