*793OPINION.
Leech :Respondent relies generally upon two positions. The first is that when these petitioners are said to have created trusts in common stock of the D. Emil Klein Co., they had no interest therein subject to disposition. The second and alternative position is that, assuming petitioners then had such an interest, the evidence does not establish the creation of a valid trust.
In the case of petitioner Torrens, it is argued that because of the conditions under which the 500 shares of common stock were issued to him in 1922, he could have no ownership of this stock until its delivery to him from escrow, and that, consequently, the amounts paid him as dividends on this stock were in fact additional compensation for services rendered. The conclusion reached, then, is that, having no title to or interest in this stock, subject to disposition, Torrens could not create a trust in the stock itself and his attempt to do so, if it had any effect, was merely an assignment of future earnings, and taxable to the assignor, as income. Lucas v. Earl, 281 U. S. 111.
This same theory is applied and the same result reached as to the petitioner, Wile, and the dividends received on the stock standing in his name were taxed to him. However, as to this petitioner, respondent determined also that the proceeds of the sale, in 1928, of 400 shares of the total of 1,000 shares issued to him, represented taxable income in that year. It is not clear whether this is upon the theory that the escrow agreement was then released as to this stock, and the stock received as income at a value corresponding to its sale price, or whether it is considered that the payment made by the corporation was for stock not owned by the petitioner, and merely additional compensation paid him as if for property conveyed. Upon brief, counsel for respondent now concedes that the total proceeds from the *794sale of this stock should be reduced by an amount equal to $9.95 per share, as the proof shows this petitioner purchased the stock for cash on that basis.
The issuance, and its record upon the books of the company, to- j gether with the escrow agreement, all purport on their face to confirm an intended conveyance of this stock to petitioners. Nor; is that intention contradicted by an analysis of the contents of those | instruments, construed as a whole. Cf. Heryford v. Davis, 102 U. S. 225. Petitioners acquired more than future earnings of the cor-? poration. They had the right, inherent alone in stockholders, to/ a share, not only in earnings, but in any increment in the net assets', of the corporation. We think the elimination of good will from the price at which the corporation conditionally agreed to repurchase has no effect other than a proper limitation of the repurchase price of the stock. But in any event it could have done no more than diminish by that item — not destroy — petitioners’ rights as stockholders. It is doubtful whether the irrevocable assignment of the voting rights in the stock to Klein was valid and enforceable. Woodruff v. Dubuque & S. C. R. Co., 30 Fed. 91; Shepang Voting Trust Cases, 60 Conn. 553; 24 Atl. 32; Luther v. Ream, 270 Ill. 170; 110 N. E. 373; Warren v. Pim, 66 N. J. Eq. 353; 59 Atl. 773; contra, Boyer v. Nesbitt, 277 Pa. 398; 76 Atl. 103. And, if invalid, the title of petitioners to the stock would in no way be affected thereby. The voting rights would merely be subject to recovery in a proper action, Warren v. Pim, supra. If such assignment were valid it accomplished nothing more than a further limitation in petitioners’ rights in the stock incident to stock ownership. Cf. Boyer v. Nesbitt, supra.
The restriction against alienation, if enforceable as not in restraint of trade (In re Laun, 146 Wis. 252; 131 N. W. 366; contra, New England Trust Co. v. Abbott, 162 Mass. 148; 38 N. E. 432), did not affect petitioners’ ownership in the stock.
The presence in an agreement of sale of stock providing for its repurchase by the seller upon condition does not in itself destroy the then completed sale to the purchaser, nor does such an agreement alone revest any title in the original seller. It is merely an unexecuted option to rescind the original completed sale. Lyons v. Snider, 136 Minn. 252; 161 N. W. 532; Paulson v. Weeks, 80 Ore. 468; 157 Pac. 590.
The fact that in both cases the stock was deposited in escrow under an agreement by the seller to. repurchase at its then book value less good will is an affirmative indication that title to the stock was intended to pass by the purported transfer. Cf. First National Bank in Wichita v. Commissioner, 57 Fed. (2d) 7, affirm*795ing 19 B. T. A. 744; Bank of California, National Association, 30 B. T. A. 556.
Respondent cites authority to the effect that where stock is deposited in escrow pending the performance of certain conditions by the purchaser, title does not pass to him until the performance of the conditions. He argues upon authority of these decisions that title to the stock in each present instance would not pass to these petitioners until the discharge of the escrow agreement.
We agree with the rule cited by respondent, but clearly it has no application to the petitioners. The conditions incident to the acquisition of title by them had been fully performed and the stock issued. The decisions cited, as well as Lyons v. Snider, supra, and Paulson v. Weeks, supra, indicate only that title would remain in these petitioners until the reacquisition of title by the corporation was effected by the performance of the conditions specified in the escrow agreement — namely, the repurchase of the stock by the corporation and the payment to petitioners of its then book value, fixed as the consideration.
In our judgment, petitioners acquired legal title to the Klein stock. Its uniform treatment as such by all the parties after its acquisition is uncontradicted and confirms that conclusion. First National Bank in Wichita v. Commissioner, supra, and Bank of California, National Association, supra.
Petitioners’ acquisitions of stock were complete upon payment of the consideration therefor to the corporation. Petitioner Wile bought his stock for cash in 1925 for $9.95 per share. Torrens acquired his for services rendered the corporation during 1922. At the close of business on the last day of that year, those services had been rendered, and the consideration was thus paid. His stock was then acquired. Hudson Motor Car Co. v. United States, 3 Fed. Supp. 834; Phillip W. Habermam, 31 B. T. A. 75. Its cost basis for computation of gain or loss on later disposition was its fair market value upon that date, which we have found to be $7.59 per share. E. D. Knight, 28 B. T. A. 188.
Any question as to whether the conditions of the escrow agreement precluded a transfer in trust by these petitioners of their interests in this stock is answered emphatically by the record. It is true that by the escrow agreement the petitioners bound themselves not to transfer the stock or any interest therein, but this condition was for the benefit of the corporation, subject to enforcement by it alone, and, consequently, within its power at any time to release. The record shows that authority was formally given by the corporation to D. Emil Klein, who was its president and also the escrow agent under the agreements executed, to release or modify these agreements, in his *796discretion. It is likewise shown that Klein, when approached by the petitioners, gave his permission and approval for the transfer intrust. of the beneficial ownership of each petitioner in certain amounts of the stock theretofore issued to him. It may be doubtful if modification of the agreements was necessary, but if it were, such modification was effected by the express acquiescence of Klein. The corporation, alone, was entitled to question the transfers under the escrow agreements. It was thus estopped from doing so.
This brings us to respondent’s second and alternative position. Did each of these petitioners, in fact, create a valid and enforceable trust in a portion of their respective stock interests ? The law does not require any particular form to be followed in declaring a trust in personal property or that such declaration even be in writing. It is essential, only, that the declaration be shown by words or acts to have been made in fact. Estate of Robert L. Holt, 14 B. T. A. 564.
In the present case the facts are not in dispute. The inquiry is simply whether these facts are sufficient to establish that a trust was declared by each of these petitioners. On this question the record shows that both of the petitioners discussed with D. Emil Klein their intention to create a trust of a definite portion of their stockholdings. They received his consent and approval as escrow agent and president of the corporation, to such action. Following this, each notified Klein formally in writing that such trust was declared, was irrevocable, described the property covered and set out the beneficiaries in each case by name. In each instance this notification called upon Klein, who held possession of the stock certificates, to make such notations as might be necessary to witness the fact that certain shares of the stock in his possession were henceforward held by each petitioner in trust. It is further shown that the stock certificates were not reissued to petitioners as trustees, only because of Klein’s refusal to take such action. He held possession of the stock. However, a mere failure to secure transfer of the stock certificate, which is only the evidence of stock ownership, would not prevent or delay the transfer of the interest itself. Holden v. Williams, 65 Ill. App. 466; Allen v. Williams, 212 Ill. App. 114.
The record indicates that the petitioner, Torrens, advised his four sons of the action taken. Three of these sons were of age and the fourth, 20 years old. They all approved of this petitioner’s action and agreed to his disbursement of the income from the stock for their education and maintenance and for investments for their accounts. Petitioner Wile’s children were small. The income from the dividends on and proceeds from the sale of stock designated by him as held in trust, were, admittedly, deposited by him to his own account without segregation, but he maintained a memorandum of such *797amounts as were due tbe beneficiaries and used such, funds for their maintenance and support and for investment for their benefit. The regular dividends on the stock asserted to be held in trust for his wife, he paid to her. The other income accruing to her alleged share of the trust was invested in stocks issued in her name. Thus, shortly after 1928, this petitioner purchased approximately $19,000 worth of stock which was issued to his wife. The stock which he bought for the account of his children was issued in his name. This is not unusual or inconsistent with the existence of the alleged trust when we consider that the children were of tender age. At all events, the taxable status of these funds is not affected by the disposition petitioners made of them. Mary M. Shea, 31 B. T. A. 513. We note also that late in the taxable year when the corporation proposed to increase its common stock to 100,000 shares and issue the new stock to its outstanding stockholders on the basis of seven new shares for one of the old, both of these petitioners formally requested, by letter to Klein, that the new stock exchanged for that portion of their old stock which was being held by them in trust, be issued in the names of the several beneficiaries. Klein refused because of the escrow agreement, but stated that it would be issued in his name, as trustee, to protect all parties to the agreement. He added that he would note the interest of the beneficiaries on the new stock certificates and distribute the stock in accordance with such interests on the expiration of the escrow agreement. Obviously Klein meant the new stock would be issued, as the old, to petitioners, and held by him under the escrow agreement. This was actually done, and when the escrow agreement expired in 1931, the stock was reissued in each case as requested theretofore by the petitioner.
From the date of the purported transfers in trust, the several beneficiaries under each trust filed individual income tax returns each year reporting the income on their several shares under the trusts.
In fact, the record here shows that petitioners did all that could reasonably be done to evidence such trusts except execute formal declarations. Neither petitioner was a lawyer but both, when later advised by their attorney that such declaration should be executed, to avoid any question, had formal declarations drawn and executed them, evidencing the creation of the trust in each case as of the date of its creation according to the notification theretofore sent in each instance to the escrow agent and president of the corporation.
We conclude that petitioner Wile created a trust in 750 of his' 1,000 shares of common stock, and 45 of his 60 shares of preferred stock of the corporation, in favor of his wife and two sons in equal *798shares and, consequently, that three fourths of the dividends paid j and the profit upon the sale of 400 shares of common stock in 1928, f is taxable to these three beneficiaries. J. T. Hedrick, 24 B. T. A. 444; John Knell, 12 B. T. A. 1306; Tom (Fayette T.) Moore, 19 B. T. A. 140. Such profit is to be computed on a cost basis of $9.95 per share.
In reference to the sale for $6,000 of 60 shares of preferred stock issued to Wile, 45 of these shares were the property of the trust above described and the proceeds of these shares constituted no gain to this petitioner. As to the balance of 15 shares, the record shows this stock (' was received by petitioner as stock dividends in years prior to 1928 { on common stock owned by him. The corporation then had other j preferred stock outstanding. The preferred shares, received as divi-1 dends, had rights and privileges distinctly different from those of | the common stock. In Tillotson Manufacturing Co., 27 B. T. A. 913,, under substantially similar circumstances, a dividend on preferred,'; stock payable in common stock was held not a tax free stock divi-, dend, since it was more than a mere dilution of the stockholders’ then interest. If there be any difference in the degree of change^ effected in the stockholders’ existing rights by the converse factual! Í situation here, we do not think it sufficient to except this case from!' i, the application of that rule. This preferred stock is shown to have, had a fair market value equal to the par value of $100 per share at all times. Based upon this value, it was taxable income to Wile in the years received. Tillotson Manufacturing Co., supra.
The record is silent as to whether any value for this stock was included in those years. In the absence of such showing, we cannot assume that it was not. In fact, the presumption arising under such conditions may be that it was included. United States Bank v. Damdridge, 25 U. S. 64.
In any event, the value of this stock, since it was income for prior years, is includable in income for 1928 only in the event that the petitioner, for some reason, is estopped to assert its taxability for the prior year in which received. If such estoppel exists, the burden is upon respondent to establish it. Tide Water Oil Co., 29 B. T. A. 1208. The petitioner is not required to prove both a defense and the absence of an estoppel to assert it. Farmers Feed Co., 10 B. T. A. 1069.
In respect of the petitioner, Torrens, we hold that four fifths of the 500 shares of common stock of the corporation standing in his name, was, during the taxable year, held in trust by him for his four sons, and the dividends received on such portion in that year were taxable to the beneficiaries and not to petitioner. As to the 100 shares of preferred stock issued to this petitioner ip prior years as. *799dividends on his common stock, the record clearly shows that the stock was transferred by him by gift to his sons in equal proportions early in the taxable year, and was reissued to them individually in blocks of 25 shares. The dividends paid on this stock were thereafter paid to the sons. Late in the taxable year this stock was sold by the sons at par and the purchase price paid to and received by them. This petitioner is not taxable upon either the dividends on this stock or the proceeds of the sale thereof.
There is some discussion in the record as to whether the large cash dividend of $78.50 paid on the common stock in the taxable year was a dividend and taxable as such in its entirety, or was a payment in exchange for the outstanding common stock turned in for reissue on a basis of seven for one in the course of the recapitalization of the corporation later in that year. On this point we find nothing in the record to indicate that this was other than a cash dividend on the stock. It was regularly declared by the corporation on the common stock outstanding and was paid prior to the exchange of that stock for the new shares. It represented a distribution to the original stockholders of earnings of the corporation accumulated since March 1,1913. No part of it represented the cash later paid into the corporation for the 30,000 shares of new common stock sold the public. We hold it Avas not a payment in exchange for the old shares, but was a cash dmdend paid on the stock, and taxable as such. Revenue Aet of 1928, sec. 115 (a).
Reviewed by the Board.
Decision will he entered imder Rwle SO.