OPINION.
MtjRDOCK :The Commissioner determined a deficiency of $550,227.83 in income tax for 1930 and one of $309,597.44 for 1931. The facts have been stipulated. The petitioner assigned as error the action of the Commissioner in computing a profit to its four subsidiaries from the sale of debentures at face value, by refusing to allow the use of their cost as basis, the cost being equal to the amount realized from the sale. The Commissioner, by amended answer filed at the hearing, raises the issue of whether the petitioner is estopped to deny that a lower basis (cost of property given in 1928 in exchange for the debentures) is proper.
The petitioner was the top holding company of a large group of corporations engaged principally in supplying artificial gas to the public. It owned the entire capital stock of four New Jersey corporations known as Mutual, Waverly, Bexley, and Provident. The four subsidiaries together owned 153,200 shares of the common stock of the Brooklyn Union Gas Co. The four, on July 27, 1928, transferred all of their assets, consisting of the 153,200 Brooklyn Union shares and debentures of Brooklyn Union, to four Delaware corporations in exchange for debentures of the four Delaware corporations of the face amount of $21,321,900. The stock of the four Delaware corporations was owned by others. These exchanges were a part of a larger plan more fully described in United Light & Power Co., 38 B. T. A. 477; affd., 105 Fed. (2d) 866; certiorari denied, 308 U. S. 574. The cost to the four New Jersey corporations of the property transferred by them was less than the fair market value of that property on July 27, 1928. The fair market value of the property, the fair market value of the Delaware debentures, and the *1122face value of the debentures were all the same, $21,321,900, on the date of the exchange. The four New Jersey corporations sold some of the debentures at face value in 1930 and 1931. The petitioner did not report any profit from those sales on its consolidated returns for 1930 and 1931. The Commissioner, in determining the deficiencies, computed a gain by using the basis of the property given in 1928 in exchange for the debentures.
The petitioner contends that the old basis could be used in lieu of cost only in case the 1928 exchanges were statutory reorganizations under section 112 (i) (1) (A) of the Revenue Act of 1928 (see secs. 112 (b) (4) and 113 (a) (6)); they were not such reorganizations since the four New Jersey corporations after the exchange held only debentures of the Delaware corporations, and the Supreme Court has held that the necessary continuity of proprietary interest in the transferred property is lacking where the transferor receives only bonds of the transferee (LeTulle v. Scofield, 308 U. S. 415; cf. United Light & Power Co., supra); and, consequently, the normal basis of the cost of the debentures must be used. Sec. 113 (a). That cost was the same as the selling price and no gain resulted. The Commissioner, in his brief, mildly resists this contention, but assumes that the Board will adopt it as the only correct application of the statutory provisions as interpreted by the Supreme Court. It is the only conclusion possible under the applicable statutory provisions. Consequently, if the provisions of the statute are to be followed, the four subsidiaries of the petitioner had no gain when they sold the Delaware debentures for face value, which was equal to the cost of the debentures to the four subsidiaries.
The Commissioner relies upon his affirmative contention that the petitioner and its subsidiaries are estopped to deny that the use of the old basis is proper since they reported no gain from the 1928 exchanges and resisted when a representative of the Commissioner auditing the return for 1928 suggested that there was a gain at that time. The Commissioner concedes that there is no basis for, what he terms, estoppel in pais, since there was no misrepresentation or withholding by the taxpayers, no intended deception in their conduct or declarations, and no reliance thereon by the Government. He says he relies upon the broad equitable rule that, where one has taken a position and received benefits therefrom, he will not be permitted to act later in an inconsistent manner to the detriment of another. Such a rule has been applied at times by the courts and the Commissioner has cited a number of those cases.
Mr. Justice Cardozo, in Stearns Co. v. United States, 291 U. S. 54, stated the rule to be “that no one shall be permitted to found any claim upon his own inequity, or take advantage of his own wrong. * * * A suit may not be built on an omission induced *1123by him who sues.” But, because the unnamed rule is stated in such general terms, there is extreme difficulty in knowing whether or not to apply it in particular cases. The Commissioner frequently takes inconsistent positions to the sorrow of taxpayers, yet such mistakes are not later adjusted by unlawful deductions. Cf. Fairmount Foundry, Inc., 42 B. T. A. 1087. Since both parties have full opportunity to have the tax liability determined in accordance with the statutes, the statutory test should not be abandoned for a test based upon the ethics or morals of the conduct of one of the parties except under exceptional circumstances. Tide Water Oil Co., 29 B. T. A. 1208. The Board said in James Couzens, 11 B. T. A. 1040, that “such an argument must be treated with the utmost caution, since its sanction in any case would result in having an individual tax liability depend, not upon the factors and measures prescribed by Congress as applicable to all, but upon the statements and conduct of a particular” person.
This general subject was carefully considered and discussed at some length in the Tide Water Oil Co. case, supra. There the taxpayer had believed and had argued to' the Commissioner that it was affiliated with Tidal. The Commissioner came to the same conclusion. Later the Supreme Court held that there was no affiliation under similar circumstances. It was then too late to tax Tidal separately and the Commissioner contended that Tide Water was estopped to deny its affiliation with Tidal. The Board held that there was no right to elect between affiliation and nonaffiliation, no waiver, and no estoppel of any kind, but merely a misunderstanding of the law by both parties as to which each had to take his chances. It pointed out that the Commissioner, upon whom was placed the duty of correctly interpreting the law, could not hold the taxpayer to the consequences of a mutual misinterpretation. The Board refused to depart from the statutory provisions because of any doctrine akin to estoppel, saying:
Whatever doctrine analogous to estoppel the respondent would invoke, it must be founded upon some act or omission of the petitioner for which in equity it should be held to account. The equities must be strong to overshadow the law. There is here no suggestion of fraud, untruthfulness, concealment, misrepresentation, omission, negligence, violation of duty, or unfair conduct on the part of the petitioner. It was no more the author of the misfortune than was the Commissioner. The latter was in as good a position as the former to make all proper decisions. Thus, in this case there is no occasion for applying either the doctrine of estoppel or any doctrine analogous thereto.
That case and the discussion contained therein is in point here, where the facts are substantially similar. Likewise apposite is the case of R. E. Baker, 37 B. T. A. 1135, wherein we said:
If the determination of the respondent of the factors required by law for the ascertainment of the basis to be used for the computation of gain or loss in 1928 *1124is erroneous, estoppel can not be availed of to justify or perpetuate such errors.. Furthermore, the Board stated in Sugar Creek Coal Mining Co., 31 B. T. A. 344, 348, as follows:
* * * As a general proposition, estoppel does not support a belated assessment merely because the taxpayer has omitted the income from his: earlier returns and the statute of limitations has barred the correct assessment.
See also Salvage v. Commissioner, 76 Fed. (2d) 112; affd., 297 U. S. 106.
The facts in the present case are no more favorable to the Commissioner than were those in the Tide Water and Baker cases. Perhaps they are less so. No gain from the 1928 exchanges was reported. A revenue agent, when auditing the 1928 return in 1930, proposed a tax upon the gain. The petitioner protested upon the ground that there was a reorganization. The revenue agent in charge agreed that there was a reorganization. G. C. M. No. 11272, dated November 17, 1932, held that there was a reorganization and no gain to the four New Jersey corporations. The petitioner, on December 8, 1932, consented to a deficiency for 1928 upon other grounds. The period for , assessment of any additional deficiency for 1928 expired on December 31, 1932. Note that 1928 was still open long after the returns for 1930 and 1931 were due and filed, and, although the new basis was claimed on those later returns, the Commissioner did nothing about taxing the gain for 1928. This is particularly surprising and significant in view of the fact that he held in the case of United Light & Power Co. that the 1928 transactions did not result in a nontaxable reorganization. The Board later sustained him in that holding. United Light & Power Co., supra. After the Commissioner had allowed the statute to run as to the 1928 tax of the four New Jersey corporations, the Supreme Court held that transactions similar to the 1928 exchanges were not statutory reorganizations. LeTulle v. Scofield, supra. Cf. United Light & Power Co., supra, and cases therein cited. The Commissioner now attempts to circumvent the applicable statutory provisions and the effect of the statutory period of limitation by pointing to his mistake as to 1928, blaming it upon the taxpayer, saying that it is unconscionable to allow the taxpayer to retain the benefit of that mistake, and asking that the error be offset by collecting now, contrary to statute, a larger amount than was due but unpaid for 1928. He would thus actually penalize the taxpayer for abiding by his determination of its 1928 tax liability. That does not seem equitable and we can do no better than apply the statutory provisions, which allow a cost basis equal to the sales price.
Peviewed by the Board.
Decision will be entered v/nder Pule 50,