14 T.C. 52">*52 This proceeding involves deficiencies in income tax for the years 1944, 1945, and 1946, in the amounts of $ 2,052.18, $ 2,538.89, and $ 75,848.74, respectively. The petitioner alleges as error disallowances each year of deductions for depletion; the disallowance in 1945 of a deduction taken for capital stock tax; the inclusion in income for 1946 of long term capital gain; and the failure1950 U.S. Tax Ct. LEXIS 295">*296 to allow as a deduction in 1944 and 1945 a net operating loss for 1946, and it claims an overpayment of tax each year. Respondent conceded at the hearing that the capital stock tax is deductible. The facts agreed to by the parties in a stipulation are incorporated by reference in our findings. The portions thereof which are regarded as material to proper consideration of the issues will be set forth with findings made from other evidence.

FINDINGS OF FACT.

The petitioner was organized in 1935, under the laws of Delaware, for the purpose of engaging in the oil and gas business, and owning lands, leases, and other property for such purpose. Its income tax returns for the taxable years, during which period its principal office was in New York City, were filed with the collector for the third district of New York. Petitioner's books were kept and its returns were made upon the cash basis.

Petitioner was organized by Amos L. Beaty, an experienced oil man, who served as its president until his death in May, 1939. Among the properties acquired by petitioner were leasehold interests and mineral fees in the Chocolate Bayou area in Texas, at a total cost of $ 77,470.47, and an undivided1950 U.S. Tax Ct. LEXIS 295">*297 one-half interest of Victor H. Borsodi in a lease known as the B. E. Norvell lease, covering a tract of land in Brazoria County, Texas, which lease was acquired on or about April 3, 1937. The consideration paid to Victor H. Borsodi included the issuance to him of 500 shares of petitioner's stock of a par and fair market value of $ 20 a share, and an undivided one-half interest in its Chocolate 14 T.C. 52">*53 Bayou area property, having a fair market value of $ 33,456.19 at the time of the transfer. The remaining undivided interest was later converted into an overriding royalty.

The allowances made by respondent for depletion on the Norvell lease were based upon a fair market value of $ 7,500 for the stock and $ 2,831.18 for the Chocolate Bayou properties. The cost computed by respondent for depletion purposes was reduced by $ 6,142.23 for equipment acquired in the transaction.

Upon the death of Amos L. Beaty, S. W. Farnsworth, a director since March 31, 1936, and vice president since October 1, 1937, but not a stockholder at that time or thereafter, became president of petitioner and has since occupied the office at all times important. A short time after the death of Beaty, some of1950 U.S. Tax Ct. LEXIS 295">*298 petitioner's stockholders proposed that the corporation be liquidated. Instead of liquidating, a small amount of additional capital was obtained for purposes of speculation. Thereafter, one or more stockholders were in favor of liquidation, and about 1941 Farnsworth favored such proceedings when the value of corporate assets would enable the shareholders to recover their investments.

In late October, 1945, one Taubman, who asserted that he was engaged in the oil business in Dallas, Texas, discussed with Farnsworth the possibility of acquiring the oil properties held by petitioner. Taubman indicated that he would pay about $ 500,000 for the properties, but made no offer. Thereafter, a meeting of the board of directors of petitioner was called for November 15, 1945, for the purpose, among other things, "to determine what action should be taken upon proposals for the purchase of assets of said corporation," and to consider action on a "proposal" to liquidate the corporation.

At a meeting of the directors held on November 15, 1945, all members being present, Farnsworth, according to the minutes of the meeting, reported that "from time to time proposals had been made for the purchase1950 U.S. Tax Ct. LEXIS 295">*299 of certain assets of the corporation"; that any fair price received for the properties would "result in a very substantial Federal income tax liability to the corporation"; that the corporation had not been active in the conduct of its business for some years; that some stockholders had expressed the opinion that the corporation should wind up its affairs and distribute its assets in liquidation; and that, if the corporation sold any assets prior to the distribution in liquidation, the tax on any gain realized by the corporation would be borne by the stockholders as distributees, in addition to whatever tax there might be on any gain realized by them on liquidating dividends, and informed the directors of his discussion with Taubman. Thereafter, at the meeting the following resolution was adopted:

Resolved: That the recommendations of the President in connection with proposals for the purchase of the corporation's assets be and they hereby are 14 T.C. 52">*54 approved, that in the opinion of the Board it would not be justified in selling the assets of the corporation upon any terms, and that unless and until this resolution is rescinded, the officers of the corporation be and they hereby1950 U.S. Tax Ct. LEXIS 295">*300 are authorized and directed on behalf of the corporation to decline any and all offers they have received or may hereafter receive for the purchase of any part or all of the assets of this corporation, provided that this resolution shall not be construed so as to limit the power of the officers to make such transfers of assets as they might deem advisable in settlement of outstanding claims against the corporation.

Other resolutions which were adopted at the meeting provided, in effect, that in the opinion of the directors the corporation should be dissolved; that a meeting of the stockholders be called to be held in New York City, on December 12, 1945; and that, subject to action by the stockholders on the resolution adopted for the dissolution of the corporation, the officers of the corporation should be authorized to wind up the affairs of the petitioner, and, after paying or providing for payment of all debts, and setting up a reserve for contingent liability, to distribute all remaining assets pro rata among all the stockholders.

After 1939 Farnsworth had numerous discussions with many people, including representatives of oil companies, concerning the value of petitioner's oil1950 U.S. Tax Ct. LEXIS 295">*301 properties, and, as a result, in November, 1945, he was of the opinion that the assets could be sold for an amount that would meet the wishes of the corporation's stockholders, and concluded, after considering income tax consequences, that the properties should be distributed in kind to petitioner's stockholders instead of being sold by the corporation. During that time, petitioner never received an offer for the properties that it was willing to consider. Taubman was the only one during the fall of 1945 who was disclosing any interest in acquiring the assets. Farnsworth had no understanding with Taubman that the property would be sold to him. The next prior discussion with a prospective purchaser was in midsummer of 1945.

At a special meeting held by the stockholders of petitioner on December 12, 1945, Farnsworth informed the shareholders present that most of the corporation's assets consisted of oil properties located in four states, that a considerable amount of work would have to be done before the assets could be transferred to them in accordance with the resolutions adopted by the directors, and that in executing and recording the conveyances it would be more convenient 1950 U.S. Tax Ct. LEXIS 295">*302 to continue the existence of the corporation until the conveyances could be completed. He proposed that the stockholders indicate whether they approved the complete liquidation of the corporation, as set forth in the resolutions adopted by the directors, but to defer action on the formal dissolution to allow time for completion of the transfers. The stockholders then adopted resolutions approving the program set forth in the resolutions of the directors for the complete liquidation of petitioner and authorizing the directors and officers of the corporation 14 T.C. 52">*55 to carry out the program, "subject, however, to the adoption by the stockholders of a formal resolution for the dissolution of the corporation in accordance with the Delaware Corporation Law, the distribution of assets of the corporation in kind as contemplated by such program to be completed prior to the filing of the certificate of dissolution required by the Delaware Corporation Law but not prior to the adoption of such resolution." The meeting was adjourned to meet again on December 27, 1945.

The president announced at the adjourned meeting held on December 27, 1945, that arrangements to make the conveyances involved1950 U.S. Tax Ct. LEXIS 295">*303 in the program for liquidation of the corporation had not been completed, whereupon the meeting was adjourned to January 11, 1946. At the meeting held on January 11, 1946, Farnsworth announced that counsel had informed him that sufficient progress had been made on details involved in the liquidation of the corporation to warrant action to dissolve the corporation formally if the stockholders so desired. The stockholders then adopted a resolution approving the resolution passed by the directors on November 15, 1945, for the dissolution of the corporation. After the adoption of the resolution the president announced that the first distribution in complete liquidation would be a payment in cash of $ 1 a share not later than January 31, 1946, which was paid on January 25, 1946, and that further distributions in kind and in cash would be made as soon as practicable.

One stockholder, E. W. K. Andrau, who held 400 shares, voted against the action taken by the stockholders at the meetings. He declined to accept, and returned to petitioner the check for $ 400 covering the distribution to him.

Other adjourned meetings of the stockholders were held on January 25, 1946, and February 8, 1946, 1950 U.S. Tax Ct. LEXIS 295">*304 but there was no business to come before the meetings. The meeting held on February 8, 1946, was not adjourned and the stockholders held no meetings after that date.

On December 12, 1945, and the dates of adjourned meetings of stockholders of petitioner, petitioner had 25,625 shares of stock outstanding, which were held by 14 individuals, including Jeremiah Milbank and his wife, who, together, held 7,017 shares. No individual or family group held a controlling stock interest in petitioner. At each of the meetings, 24,925 shares were represented in person or by proxy.

The adjournment of the stockholders' meeting on December 27, 1945, to January 11, 1946, was proposed by Farnsworth at the request of William W. Burch, an employee of Milbank, on whom a like request was made on December 21, 1945, by H. U. Gade, who, as a broker, was at that time negotiating with Burch for the sale of the property or stock of petitioner to a client in Houston, Texas.

At some time between September 15, 1945, when Burch entered the 14 T.C. 52">*56 employ of Milbank, and November 15, 1945, the former, during the course of a study of oil securities of the latter and his family at Milbank's request, learned for 1950 U.S. Tax Ct. LEXIS 295">*305 the first time that they held stock of petitioner, and he commenced to familiarize himself with its operations. Upon learning that the directors of petitioner had voted to dissolve petitioner, Burch discussed the matter with Milbank and thereafter made an appraisal of the oil properties of petitioner and advised Milbank of his conclusion. The Milbanks decided to sell any oil properties they received in liquidation if a satisfactory price could be obtained. Burch desired to help the Milbanks realize the best price possible for any property they might receive from petitioner in dissolution proceedings, and concluded that if he were a stockholder of petitioner he, as such, might be able to induce other stockholders to offer their property for sale with his and the property of the Milbanks. To place himself in a position to accomplish his purpose, Burch, on December 7, 1945, purchased from Mrs. Milbank with his own funds 200 shares of petitioner's stock for $ 21 a share.

On December 12, 1945, after the stockholders acted upon the resolution adopted by the directors to dissolve, Burch informed Farnsworth that he was a stockholder and represented the Milbanks, and that they would sell1950 U.S. Tax Ct. LEXIS 295">*306 their fractional interests in the oil properties if a satisfactory price could be obtained. He also informed him of his plans to sell the property and requested Farnsworth to refer prospective purchasers to him. The Milbanks and Burch were not officers or directors of petitioner at any time during 1944, 1945, and 1946.

Farnsworth advised Burch that Taubman was a prospective purchaser, and of the interest Andrau displayed at the meeting of the stockholders. He did not at that time know of anybody else who was or might be interested in the purchase of the property. Thereafter, Burch had a number of meetings with Taubman with respect to the purchase of the property, during the course of which Taubman mentioned a price of about $ 500,000, but he never made an offer for any part of the properties.

Farnsworth, at some undisclosed time prior to Christmas, 1945, received an inquiry from E. F. Wehrle, a broker residing in Houston, Texas, concerning the status of petitioner, and was informed by her that she had a prospective buyer for the corporation's property. Farnsworth responded to the inquiry and information by telling her to take the matter up with Burch.

On December 31, 1945, while1950 U.S. Tax Ct. LEXIS 295">*307 Burch was still negotiating with Taubman and Gade, Burch received a telegraphic offer in New York from Boyce & Smiser, Houston, Texas, for the purchase of petitioner's property for $ 600,000. Burch had no prior knowledge that the offerors were interested in petitioner's property. The broker, E. F. Wehrle, informed Burch by telephone on January 2, 1946, that she 14 T.C. 52">*57 was responsible for the offer. That conversation was the first contact Burch had with Wehrle. Thereafter, on January 2, 1946, Burch informed the offerors by telegram that, as a representative of stockholders of petitioner, he would submit to his principals for their consideration a firm offer of $ 600,000 for the property, made not later than January 10, 1946, subject to approval of title and a deposit of 10 per cent of the purchase price, and that holders of less than a 2 per cent interest might not accept the offer.

Instead of making an offer by January 10, 1946, Boyce & Smiser requested an extension of time. By a letter bearing the date of January 15, 1946, Wehrle transmitted a draft of contract to Burch for the purchase of the oil and gas properties for $ 600,000, with information that an escrow deposit of1950 U.S. Tax Ct. LEXIS 295">*308 $ 60,000 would be made as soon as she received notice that the instrument would be executed by him. The draft of contract provided, among other things, that not less than a 98 per cent interest in the properties would be sold; that payment of the consideration was contingent upon approval and acceptance by the offerors of titles to the properties; for the delivery of abstracts of title within 15 days from the date thereof (the draft of contract bore no date); that the offerors should have 30 days within which to examine title and Burch a like period to cure any objections thereto; and that the conveyances were to be effective as of 7 a. m., January 1, 1946, with a right in the offerors to all production from the properties after that time.

On January 18, 1946, Burch, as a stockholder of petitioner, wrote a letter to all of the other shareholders of petitioner in which he informed them, among other things, to the effect that in connection with the dissolution of petitioner its oil properties would shortly be conveyed to them as a distribution in kind; that a number of the larger stockholders had asked him on their behalf to investigate the possibilities of selling the oil properties; 1950 U.S. Tax Ct. LEXIS 295">*309 that he had been negotiating for a sale, and, as a result, had received the offer from Boyce & Smiser, pertinent provisions of which he summarized; that he and a number of the larger stockholders recommended its acceptance and suggested that, if they desired to accept the offer, they send their stock certificates to him, endorsed in blank for transfer, and execute the form letter attached to the communication.

The form letter had provisions to notify Burch that the stockholder accepted the offer of Boyce & Smiser to transmit stock certificates, with authority to transfer the stock to Burch and hold it and assets received thereunder from petitioner on dissolution, consummate the sale, making any adjustments he considered advisable for their account, and for the termination of the arrangement in the event the proposed sale was not made prior to May 1, 1946.

Prior to January 31, 1946, the form letter properly signed, or its 14 T.C. 52">*58 equivalent in authority, was received by Burch from stockholders holding 24,925 shares of stock. Another stockholder, the estate of Victor H. Borsodi, owning 100 shares, authorized Burch on March 1, 1946, to act for it. No like authority was ever given 1950 U.S. Tax Ct. LEXIS 295">*310 by Andrau.

On January 28, 1946, petitioner conveyed to Burch, as the record owner of 25,125 shares of its 25,625 shares of stock outstanding and as a liquidating dividend, without warranty of any kind, an undivided 25,125/25,625 interest in oil and gas properties, described in the instrument, together with all moneys due or to become due as income from such properties. A provision in the document recited that the instrument did not purport to give a complete description of the properties or the petitioner's interest therein and was subject to adjustments to reflect the exact description thereof and interest therein and that petitioner would execute "further deeds, assignments or other instruments definitive in form and suitable for recording * * * which will confirm in him the title and possession of the share hereby conveyed * * * such definitive deeds to set forth a complete description of said properties and the company's interest therein." Data necessary for definitive deeds was not obtained until April, 1946. Income received from the properties after January 28, 1946, was held by petitioner for the account of stockholders. The instrument was delivered to Burch on January 31, 1950 U.S. Tax Ct. LEXIS 295">*311 1946. At the same time petitioner executed like instruments on account of the 400 shares of stock held by Andrau and 100 shares held by the estate of Victor H. Borsodi, the name of the grantee in the document for the latter being in blank pending instructions from the executrix. Andrau declined to accept the conveyance to him. Pursuant to authority given petitioner on March 16, 1946, by the executrix of the estate of Victor H. Borsodi, the name of Burch was inserted in the instrument executed in blank. The instrument as so modified was delivered to Burch not later than March 19, 1946.

After the receipt by him on January 31, 1946, of the instrument for a 25,125/25,625 interest in petitioner's oil and gas properties, Burch, on the same day, signed an instrument in which he agreed to sell not less than a 98 per cent interest therein to the Mid-Coast Oil Co., a Texas corporation organized by Boyce & Smiser, at the rate of $ 600,000 for a 100 per cent interest. Provision was made in the instrument for delivery to the buyer of any abstracts of title Burch had covering the properties and examination of title by the purchaser and the curing by Burch of any defects found therein. If 1950 U.S. Tax Ct. LEXIS 295">*312 it was found that Burch had good title, the transaction was to be consummated by the execution and delivery of sufficient instruments conveying the properties and warranting against sales and encumbrances and by payment of the consideration. Seven o'clock a. m., January 1, 1946, was specified as the effective time for conveyance of the properties, and the 14 T.C. 52">*59 time as of which all adjustments would be made between the seller and the purchaser for production and operating costs. The instrument was signed and an escrow deposit in the amount of $ 60,000 was made by the purchaser on February 5, 1946. Burch had no abstracts of title for the properties. On February 11, 1946, petitioner, in compliance with a written request made by Burch the same day, requested various oil companies to forward to counsel for the buyer any documents in their possession covering the properties.

While the purchaser was examining titles to the properties, Andrau, in March, 1946, instituted a suit against petitioner in which he claimed a 10 per cent interest in certain of the properties, and, as a result, the Phillips Petroleum Co. withheld payment for oil runs and the purchaser declined to proceed with1950 U.S. Tax Ct. LEXIS 295">*313 the purchase on the terms that had been agreed to. Petitioner's president employed counsel to represent it in the suit and informed the directors and stockholders of his action.

On or about April 22, 1946, Burch and the Mid-Coast Oil Co. entered into an agreement by the terms of which $ 100,000 of the purchase money for the properties covered by the contract entered into on January 31, 1946, was to be paid into the hands of an escrow agent to satisfy any claims proved by Andrau and insure payment to it of all proceeds of production from the property. The deposit in escrow was made by the Mid-Coast Oil Co. on May 3, 1946.

The contract to sell entered into by Burch on January 31, 1946, with such alterations therein as might be made by him and his counsel, was approved by petitioner's stockholders in April, 1946.

On April 19, 1946, petitioner executed 11 definitive deeds to Burch, one for the properties in each of the 11 counties in which the properties were located, for a 25,225/25,625 undivided interest in the properties, and like deeds to Ethel M. Gorman, trustee for Andrau, for a 400/25,625 undivided interest. The conveyances were made without warranty of title, and effective 1950 U.S. Tax Ct. LEXIS 295">*314 as of 7 a. m., January 1, 1946. The deeds were made to the trustee because of the refusal of Andrau to accept the deed executed on January 28, 1946. On May 1, 1946, the trustee executed deeds to Andrau for the interest he had in the properties, as represented by the 400 shares he held.

On April 26, 1946, petitioner filed in the office of the Secretary of State of Delaware, pursuant to the provisions of section 39 of the General Corporation Law of Delaware, an affidavit of the publication of the certificate of the secretary as to the dissolution of petitioner.

On or about May 3, 1946, Burch sold and conveyed to the Mid-Coast Oil Co., for $ 590,634.15 in cash, the undivided 25,225/25,625 interest conveyed to him by petitioner by instruments dated January 28 and April 19, 1946. The conveyance was made by 11 deeds, executed on April 22, 1946, effective as of 7 a. m., January 1, 1946, covering the same interests described in the definitive deeds from petitioner to 14 T.C. 52">*60 Burch on April 19, 1946. The amount of $ 490,634.15 was received by Burch from the grantee upon the delivery of the deeds on May 3, 1946.

The litigation with Andrau was settled in October, 1946, for from $ 30,000 1950 U.S. Tax Ct. LEXIS 295">*315 to $ 35,000 and during that month the $ 100,000 deposited by the purchaser in escrow was paid to Burch. After paying or providing for payment of the expenses of sale, the entire proceeds of sale were distributed by Burch to himself and the other stockholders of petitioner who had authorized him to act for them. No part of the proceeds of sale received by Burch was paid to petitioner or Andrau. During the same month Andrau accepted the liquidating dividend check issued to him in January, 1946, for $ 400 and the deed executed by the trustee on May 1, 1946. Burch realized nothing from the sale to the Mid-Coast Oil Co., other than the proportionate part of the proceeds of sale which he was entitled to receive as an owner of 200 shares of petitioner's stock.

The 400 shares of stock outstanding in the name of Andrau were transferred to Burch's name on October 21, 1946. Petitioner's final liquidating dividend, amounting to $ 3,497.32, was distributed on December 31, 1946, to Burch, the record owner at that time of all of petitioner's stock, and thereafter the stock certificates were canceled. The liquidation of petitioner was carried out by Farnsworth, with the assistance of the corporation's1950 U.S. Tax Ct. LEXIS 295">*316 assistant secretary and treasurer. None of the work was performed by Burch. A short time before the hearing herein, Farnsworth ascertained that petitioner had claims on which something might be realized.

In determining the deficiency for 1946, the respondent included in petitioner's income the amount of $ 306,951.50 as net long term capital gain realized from the sale of the oil properties to the Mid-Coast Oil Co. The sale was not made by the petitioner.

OPINION.

The only questions in dispute under the depletion issue relate to the value of the stock and cost or value of the Chocolate Bayou properties which constituted part of the consideration paid by the petitioner for the Norvell lease, and whether the basis should include an amount for cost of equipment.

The difference between the parties on the value of the stock is whether it had a value of $ 10,000, an amount equal to its par value of $ 20 a share, as contended by petitioner, or $ 7,500, as determined by the respondent when computing the deficiency and contended by him upon brief. Respondent relies upon lack of satisfactory evidence before us to overcome the presumption in favor of his finding, contending 14 T.C. 52">*61 that 1950 U.S. Tax Ct. LEXIS 295">*317 book entries showing issuance of 750 shares of stock in April, 1937, the month petitioner acquired the Norvell lease, for $ 20 a share, and testimony of Farnsworth that it was a cash transaction, is not enough. The stock was not listed on an exchange and there were no "over the counter" sales of the stock. Farnsworth, who had been president of petitioner since the death of Beaty in 1939, testified that he knew, independent of petitioner's books, that the transaction was a sale for cash, that previous subscriptions of stock were made at $ 20 a share, and that the two individuals who purchased the stock were shareholders at the time of the purchase. Nothing in the evidence on the question creates any doubt that the sale was anything other than an arm's length transaction. In our opinion, the sale, viewed in the light of other evidence, is enough to overcome the respondent's finding and to establish a fair market value of $ 20 a share for the stock.

Concerning the Chocolate Bayou property, petitioner contends that it should be included for depletion at the cost basis to it when acquired, less amortization in the amount of $ 5,279.04 on the leasehold interests, or the fair market value1950 U.S. Tax Ct. LEXIS 295">*318 when disposed of in the transaction, the amount in either case being $ 33,456.19. The respondent argues that petitioner has not shown that his finding of a fair market value of $ 2,831.18 is erroneous and that petitioner's claim should be reduced by $ 6,142.23 for cost of equipment, as determined by him in computing the deficiency.

The parties are in agreement that the allowance for depletion should be in accordance with petitioner's basis in the property. Petitioner cites section 113 (a) (6) of the Internal Revenue Code as entitling it to a basis of cost to it of the Chocolate Bayou property, instead of the fair market value thereof at the time of the transfer in connection with the acquisition of the Norvell lease. The section relied upon has reference, in general, to tax-free exchanges of property, and provides that it "shall not apply to property acquired by a corporation by the issuance of its stock or securities as consideration in whole or in part for the transfer of the property to it." Here, petitioner issued 500 shares of stock as part payment of the property in question. The payment of such consideration prevents petitioner from coming within the general provisions 1950 U.S. Tax Ct. LEXIS 295">*319 of the statute relied upon.

Petitioner's burden was to show respondent's valuation to be erroneous, and to establish by competent evidence the value claimed by it. The parties differ on the sufficiency of proof offered by the petitioner. The ledger of petitioner discloses cost of $ 77,470.47 for the entire property, and petitioner's president testified that the value on April 3, 1937, was not less than the book figure. The effect of the testimony is that an undivided one-half interest transferred to Borsodi had a 14 T.C. 52">*62 value of $ 33,456.19 when conveyed. The witness had knowledge of the acquisition of the property and testified that he had made a study of the value of oil properties in the area in which the lease and fees were located. His qualifications to express an opinion on the value of the property were not questioned by the respondent. Under the circumstances, we hold that the evidence establishes a fair market value of the property as claimed by the petitioner.

While the petitioner is claiming an amount as basis for depletion which includes the cost of equipment as determined by the respondent, it does not, on brief, oppose the respondent's adjustment. No evidence1950 U.S. Tax Ct. LEXIS 295">*320 was offered to establish that equipment was not purchased or that the cost determined by the respondent was erroneous. Equipment for wells is not subject to depletion. Secs. 23 (m) and 114 (b) (1) and (3), I. R. C. The respondent did not commit error in reducing the basis by $ 6,142.23 for cost of equipment.

The point of difference between the parties under the third issue is whether the gain, the amount of which is not in dispute, derived from the sale of the oil and gas properties is taxable to the petitioner. There is little dispute as to evidentiary facts. The crux of the petitioner's argument is that the transaction in substance and in form was a sale by stockholders of assets distributed to them in kind in dissolution proceedings, and resulted in no tax liability to it. The respondent's contention, briefly stated, is that the stockholders were merely a conduit for a sale by the corporation.

Petitioner's plan was to distribute the property in kind in connection with dissolution proceedings to escape taxation, rather than to sell the assets with tax liability to it. Petitioner had that right of choice under the statute. Gregory v. Helvering, 293 U.S. 465">293 U.S. 465;1950 U.S. Tax Ct. LEXIS 295">*321 Wichita Terminal Elevator Co. v. Commissioner, 162 Fed. (2d) 513; United States v. Cummins Distilleries Corporation, 166 Fed. (2d) 17; Steubenville Bridge Co., 11 T.C. 789. Cf. Guinness v. United States, 109 Ct. Cls. 84; 73 Fed. Supp. 119. If the legal effect of what occurred here for tax purposes was a sale by petitioner, it occurred notwithstanding clear intention of petitioner to avoid it.

Respondent says that the case is within the principle of Commissioner v. Court Holding Co., 324 U.S. 331">324 U.S. 331, and like cases. In that case the corporation had agreed upon the terms of sale and received part of the purchase price before any steps were taken to dissolve, and upon receipt of the property in dissolution proceedings the sale was carried out by the stockholders without any substantial change in the terms of sale previously agreed upon by the corporation. The facts here are to the contrary. Petitioner had had some negotiations with individuals who had indicated desire to buy, but no offers1950 U.S. Tax Ct. LEXIS 295">*322 to purchase, 14 T.C. 52">*63 satisfactory to it, were received before any action was taken to dissolve, and after the adoption of resolutions to dissolve it, consistent with its declared purpose, petitioner refrained from making any effort to sell; instead, it referred all inquiries for the purchase of the assets to Burch, a stockholder. That stockholder conducted negotiations with the individuals with whom petitioner had been in touch, but received no offers to buy. The sale was ultimately made to a corporation whose representative did not initiate negotiations until after action had been taken to dissolve and then carried them on solely with Burch.

In Commissioner v. Falcon Co., 127 Fed. (2d) 277, the stockholders sold property received in liquidation proceedings to a buyer with which the corporation had conducted negotiations, and the court, on the facts, held that the sale was not made by the corporation. Here, petitioner did nothing other than refer an inquiry to buy to Burch, which action was consistent with its decision to distribute the property to stockholders instead of to sell it for its own account.

Burch was not an officer or a director 1950 U.S. Tax Ct. LEXIS 295">*323 of petitioner and had no knowledge of the plan to dissolve until after the directors of petitioner had acted. Thereafter, his primary interest in the matter was to obtain a price for the property satisfactory to his employer, a large stockholder, and his employer's wife. The negotiations of Burch with the buyer were at all times conducted in the name of stockholders, never as an agent or representative of petitioner. Burch did not undertake to sell more than about 98 per cent of the property, in view of the fact that he never had authority to represent all of them.

The facts here are similar to the situation prevailing in United States v. Cummins Distilleries Corporation, supra. There, the stockholders on December 21, 1942, authorized dissolution, the distributions to common stockholders to be in kind or in cash, and the directors decided upon the former. Three days later some of the large stockholders appointed a committee to receive and sell the assets, consisting of whiskey certificates, and distribute the proceeds to the corporate stockholders. The plan was approved by the owners of 80 per cent of the corporation's stock, but the committee1950 U.S. Tax Ct. LEXIS 295">*324 requested the corporation to deliver all of the receipts to it, which the corporation did on December 29 by substituted receipts, upon condition that the original receipts be obtained from a bank by paying off a loan they secured. After satisfying the corporate debt with a note of the committee, secured by the substituted receipts, the members of the committee engaged a broker to sell the receipts. On January 4, 1943, the committee closed a sale negotiated by the broker, and thereafter distributed the proceeds thereof to the stockholders. The certificate 14 T.C. 52">*64 of dissolution was issued on December 31, 1942. The court decided that the sale was made by the stockholders.

We do not regard as decisive the fact that the stockholders did not receive title to the property prior to commencement of negotiations for the sale of the assets. The telegram sent by Burch on January 2, 1946, to Boyce & Smiser, undertook no more than the submission of a firm offer to stockholders for their consideration. At that time he represented only himself and the Milbanks, who together owned about 27 per cent of the stock. After the receipt from the prospective buyers of a form of contract for execution, 1950 U.S. Tax Ct. LEXIS 295">*325 Burch sought and obtained the right to represent the owners of about 98 per cent of the corporation's outstanding stock, and on January 31, 1946, as the record stockholder of and holder of title to that interest, he executed a contract to sell the property, subject to certain conditions. The deed to Burch was as complete as could be given at that time, and on April 19, 1946, he received definitive deeds which were contemplated by the earlier instrument. The sale, according to the stipulation of the parties, was not made until May 3, 1946. Thus, it appears that Burch had evidence of title, if not good title, at the time he agreed to sell. In any event, the title conveyed on April 19, 1946, which respondent does not question, was obtained prior to the closing of the sale. Assuming that the stockholders did not get ownership by the instrument executed on January 28, 1946, there was nothing to prevent them from entering into a contract to sell, as they did on January 31, 1946, a date after formal action had been taken by the stockholders to dissolve. Howell Turpentine Co. v. Commissioner, 162 Fed. (2d) 319; George T. Williams, 3 T.C. 1002;1950 U.S. Tax Ct. LEXIS 295">*326 Cooper Foundation, 7 T.C. 389; Steubenville Bridge Co., supra.Cf. Rose Kaufmann, 11 T.C. 483; affd., 175 Fed. (2d) 28. In fact the sale was conditioned upon good title in the seller.

Respondent contends that formal action by the stockholders to dissolve was deferred until Burch could obtain a buyer for the property. Proof does not go that far. Formal action by the stockholders to dissolve was postponed as the result of a recommendation of Farnsworth that the corporation's existence should be continued until preparatory work incident to the conveyance of title of the corporate property could be performed. There is nothing in the evidence to show other reason for the deferment. The formal resolution was adopted after the announcement by Farnsworth that counsel had informed him that sufficient progress had been made in connection with the contemplated liquidation proceedings for the stockholders, if they so desired, to authorize the liquidation. At that time, January 11, 1946, Burch was still negotiating with Boyce & Smiser without any definite assurance that1950 U.S. Tax Ct. LEXIS 295">*327 they would make a firm offer and had no power to represent petitioner's stockholders other than himself and the Milbanks. 14 T.C. 52">*65 Burch did not undertake to obtain authority from other stockholders to sell the property, if received, until January 18, 1946, and no binding bargain was made with the ultimate buyer until January 31, 1946. We are unable to conclude from the evidence that petitioner's stockholders deferred formal action on a resolution to dissolve until Burch or other stockholders could obtain a buyer for the property to be distributed to them in dissolution proceedings.

In Embry Realty Co. v. Glenn, 116 Fed. (2d) 682, cited by the respondent as similar to this case, the transfer was made to stockholders for the express purpose of concluding a sale previously negotiated by the corporation's president, and the corporation was not in liquidation during the taxable year. Other cases relied upon by the respondent are also distinguishable. In Wichita Terminal Elevator Co. v. Commissioner, supra, a sale was made to a buyer with whom the corporation's president, who, with members of his family, owned a 1950 U.S. Tax Ct. LEXIS 295">*328 large part of the stock, had conducted negotiations immediately prior to the transfer of the property in dissolution proceedings. Here the president was not a stockholder and never negotiated with the buyer. In Kaufmann v. Commissioner, supra; Hellebush v. Commissioner, 65 Fed. (2d) 902, and Taylor Oil & Gas Co. v. Commissioner, 47 Fed. (2d) 109, the agreements to sell were made by the corporation before any steps were taken to liquidate its affairs.

Questions of the kind being considered here must turn upon their peculiar facts. In this proceeding the dissolution of the petitioner can not be regarded as unreal or a sham. Some consideration had been given as early as 1939 to the dissolution of petitioner and about 1941 its president was of the opinion that such proceedings should be instituted when the corporate assets reached a value that would enable shareholders to recoup their investments. All of the negotiations leading up to the sale were conducted by a stockholder who also acted as an agent or trustee for other shareholders after steps had been made to dissolve. As a result, the stockholders acted1950 U.S. Tax Ct. LEXIS 295">*329 at all times on their own responsibility and for their own account. Ordinary liquidation proceedings were carried out by officers of petitioner and its shareholders never served as liquidating officers. The facts here do not in principle differ materially from those prevailing in Acampo Winery & Distilleries, Inc., 7 T.C. 629; United States v. Cummins Distilleries Corporation, supra;Commissioner v. Falcon Co., supra, and United States v. Cumberland Public Service Co.,    U.S.    (Jan. 9, 1950). We conclude that it was error for respondent to treat the transaction as a sale made by petitioner.

The net operating loss in 1946, deductible in 1944 and 1945, and overpayments in 1944 and 1945 will be computed under Rule 50, in accordance with the stipulation of the parties.

Decision will be entered under Rule 50.