opinion.
Murdock:The Commissioner determined a deficiency of $26,-720.79 in the decedent’s income tax liability for the year 1924. The petitioner alleges that the Commissioner erred in including in the gross income of the decedent the difference between the fair market value of the property purchased by him in that year and the amount he paid for it.
The petitioner is the executor of the estate of C. B. Van Vorst, deceased, and has his principal office in Los Angeles, Calif. In 1924 C. B. Van Vorst was the president of the C. B. Van Vorst Company.
The Commissioner stated in his deficiency notice, inter alia, that the transaction here in question “ represented a distribution of corporate earnings and, therefore, the difference between the amount paid for the property and the amount of its fair market value is taxable as a dividend. (See decision in the case of F. E. Taplin, Board of Tax Appeals Reports, Volume 12, Number 8, page 1264).” JHe then added to the petitioner’s net income, as reported, additional dividends of $100,000 and deducted a like amount in computing the *633amount subject to normal tax. Counsel for the parties filed a stipulation as follows:
It is stipulated between the counsel for the respective parties, that on August 6, 1924, C. B. Van Vorst, now deceased, and whose Estate is now represented by his Executor, George W. Van Vorst as petitioner herein, purchased from the C. B. Van Vorst Company, a Corporation organized under the general corporation laws of the State of California in 1904, four certain parcels of real estate for a total sum of $54,559.60; that the said C. B. Van Vorst paid the full amount of said purchase price, namely, $54,559.60, in cash to the said Corporation, and that the said corporation thereupon conveyed the said real estate to the said C. B. Van Vorst by appropriate deeds of conveyance. It is also stipulated that the aforesaid real estate had been acquired by the Corporation at a cost to it of $54,559.60.
It is further stipulated that at the time of the purchase of the said real estate by said C. B. Van Vorst from the said Corporation, the fair market value of the same was $154,559.60.
It is further stipulated that the said C. B. Van Vorst was the owner of 46,397 shares of the capital stock of the C. B. Van Vorst Company at the time the said real estate was purchased by him as aforesaid, and that the total outstanding capital stock of the Corporation on the same date was 50,000 shares of a par value of $1.00 per share.
It is .further stipulated that on March 26, 1924, the C. B. Van Vorst Company paid a cash dividend of $10,000.00 and that on July 1st, 1924, it paid a further cash dividend of $10,000.00; that at the time these dividends were paid the total outstanding capital stock of the said corporation was 50,000 shares of a par value of $1.00 per share.
It is further stipulated that two of the aforesaid parcels of real estate were purchased by the said C. B. Van Vorst Company in the year 1914, and the other two parcels were purchased by the said Corporation in the year 1923, and that the cost of all of this property to the corporation, namely, $54,559.60, includes the purchase price of the said properties plus improvements to the date of the sale of the same to the said C. B. Van Vorst and is the cost as shown by the said corporation’s books.
Counsel for the parties also offered in evidence, as joint exhibits, the corporation income tax return of C. B. Van Vorst Company for the calendar year 1924, the capital stock tax return of that company for the year 1924, and the deficiency notice. The stipulation and the three exhibits were received in evidence. It is apparent from these exhibits, among other things, that the corporation reported net income for the calendar year 1924 of almost $23,000; its surplus and undivided profits at the close of the preceding year amounted to $357,619.23; its surplus and undivided profits at the close of the taxable year, after adding net profits and after deducting dividends paid of $20,000, amounted to $352,166.33; and it paid a dividend of 10 per cent in 1918, no dividends in 1919 and 1920, a dividend of 20 per cent in 1921, and a dividend of 20 per cent in 1922, during all of which years its capital stock consisted of 50,000 shares each of the par value of $1.
*634In Treasury Decision 3435 (under the Bevenue Act of 1921) and in article 31 of Begulations 65 (under the Bevenue Act of 1924) the Commissioner has ruled that a shareholder who purchases property from the corporation at a price substantially less than its fair market value shall include such difference in his gross income and the fair market value shall be deemed its cost for purposes of computing gain or loss from subsequent sale. He has been more specific in this case and has taxed the difference in question as a dividend — has in effect determined that the decedent received a distribution of the earnings or profits of the corporation accumulated since February 28, 1913, within the meaning of section 201 of the Bevenue Act of 1924. It was then up to the petitioner to show that there was no taxable dividend. The Commissioner has never made any contention in this case that the transaction lacked bona tides or was a liquidation.
The rule laid down in article 31 of Begulations 65 apparently is intended to interpret either section 213 (a) or section 201 (a) of the. Bevenue Act of 1924, but it is too broad for this purpose. In neither section is there any specific reference to such transactions as are covered by the provision of the article above referred to. By its terms it would cover situations which may easily be imagined in which the stockholder purchaser would clearly have received no taxable income from the purchase. Under some circumstances a stockholder may be charged with the receipt of income from a transaction which has the form of a purchase (cf. Continental Insurance Co. v. United States, 259 U. S. 156), but normally income does not result from a purchase even though a great bargain is obtained. Morgan J. McMichael, 4 B. T. A. 266; W. L. Dunn, 14 B. T. A. 13; Rose v. Trust Co. of Georgia, 28 Fed. (2d) 767. If a dividend in a certain amount has been declared and is discharged by transferring property at less than its fair market value, a taxable distribution of earnings or profits could result and the corporation could realize a gain or loss on the disposition of its property. Callanan Road Improvement Co., 12 B. T. A. 1109; Parkersburg Iron & Steel Co., 17 B. T. A. 74; First Utah Savings Bank, 17 B. T. A. 804; Bacon-McMillan Veneer Co., 20 B. T. A. 556. A taxable distribution may be made without the formal declaration of a dividend. Furthermore, a dividend need not be distributed in proportion to shareholdings if the shareholders consent. But here there has been no declaration of a dividend in any certain amount, in fact no declaration of any dividend which bore any relation to this transaction, and no evidence of the stockholders consenting to a disproportionate distribution. In our opinion the stipulated facts, including the stipulation that the decedent “ purchased ” the property, made a prima facie case for the petitioner and it was then incumbent upon the respondent to *635show that although this was in form a sale, nevertheless it occurred under circumstances which indicate that in fact it was a distribution of earnings or profits accumulated since February 28, 1913. In this connection we see no reason to infer that the stockholders ever agreed to an unequal distribution. This majority stockholder undoubtedly purchased at a bargain price and there were stockholders who did not share in the bargain. But bargain purchases do not ipso facto require an explanation by the purchaser to avoid tax. Proof of a prima facie case does not require the elimination of all unfavorable possibilities. The purpose of the rule of evidence is to avoid just such difficulties.
A taxable distribution within the meaning of section 201 of the Revenue Act of 1924 must be made from earnings or profits accumulated since February 28, 1913. Unearned appreciation is not a part of earnings or profits for ‘tax purposes. Cf. La Belle Iron Works v. United States, 256 U. S. 377. A corporation realizes no profit from the sale of its property at cost and such a sale can not normally be a taxable distribution under the above section. The Commissioner has not in his turn proven facts to show that a different result followed from this sale. The Government must therefore wait until this purchaser disposes of this property at an increase over the price at which he obtained it before it collects its tax.
Reviewed by the Board.
Judgment will be entered for the petitioner under Rule SO.