dissenting: In disposing of the first issue the majority found as a fact that the sale of the 47,000 shares of Transamerica stock on July 21, 1943, was made by the stockholders of West Coast. Such an ultimate finding must inevitably rest on the fact that there was a genuine liquidation distribution by petitioner to its shareholders. See United States v. Cumberland Public Service Co., 338 U. S. 451; Howell Turpentine Co. v. Commissioner, 162 Fed. (2d) 319; and United States v. Cummins Distilleries Corporation, 166 Fed. (2d) 17, 22. Also inherent in such an ultimate finding is the fact that the shareholders acted on their own responsibility and for their own account in negotiating the sale of the 47,000 shares of Trans-america stock. See Howell Turpentine Co. v. Commissioner, supra; United States v. Cummins Distilleries Corporation, supra, and Amos L. Beatty & Co,, 14 T. C. 52. I am convinced that neither of these two essential prerequisites to the ultimate finding of the majority was present.
Turning first to the distribution of the Transameriea stock, it is all too clear that petitioner’s shareholders received absolutely nothing of value therefrom, for the simple reason that West Coast had no distributable equity in these assets. On July 20, 1943, principal amounts of $54,300 and $147,481.25 were owing on the two notes held by Bank of America and principal amounts of $314,621.69 and $33,175 were owing on the two notes held by Transameriea. Thus, on that date the 47,000 shares of stock were pledged for indebtednesses totaling $549,577.94, though their market value was only $417,125. Therefore, the purported transfer achieved no business purpose whatsoever for the stockholders of West Coast acquired no equity in the property distributed to them. This was no genuine liquidation distribution, but a hollow formalism transacted solely to pass bare legal title to these assets to petitioner’s shareholders. In substance and reality West Coast remained the actual owner of the stock at the time of its sale. Gregory v. Helvering, 293 U. S. 465.
It is equally clear that in entering into a contract for sale of the Transameriea stock, the stockholders of West Coast were not dealing for themselves independently, nor was it ever intended that they should do so. The detailed schedule for distribution of the Transameriea stock to petitioner’s shareholders, its sale by them and application of the proceeds thereof to the notes held by Bank of America and Trans-america planned by the president of West Coast and a tax attorney prior to the commencement of dissolution proceedings, reveals the subordinate role in this transaction assigned to the stockholders. Furthermore, I find significance in the breathless speed with which commencement of the dissolution proceedings of West Coast, distribution of the Transameriea stock to its shareholders, negotiations for its sale, and, finally, the sale itself and the application of the proceeds to petitioner’s indebtedness were accomplished. These circumstances dispel any notion that the sale was consummated by petitioner’s shareholders independently and highlight the perfunctoriness of their role as conduits of title executing a plan conceived and controlled by West Coast. See Wichita Terminal Elevator Co. v. Commissioner, 162 Fed. (2d) 313. Nor did petitioner confine its own activity to distribution of the 47,000 shares of Transameriea. Petitioner displayed the true purpose lurking behind the facade of formalisms it had so scrupulously erected by stepping back into the transaction on the day of the sale to reduce the balance owing on its notes for which the Trans-america stock.was pledged to the exact sale price of the stock. I can not regard it as a mere coincidence that the vendee of the Transameriea stock was one of its two pledgees, and that the secretary of West Coast arranged the terms of sale with Transameriea. In Rose Kaufmann, 11 T. C. 483, this Court laid great stress upon the fact that negotiations for the sale were carried on by an officer of the corporation, whose fiduciary duties placed him in the role of agent for his employer rather than as representative of the stockholders.
But an even surer guidepost towards the conclusion that the shareholders of Transamerica were not acting on their own responsibility and for their own account in selling the Transamerica stock is the total lack of benefit which resulted to them therefrom. West Coast received the entire proceeds of the sale of the stock by having them applied in toto toward the payment of its obligations. The shareholders received no part of the proceeds of the sale. The indebtedness of West Coast to the Bank of America and Transamerica was in no sense the liability of its shareholders. It is hornbook law that where, as here, transferees of pledged property take subject to indebtednesses, they are not personally liable for those obligations. In the light of reality, I can only regard the successive steps taken in the distribution and sale of the Transamerica stock as integral parts of a unified operation by West Coast having as its sole goal payment of certain of its debts by sale of corporate assets without the tax consequences inherent in such action.
I do not understand the rationale of Commissioner v. Court Holding Co., 324 U. S. 331, to be that where negotiations for the sale of corporate’ assets commence after bare legal title thereto has passed to its shareholders, the subsequent sale must necessarily be attributed to the shareholders. On the contrary, that case emphasizes that determination of the tax consequences of such a sale depends on the substance of the transaction viewed as a whole, rather than on any one aspect thereof. Under the circumstances present in the instant proceedings the finding of the majority that the shareholders of West Coast made the sale exalts artifice above reality and, in the language of the Court Holding Co. case, permits “the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities.” Cf. Jones v. Grinnell, 179 Fed. (2d) 873, which stated that the distribution as a liquidating dividend and the subsequent sale to the third person must be a bona fide reality in substance, as distinguished from the stockholders merely constituting a conduit through which to channel title from the corporation to the ultimate purchaser.
In the instant case there was in fact no distribution of the Trans-america stock to petitioner’s stockholders, as will appear from the following summarized statements of unquestioned facts:
(1) The stock was pledged by petitioner for the payment of its debts beyond the value of the stock.
(2) The formality of'the distribution to the stockholders was coupled with the binding condition that the stock be immediately sold and tbe proceeds applied in toto toward tbe payment of petitioner’s debts.
(3) Petitioner received tbe entire proceeds of the sale of tbe stock by having same applied in toto to the payment of its debts.
(4) Tbe stockholders received no equity in tbe stock by the so-called distribution and received none of the proceeds of the sale thereof. And
(5) Nothing of value passed or was intended to pass to the stockholders by such purported distribution.
The majority also have held that petitioner was entitled under section 23 (f) of the code to deduct $43,577.50 as a business loss it claimed in 1943 as the result of compromising the Crest View Apartments note with Stewart. I can not agree. Since petitioner claims no deduction in reference to the Crest View garage note, no consideration of that note is necessary. At the time of the compromise agreement, Stewart was not in default in the payment of either principal or interest on the Crest View Apartments note. There is nothing in the evidence to show that West Coast or its shareholders, had the note been distributed to them in kind, would not have received the full value of the note at maturity. The only cause for the compromise settlement with Stewart was petitioner’s determination to dissolve and the consequent necessity of quickly converting its assets into cash. The agreement of August 6/1943, was simply a voluntary arrangement whereby a creditor, in return for prepayment of a considerable portion of an indebtedness, agreed to release a solvent debtor from further liability on the unmatured obligation. In my view petitioner has failed to show it sustained any recognizable loss as a result of this transaction.
For the aforementioned reasons, I therefore respectfully dissent.
TURNER, J., agrees with the first point of this dissent. Disney, J., agrees with this dissent.