The Chairman stated that the assets to be sold comprised equipment and prepaid insurance having April 30, 1955 book values of $ 86,760.26 and $ 10,754.71 respectively. Such book values would be subject to adjustment for depreciation, for purchases of equipment after April 30, and other appropriate items.

39 T.C. 144">*149 The plan of liquidation of Delaware provided in part as follows:

2. Immediately upon adoption of the Plan, the shareholders voting for its adoption shall adopt appropriate resolutions authorizing the appropriate officers of * * * [Delaware] to take all necessary steps to sell and transfer the operating assets of * * * [Delaware], including its goodwill, and 1962 U.S. Tax Ct. LEXIS 48">*62 to assign its operating contracts. The sales price of such assets shall be not less than the book value thereof as of May 31, 1955, or as of the time of sale, whichever is less. It is understood and contemplated that such assets may be sold to a corporation some of the shareholders of which are also shareholders and/or officers of * * * [Delaware] * * *

* * * *

5. If and when the operating assets of * * * [Delaware] have been sold as contemplated by Section 1 hereof, the officers and directors in so far as possible shall reduce all other assets of * * * [Delaware] to cash and upon compliance with the applicable laws of the State of Delaware may from time to time make one or more pro rata distributions in cash to the shareholders of * * * [Delaware] * * *

6. On or before, but not later than, May 1, 1956, all known assets of * * * [Delaware], except such assets as may be retained to meet claims against * * * [Delaware] which it shall not have been possible to discharge prior to that date, shall be distributed pro rata to the shareholders of * * * [Delaware] in complete liquidation of * * * [Delaware]. If any of * * * [Delaware's] assets shall not have been reduced to cash prior to1962 U.S. Tax Ct. LEXIS 48">*63 the date of such distribution, which shall take place on May 1, 1956, if not earlier, undivided interests in such assets shall be distributed to the shareholders or such assets shall be otherwise divided ratably among the shareholders of * * * [Delaware]. Such distribution of all of the assets of * * * [Delaware] shall be in complete cancellation of all outstanding shares of * * * [Delaware].

* * * *

Dated at San Francisco, California, June 14, 1955.

On June 17, 1955, there was incorporated West Coast Terminals Co. of California, a California corporation (hereinafter referred to as California). California had only one class of stock. It issued this capital stock on July 15, 1955, and received full payment therefor in cash in the aggregate amount of $ 300,000.

Certain employees, important in the operation of the business and who had not owned any stock in Delaware, became stockholders in California. These persons consisted of M. O. Kurtz, the secretary and treasurer of Delaware, who was in charge of its accounting, A. E. Johnson, who was terminal superintendent for southern California, O. Johnson, who was superintendent of stevedoring operations in San Francisco, L. B. Kavanaugh, 1962 U.S. Tax Ct. LEXIS 48">*64 who was terminal superintendent in San Francisco, N. R. Linden, who was superintendent of stevedoring operations at Terminal Island in Los Angeles harbor, G. F. Cervelli, who was terminal superintendent at San Francisco, and James O'Leary, who was terminal superintendent at San Francisco.

39 T.C. 144">*150 The capital stock of California at all material times has been owned, by petitioners and others, as shown by the following schedule:

On July 18, 1955, Delaware effected a sale of all of its operating assets and prepaid expenses and an assignment of its current trade contracts to California. The consideration for the above purchase was a check dated July 18, 1955, for the book value of the property in the amount of $ 100,264.56, said to be the1962 U.S. Tax Ct. LEXIS 48">*65 fair market value of the properties. Nothing was paid for the partially performed contracts with customers beyond the purchaser's assumption of the obligations of these contracts. The opening balance sheet of California on July 18, 1955, was set up on the books as follows:

39 T.C. 144">*151 In all cases the assignment of the contracts was agreed to by the third party involved, except in the case of the United States Government, which required that a new contract in the form of a novation be entered into. In securing these assignments, the customers were1962 U.S. Tax Ct. LEXIS 48">*66 informed that the same key personnel would be with California and that Bush and Gallagher would control the company. A new licensing agreement with the Board of State Harbor Commissioners for the use of pier facilities was also entered into by California.

After July 18, 1955, Delaware completely terminated its business, retaining only the personnel and office facilities necessary to effect an orderly liquidation. After July 18, 1955, the principal assets remaining to be converted to cash by Delaware were its accounts receivable. On July 21, 1955, Delaware was issued a document entitled "Certificate of Dissolution" by the State of Delaware.

By May 3, 1956, Delaware had made a series of distributions of all remaining assets to its shareholders pro rata, as shown by the following schedule:

1962 U.S. Tax Ct. LEXIS 48">*67 After these distributions, Delaware had no remaining assets and all of its outstanding shares of stock were surrendered and canceled.

Delaware's total accumulated earnings and profits since its organization did not exceed $ 949,221, and petitioner's respective shares thereof did not exceed the following:

Petitioners' respective shares of Delaware capital and the individual adjusted basis for Federal income tax purposes were as follows:

39 T.C. 144">*152 As of May 31, 1955, Delaware had retained earnings of $ 838,329.80 and capital contributed in the amount of $ 156,000. The annual net income earned and dividends paid by Delaware and California for the following fiscal years was:

1962 U.S. Tax Ct. LEXIS 48">*68 The book value of the stock of Delaware on May 31, 1955, shortly before the date of dissolution, was $ 9,943.30 per 1 percent of stock ownership. The cost of the original issue of the stock of California paid in by its stockholders was $ 3,000 per 1 percent of stock ownership.

The business of the two corporations required only a small amount of operating assets. The operating assets consisted largely of trucks, cranes, fork lifts, and similar vehicles and gear necessary for the loading and unloading of ships and the handling of cargo. This equipment and gear had originally been bought second-hand and about 90 percent of it was over 10 years old. California was required by its business needs to invest in many new operating assets in order to replace old and worn-out assets. Neither Delaware nor California owned real property. They occupied as lessee or licensee those premises on which they conducted business, including piers, terminal facilities, warehouses, offices, and similar property.

The principal business of California was substantially the same as that of Delaware. When California commenced operations in 1955, the use of a name similar to that of Delaware was convenient1962 U.S. Tax Ct. LEXIS 48">*69 for the purpose of indicating the same personnel of directors and executives, but was not necessary.

This business was subject to risks in that contracts could be canceled on 30 to 60 days' notice. The executives were important because of their personal contact with the customers and because they had made the contracts. About eight customers accounted for 75 percent of Delaware's business. One of these customers was the United States 39 T.C. 144">*153 Army, which accounted for more than 40 percent of Delaware's business. This contract was let by competitive bidding each year and was subject to renegotiation of the profit. Late in 1955, the Army, which had up to then furnished all the gear for work under its contract, was discussing the proposed requirement that the successful bidder furnish the gear commencing January 1, 1956, a requirement which, together with the necessity of replacing the other gear, made the future appear to require an outlay of nearly half a million dollars for gear without any certainty that Delaware would be the successful bidder for the Army contract. At the beginning of 1956, California lost the Army contract.

The monthly operating expense of the business was1962 U.S. Tax Ct. LEXIS 48">*70 approximately $ 1 million. The largest single item was the payroll, which was paid weekly. Each week the executives would estimate the company's payroll and its available cash and the accounts receivable that would be collected during the week. They would then borrow from the bank any additional cash that would be necessary to meet the payroll.

Edwin E. Adams, president of the Bank of California, was a director in both Delaware and California. Both Delaware and California obtained financing exclusively from the Bank of California. Continuous lines of credit in excess of $ 750,000 were granted by the bank to both corporations. Neither corporation had any difficulty in obtaining loans and on occasion they would be granted an increase in their line of credit on a temporary basis.

Collection of the commercial accounts receivable took an average of 30 to 45 days. On two occasions, California suffered large bad debt losses.

Throughout the 4 fiscal years immediately preceding May 31, 1955, the earned surplus was invested in assets required by business needs. The cash in the business was enough to meet approximately 1 week's operating expenses. Bush had sought counsel as to Delaware's1962 U.S. Tax Ct. LEXIS 48">*71 dividend policy with respect to the accumulated earnings tax for each of the fiscal years during 1953 through 1955 and was advised that it was not necessary to have a dividend in either 1953, 1954, or 1955 as long as the first distribution in dissolution was made before August 15, 1955. Adams opposed any dividends and wanted Delaware to build its net worth to reduce the risk of borrowing.

The following were some of the corporate business reasons for liquidating Delaware: To eliminate the inactive estates and widows, representing 38 percent of the outstanding stock, from the business; to permit Gallagher to acquire more stock so that Bush and Gallagher could control the business; to bring into stock ownership seven or eight executives who had helped in making a success of Delaware; to 39 T.C. 144">*154 limit Cuffe's ownership of the business. Cuffe had previously withdrawn his account in San Francisco and stated his intention of going into the stevedoring business. The liquidation was intended to limit the possibility of Cuffe's 20.65 percent being combined with the estates and widows to control the business.

The dissolution of Delaware, incorporation of California, and transfer of the 1962 U.S. Tax Ct. LEXIS 48">*72 assets were all part of a single plan formulated by petitioners upon the advice of their attorney and tax counsel to effect the stated ends and achieve favorable tax results.

The following schedule shows, for each shareholder, the total amount received from the liquidation of Delaware and the total amount invested upon the incorporation of California:

1962 U.S. Tax Ct. LEXIS 48">*73 None of the shareholders of Delaware and none of the shareholders of California occupied a relationship to any other shareholder of either Delaware or California, either by reason of being a member of a family or of owning any interest in any partnership, estate, trust, or corporation or for any other reason which would make applicable the constructive ownership rules of section 318 of the Internal Revenue Code of 1954, except to the extent that husband and wife owned shares as community property. All of the stock of each petitioner here involved had been held for more than 6 months before January 1, 1955.

Petitioners, in their individual returns, treated the liquidating distributions of Delaware as part or full payment in exchange for their stock and reported the amounts received in excess of the adjusted 39 T.C. 144">*155 basis as long-term capital gains. Respondent, in his deficiency notices, "determined that the [amounts] * * * received * * * from [Delaware] * * * [are] taxable in full as dividend income."

OPINION.

Respondent's position consists of two alternative contentions which are so mutually exclusive as to make it desirable to consider them separately. His first argument, as1962 U.S. Tax Ct. LEXIS 48">*74 stated in his brief, is "predicated basically on the thesis that the facts show that a complete [or partial] liquidation did not in substance occur." He therefore insists that the amount received by the individuals consisted of a dividend ²1962 U.S. Tax Ct. LEXIS 48">*75 within the purview of section 301 of the 1954 Code. Although he does not specifically refer to section 302, the implication appears to be ³ that the redemption, which he does not dispute, was essentially equivalent to a dividend ⁴ under section 302(b)(1), see Neff v. United States, 305 F.2d 455 (Ct. Cl. 1962), vacating and withdrawing 301 F.2d 330 (Ct. Cl. 1962), and hence is not to be treated as a capital transaction ⁵ under section 302(a), but as a dividend ⁶ under section 301(c)(1), with ordinary income consequences. ⁷1962 U.S. Tax Ct. LEXIS 48">*76 His alternative argument is that this was a reorganization ⁸ within the meaning ⁹1962 U.S. Tax Ct. LEXIS 48">*77 of section 368, that presumably the proceeds of the redemptions 39 T.C. 144">*156 constituted "boot," and, accordingly, under section 356, are, at least to some extent, to be treated as ordinary income. ¹⁰

There can be no doubt that the stock of Delaware was redeemed ¹¹ and, if that were all there was to it, we might look to section 302, and then to section 301, for guidance in settling the ordinary-income problem. But the redemption was only one step in what was undoubtedly a liquidation-reincorporation operation, see David T. Grubbs, 39 T.C. 42">39 T.C. 42 (1962), as respondent himself suggests in his second alternative.

1962 U.S. Tax Ct. LEXIS 48">*78 As to the first proposition, we are accordingly able to resort to the step-transaction theory and to view the entire series of transactions as interrelated and inextricable.

It is well settled that where a transaction is comprised of a series of interdependent steps, that is to say, where the legal relationships created by any one step would have been fruitless without the completion of the entire series, the various steps are to be integrated into one for the purpose of arriving at the tax consequences of the transaction. * * * Where the facts warrant the integration of a series of steps into one, it is the situation at the beginning and at the end of the series which determines whether there has been a statutory reorganization, or merely a taxable exchange.

Southwell Combing Co., 30 T.C. 487">30 T.C. 487, 30 T.C. 487">497-498 (1958). Respondent does not, in fact, suggest anything to the contrary, but merely contends 39 T.C. 144">*157 that some of the steps actually taken can be disregarded. ¹² But, at least in such a situation as this, we cannot justify the inclusion of some and the exclusion of other essential steps.

It is contended by petitioners that the cash distribution was1962 U.S. Tax Ct. LEXIS 48">*79 in partial liquidation of the Bessemer Co. and was a part of the plan of liquidation of that company, but that it was not a part of the plan of reorganization. We agree with the first part of petitioners' contention, but do not agree that the cash distribution was not a part of the plan of reorganization.

R. C. Love, 39 B.T.A. 172">39 B.T.A. 172, 39 B.T.A. 172">178 (1939), affd. 113 F.2d 236 (C.A. 3, 1940).

The concept of a continuation of the existing business through a section 331 liquidation, ¹³ coupled with an intercorporate transfer, falls into the general area of corporate reorganizations, so that it is in the so-called1962 U.S. Tax Ct. LEXIS 48">*80 reorganization sections, if anywhere, that we should expect it to be dealt with.

The fact that the assets of a business are transferred to a new corporation does not by itself change the effect of the liquidation of the original corporation. If, for example, the assets had been transferred to another corporation in which the old shareholders had no interest, even though the business continued, Fowler Hosiery Co., 36 T.C. 201">36 T.C. 201 (1961), affd. 301 F.2d 394 (C.A. 7, 1962); or if they had been transferred to another corporation, but the old corporation's business had not been continued, ¹⁴ it seems clear respondent would have had no possible ground for contending that the liquidating distribution, even though partly composed of accumulated earnings, could be taxed as an ordinary dividend. Hellmich v. Hellman, 276 U.S. 233">276 U.S. 233 (1928). So that it is only the continuance of the business in a new corporation, 1962 U.S. Tax Ct. LEXIS 48">*81 preponderantly owned by the shareholders of the old, upon which respondent can rely for his first contention.

But, generally speaking, it is exactly where the same enterprise is in essence wholly or partly continued even after some more or less radical change in its organization or conduct that it is the purpose of the so-called "reorganization" section of the law to operate. ¹⁵ The 39 T.C. 144">*158 basic approach of the complicated series of enactments incorporated in the 1954 Code appears to be that all such situations are to be tested by the "reorganization" portion of the statute, and that it was intended that if a transaction of a similar kind does not fall within them, but lies in the general area of arrangements which may, in effect, constitute the1962 U.S. Tax Ct. LEXIS 48">*82 continuation of an existing business, it shall be treated as a transaction giving rise to gain or loss and not as a distribution. ¹⁶

1962 U.S. Tax Ct. LEXIS 48">*83 Respondent's first contention includes the insistence that we should ignore the liquidation of Delaware and test these transactions solely as a redemption. ¹⁷ Yet he makes no reference in his brief to section 302 which is the primary redemption section. It is not clear whether for this proposition he relies on the rationale of such cases as Bazley v. Commissioner, 331 U.S. 737">331 U.S. 737 (1947), rehearing denied and prior opinion amended 332 U.S. 752">332 U.S. 752 (1947); see also Gregory v. Helvering, 293 U.S. 465">293 U.S. 465 (1935), although there it was a "recapitalization," not a liquidation, that was held not to fall within the statute. In Bazley, the Supreme Court found that a transaction which literally complied with the reorganization provisions was not to be accorded reorganization treatment because it was primarily a vehicle for the distribution of undistributed earnings. Gregory similarly denied the benefits of the reorganization provisions to a plan which met the literal definition of the Code because the plan had no relation to the business of either corporation.

1962 U.S. Tax Ct. LEXIS 48">*84 Respondent would have us hold here that the liquidation of Delaware was not a liquidation, although it literally complied with all the 39 T.C. 144">*159 terms, because the transaction is alleged to have been primarily a vehicle for the distribution of undistributed earnings. But, unlike the reorganization sections which were involved in Bazley and similar cases, liquidation is usually accompanied by some kind of distribution which may well include accumulated earnings of the liquidating corporation. 276 U.S. 233">Hellmich v. Hellman, supra.That this is recognized by the statutory provisions themselves seems to us to permit of no uncertainty. ¹⁸ Even though respondent from time to time refers to the section relating to complete liquidation, ¹⁹ no definition of this term appears in the statute nor in the regulations. A complete liquidation of a corporation can apparently exist only where the definition of partial liquidation does not apply, since otherwise there would be no purpose in distinguishing between complete and partial liquidation as defined in section 346(a)(1); although, of course, there may be situations in which, since the result would be the same, 1962 U.S. Tax Ct. LEXIS 48">*85 it is unnecessary to determine whether the liquidation is complete or partial.

Instead, it appears that what actually occurred here must be treated as a partial liquidation since it falls squarely within the definition of such a transaction which does appear in the statute. ²⁰ It is difficult to find any ground for holding that this was not in every respect a partial liquidation to which section 331(a)(2) would expressly apply. ²¹

Section 331(a)(2) of the 1954 Code provides that amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. This carries as a natural corollary that such amounts shall not be treated as dividends.

36 T.C. 201">Fowler Hosiery Co., supra at 222.1962 U.S. Tax Ct. LEXIS 48">*86

1962 U.S. Tax Ct. LEXIS 48">*87 We think it follows that the distributions made by Delaware are governed by the rules established by section 346. There was unquestionably 39 T.C. 144">*160 a series of distributions in complete redemption of all of Delaware's stock pursuant to a plan. Although these distributions completely liquidated Delaware, the transaction literally falls within section 346(a)(1).

The conclusion that the redemption of Delaware's stock in the course of its liquidation is not to be considered as an ordinary dividend is fortified by an examination of the provisions of section 346. From the language of section 346(a), it would appear that a distribution in redemption of all of the stock of the corporation pursuant to a plan can never be essentially equivalent to a dividend as referred to in section 302(b)(1). This is because Congress found it necessary to include that condition ²² in section 346(a)(2), which refers to the redemption of a part of the stock of the corporation, but omitted it in section 346(a)(1). We cannot assume that this was without significance. ²³

1962 U.S. Tax Ct. LEXIS 48">*88 Furthermore, "Section 302 does not apply to that portion of any distribution which qualifies as a distribution in partial liquidation under section 346." Sec. 1.302-1(a), Income Tax Regs. Not only this, but we have been referred to no authority, either under the 1954 Code or under the less restrictive language of the preceding revenue acts, in which a liquidation-reincorporation has been held to give rise to ordinary income, except where that result could be accomplished by applying the provisions relating to reorganizations. Cf. Richard H. Survaunt, 5 T.C. 665">5 T.C. 665 (1945), affirmed on this issue 162 F.2d 753 (C.A. 8, 1947); Estate of John B. Lewis, 6 T.C. 455">6 T.C. 455 (1946), affd. 176 F.2d 646 (C.A. 1, 1949).

Of course, this does not eliminate respondent's second argument contending for the existence of a reorganization and accompanying "boot." With the limited exception of special situations specifically provided for by statute, see, e.g., sections 333, 341, this would be the only time a series of redemptions of all the stock of a corporation pursuant to a plan, or distributions1962 U.S. Tax Ct. LEXIS 48">*89 in complete liquidation of a corporation, would receive treatment as a distribution to which section 301 applies. When the redemption, whether in complete or partial liquidation, is in pursuance of a plan of reorganization, as defined by section 39 T.C. 144">*161 368, and section 356 regarding "boot" comes into play, it is apparent that the dividend provisions of section 301 must apply. ²⁴

1962 U.S. Tax Ct. LEXIS 48">*90 The difficulty is that this series of steps does not amount to a statutory reorganization. Although several cases have found reorganization upon similar facts under subsection (D) relating to intercorporate transfers of assets with retention of "control," see, e.g., Heller v. Commissioner, 147 F.2d 376 (C.A. 9, 1945), affirming 2 T.C. 371">2 T.C. 371 (1943), certiorari denied 325 U.S. 868">325 U.S. 868; William M. Liddon, 22 T.C. 1220">22 T.C. 1220 (1954), affirmed on this issue 230 F.2d 304 (C.A. 6, 1956), certiorari denied 352 U.S. 824">352 U.S. 824; Pebble Springs Distilling Co., 23 T.C. 196">23 T.C. 196 (1954), affd. 231 F.2d 288 (C.A. 7, 1956), certiorari denied 352 U.S. 836">352 U.S. 836, see also 5 T.C. 665">Richard H. Survaunt, supra; those cases differ from the instant case in one important respect. Respondent specifically renounces subsection (D). This may be because only 72 2/3 percent of California's stock was owned by former shareholders of Delaware. In this respect, 1962 U.S. Tax Ct. LEXIS 48">*91 if no other, the present case is unlike 39 T.C. 42">David T. Grubbs, supra."Since the [shareholders of the transferor] owned less than 80 percent of the stock of the new corporations, the acquisition of the assets of the [transferor] is precluded from being a tax-free reorganization within the meaning of section [368(a)(1)(D)]." Austin Transit, Inc., 20 T.C. 849">20 T.C. 849, 20 T.C. 849">856 (1953).

The step-transaction approach makes it possible to view this arrangement as an acquisition of Delaware's assets by California in exchange for California's voting stock to petitioners. But then we must consider that there was also a payment of cash to the retiring 38 percent owned by the estates and widows. Possibly, this is the reason respondent has not attempted to apply subsection (C), relating to the acquisition of assets, "in exchange solely for * * * voting stock." (Emphasis added.) Helvering v. Southwest Corp., 315 U.S. 194">315 U.S. 194 (1942), rehearing denied 315 U.S. 829">315 U.S. 829, second petition for rehearing denied 316 U.S. 710">316 U.S. 710; Turnbow v. Commissioner, 368 U.S. 337">368 U.S. 337 (1961);1962 U.S. Tax Ct. LEXIS 48">*92 sec. 368(a)(2)(B), 1954 Code.

The remaining arguments for reorganization treatment are even less persuasive. Respondent's own regulation ²⁵1962 U.S. Tax Ct. LEXIS 48">*93 under section 368, section 1.368-1, 2, Income Tax Regs., disposes of respondent's contention 39 T.C. 144">*162 on brief that "Reorganization treatment can be ascribed * * * without literal satisfaction of the requirements of Sec. 368." Furthermore, "there was not that reshuffling of a capital structure, within the framework of an existing corporation, contemplated by the term 'recapitalization'," ²⁶ as now described in subsection (E). 315 U.S. 194">Helvering v. Southwest Corp., supra at 202. (Emphasis added.) And the shift that occurred in the proprietary interest of the two corporations was hardly the "mere change in identity, form, or place of organization" (emphasis added) required ²⁷ by subsection (F). Stollberg Hardware Co., 46 B.T.A. 788">46 B.T.A. 788 (1942).

We rest the conclusion that there was no reorganization here on the form and content of the reorganization sections, not on the ground that there was no business purpose. See 293 U.S. 465">Gregory v. Helvering, supra. We have found several valid business motives here for entering into this transaction, the culmination of which achieved the required objectives. Gallagher received more stock, the members of the management who originally had no stock became shareholders, the inactive 38 percent of Delaware stockholders were eliminated from California, and Cuffe's participation in the control of the business was severely limited. While the large accumulated surplus was distributed, we can hardly say that this was entirely, or even substantially, the sole reason for the transaction. The same features held to constitute a business purpose in Marjorie N. Dean, 10 T.C. 19">10 T.C. 19 (1948) (to eliminate inactive women stockholders), and Wolf Envelope Co., 17 T.C. 471">17 T.C. 471 (1951)1962 U.S. Tax Ct. LEXIS 48">*94 (to put management in control of the business) exist here.

Section 1.331-1(c), Income Tax Regs., does not interfere with our ultimate conclusion. This regulation adopts the holding of 5 T.C. 665">Richard H. Survaunt, supra. In Survaunt, a transaction in which the original corporation was liquidated and the shareholders and directors transferred the assets to a new corporation in exchange for stock was found to be a reorganization under the intercorporate transfer of assets provision of subsection (D) when petitioners failed to prove the absence of a business purpose. The regulation ²⁸ describes similar facts and the underscored language invokes section 356 to cover the distribution of "boot" in pursuance of a plan of reorganization. Since we cannot conclude that the facts in the instant case constitute a reorganization, 39 T.C. 144">*163 the reference to section 356 will not support respondent's position.

1962 U.S. Tax Ct. LEXIS 48">*95 Section 1.331-1(c), Income Tax Regs., also cites section 301 as authority. This may be explained as further description of section 356. See ²⁹section 356(a)(2). Respondent, ³⁰ however, takes the position that the regulation may require dividend treatment in any case of liquidation-reincorporation. It is argued that Congress did not intend a liquidation followed by a reincorporation of the business into a corporation with similar equity interests to be a liquidation within the meaning of section 331, with the result that section 331(b) should not apply. ³¹ As we have already concluded, however, Congress accorded ordinary income treatment to liquidations only, if at all, in reorganization situations.

We must consequently agree with petitioners. The liquidation of Delaware, although the business was continued by California with considerable change in the corporate structure, falls squarely within the first 1962 U.S. Tax Ct. LEXIS 48">*96 definition of a partial liquidation. ³²Congress intended that in this situation, any redemption could not be treated as essentially equivalent to a dividend, and that this problem of the continuation of a business must be dealt with, if at all, under the reorganization sections. Since these facts do not fall within the careful language of those sections, the distributions should be treated as payment in exchange for the stock. To find differently would be to enact that provision which has failed on two separate occasions to be enacted by Congress. See H. Conf. Rept. No. 2543, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess., p. 41 (1954), ³³ and H.R. 4459, 86th Cong., 1st Sess., sec. 26 (1959). See also Rodman Wanamaker Trust, 11 T.C. 365">11 T.C. 365 (1948), affirmed per curiam 178 F.2d 10 (C.A. 3, 1949); Emma Cramer, 20 T.C. 679">20 T.C. 679 (1953); Trianon Hotel Co., 30 T.C. 156">30 T.C. 156 (1958).

1962 U.S. Tax Ct. LEXIS 48">*97 We accordingly think petitioners correctly treated the cash and property received from Delaware as a payment in exchange for the 39 T.C. 144">*164 Delaware stock redeemed by them. To take account of uncontested adjustments,

Decisions will be entered under Rule 50.