22 T.C. 321">*322 The respondent has determined deficiencies in the income tax of the petitioners as follows for the indicated years:

The only issues for determination are the correctness of the respondent's action (1) in determining that the proceeds received from the sale in 1946, 1948, and 1949 of certain options to purchase stock constituted compensation for services and not long-term capital gain, and (2) in determining1954 U.S. Tax Ct. LEXIS 207">*211 that periods of limitations for the assessment 22 T.C. 321">*323 of income tax for 1946 and 1947 have not expired. All other issues raised by the pleadings have been disposed of by stipulation of the parties.

FINDINGS OF FACT.

A portion of the facts have been stipulated and are found accordingly.

The petitioners are husband and wife and formerly were residents of Detroit, Michigan, but are now residents of Florida. Their income tax returns for the years in controversy were prepared from books and records maintained on the cash receipts and disbursements basis and were filed with the collector at Detroit, Michigan.

Petitioner Charles E. Sorensen, sometimes hereinafter referred to as the petitioner, was employed by Ford Motor Company from June 1904 until March 1, 1944. During the last 5 years of that period he was executive vice president of the company and his salary was approximately $ 250,000 a year. For a number of years prior to the time he left the company he was in charge of all production of the company and the development of its foreign business, and participated in all of its business affairs.

A number of years prior to becoming 60 years of age, in 1941, the petitioner had an 1954 U.S. Tax Ct. LEXIS 207">*212 understanding with Henry and Edsel Ford that he would be permitted to retire in 1941. With this in mind, the petitioner, prior to 1941, began setting up an organization within Ford Motor Company to take over his duties when he should retire. However, when 1941 came the company was engaged in national defense work and the petitioner realized that he could not retire as planned. Therefore, he decided to remain with the company as long as the war program continued, or at least until it was well under way, and he had built up an organization capable of taking over his work. During 1943 the petitioner concluded that this had been accomplished and he arranged to retire in the early part of 1944. During the first week of January 1944 he went to his home in Florida, but his retirement was not publicly announced until March 1, 1944.

During the time the petitioner was with the Ford Motor Company he had supervised the organization and establishment of Ford factories in Japan, South America, and Europe. He also had received requests from people in various parts of the world for assistance in setting up manufacturing plants. Because of such requests and of his knowledge and experience, the1954 U.S. Tax Ct. LEXIS 207">*213 petitioner decided that upon his retirement from Ford Motor Company he would set up his own advisory and consulting business to render a type of engineering service which would plan the products to be produced by others and the plants, facilities, and organization necessary for such production. Prior to March 1, 1944, rumors of his impending retirement began to circulate 22 T.C. 321">*324 and while in Florida a number of proposals were presented to him, but he decided not to go into detail about any of them until he returned to Detroit, as he planned to do in May.

One night during March 1944 A. W. Wallace of Miami Beach, Florida, whom the petitioner had known well for a number of years, called the petitioner by telephone and stated that Willys-Overland Motors, Inc., of Toledo, Ohio, sometimes hereinafter referred to as Willys, was looking for a president and inquired if petitioner would be interested in the position. The petitioner replied that he did not desire to talk about the matter. As petitioner understood, Wallace at that time was an investor in a variety of enterprises and also bought and sold stock in Willys. A few days after the inquiry from Wallace, George Ritter, a neighbor1954 U.S. Tax Ct. LEXIS 207">*214 of petitioner's in Florida, whom petitioner also had known for a long time, called upon petitioner. Ritter was counsel for and a director of Willys. He asked if petitioner would consider joining the Willys organization. Although the petitioner was curious about the matter, he gave Ritter no decision with respect to it and in his reply did not disclose any interest in it. Subsequently the petitioner considered the matter and decided against it. About a week after his first call, and on or about April 5, Ritter again called upon petitioner, bringing with him Ward M. Canaday, who was president of Willys and chairman of its board of directors. They inquired about the possibility of interesting petitioner in coming with Willys. Petitioner told them he did not wish to consider the matter until after his return to Detroit in May. He further informed them of his plan of setting up an advisory organization to render consulting engineering services. Canaday suggested that petitioner take Willys as the first client of such an organization. To this petitioner replied that he did not wish to discuss the matter until his return to Detroit in May. On a few occasions during the following1954 U.S. Tax Ct. LEXIS 207">*215 weeks Ritter again approached the petitioner about the matter but each time petitioner turned away the approaches with the reply that upon his return to Detroit in May he would be better prepared to discuss and settle such problems.

Upon his return to Detroit about May 10, 1944, and in an attempt to obtain a comprehensive view of the Willys organization, the petitioner obtained from Willys information relating to its plant and facilities, its production, and its success in carrying on the war program in which it was then engaged. From information furnished him by Canaday, the president of Willys, the petitioner concluded that Willys was not only short of operating cash but had no funds of its own with which to carry on its operations and was relying on money advanced to it by the Government against delivery of war materials. The City Bank Farmers Trust Company of New York City was one 22 T.C. 321">*325 of the registrars of the Willys stock and Willys also maintained an account with the bank. In order to obtain the bank's view of Willys from dealings with it, the petitioner conferred with Gordon Rentschler who was president of the bank and also a friend of the petitioner. From him petitioner1954 U.S. Tax Ct. LEXIS 207">*216 learned that the bank had had Willys under observation since it came out of receivership in 1939 or 1940. In addition the petitioner made a personal inspection of Willys's plant. He found that it was old and contained a large amount of very old machinery and equipment and that its maximum productive capacity was limited to some 300 to 400 engines a day. The petitioner also learned that Willys had no plans of any kind for a postwar program and that its management was disturbed over that fact. Canaday and Ritter informed petitioner that they had not had manufacturing experience and did not have the necessary qualifications or experience to formulate and carry out a manufacturing program and that Willys needed someone like him to do these things. The principal product of Willys was a jeep used by the Army. Petitioner had had considerable experience in the manufacture of jeeps since the Ford Motor Company was the other of 2 suppliers of the Army jeep. He felt that there were great possibilities for such a vehicle in civilian use. From a consideration of the various aspects of the situation of Willys, petitioner concluded that the situation presented an opportunity for the development1954 U.S. Tax Ct. LEXIS 207">*217 of the enterprise into a successful postwar business.

During his investigation into the affairs of Willys, petitioner learned that a corporation known as Empire Securities, Inc., owned about 40 per cent of Willys's outstanding stock and that the stock of Empire Securities was owned in turn by Canaday and Ritter and members of their families. He also learned that in several instances Willys had issued to its officers and staff members options to purchase its stock at $ 3 per share.

By the last of May or the first of June 1944, the petitioner had decided that he would like to render service to Willys and that he could render such service more effectively by becoming an executive officer and director of the company than by taking the company as a client of an organization rendering consulting engineering services. Thereupon he conferred with Ritter and Canaday at the latter's home in Toledo. During the conference the petitioner informed them of his decision and stated that he would prepare a project plan for the company. He also told them the terms, including the sums of money to be paid him and the stock options to be granted to him, on which he was willing to join the company and1954 U.S. Tax Ct. LEXIS 207">*218 stated in a detailed way how he "wanted an understanding drawn up." His terms were readily accepted. Ritter, from notes he had made at the conference and from subsequent telephone conversations with the petitioner, drafted 22 T.C. 321">*326 6 instruments as embodying the terms on which petitioner was willing to join the Willys organization. At the direction of petitioner the instruments were forwarded to his attorney, George Kline, in Detroit. After reviewing them with Kline, the petitioner decided that Ritter had prepared them "just like" he (petitioner) desired them. Subsequently, and on June 12, 1944, Canaday, Ritter, and petitioner met in Wallace's office in Detroit, and Canaday, as president of Willys, and petitioner signed the 6 instruments.

One of said instruments related to the term of petitioner's employment and the sums of money to be paid to him and provided as follows:

THIS AGREEMENT made and entered into between Willys-Overland Motors, Inc., a Delaware corporation, herein called "Willys", and Charles E. Sorensen, herein called "Sorensen";

Willys hereby employs Sorensen and Sorensen agrees to accept employment by Willys as the Chief Executive Officer of Willys, subject to 1954 U.S. Tax Ct. LEXIS 207">*219 the direction only of the Board of Directors and Executive Committee in accordance with the provisions of the By-Laws of the Company,

Sorensen agrees to accept the offices of Director and a member of the Executive Committee and of President of Willys and its subsidiaries.

Sorensen will either out of present or new employees of Willys to be selected by him as soon as possible, develop executives in anticipation of a time when the duties to be performed by Sorensen will be delegated by him to them, to be conducted under his supervision. At such time as Sorensen may deem appropriate, if approved by the Board of Directors, Sorensen may be selected to fill an office to be created and a younger man may be elected to the office of President. The taking of any such steps shall in no way relieve Willys of its obligations under this agreement, nor relieve Sorensen of any responsibility under this agreement except as changed by the Board of Directors.

Willys, at its option, may take out from time to time insurance on the life of Sorensen, in such sum or sums as Willys may elect, for the benefit of Willys. Sorensen agrees that he will, at the request of Willys, sign applications for such insurance1954 U.S. Tax Ct. LEXIS 207">*220 and submit to required physical examinations.

Sorensen agrees that he will not act as an officer or director of any corporation (other than Willys or its subsidiaries) engaged in the business of manufacturing or selling automobiles, except with the consent of Willys duly authorized by its Board of Directors.

Sorensen agrees that all developments by way of inventions, designs, copy rights and trade marks which may be developed or perfected by him during the period of his employment and which relate in any way to the business of Willys and its subsidiaries shall be the property of Willys, and shall be disclosed to Willys, and that he will at the request and at the expense of Willys apply for and prosecute applications for letters patent thereon in the United States or in foreign countries as Willys may request, and that he will assign and transfer the same to Willys, together with any letters patent or copy rights or applications therefor or on account thereof.

The term of the employment shall be for a period of ten (10) years from June 1st, 1944.

Willys agrees to pay to Sorensen, or in case of his death to his personal representatives, the sum of Five Hundred Twenty Thousand Dollars1954 U.S. Tax Ct. LEXIS 207">*221 ($ 520,000.00), payable in semi-monthly installments of 1/240ths of the sum of Five Hundred Twenty Thousand Dollars ($ 520,000.00). Termination of this agreement by 22 T.C. 321">*327 Willys or by the death of Sorensen shall not affect the liability of Willys hereunder.

Willys agrees that it will adopt all necessary resolutions to make the foregoing provisions of this contract effective.

* * * *

The remaining 5 instruments, each entitled "Option" and sometimes hereinafter referred to as Options No. 1, 2, 3, 4, and 5, respectively, related to serial options granted to petitioner to purchase from Willys a total of 100,000 shares of its common stock on or prior to January 1, 1950, at $ 3 per share. Option No. 1 provided as follows:

THIS AGREEMENT, entered into at Toledo, Ohio, between Willys-Overland Motors, Inc., a Delaware corporation, herein called "Willys", and Charles E. Sorensen, herein called "Sorensen".

WITNESSETH:

IT IS AGREED AS FOLLOWS:

(1) In consideration of the sum of One Dollar ($ 1.00) and other valuable considerations, Willys hereby gives and grants to Sorensen, the option to purchase, to be exercised on or after January 1, 1945, and on or before January 1, 1950, subject to1954 U.S. Tax Ct. LEXIS 207">*222 the terms and conditions of this agreement, Ten Thousand (10,000) shares of its common stock at the rate of Three Dollars ($ 3.00) per share.

The right and option shall expire at 12:00 o'clock midnight on January 1, 1950, unless the time is extended by Willys.

In case of the exercise of said option, said Sorensen shall at any time, or from time to time on or before January 1, 1950, notify Willys at its principal office in Toledo, Ohio, in writing, of the number of shares, not to exceed the number he shall have the right to purchase at the time of such notice, and the time (not later than sixty (60) days subsequent to the date of such notice, subject to delays resulting from compliance with rules and regulations of any Stock Exchange upon which said shares are listed and of the Securities and Exchange Commission, or other proper authority, or of registration as may be required by laws of the United States of America or of any State,) and place at which payment of the purchase price, as hereinabove specified will be paid, as against simultaneous delivery of the number of shares designated in such notices, and certificates representing the shares of stock purchased hereunder shall be1954 U.S. Tax Ct. LEXIS 207">*223 delivered by Willys in accordance with any such notice, and all such shares upon the payment of the option price at the rate of Three Dollars ($ 3.00) per share, shall be validly outstanding, full-paid and non-assessable. In case of the exercise of any option hereby granted, Willys shall take such steps as are required by law and the rules of the Securities and Exchange Commission and of the New York Stock Exchange, and such other rules and regulations, as may be necessary to effect a registration and other form of authority to authorize the issuance and delivery, and the listing upon the New York Stock Exchange and other Exchanges on which said shares are listed, of the shares to be so issued pursuant to this agreement.

(2) Willys agrees to set aside and reserve Ten Thousand (10,000) shares of its presently authorized but unissued common stock to be subject to the terms hereof, against which reserve shall be charged any common stock purchased pursuant to the terms of this option.

(3) It is the intent of this option that the stock subject to this option shall be common stock of Willys, of the kind and character now outstanding, or its equivalent, as hereinafter specified, and in 1954 U.S. Tax Ct. LEXIS 207">*224 the event of a readjustment of Willys' capital structure, or a merger or consolidation of Willys with any other 22 T.C. 321">*328 company, or a sale of substantially all of its property and business as an entirety, or in any other event whereby the character of the present common stock of Willys or the interest of the holders of such stock in the assets of Willys shall be changed, Willys agrees that the stock or other securities or interest, to be delivered hereunder upon any exercise of the option hereby granted, shall be the equivalent of the present common stock of Willys, whether in the new or increased stock of Willys after such readjustment, or in the stock of the consolidated or merged company, or of any other interest in the assets of Willys, to the end that the stock deliverable hereunder shall include common stock as presently constituted and all rights incident thereto or that may arise in connection with the occurrence of any of the events above specified. Wherever the term "stock" is used herein, it shall be deemed to mean any of its equivalents, as above described.

(4) In case Willys shall have declared any dividend payable otherwise than in cash, or in case any dividend payable1954 U.S. Tax Ct. LEXIS 207">*225 otherwise than in cash shall have been declared upon or in respect of any shares or other property which then shall stand in lieu of a share of stock of Willys, of the same class as the shares subject to this option, not theretofore purchased by Sorensen, or his assigns, as hereinabove provided, then upon any exercise of the option hereby granted Willys will deliver to Sorensen, without additional cost, all shares or other property included in all dividends of such character to the same extent as if the shares then remaining subject under this option had been outstanding at the time of the declaration and record date of such dividend or dividends.

(5) If at any time Willys shall offer to the holders of stock of the same class as optioned hereunder, the right to subscribe to any of its securities, Willys shall notify Sorensen, in writing of such offer, in the same manner and at the same time as though Sorensen were then a stockholder of Willys, entitled to such right, and Sorensen shall have the right to purchase upon the same basis upon the election to exercise his option as offered to other holders of the stock the securities of the same class, so offered, and to the extent that 1954 U.S. Tax Ct. LEXIS 207">*226 the total number of shares then remaining subject to the terms of this option would have been entitled if such total number of shares had been outstanding in the name of Sorensen upon the record date for the determination of such rights. Securities embraced within the terms of this paragraph shall, within the limitations of this paragraph specified, be deemed to be added to the option herein granted.

(6) No agreement as to employment or length of employment shall be implied from the terms of this option.

(7) Sorensen agrees (1) that he, his personal representatives or assigns, will not sell or offer for sale, nor sell short against delivery of shares of common stock of Willys, pursuant to the terms of this agreement, prior to the delivery of shares pursuant to or in accordance with the terms of this agreement; and (2) that shares purchased pursuant to the terms of this agreement will not be sold or offered for sale on or through the New York Stock Exchange except in quantities that can reasonably be absorbed by the normal market at the time of any such sale or offer.

(8) Willys agrees that it will not, in case of the exercise of this option, deduct from its income for the purposes1954 U.S. Tax Ct. LEXIS 207">*227 of Federal or State Income Taxes the difference between the market price of the shares at the time of the exercise of the option or the delivery of shares thereunder, and the option price in case such market price shall be in excess of the option price.

* * * *

Options No. 2, 3, 4, and 5 were identical with Option No. 1 with the exception of the number of shares involved, the dates upon which 22 T.C. 321">*329 the options first could be exercised, and an additional paragraph relating to Willys's right to terminate the options involved. The number of shares involved in each of the 4 options was 22,500. Option No. 2 first could be exercised on January 1, 1946; No. 3 on January 1, 1947; No. 4 on January 1, 1948; and No. 5 on January 1, 1949. Option No. 2 contained the following additional paragraph relating to termination of the option involved therein:

(9) In case Sorensen shall terminate his employment by Willys, or in case Willys shall terminate the employment of Sorensen for good cause prior to September 1st, 1945, Willys shall have the right to terminate this option by the giving of a notice in writing addressed to the residence address of Sorensen on file with Willys, and in case of1954 U.S. Tax Ct. LEXIS 207">*228 notice of such termination, Sorensen or his personal representatives or assigns may, within thirty (30) days after the date of any such notice, exercise the option as to the number of shares which Sorensen would be entitled to purchase under the provisions of paragraph (1) up to the time of the termination of such employment.

Options No. 3, 4, and 5 contained paragraphs identical with the foregoing except that the dates set forth therein were September 1, 1946, September 1, 1947, and September 1, 1948, respectively.

Previously and on June 7, 1944, the board of directors of Willys had authorized Canaday to enter into the agreements represented by the foregoing instruments with the granting of the options to be "subject to the approval of the stockholders and the waiving or denying to stockholders of preemptive rights to subscribe for additional shares of common stock necessary to be issued pursuant to such options." On June 22, 1944, a notice of a special meeting of the stockholders to be held on July 12, 1944, was sent to the stockholders of Willys in which it was stated that the purposes of the meeting were:

1. To approve and ratify action of the Board of Directors in granting 1954 U.S. Tax Ct. LEXIS 207">*229 to Charles E. Sorensen options to acquire common stock of Willys-Overland Motors, Inc.

2. To consider and take action upon an amendment to the Certificate of Incorporation to deny to stockholders preemptive rights to subscribe for 100,000 shares of common stock.

Accompanying the notice was a proxy statement in which the management solicited the proxies of the stockholders. Among other things, the proxy statement recited that the directors had entered into a contract to employ petitioner as chief executive officer of the company, the period of his employment, and the money payments to be made to him, and that petitioner was to serve as president and as a director. It further recited the action of the board of directors in authorizing the granting to petitioner of the options described above subject to action of the stockholders. The proxy statement further recited that negotiations for petitioner's employment began in March 1944; that soon after the beginning of negotiations there were rumors of the employment by Willys of petitioner; that during the negotiations 22 T.C. 321">*330 petitioner requested the opportunity to acquire a proprietary interest in the company and that this could 1954 U.S. Tax Ct. LEXIS 207">*230 be supplied only through the medium of options to purchase stock; that at the time of such request Willys common stock was selling on the New York Stock Exchange at $ 6.75 per share and that to the date of the notice (June 22, 1944) the stock had sold as high as $ 15.25. In addition, it was stated that on June 21, 1944, Willys had outstanding 2,246,000 shares of common stock and 109,657 shares of preferred stock, each of which was entitled to one vote, and that of the outstanding stock Empire Securities, Inc., and Willys Real Estate Realization Corporation, its wholly owned subsidiary, held 1,048,360 shares of common stock and 18 shares of preferred stock.

Pursuant to the notice of June 22, 1944, a meeting of the stockholders was held on July 12, 1944. At that meeting the stockholders approved granting to petitioner the options to purchase 100,000 shares of stock in Willys, as heretofore set out, and approved an amendment to the certificate of incorporation denying stockholders preemptive rights to subscribe for said 100,000 shares covered by the options.

The common stock of Willys during the years involved herein and for a number of years prior thereto was listed on the New York1954 U.S. Tax Ct. LEXIS 207">*231 Stock Exchange and, in addition thereto, was traded in on the Los Angeles, San Francisco, Philadelphia, and Detroit stock exchanges. Exclusive of the common stock of Willys owned by Empire Securities, Inc., the common stock of said company was held by approximately 6,000 stockholders. On July 12, 1944, Willys had a total of 2,368,491 common and preferred shares outstanding. The following is a statement of the closing price of the common stock of Willys on the New York Stock Exchange on the indicated dates:

At the time of the execution of the above mentioned instruments on June 12, 1944, the petitioner had assets, consisting mostly of cash, of a total value of 1 million dollars or more. If he had desired in June 1944 to purchase 100,000 shares of stock in Willys for $ 300,000 in cash, he would not have had any trouble in doing so as he then was possessed of at least that amount in cash. However, he never considered acquiring any stock in Willys in that manner1954 U.S. Tax Ct. LEXIS 207">*232 because he preferred the arrangement provided by the options. Aside from the options to purchase stock in Willys, the petitioner had never owned nor dealt in any corporate stock or any interest therein.

22 T.C. 321">*331 Following the execution of the above mentioned instruments on June 12, 1944, the petitioner assumed the management of Willys and became its president, a director, and a member of the executive committee of the board of directors. By March 1945 the petitioner had formulated a plan for the postwar activities of the company. He also had obtained concessions from the Government whereby the company was permitted to manufacture a limited number of a redesigned type of jeep for civilian use. As a result of the petitioner's plans and efforts, the company was able to be in production of its civilian products within 3 weeks after the cessation of hostilities in August 1945.

By letter, dated April 17, 1945, the petitioner, through his then counsel and representative, forwarded to the respondent a copy of Option No. 1, under which petitioner became entitled on January 1, 1945, to purchase 10,000 shares of common stock in Willys. It was stated in the letter that at that time the 1954 U.S. Tax Ct. LEXIS 207">*233 petitioner was not disposed to exercise the option and was considering its sale, and request was made for a ruling by respondent on the question of whether the gain resulting from the sale of the option would be considered a long-term capital gain.

By January 1946 the petitioner felt that the program he had instituted had progressed to the point where he was able to relinquish the presidency of Willys and thereafter act only in an advisory capacity. The petitioner negotiated with certain parties about becoming president of Willys and taking over its management but these negotiations were unsuccessful. Thereafter Canaday introduced to petitioner James D. Mooney, a former executive of General Motors Corporation, as being a suitable person to take over the office of president of Willys. Petitioner approved Mooney for the place and in January 1946 Mooney entered the employment of the company as president, also becoming chairman of the board of directors and chairman of the executive committee of the board. Thereupon the petitioner ceased the active management of the company, became vice chairman of the board of directors and remained a member of the executive committee.

When Mooney1954 U.S. Tax Ct. LEXIS 207">*234 became president of Willys, petitioner desired that Mooney control the business but petitioner also desired to have a place in the business so as to help him. Within a month after becoming president, Mooney informed petitioner that he (Mooney) desired to conduct the affairs of the company on his own responsibility and that he did not wish to have the petitioner's advice in doing so. Mooney made several changes in the organization and operation of Willys. He brought into the organization a number of men of his own selection. He changed the source of supply of bodies from a firm in Lansing to a firm in Detroit. He decided that the company should begin the production of certain new models. He also did a number of other things 22 T.C. 321">*332 that petitioner did not consider were for the best interest of the company and to which the petitioner objected. Some of the matters about which petitioner and Mooney disagreed were brought before the board of directors. However, the board sustained Mooney.

Before entering the employment of Willys petitioner had an oral understanding with the owners of the stock of Empire Securities, Inc. (which owned approximately 40 per cent of the outstanding1954 U.S. Tax Ct. LEXIS 207">*235 stock of Willys), that they would notify him if and when they wanted to make disposition of the Willys stock. Petitioner desired to have such information because he did not wish suddenly, and without previous knowledge, to find Willys in the control of new stockholders. Upon becoming president of Willys, Mooney acquired a block of Willys stock from Empire Securities, Inc. Thereafter and following a rise in the market price of Willys stock and during February or March 1946, Ritter informed petitioner that Empire Securities, Inc., had arranged to sell 300,000 shares of its Willys stock to Floyd Odlum, a party with whom the petitioner was acquainted. Although petitioner did not see anything wrong about Odlum's buying the stock, he concluded that in the management of Willys, Mooney was concerned mainly with the interests and desires of the group which owned the stock of Empire Securities, Inc. Having reached that conclusion and having found that so far as the directors of Willys were concerned he (petitioner) had little influence or control over Mooney's actions and that he no longer had the type of control he previously felt that he had, the petitioner decided that he would cease1954 U.S. Tax Ct. LEXIS 207">*236 interesting himself in the affairs of Willys beyond what was required of him as a director, as vice chairman of the board of directors, and as a member of the executive committee of the board, and that he would dispose of his options.

Mooney continued as president of Willys until during 1949. The petitioner continued as vice chairman of the board of directors of Willys and a member of the executive committee until 1952, with the exception of 1948. Willys has continued to furnish petitioner with a secretary who also does some general work for the company. About once a month Willys calls upon petitioner for service relating to its business. In addition, during the summer months, which the petitioner spends in Detroit, he regularly goes to the Willys plant in Toledo and discusses problems of the business with the officials of the company. Willys has paid, and is continuing to pay, to the petitioner the cash payments provided for in the agreement of June 12, 1944, except that commencing about 1949 the payments have been made monthly instead of semimonthly.

On June 15, 1949, a stockholder of Willys instituted a stockholder's derivative action in the United States District Court for1954 U.S. Tax Ct. LEXIS 207">*237 the Eastern District of Michigan, Southern Division, against petitioner, other officers 22 T.C. 321">*333 and directors of Willys, and Willys. The plaintiff alleged that the agreement under which Willys was to pay $ 520,000 to petitioner (or his estate) over a 10-year period was null and void because Willys was obligated to pay the amount even though petitioner could not be required to render service under the agreement, or even though he was discharged for cause or died before the expiration of the 10-year period, and further that the sole purpose of the agreement was to utilize the glamour of the Sorensen name, resulting from his former association with Henry Ford and the Ford Motor Company, to inflate the market price of Willys common stock and thereby enhance the value of the Willys stock held by Empire Securities, Inc. It was also alleged that the options granted to petitioner were null and void because, while purportedly granted to petitioner in fulfillment of his desire to acquire a proprietary interest in Willys, they were granted without adequate consideration. The plaintiff requested a judgment, declaring invalid, or rescinding and canceling, the agreement and the options. Pursuant1954 U.S. Tax Ct. LEXIS 207">*238 to a pretrial order, depositions were taken, during the course of which key officers of Willys and others were examined as to the facts underlying the matters complained of and a great quantity of documentary evidence was produced. The evidence so obtained disclosed facts which caused plaintiff's attorneys to conclude that the contract and options had been entered into in the normal and ordinary course of business, that petitioner "had rendered services to Willys which warranted the compensation paid and the options given him by Willys," and that the plaintiff's claim lacked merit. Accordingly, a stipulation was entered into by the parties for the dismissal of the action on the merits and with prejudice to any further action by Willys or any of its stockholders against petitioner.

On July 1, 1946, there were handed to the then assistant collector of internal revenue for the district of Michigan, at Detroit, 2 letters addressed to the Commissioner of Internal Revenue, Washington, D. C. One, a letter from the petitioner dated June 29, 1946, referred to the option agreements of June 12, 1944, between petitioner and Willys, and contained the following:

In accordance with said option1954 U.S. Tax Ct. LEXIS 207">*239 agreement the basis of the common stock of Willys-Overland, Inc. to Charles E. Sorensen or to any transferee of the option therein conferred is $ 3.00 per share, the actual price to be paid therefor pursuant to said agreement.

Charles E. Sorensen agrees to indemnify the Commissioner of Internal Revenue and/or the United States Treasury against the filing of any claim for credit or refund or any other action by the said Charles E. Sorensen or the Willys-Overland Motors, Inc. inconsistent with this agreement.

The Willys-Overland Motors, Inc. has executed a consent whereby they agree that no deduction shall at any time be claimed by it attributable to any aspect of the option arrangement under Section 23(a)(1) or any other sub-section of the Internal Revenue Bill.

22 T.C. 321">*334 The other, a letter from Willys dated June 25, 1946, which after referring to the options contained the following:

Each of said serial options contains a provision that this Company will not, in case of the exercise of this option, deduct from its income for the purposes of Federal or State Income Taxes the difference between the market price of the shares at the time of the exercise of the option or the delivery1954 U.S. Tax Ct. LEXIS 207">*240 of shares thereunder, and the option price in case such market price shall be in excess of the option price.

The undersigned corporation by its officers hereunto duly authorized consents and agrees, in accordance with its prior existing agreement with Mr. Charles E. Sorensen, that no deduction at any time be claimed attributable to any aspect of the option by and between it and the said Charles E. Sorensen under Section 23 (a) (1) or any other subsection of the Internal Revenue Code, and this corporation hereby indemnifies you against the filing of a claim for credit or refund or any other action by the undersigned inconsistent with the consent herein.

Subsequent to February or March of 1946, Canaday introduced petitioner to David G. Baird. Thereafter Baird negotiated with the petitioner for the purchase of the latter's options to purchase Willys stock. As a result of the negotiations the petitioner, on November 2, 1946, entered into an agreement with the Winfield Baird Foundation, sometimes hereinafter referred to as the foundation, whereby petitioner sold to the foundation Options No. 1, 2, and 3 for $ 385,000. The terms of payment were: $ 22,750 upon the signing of the agreement; 1954 U.S. Tax Ct. LEXIS 207">*241 $ 15,750 on January 2, 1947; and the balance of $ 346,500 in 9 annual payments of $ 38,500 each. The $ 346,500 was to be evidenced by a nonnegotiable, noninterest bearing collateral note executed by the foundation, endorsed by Baird and collateralized with Willys stock or other marketable securities having an aggregate market value of at least 110 per cent of the initial principal amount of the note. The agreement also provided for depositing the note and the collateral thereto with a trust company under an agreement by which the foundation would be obligated to keep pledged at all times marketable collateral of a value of at least 110 per cent of the then unpaid principal amount of the note and by which the foundation would be privileged to withdraw from time to time any collateral pledged in excess of 110 per cent of the unpaid principal amount of the note. The agreement further recited the remedies to be available in the event of default in performance by the foundation of any of the terms of the agreement.

Later, and on December 17, 1948, the petitioner and the foundation entered into another agreement whereby the petitioner sold to the foundation Option No. 4 and agreed that1954 U.S. Tax Ct. LEXIS 207">*242 on January 2, 1949, he would sell to it Option No. 5. The agreement of December 17, 1948, provided that the total purchase price for the 5 options was to be $ 476,000, recited that $ 77,000 of that amount had been paid, and provided that $ 49,000 was to be paid on January 15, 1949, $ 50,000 22 T.C. 321">*335 on January 15, 1950, and $ 50,000 to be paid during each of the 6 succeeding Januarys. Except as to the options involved and the provisions relating to the amounts and dates of payment, the terms and conditions of the agreement of November 2, 1946, were made applicable to the agreement of December 17, 1948.

Pursuant to the terms of sale contained in the agreements of November 2, 1946, and December 17, 1948, the petitioner received from the foundation the following cash payments during the indicated years:

In addition to the foregoing payments the petitioner has continued to receive cash payments as provided for in said agreements.

On November 2, 1946, the date of the first agreement of sale between petitioner and the foundation, the common stock of Willys was selling at $ 11.75 per share and on December 17, 1954 U.S. Tax Ct. LEXIS 207">*243 1948, the date of the second agreement between them, the market value of the stock was $ 7.25 per share. The foundation notified Willys on December 14, 1949, that it had exercised the 5 options it had acquired from petitioner. The market value of Willys stock on that date was $ 5.50 per share. Willys received payment of $ 300,000 for the 100,000 shares covered by said options and issued and delivered said shares to the foundation on July 27, 1950. Willys did not deduct from its income for the purpose of Federal income taxes the difference between the option price and market price of the shares at the time of the exercise of said options or the delivery of shares thereunder, nor has it at any time taken any deduction as an expense because of said options.

At no time has the petitioner ever acquired any stock in Willys.

In his income tax returns for the years 1946 through 1949, the petitioner reported the amounts received in the respective years from the sale of the options as long-term capital gain realized on the sale of property on the installment plan. In determining the deficiencies for the years here involved, the respondent determined that the petitioner realized ordinary1954 U.S. Tax Ct. LEXIS 207">*244 income by way of compensation in the amounts of $ 385,000, $ 45,500, and $ 45,500 in 1946, 1948, and 1949, respectively, upon the transfer of Options No. 1, 2, and 3, Option No. 4, and Option No. 5 in the respective years.

The options here involved were granted to the petitioner as compensation.

On June 16, 1947, the petitioners filed their joint income tax return for 1946. In that return they reported a gross income of $ 51,310.38, 22 T.C. 321">*336 of which $ 11,375 was reported as taxable income from the sale of the Willys options in that year. On March 11, 1948, they filed separate income tax returns for 1947. On February 27, 1951, they filed with respondent consents extending to June 30, 1952, the period for assessment of income tax for 1947. The deficiency notices involved in these proceedings were mailed to petitioners on March 5, 1952.

OPINION.

The first question for determination is whether the options granted to petitioner by Willys were given for the purpose of enabling petitioner to acquire a proprietary interest in that company or were given as compensation. The petitioner contends that they were given for the former purpose while the respondent urges that they were for 1954 U.S. Tax Ct. LEXIS 207">*245 the latter. The question is one of fact, Abraham Rosenberg, 20 T.C. 5, and has been resolved against the petitioner by our finding that the options were granted to him as compensation.

At the outset we are faced with the situation where a comparatively small automotive producing corporation whose management was disturbed over the situation confronting it entered into a contract with one whose long experience and outstanding ability in automotive production had enabled him to command an annual salary of $ 250,000. By the contract the petitioner was prohibited, without the consent of Willys, for a period of 10 years from acting as an officer or director of any other corporation engaged in manufacturing or selling automobiles. In addition, petitioner was required to assign to Willys all inventions, designs, trade-marks, and copyrights, which in any way related to the business of Willys and its subsidiaries, which he might develop or perfect during the 10-year period. Although the instrument providing for the money payments to the petitioner recites that Willys was to pay him, or his personal representatives in case of death, a total of $ 520,000 over1954 U.S. Tax Ct. LEXIS 207">*246 the 10-year period, it contains nothing which indicates that said sum was to be the sole, or the full and complete, payment to the petitioner for the services and other matters which would be required of him under his employment.

According to the record, the management of Willys readily acquiesced in petitioner's demands not only as to the money payments and options but also as to the form and detailed contents of the written instruments relating thereto. Since in that situation the wishes and desires of the petitioner were so dominant, his testimony as to how he determined the amount of the money payments and his reasons for demanding the options is of particular significance. In explanation of how he arrived at the $ 520,000 of money payments, the petitioner testified that he concluded that that was a reasonable amount to ask for his services for actively managing the company while he was 22 T.C. 321">*337 building up an organization to take over the active management, for preparing a postwar production plan or program for the company, and for thereafter acting in a directory or advisory capacity as the plan was carried out. He felt that the development of an organization and the formulation1954 U.S. Tax Ct. LEXIS 207">*247 of the program would require from a year to 18 months. Respecting the options he testified that he requested them because he desired a proprietary interest in the company so that at any time he wished, he could assert himself on anything he found necessary without being controlled by the group owning the stock of Empire Securities, Inc., and also in order that he could interest himself in, and look after the interests of, the minority stockholders.

All of the options upon their receipt by petitioner were immediately assignable and their exercise was in no way restricted to petitioner. Option No. 1 which was exercisable on January 1, 1945, contained no provision as to termination by Willys. All of the other options which were exercisable in successive later years provided that they should be terminable by Willys in case petitioner left its employment, or in case Willys should terminate his services for good cause prior to certain specified dates. Such a provision served to make the exercise of those options conditional upon the petitioner remaining in the service of Willys until specified dates or times. Thus it appears that there was a vital causal connection between the petitioner's1954 U.S. Tax Ct. LEXIS 207">*248 employment and his rendition of services and the right to acquire stock at the price stated in the options. Cf. Wanda V. Van Dusen, 8 T.C. 388, affd. 166 F.2d 647.

Although on June 12, 1944, the date on which the options were granted to petitioner, Willys common stock sold at 12 1/8 on the New York Stock Exchange, or for more than 4 times the price of $ 3 per share stated in the options, and although so far as appears the market value of the stock at all times material herein exceeded the option price, the petitioner never acquired any stock in Willys either under the options or otherwise, but sold all of the options. In view of the petitioner's strong financial position, his failure to acquire any stock in Willys clearly was not ascribable to a lack of funds on his part.

While Option No. 1 became exercisable on January 1, 1945, the petitioner, instead of thereupon exercising it and obtaining a proprietary interest in the company, thereafter, in April 1945, informed the respondent that he was not disposed to exercise the option but was considering its sale and requested a ruling from the respondent on the question of whether1954 U.S. Tax Ct. LEXIS 207">*249 the gain resulting from the sale would be considered long-term capital gain. The requested ruling was at a time when the petitioner was president and actively in charge of Willys and was some 9 months or more prior to the time Mooney 22 T.C. 321">*338 became president when, as stated by petitioner, his interest in the affairs of Willys subsided very materially. No explanation is offered as to why, if petitioner was interested in June 1944 in acquiring a proprietary interest in Willys, he was not disposed to do so in April 1945. So far as the record discloses, a proprietary interest in the latter month would have been equally as desirable as in the former month.

According to petitioner, he decided not to exercise, but to sell, his options as a result of his conflicts with Mooney and the support given Mooney by Willys' board of directors in matters which petitioner did not deem to be for the best interest of the company. The foregoing conflicts and the supporting action of the board of directors arose in 1946 and at times when the petitioner could have exercised Options No. 1 and 2 for a total of 32,500 shares. A decision to sell reached as a result of such a situation can scarcely be 1954 U.S. Tax Ct. LEXIS 207">*250 reconciled with the petitioner's testimony that he desired to acquire a proprietary interest in the company in order that he could interest himself in, and look after the interests of, the minority stockholders. With things being done in 1946 by the president and the board of directors which petitioner deemed inconsistent with the best interest of the company, it would appear that his desire to acquire a proprietary interest in the company would have been enhanced if he actually had been interested in the minority stockholders and had desired to look after their interests.

While each of the options contained a provision that Willys would not take deductions from its income for tax purposes with respect to the exercise of the options and Willys has never done so, that fact under the circumstances here, does not appear to be of any greater significance than any other act or forbearance required by petitioner of Willys as a condition for entering its employment. Particularly is this true in view of what appears to have been the character of the evidence developed in the derivative suit by a stockholder of Willys against petitioner, Willys, and others. The record here shows that the1954 U.S. Tax Ct. LEXIS 207">*251 evidence produced there convinced counsel for the stockholder that petitioner had rendered services to Willys which warranted the compensation paid and the options given him by Willys. In view of this, it would appear that in that suit the petitioner, Willys, and the other defendants sought to justify the granting of the options on the ground that the total of the money payments plus the options did not exceed the value of the petitioner's services. Such a justification makes services of the petitioner the consideration for the options and, in turn, makes the options consideration for services.

From a consideration of the foregoing in connection with all the other evidence bearing on the question, we have found as a fact that the options were granted to petitioner as compensation.

22 T.C. 321">*339 The petitioner contends that in view of the provisions of I. T. 3795, 1946-1 C. B. 15, his transfers of the options to the Winfield Baird Foundation in 1946, 1948, and 1949 did not result in any income to him by way of compensation and that the respondent was barred from making a determination that the transfers did result in such income to him.

Prior to April 12, 1946, 1954 U.S. Tax Ct. LEXIS 207">*252 Regulations 111, section 29.22 (a)-1, provided that:

If property is transferred by a corporation to * * * an employee, for an amount substantially less than its fair market value, regardless of whether the transfer is in the guise of a sale or exchange, such * * * employee shall include in gross income the difference between the amount paid for the property and the amount of its fair market value to the extent that such difference is in the nature of (1) compensation for services rendered or to be rendered * * *.

Subsequent to the decision by the Supreme Court in Commissioner v. Smith, 324 U.S. 177">324 U.S. 177 (February 26, 1945), Regulations 111, section 29.22 (a)-1, were amended (T. D. 5507, dated April 12, 1946, 1946-1 C. B. 18) to provide that:

If property is transferred by an employer to an employee for an amount less than its fair market value, regardless of whether the transfer is in the form of a sale or exchange, the difference between the amount paid for the property and the amount of its fair market value is in the nature of compensation and shall be included in the gross income of the employee. * * *

Respecting options 1954 U.S. Tax Ct. LEXIS 207">*253 granted prior to February 26, 1945, the amended regulations provided as follows:

In the case of property transferred by an employer to an employee pursuant to the exercise of an option granted to the employee before February 26, 1945, the provisions of these regulations prior to the amendment made by this Treasury Decision [5507] shall apply.

The respondent, on April 12, 1946, issued I. T. 3795, supra. This ruling after first elaborating on the treatment to be accorded options granted by employers after April 12, 1946, to employees to purchase stock then dealt with such options granted prior to April 12, 1946. The ruling provides, in part, as follows:

Section 22 (a) of the Internal Revenue Code includes in an employee's taxable income any economic or financial benefit conferred on him as compensation, whatever the form or mode by which it is effected. (See Commissioner v. John H. Smith, 324 U.S. 177">324 U.S., 177, Ct. D. 1633, C. B. 1945, 49; Old Colony Trust Co. v. Commissioner, 279 U.S., 716, Ct. D. 80, C. B. VIII-2, 222 (1929).)

* * * *

Treasury Decision 5507, supra, does not apply to the case of the exercise or transfer, 1954 U.S. Tax Ct. LEXIS 207">*254 at whatever date, of an option which was granted to an employee prior to February 26, 1945, to purchase stock of the employer corporation, or of an affiliate of the employer corporation as set forth in section 141 (d) of the Internal Revenue Code.

Accordingly, in view of the prior development of the regulations and interpretations relative to employee stock options * * *, as respects an option granted 22 T.C. 321">*340 to an employee prior to February 26, 1945, unless at the time such option was granted there was a substantial difference between the fair market value of the stock and the option price therefor, or, within the purview of section 29.22 (a)-1 of Regulations 111 prior to the amendments made by Treasury Decision 5507, supra, the employee would otherwise clearly realize income by way of compensation through the exercise or transfer of the option, this office will hold that the exercise or transfer of such option, as the case may be, does not result in income to the employee by way of compensation under the principles enunciated in the preceding paragraphs, provided, however, that on or before July 1, 1946, the employee to whom such option is granted and any transferee thereof, and1954 U.S. Tax Ct. LEXIS 207">*255 the employer corporation or any other taxpayer who granted such option to the employee, file in duplicate with the Commissioner of Internal Revenue at Washington, D. C., written consents (1) agreeing that the basis to the employee, and to any transferee of the option, for the stock acquired or to be acquired pursuant to the option shall be the actual price paid therefor and that no deduction shall at any time be claimed attributable to any aspect of the option arrangement, under section 23 (a) (1) or any other subsection of the Internal Revenue Code, by the employer corporation or the taxpayer who granted the option, and (2) indemnifying the Commissioner against the filing of a claim for credit or refund, or any other action by any taxpayer concerned, inconsistent with the consents filed.

The petitioner takes the position that the 2 letters addressed to the respondent, one from the petitioner dated June 29, 1946, and the other from Willys dated June 25, 1946, constituted the written consents contemplated by I. T. 3795 and that the handing of the letters to the assistant collector in Detroit on July 1, 1946, complied with the requirements of I. T. 3795 that such written consents be1954 U.S. Tax Ct. LEXIS 207">*256 filed on or before that date with the Commissioner in Washington; that at the time the options were granted it was not clear that he would realize income by way of compensation through the exercise or transfer of the options; that since the options were not immediately exercisable, there was at the time they were granted no substantial difference between the fair market value of the Willys stock and the option price therefor; and that, since the factual situation here thus comes within the provisions of I. T. 3795, the respondent accordingly was barred from determining that the transfers of the options resulted in income to him by way of compensation. Without discussing in detail the correctness of the various conclusions upon which the petitioner rests his position, we think it sufficient to point out that at the time the options were granted to him there was a substantial difference between the fair market value of the stock (12 1/8 per share) and the option price ($ 3 per share), and, further, that the proceeds received upon a transfer of the options clearly would constitute income. From a consideration of I. T. 3795 we fail to find in it anything to indicate that it was intended1954 U.S. Tax Ct. LEXIS 207">*257 to, or that it does, hold that in situations like that presented here an employee would realize no income by way of compensation upon a transfer of his option, or options, prior to the exercise thereof. Nor do we find anything 22 T.C. 321">*341 in I. T. 3795 which precludes the respondent from ascertaining and determining what he considers to be the facts in a given case and thereupon determining what he considers to be the correct tax liability under the Internal Revenue Code. Consequently, petitioner's contention is not sustained.

The petitioner next contends that the amounts received by him upon the sale of the options did not constitute income in the nature of compensation and therefore ordinary income but constituted gain from the sale of capital assets which he had held for more than 6 months. Neither of the parties cites any decision involving a situation in which the employee, as here, disposed of his options instead of exercising them, nor have we found any. However, we think the applicable principles have been indicated by decisions involving related situations. In 324 U.S. 177">Commissioner v. Smith, supra, the taxpayer's employer, as compensation for 1954 U.S. Tax Ct. LEXIS 207">*258 services, gave him an option to purchase a specified portion of certain stock at a stated price. The then market price of the stock was not in excess of the option price. Thereafter, and at times when the market value of the stock exceeded the option price, the taxpayer made purchases under the option. In holding that the excess of the market value of the stock at the time of purchase over the option price paid therefor constituted compensation for services, the Supreme Court said:

And as the option was not found to have any market value when given, it could not itself operate to compensate respondent. It could do so only as it might be the means of securing the transfer of the shares of stock from the employer to the employee at a price less than their market value, or possibly, which we do not decide, as the option might be sold when that disparity in value existed. Hence the compensation for respondent's services, which the parties contemplated, plainly was not confined to the mere delivery to respondent of an option of no present value, but included the compensation obtainable by the exercise of the option given for that purpose. * * *

We have found that the options here1954 U.S. Tax Ct. LEXIS 207">*259 involved were granted to the petitioner as compensation for services. Since no attempt was made at the hearing to show that at the time they were given the options had any fair market value, and since neither party contends here that they did have, and since the petitioner on brief states that "it cannot be said that the options had any ascertainable value at the time they were granted," we proceed on the assumption that they did not have any market value at that time and that they, themselves, did not operate to compensate petitioner. In this situation, and since the petitioner did not exercise the options but sold them, we think, as the Supreme Court indicated, but did not decide, in the Smith case, that the sale of the options operated to compensate the petitioner for his services. Although only a portion of the selling price of the options sold in the respective years was received in cash during the years of sale and the 22 T.C. 321">*342 remainder was represented by a note or notes, the petitioner has not attempted to show, and does not here urge, that at the time of receipt the note or notes had a fair market value of less than face value. We conclude therefrom that the notes1954 U.S. Tax Ct. LEXIS 207">*260 then had a fair market value equal to their face amounts. In view of this, and since the options were received by petitioner for services and without the payment of cash or other property, we think that the selling price of the options measured the amount of the compensation received by the petitioner in the years in which the respective options were sold.

Except for Option No. 3 all the options were presently exercisable when sold. However, at the time of the sale of Option No. 3 the time within which Willys could terminate it by terminating petitioner's services had expired. Under the options the petitioner had the right to exercise them, and such income as would have resulted from their exercise would have been compensation for services and as such ordinary income. Instead of exercising his rights the petitioner sold them. In this situation, we think that what was said in Charles T. Fisher, 19 T.C. 384, affd. (C. A. 6, 1954) 209 F.2d 513, is applicable, namely, "A sale of a right to receive in the future ordinary income already accrued produces ordinary income rather than a capital gain." Accordingly, we conclude 1954 U.S. Tax Ct. LEXIS 207">*261 that the petitioner realized ordinary income and not capital gain from the sale of the options.

The petitioner contends that even if the proceeds from the sale of the options are held not to be gain from the sale of capital assets held for more than 6 months, he, nevertheless, is entitled to report the income from the sales on the basis provided in section 44 of the Code for reporting income from sales of property made on the installment plan. Since the sales of the options operated to compensate petitioner for his services, what he received in the form of both cash and notes was income by way of compensation. The provisions of section 44 relate only to the reporting of income arising from the sale of property on the installment basis. Those provisions do not in anywise purport to relate to the reporting of income arising by way of compensation for services. Petitioner is not entitled to have them applied here.

The final question is whether the period of limitations for assessment of income tax for 1946 and 1947 had expired when the respondent mailed the deficiency notices on March 5, 1952. The pertinent portions of the Code are set out below. ¹ In their joint income tax return1954 U.S. Tax Ct. LEXIS 207">*262 for 22 T.C. 321">*343 1946 which was filed on June 16, 1947, the petitioners reported a total gross income of $ 51,310.38 of which $ 11,375 was reported as taxable income from the sale of the Willys options. The respondent has determined that the income from the sale of the options in that year was $ 385,000 and we have sustained that determination. The difference between the $ 385,000 and the $ 11,375, or $ 373,625, was omitted from the return of the petitioners. Since the amount omitted is in excess of 25 per cent of the amount stated in the return, the period of limitations for making assessment of income tax for 1946 was 5 years from June 16, 1947, or until June 16, 1952, and since the deficiency notice was mailed prior to the latter date, the period for assessment of tax for 1946 had not expired.

1954 U.S. Tax Ct. LEXIS 207">*263 On March 11, 1948, the petitioners filed their separate income tax returns for 1947. Since a deficiency for 1947 has been determined only against petitioner Charles E. Sorensen, the issue as to that year relates alone to him. On February 27, 1951, and prior to the expiration of the 3-year period for assessment of tax for 1947, he filed a consent with the respondent extending the period for assessment to June 30, 1952. Since the deficiency notice for 1947 was mailed on March 5, 1952, the period for assessment of tax for 1947 had not expired.

Decisions will be entered under Rule 50.