*432OPINION.
Love:The respondent in denying the petitioner’s contention that the two notes amounting to $112,000 paid in by Thomas Cronin for stock of the petitioner should be included in its invested capital for the years 1920 and 1921, takes the position that: (1) Under the laws of the State of Pennsylvania it is unlawful for a corporation to issue stock for notes, and that notes received in violation of such laws can not be included in invested capital under the provisions of section 326(a)(2) of the Revenue Acts of 1918 and 1921; (2) the notes were not in fact bona fide paid in for stock if the parties to the transaction intended that they were not to be collected; (3) in no case may the notes paid in for stock be included in invested capital in an amount in excess of their actual cash value at the time paid in. We will consider the respondent’s contentions in the order that they are stated.
*433In the Appeal of American Steel Co., 1 B. T. A. 839, the Board held that the notes involved therein, -which do not differ from those involved in the instant appeal except in that they were interest-bearing notes, were not illegal or void under the laws of Pennsylvania, and that they satisfied in every respect the provisions of section 326 (a) (2) of the Revenue Act of 1918, being tangible property paid in for stock. In respect of notes paid in for stock, the Revenue Act of 1921 does not differ from the Revenue Act of 1918. The notes paid in by Thomas Cronin for stock of the petitioner may be included in its invested capital for the years involved provided that they comply with the provisions of section 326(a)(2) of the Revenue Acts of 1918 and 1921 in other respects which are prerequisite to their inclusion therein.
On the second point it was contended by the respondent that the notes were not in fact bona fide paid in for stock within the meaning of section 326 (a) (2) of the 1918 and 1921 Revenue Acts, his contention apparently being based upon the fact that nothing has ever been paid on the notes either by Thomas Cronin before his death or by Harry Cronin, since he purported to assume the indebtedness on account thereof, and upon the further fact that the estate of Thomas Cronin was released from all liability on account of the notes given by the decedent.
The petitioner urges that under the provisions of the Revenue Acts of 1918 and 1921, it need only show that Thomas Cronin was solvent and responsible at the time the notes were paid in to entitle it to include the notes in its invested capital. It is obvious that this contention carries with it the assumption on the part of the petitioner that the notes were in fact bona fide paid in for stock. Whether the notes were bona fide paid in for stock is one of the questions we are called upon to decide, the respondent having denied that such was the fact. If the parties to the transaction intended that the notes should not be collected, then we must hold that they were not bona fide paid in for stock. We must look, therefore, to all of the circumstances surrounding the transaction in order to determine that fact.
It is necessary to bear in mind that at the date of the execution of the $12,000 note Thomas Cronin owned 728 out of a total of 780 shares of stock of the petitioner and was its dominating spirit. His son owned 49 out of the 52 remaining shares. The will and intention of Thomas Cronin may, to all intents and purposes, be held to have been the will and intent of the corporation. The question, therefore, is, Did Thomas Cronin, as president of petitioner, intend to demand of Thomas Cronin, the individual, payment of that note? The conditions under which the $100,000 note was given were practically the same as when the $12,000 note was given. All the cir*434cumstances incident to these transactions, both prior and subsequent to the execution of the notes, point unmistakably to the conclusion that no such intention was present in the mind of Thomas Cronin.
The evidence in this proceeding shows that Thomas Cronin was solvent and financially responsible at the time he gave to the petitioner his demand notes in payment for its stock. Although 19 months had elapsed since the date of the first note, no payment had been made. At the time of his death his estate was sufficiently large to liquidate the notes, yet, notwithstanding that fact and the fact that nothing had been paid thereon, the petitioner released his estate from all liability on account thereof and Harry Cronin, who at the time of the release was petitioner’s president, purported to assume the indebtedness. At the time the petitioner released the estate of Thomas Cronin from liability on account of the notes and permitted Harry Cronin to assume the obligations, the financial condition of Plarry Cronin was such that he could not have paid the notes in full if called upon to do so. In fact, his total assets, exclusive of his holdings in the petitioner, were not more than $61,500 at that time. The record herein does not disclose his liabilities and consequently the net worth of Harry Cronin can not be determined. It is clear, however, that the petitioner released a solvent debtor, the estate of Thomas Cronin, and permitted the debts owing by it to be assumed by a person, who, it is admitted, could not pay the notes in full on demand.
The petitioner’s president testified at the hearing in this appeal that its capital stock was -increased and sold to Thomas Cronin for his demand notes for the purpose of augmenting its borrowing power and strengthening its credit rating. It will be observed, however, that the notes were kept in the petitioner’s files and never pledged or used for any purpose whatsoever, during which time nothing was paid thereon. While the notes were thus held by the petitioner, amounts ranging from $20,000 in 1917 to $195,000 in 1920 were borrowed and used in conducting its business. Although it wTas necessary to borrow money to conduct its business, the notes in question were not made part of petitioner’s working capital.
In Appeal of Citizens Underwriters Agency, 2 B. T. A. 1116, the petitioner therein carried on its books, as bills receivable, $5,350 representing demand notes from stockholders given in 1907 for stock. These notes were never paid, notwithstanding the fact that the makers were financially responsible, nor was demand ever made for payment, although the petitioner borrowed money for its own use during the period. We found in that case that the notes were not bona fide paid in for stock.
*435Viewing all the circumstances incident to the transactions carried on by and between Thomas Cronin and the petitioner, and to the subsequent action taken by the petitioner, we are of the opinion that the notes given by Thomas Cronin were not bona fide paid in for stock. See Ready Auto Supply Co., 2 B. T. A. 730. It is unnecessary, therefore, for us to discuss the third point raised by the respondent.
Judgment will be entered for the respondent.
Considered by Littleton and Smith.