*597OPINION.
Smith :The respondent determined the deficiencies in income tax of the petitioners for the year 1920 upon the ground that the Irving Gollober-Joseph Corporation, of which the petitioners were the principal stockholders, was dissolved on January 2, 1920; that the assets of the corporation then passed directly to the stockholders as tenants in common of the property, and that the petitioners received taxable income in 1920 to the extent that the book value of their shares at the date of dissolution exceeded the par value of their shares. Appeals of E. C. Huffman 1 B. T. A. 52; John K. Greenwood, 1 B. T. A. 291; Buchmiller Estate, 1 B. T. A. 380. The petitioners originally contended that they realized no income in 1920 from the dissolution of the corporation for the reason that the assets of the corporation passed to the directors as trustees in liquidation and that the amounts of cash received by them from the sale of the corporate assets and distributed to the petitioners in 1920 were less than the par value of their shares of stock in the dissolved corporation, and that they could not be charged with income tax with respect to liquidating dividends until they had recovered in cash the par value of their shares. After the evidence showed that the corporation was dissolved in 1919, and not in 1920, the petitioners contended and now contend that any gain realized from the dissolu*598tion was income of the year 1919 and of no subsequent year. No contention is made by either the petitioners or the respondent that the par value of the shares of stock in the dissolved corporation held by the petitioners is the proper basis for computing any gain which may have been realized from the dissolution.
It has been ruled in numerous decisions by California courts that trustees simply have a poiver in trust and do not have the legal title to the assets, which title is vested in the stockholders immediately upon dissolution of the corporation. These conclusions of law have been reached in cases arising from the forfeiture of the corporate charter and resulting dissolution because of failure to comply with the corporate laws of the State with regard to paying license taxes and for other similar reasons.
Section 400 of the Civil Code of California, as amended by Stats. 1911, p. 880, provides:
Unless other persons are appointed by the court, the directors or managers of the affairs of a corporation at the time of its dissolution are trustees of the creditors and stockholders or members of the corporation dissolved, and have full powers to settle' the affairs of the corporation, collect and pay outstanding debts, sell the assets thereof in such manner as the court shall direct, and distribute the proceeds of such sales and all other assets to the stockholders. Such trustees shall have authority to sue for and recover the debts and property of the corporation, and shall be jointly and severally personally liable to its creditors and stockholders or members, to the extent of its property and effects that shall come into their hands.
In Rossi v. Caire, 174 Cal. 14; 161 Pac. 1161, the court said:
The directors of a corporation, before its dissolution, do not, by virtue of their office, hold or possess any title to or interest in the property of the corporation. The title is wholly vested in the corporation. The above statute providing that, upon forfeiture of the charter, the directors shall become trustees for the corporation and its stockholders to settle its affairs, does not purport to invest the trustees with any title to the property formerly belonging to the corporation. They get by the forfeiture nothing more than the statute gives them, and that is merely a power over the property, not the title. The corporation having ceased to exist, it is no longer capable of holding the title or the possession, the property belongs to the persons who were its stockholders at ftie time it ceased to be a corporation (Havemeyer v. Superior Court, 84 Cal. 362, 24 Pac. 121, 10 L. R. A. 627, 18 Am. St. Rep. 192), and the right of possession passes to the directors by force of the statute making them trustees to settle the corporate affairs, since such right must be necessary for that purpose.
In Crystal Pier Co. v. Schneider, 40 Cal. App. 819; 180 Pac. 948, after reference to the foregoing Rossi case, the court further said:
* * * After forfeiture of the charter the situation, then, is this: The title to all property that formerly belonged to the dead corporation is vested in those who were its stockholders at the time of its demise; the trustees to settle the affairs of the corporation have in their possession property belonging to those who were stockholders at the date of the dissolution; they are *599bound to settle the affairs of the former owner, the defunct corporation; they have all the power to deal with and dispose of the property that is necessary to accomplish this object.
The “trustees,” as the directors in office at the date of the forfeiture are designated by the statute, are the donees of a power in trust. Though the statute refers to the directors in office as “ trustees,” they are not trustees of a “ trust,” in any true sense of the term. In every true trust the legal title is vested in the trustee. Towers in trust differ from trusts in this, that in the case of such powers the legal title is vested, not in the trustee, but in a third person, but the donee of the power in trust can convey the title and dispose of the property to or for the beneficiaries.
In Jones v. Peck, 63 Cal. App. 397; 218 Pac. 1030, tbe court expressed tbe foregoing rules in one sentence as follows:
All of the property of a defunct corporation belongs to the persons who were its stockholders at the time it ceased to be a corporation, but the right of possession passes to the directors in office by force of the statutory provision which makes them trustees to settle the corporate affairs.
Although it would appear from the above decisions of the California courts that the legal title to the assets of a corporation vests in the stockholders at the date of the dissolution of the corporation, this fact is not necessarily determinative of the question when income is realized by the stockholders of a corporation in a case such as the one at bar. The trustees in liquidation have a power in trust over all of the assets of a dissolved corporation. They have the absolute right of possession. All of the assets of the corporation may be used by the trustees in liquidation in paying the debts of the corporation so that the stockholders will never receive any portion of them. If, in the instant case, a large part of the assets of the corporation at the date of dissolution had been taken by the trustees in liquidation for the payment of the debts of the corporation, the stockholders clearly would never have derived any income therefrom either in 1919,1920, or in any subsequent year. Although the decree of dissolution entered by the court on December 30, 1919, stated that it satisfactorily appeared to the court from the petition for dissolution of the corporation, and the court found as a fact, that all claims and demands against the corporation applicant had been fully satisfied and discharged, the evidence of record shows that the corporation had large outstanding liabilities on December 30, 1919. The balance sheet as of January 2, 1920, the date when the assets were sold to the partnership, shows accounts payable of $30,475,95 and accrued Federal income and profits taxes for 1919 of $8,330.37. The stockholders as such did not receive the assets of the corporation for their own possession and enjoyment on December 30 or December 31, 1919. These assets were under the control of the five directors as trustees in liquidation until some time in January, 1920, *600when they sold them to the three principal stockholders as partners in consideration of the partners assuming all the liabilities of the corporation and the execution and delivery of four interest-bearing promissory notes to the trustees in liquidation, the face value of which amounted to the book value of the assets in excess of the liabilities other than capital stock. The trustees in liquidation were in this case all of the stockholders of the dissolved corporation.
We have no evidence that the cash value of the notes received by the stockholders of the corporation, as trustees in liquidation, were not equal to their face value. We therefore have a situation where the trustees in liquidation, who were also the stockholders and as such owned all of the stock of the corporation, received the notes of the three principal stockholders for the value of the assets in excess of liabilities and were in a position to distribute to themselves in 1920 property of a value equal to $79,688.05. In fact it was not necessary to make a distribution. The notes were made payable to the stockholders and they had both title and possession thereof. The mere fact that the trustees in liquidation did not immediately make some formal declaration or record that they were relinquishing their trusteeship appears to the Board to be immaterial. Such an act was useless because they were the only persons interested.
We think that from the standpoint of substance the petitioners derived their income from the dissolution of the corporation in the year 1920 when they received the notes of the three stockholders in an amount equal to the excess of the value of the assets over the liabilities of the corporation and assumed the corporation’s liabilities. Under the circumstances of this case, when this took place the former stockholders of the corporation owned and had in their possession, in lieu of the assets of the corporation, notes in the amount of $79,688.05 and their functions as trustees in liquidation were at an end, there being nothing further for them to do in that capacity.
Judgment will be entered for the respondent.
Phillips concurs in the result only.