dissenting: I dissent from the majority opinion herein because I am persuaded that it gives effect to appearance over reality. The courts have generally held corporations free from capital gains in the sale of corporate assets when such sale in good faith has been effected by a sale of the corporate stock or when such sale has been made after liquidation of a corporation in the absence of an agreement to sell made by authorized corporate representatives prior to any steps being taken toward liquidation. In the case at bar it would seem to be obvious that the sale of the corporate stock in January 1946 was not intended to operate as a corporate stock sale by either the purchaser or the seller of the stock, and the subsequent sale of the bank building by the liquidators of the corporation was in pursuance of an agreement to sell said bank building prior to liquidation. “The question always is whether the transaction under scrutiny is in effect what it purports to be in form.” (Chisholm v. Commissioner, 79 Fed. (2d) 14.)
All of the facts surrounding the supposititious sale of Development Co.’s stock to Overton, Burgher, and McCarty, when integrated, constitute in effect a sale of the bank building. Also the sale of the building by Overton, Burgher, and McCarty as liquidators of Development Co. to Investment Co. of which Overton, Burgher, and McCarty were sole stockholders and directors, was but the consummation of an agreement which Overton, Burgher, and McCarty, as sole stockholders and directors of Development Co., had concluded with themselves as directors and stockholders of Investment Co. before any steps in liquidation had been taken by Development Co., the whole being in consummation of a plan by Overton, Burgher, and McCarty as a directors’ committee of Texas Bank & Trust Co., the ultimate and always intended purchaser of the bank building.
As to the pretended sale of the Development Co.’s stock, the initial negotiations were instituted by Meador, a director of Texas Bank & Trust Co. and also a heavy stockholder in Development Co., with Overton, another director in the same bank. After four proposed contracts had been drawn providing for the purchase of the bank building itself from Development Co., apparently the only point on which the parties reached agreement was that the stockholders of Development Co. demanded $700,000 for their interest in the building and the bank was willing to pay $700,000 therefor. However, the sale was not consummated and negotiations abated for 12 days. Then Meador, at a meeting of stockholders, persuaded a majority of them to sell their stock instead of the building, the stockholders thereupon obviously divided the $700,000 which they had formerly demanded for the building by the number of corporation shares outstanding and arrived at a quotient of $175, which they inserted in the offer to sell as the required price per share. Before this offer was formally made, however, at the request of Overton, Burgher, and McCarty, who acted as a committee representing the bank to negotiate the purchase of the bank building and who anticipated purchasing the stock, it was stipulated in the written offer to sell that, unless the offer was signed by at least 80 per cent of the stockholders, the purchasers were not obligated by acceptance of the offer. Thus the animus of the whole proceeding becomes obvious. An affirmative vote of 80 per cent of the stockholders was necessary for the dissolution of the corporation, and a dissolution prior to sale was necessary to avoid a capital gains tax on the increase in value of the bank building. It is thus obvious that the sellers were not in fact selling, and the buyers were not in fact buying, corporate stock, but the commodity being sold and bought was the privilege of liquidating the corporation and procuring physical possession of the bank building.
In fact, Meador, who initiated the negotiations to sell the bank building to the bank and who was a director of the bank, certainly knew that the bank was the institution interested in the purchase throughout all the negotiations. As a bank director, he certainly knew the limitations on a banking institution imposed by law against the purchase of corporation stock. He knew that Overton, Burgher, and McCarty were designated by the bank as representatives to purchase the stock as individuals for the obvious purpose of overcoming the limitations of the bank itself. He also knew that the creation of Investment Co. had but one purpose, and that was to extricate the bank building from its corporate involvement with Development Co. The mortgage which Investment Co. placed upon the bank building could just as well have been placed there by Development Co. and the only necessary function that Investment Co. performed was as a link in a complicated chain to procure the bank building under the subterfuge of buying bank stock, and this subterfuge was participated in by Development Co.’s stockholders through their agent Meador, who persuaded them to sell their stock.
The decision in Steubenville Bridge Co., 11 T. C. 789, upon which the majority rely, was based upon the very nonexistence of facts in that case which are the controlling facts in the case at bar. In the Steubenville case there was no stockholder similar to Meador who was a director of the ultimate purchaser. There was no united offer to sell all the stock at a common price. There was no mutual understanding between the buyer and seller of the stock that, if the purchaser did not procure enough stock to liquidate the corporation, the purchaser was not obligated. The Steubenville stockholders did not know the purpose of the sale of their stock. Neither the corporation itself nor any of its original stockholders had ever negotiated with the State of West Virginia, the ultimate purchaser of the bridge. The stock was sold by individual contract between the purchaser and the new stock owners at prices varying from $1,425 a share to $4,333 a share. Obviously there is little basis in the facts in the Steubenville case to form a precedent for the majority'opinion herein.
However, if, for argument, it is admitted that the initial sale of the stock of Development Co. was not in truth a sale of the bank building, then we approach our second conclusion herein, to wit, that the sale of the bank building by the liquidators of Development Co. was in truth and in fact the sale of the bank building by the newly constituted Development Co. If there was no sale of the bank building by the original stockholders, then, of course, Development Co., under its new stockholders, retained the building as an asset with its original cost base therefor. The new stockholders acquired 3,850 of the 4,000 shares of Development stock on January 21, 1946, and on that date Overton, Burgher, and McCarty, who had acquired all the stock except 2 qualifying shares, elected themselves as directors. Three days thereafter, on January 24,1946, Overton, Burgher, and McCarty were designated by the bank to negotiate the purchase of the bank building on the same day that the bank directors increased the capital stock of the bank sufficiently to raise the necessary finances. Anyone who would question that Overton, Burgher, and McCarty, as directors of Development Co., the owner of the bank building, did not at once agree with Overton, Burgher, and McCarty, as a committee representing the purchaser, to sell the bank building to the purchaser, would simply be unable to distinguish between serious drama and a farce and would not be giving proper weight to the presumption of correctness of all facts essential to the Commissioner’s determination. The entire proceeding herein, from its initiation through the formation of Investment Co., the purchase of Development Co. stock, the liquidation of Development Co., the sale of the bank building to Investment Co., and the subsequent resale of the bank building to the bank all constitute integrated facts leading to a prompt decision by Overton, Burgher, and McCarty, as directors of Development Co., to sell the bank at the earliest possible date immediately after liquidation. If, on January 24,1926, when Overton, Burgher, and McCarty, representing the bank, conferred with Overton, Burgher, and McCarty, representing Development Co., and agreed to consummate the sale immediately after liquidation, we have in the case at bar facts comic g directly under the law as laid down in Court Holding Co., 324 U. S. 331. We do not have a case at all comparable with Steubenville Bridge Co., supra, wherein, after the purchasers of Steubenville stock acquired possession thereof and up until after liquidation had been practically completed, there was no negotiation either by the prospective purchaser of the bridge or any contact by the new stockholders of the corporation with the prospective purchaser.
Since the decision of this Court in Falcon Co., 41 B. T. A. 1128, there has been a marked tendency in the decisions of this Court to permit greater latitude on the part of stockholders and corporate liquidators to dispose of corporate assets through stock sales and through sales in liquidation without liability on the part of the corporation for the capital gains realized from the sale of said assets. George T. Williams, 3 T. C. 1002; Cooper Foundation, 7 T. C. 389; Acampo Winery & Distilleries, Inc., 7 T. C. 629; and Steubenville Bridge Co., supra. However, in all of these cases there has been a consistent requirement that no authorized representative of a corporation prior to liquidation should enter into any contract or agreement with the prospective purchaser of the corporate assets, the contract being consummated after liquidation. Rose Kaufmann, 11 T. C. 483.
It is my conviction that, if the majority opinion herein becomes the law controlling sales of assets by corporations, all of the restrictions and limitations which this Court has heretofore constructed around such sales in order to excuse the corporation itself from being liable for capital gains tax will be removed and little or no artifice will be required to excuse corporations in the future from capital gains, no matter how spurious may be the sale of the stock by the corporate stockholders or how much of a farce may be involved by the corporate liquidators selling the assets to themselves as agents for other purchasers.