*3569 Where a Texas corporation is dissolved and by reason of such dissolution its assets and transferred to those composing its board of directors, as trustees for the creditors and stockholders of the corporation, and where such trustees enter into no new operations, held, that the trustees neither by themselves nor in connection with the stockholders of the dissolved corporation constitute an association within the meaning of the Revenue Acts of 1918 and 1921.
*310 This proceeding involves deficiencies in income and profits taxes for the years 1920 and 1921 in the respective amounts of $144,774.50 and $58,270.38, all of which is in dispute. Petitioners assert the following errors: (1) Respondent erred in determining that petitioners were not taxable as a strict trust; (2) respondent erred in determining that the status of petitioners was that of an association; (3) respondent erred in determining that the principles outlined in Hecht v. Malley,265 U.S. 144">265 U.S. 144, justified the reopening of the case*3570 in 1926, the same having been disposed of in 1923; (4) respondent erred in undertaking to reverse the position which he had taken in 1923, which earlier ruling was made upon the same facts as the later ruling; (5) respondent erred in including in taxable income of petitioners for 1920 and 1921 amounts which were paid by certain companies directly to stockholders of the dissolved corporation, of which petitioners were trustees in liquidation; (6) respondent erred in the computation of excess profits in granting them only a part instead of full credit of $3,000; (7) respondent erred in computing *311 the excess-profits taxes for 1920 in that he computed the invested capital not for a full taxable year but only a portion thereof, and (8) respondent erred in computing the excess-profits taxes for 1920 in that in the computing of that portion of income not in excess of 20 per cent of the invested capital and in computing that portion of the income in excess of 20 per cent of the invested capital, he used not the full amount of invested capital but only a proportionate part thereof. In the brief filed in his behalf, respondent concedes error as to contention (6).
FINDING OF FACT.
*3571 The Gonzolus Creek Oil Co. was incorporated under the laws of the State of Texas on April 3, 1920, the purpose of its incorporation stated in its charter being as follows: "For the establishment and maintenance of oil companies with the authority to contract for the lease and purchase of the right to prospect for, develop and use coal and other minerals, petroleum and gas; also the right to erect, build and own all necessary oil tanks, cars and pipe necessary for the operation of the business of same." Its authorized capital stock, originally $125,000, was reduced by amendment to $90,000, all paid in, of which $30,000 was expended for the purchase of an oil lease on a 12-acre tract of land in Stephens County, Tex. (Breckenridge field), and $60,000 was paid as consideration for a contract to drill a well thereon. This well, which was known as No. 1, was completed about August 2, 1920, when oil was produced. The Gonzolus Creek Oil Co., prior to its dissolution as hereafter set forth, entered into a contract with a drilling contractor to put down a second well known as No. 2, for a consideration of $6 per foot, the contractor to furnish the rig, casing, fuel and water. The estimated*3572 cost of this well was $75,000. Agreements were made with the Gulf Pipe Line Co. and the Humble Oil & Refining Co. to purchase the oil, each company taking one-half. Two wells were sufficient to drain the 12-acre tract covered by the lease, and it was decided to dissolve and liquidate the corporation.
A certificate, in the manner and form provided by the laws of Texas, showing consent of all stockholders to dissolution of the corporation was filed in the office of the Secretary of State of Texas, at 8 o'clock a.m., August 14, 1920. Said certificate reads:
THE STATE OF TEXAS
County of Stephens
KNOW ALL MEN BY THESE PRESENTS: That we, B. W. ARMSTRONG and BURKE BAKER, of Harris County, Texas, and G. C. BACHMAN, of Stephens County, Texas, being all of the stockholders of Gonzolus Creek Oil Company, a corporation *312 created and existing under the laws of the State of Texas with its principal office and place of business in Stephens County, Texas, have agreed and consented, and do by these presents agree and consent, to the dissolution of said corporation, and do hereby direct the officers of this Company to certify this consent to the Secretary of State of the State*3573 of Texas, in order that the dissolution hereby agreed to may be accomplished.
Thereupon, the dissolution of the corporation became immediately effective under the laws of Texas.
G. C. Bachman was president and also a director of the Gonzolus Creek Oil Co. at and before its dissolution, and Burke Baker and B. W. Armstrong were the other two of its three directors. These three immediately executed and delivered to the Gulf Pipe Line Co. and Humble Oil & Refining Co., respectively, an order, effective at 7 o'clock a.m. August 14, 1920, for payment direct to the parties listed in said orders, of all money becoming due for oil run to the pipe lines after said hour and date. The order to the Gulf Pipe Line Co. is in words and figures as follows:
GONZOLUS CREEK OIL COMPANY having been dissolved at 8.30 o'clock A.M. on the 14th day of August, 1920, the undersigned, being the directors of said Company at the time of such dissolution, as Trustees for the liquidation of said Company, hereby direct that all moneys due to or for account of said Company from oil run and to be run into the pipe lines of the Gulf Pipe Line Company, be paid as follows: - of August 14th, 1920, shall be paid*3574 out of the first moneys due, to Breckenridge State Bank & Trust Company, for account and to the credit of Gonzolus Creek Oil Company.
SECOND: - Thereafter, until further order from the undersigned, all such sums shall be paid to the parties below named, in the proportions set opposite their respective names, to-wit: -
| Name | Address | Interest of 7/8 |
| Miss Jess Johnson | Breckenridge, Texas | 25/900 |
| Homer Brown | do | 50/900 |
| Mrs. Nellie Jarnagin | do | 10/900 |
| J. E. King | do | 5/900 |
| J. S. Pierce | do | 75/900 |
| A. V. Smith | Abilene, Texas | 5/900 |
| W. C. Holt | Breckenridge, Texas | 30/900 |
| David Ball | (Send check to Breckenridge State Bank | |
| & Trust Co., Breckenridge, Texas). | 26/900 | |
| P. S. Luttrell | Breckenridge, Texas | 1/900 |
| Miss Hazel McCoy | Tulsa, Oklahoma | 15/900 |
| James J. Lyons | (Make check payable to Breckenridge | |
| State Bank & Trust Co., Breckenridge, | ||
| Texas). | 15/900 | |
| John Brook | Breckenridge, Texas | 3/900 |
| J. M. Luttrell | Mineral Wells, Texas | 2/900 |
| W. O. Wood | Breckenridge, Texas | 1/900 |
| G. C. Bachman | do | 69/900 |
| Thos. A. Creekmore | do | 50/900 |
| P. S. Quinn | do | 5/900 |
| A. C. Ford | 1616 Carter Building, Houston | 60/900 |
| R. H. Baker | 618 Union Natl. Bank Bldg., Houston | 50/900 |
| Burke Baker | do | 50/900 |
| Don Hall | 613 Carter Building, Houston | 50/900 |
| E. L. Neville | 112 1/2 Main Street, Houston | 25/900 |
| J. M. West | 15th Floor Carter Building, Houston | 25/900 |
| Frank Andrews | 12th Fl., Union Bank Bldg., Houston | 20/900 |
| John G. Logue | do | 10/900 |
| Edward H. Andrews | do | 6/900 |
| Mrs. Frank Andrews | do | 2/900 |
| Kate Ebdon | do | 1/900 |
| Julia C. Smith | do | 1/900 |
| Hattie E. Ralston | do | 1/900 |
| R. H. Kelley | do | 2/900 |
| Dr. John H. Foster | 417 Kress Building, Houston | 10/900 |
| M. M. Graves | 405 Houston Land & Trust Co., Houston | 5/900 |
| B. W. Armstrong | do | 8/900 |
| Dr. E. M. Armstrong | 713 Union Bank Bldg., Houston | 7/900 |
| Frank B. Kiley | 614 Union Bank Bldg., Houston | 6/900 |
| James Cravens | 4th Floor Woolworth Bldg., Houston | 19/900 |
| James Cravens, Trustee | do | 3/900 |
| Mrs. James Cravens | do | 5/900 |
| J. L. Alexander | do | 1/900 |
| Mrs. S. R. Whittaker | do | 1/900 |
| Jas. C. Roberts | do | 3/900 |
| E. J. McCullough | do | 2/900 |
| Mrs. J. L. Thompson | do | 5/900 |
| A. H. White | do | 1/900 |
| Rufus Cage, jr | do | 2/900 |
| K. S. Dargan | do | 5/900 |
| Clark C. Wren | 601 Union Bank Bldg., Houston | 5/900 |
| R. C. Fulbright | 404 Union Bank Bldg., Houston | 5/900 |
| B. B. Gilmer | Southern Drug Company, Houston | 5/900 |
| John H. Kirby | First Natl. Bank Bldg., Houston | 10/900 |
| John A. Embry | 214 Scanlan Bldg., Houston | 10/900 |
| R. W. Gillette | do | 5/900 |
| Dr. E. Marvin Bailey | 805 Kress Bldg., Houston | 5/900 |
| John Blodgett Davis | 404 Union Bank Bldg., Houston | 5/900 |
| H. A. Wroe | American Natl. Bank, Austin | 30/900 |
| Wilbur Allen | Littlefield Bldg., Austin | 10/900 |
| Dr. H. E. Baxter | Scarbrough Bldg., Austin | 5/900 |
| Harvey Harrell | Congress Avenue, Austin | 5/900 |
| A. J. Eilers | McKean, Eilers & Co., Austin | 5/900 |
| F. W. Sternberg | Sternberg Lbr. Co., Austin | 5/900 |
| I. P. Lochridge | University of Tex., Austin | 8/900 |
| J. B. Robertson | Littlefield Bldg., Austin | 5/900 |
| H. P. Brown | Cleburne, Texas | 1/900 |
*3575 *313 This order shall not be construed to affect in any way or to transfer any title or interest in said oil, but merely to transfer the right to collect the proceeds of such oil during the pleasure of said Trustees. This instrument is subject to all oil sales contracts, division orders or other agreements heretofore made by said Company or said Trustees, and to such as may be made by said Trustees or their successors, the right to deal absolutely with said property and said oil being expressly reserved by said Trustees.
The order to the Humble Oil & Refining Co. was in the same words and figures, except for the change of "Gulf Pipe Line Company" wherever it occurred to "Humble Oil and Refining Company." Some of the parties named as distributees in said order were not stockholders of record in Gonzolus Creek Oil Co. - some of the record stockholders in said corporation having held portions of the stock standing in their names in trust for others. All the persons named in said order were in fact the legal or equitable owners of stock in the corporation, and the beneficiaries entitled (in the shares and portions stated in the orders, and of course, subject to whatever liabilities*3576 existed against the corporation) to distribution of the assets of the Gonzolus Creek Oil Co. At the instance and request of Humble Pipe Line Co. running oil to Humble Oil & Refining Co. the said Baker *314 Bachman, and Armstrong, after the delivery of the blanket division order above described, executed and delivered separate transfer order for each distributee in the share shown for him in the blanket order, said separate transfer orders being upon printed forms used by Humble Pipe Line Co. All said orders were upon the same form and differed only in name and address of the transferees and the quantity of interest transferred to him. One of said transfer orders reads:
HUMBLE PIPE LINE COMPANY
Transfer Order
TO HUMBLE PIPE LINE COMPANY:
The undersigned has assigned as of this date, as indicated below, a 1/450 interest in oil produced from that certain propert a situated in Stephens County, Texas, and known and described as follows:
You are hereby requested, beginning 7 a.m. August 14, 1920, to give credit for oil received on account of said interest so transferred, to the assignee or assignees, as follows:
| Credit to | Division of Interest | P.O. Address |
| Mrs. Frank Andrews | 1/450 | C/o Andrews, Streetman, Union Bank |
| Bldg., Houston, Texas. |
*3577 Witness:
GONZOLUS CREEK OIL CO. (DISSOLVED)
By
Trustees
The undersigned, whether one or more, assignee or assignees above named, each for himself certifies and guarantees that he is the legal owner of the interest hereinabove indicated as transferred to him, and authorizes Humble Pipe Line Company, until further written notice, to receive oil pursuant to above transfer, hereby agreeing to all terms and conditions of the division order heretofore in force.
Witness:
In order that the trustees might have sufficient funds to pay debts, taxes and other liabilities of the corporation, they retained in the above orders the right to divert such amounts from the stockholders of the corporation as might be necessary to effect such purposes.
The liquidating directors, Baker, Bachman, and Armstrong, took over the sum of $210,981,47 gross ($194,231.65 net) which had accrued to the corporation for oil run to pipe lines prior to the dissolution of the corporation, and thereafter, on or about December 31, 1920, received from Humble Oil & Refining Co. the sum of $15,000 out of proceeds of oil run to pipe line in December, 1920, and received also the sum of $1,637.50 proceeds of equipment*3578 sold; and thereafter, at various dates during 1921 received from the Humble Oil & Refining *315 Co. various sums aggregating $28,138.94 and from the Gulf Pipe Line Co. various sums, aggregating $15,000, these sums being from proceeds of oil run to the pipe-line companies during 1921. These amounts were used to pay liabilities of the corporation. At various dates during 1921, beginning in January, the said liquidating directors and trustees also received the sum of $13,113.58 proceeds of the sale of pipe, tanks, tools, fittings, equipment, etc., which were sold at a loss. Cash in hand, pending settlement of liabilities and investigation and decision of the respondent upon the question of taxes, was invested in United States Treasury Certificates, interest on which in 1921 was $5,247.94. The sums in this paragraph, as stated, are the only moneys received by the liquidating trustees during 1920 and 1921.
During the period August 15 to December 31, 1920, there were paid to the several distributees above mentioned, by the Gulf Pipe Line Co. and the Humble Oil & Refining Co. various amounts totaling $870,280.20. Said amount represented the total of sums accruing at semimonthly*3579 intervals during the period mentioned, as proceeds of oil run and pipe lines under the sale contracts made by Gonzolus Creek Oil Co. before the dissolution. The total sum of these payments made to individual distributees, to wit, the sum of $870,280.20, and the sum of $15,000, paid by the Humble Oil & Refining Co. to the trustees on December 31, 1920, as hereinbefore alleged, was treated by the respondent as gross income to the trustees in dissolution for the purpose of computing the tax assessed against such trustees. During the year 1921, there was paid the several distributees above mentioned various amounts totaling $354,437.87, said payments being made in part by Gulf Pipe Line Co. and by Humble Oil & Refining Co., and in each case payments were made directly to the distributees. Such payments represented the proceeds of oil run and pipe lines. The total of these payments made to individual distributees, to wit, the sum of $354,437.87, and the sum of $15,000 paid by the Gulf Pipe Line Co. and $28,138.94 paid by the Humble Oil & Refining Co. to the trustees, on December 31, 1921, as hereinbefore stated, was treated by the respondent as gross income to the trustees in dissolution.
*3580 The trustees had no agreement with the stockholders of the Gonzolus Creek Oil Co. in the form of a declaration of trust or any other form. They operated solely under the provisions of article 1206 of the Revised Statutes of Texas, 1911. At the time the dissolution of the corporation was agreed to, the stockholders thereof transferred their stock to the three directors. No new operations were begun after August 14, 1920, the date of dissolution. The trustees at once attempted to sell the property; they sought a purchaser but *316 could find no one who offered anything like what the property was apparently worth. Well No. 2 was completed about October 1, 1920. Well No. 1 ceased to flow in January ,1921, and Well No. 2 practically ceased flowing in April, 1921. These wells came in with a larger flow than was expected. Well No. 1 came in with a flow of about 7,000 barrels and Well No. 2 with a flow of about 3,000 barrels. Oil was being lost and in order to take care of and conserve the oil, the trustees purchased tools, tanks, pipes and separators and employed labor, for which last item they paid $14,833.26. In the latter part of 1920, the trustees sold to a third person*3581 so much of the lease above referred to as covered a small tract of land separated from the 12-acre tract, about 250 feet long, in consideration of payment from any oil that might be produced. No oil was produced and nothing was paid. The trustees maintained no office. They employed a bookkeeper. Bachman was vice president of the Breckenridge Bank and Trust Co. and looked after the affairs of the trust from the office of the bank. The handling of such funds as came into the hands of the trustees was largely done in the office of Burke Baker. The trustees kept a record of oil runs and employed an inspector to keep check on the purchasing companies.
An income-tax return was filed for the corporation for the period it was in existence, April 3 to August 14, 1920, showing a net income of $117,518.70, and a tax liability of $52,165.01. Of this amount, one-half was paid; but after a conference with agents of the Bureau of Internal Revenue in Washington, it was decided that the corporation was entitled to relief under sections 327 and 328 of the Revenue Act of 1918, and it was advised to file a plea for abatement of the balance of the assessment pending final action by the Bureau, *3582 which was accordingly done.
At the proper time, a fiduciary return was filed by the trustees for the creditors and stockholders of Gonzolus Creek Oil Co., Dissolved, covering the period from August 15 to December 31, 1920, showing the distributions of assets to the beneficiaries in the amount of $870,280.20 paid to them by Humble Oil & Refining Co., and Gulf Pipe Line Co. as hereinbefore set out, and (if said distributions be considered as taxable income to said trustees) disclosing a net income (before depletion allowance) for that period in the sum of $768,151.67.
A fiduciary return was also filed by the trustees for the calendar year 1921, which shows $354,437.87 of assets distributed to beneficiaries (being the total payments made direct to distributees by Humble Oil & Refining Co. and Gulf Pipe Line Co. as hereinbefore shown) and (if said distributions be considered as taxable income to said trustees) disclosing net income (before depletion deduction and after the payment of $26,082.50 income tax) of $349,397.
*317 In the meantime, the trustees discovered that they were entitled to revalue the lease on account of discovery. As soon as they could assemble all the*3583 date necessary to prove the discovery value, they filed Form O and other schedules. Upon consideration of the data, the United allowed discovery value and fixed the depletion unit at $1.771034 per barrel, which amounted to the following depletion allowances:
| Corporation to Aug. 14, 1920 | $107,187.87 |
| Period Aug. 15 to Dec. 31, 1920 | 462,231.71 |
| Calendar Year 1921 | 240,702.47 |
These adjustments were accepted as satisfactory. Early in 1922 a revenue agent, in checking up income-tax returns of one of the beneficiaries, discovered these facts and called upon the trustees for the purpose of examining the books of record of the dissolved corporation and of the trust. Upon completion of his examination, he expressed the opinion that, under the provisions of articles 547 and 622 of the regulations then in force, he would be required to ignore the dissolution of the corporation and to make a report which would leave it to the respondent to decide.
The trustees filed several protests, and, after several hearings in Washington, the respondent on September 29, 1923, ruled that "your status is held to be a bona fide trust; the corporation's taxable period will be closed on*3584 August 14, 1920; the excess tax paid by the corporation will be refunded; the income received subsequent to August 14, 1920, should be returned individually by the beneficiaries of the trust, but distributions out of depletion allowed, based on discovery, will be subject to both normal and surtax, and, in consideration of relief granted by allowing discovery value and by holding your status to be that of a trust, the claim for special relief under section 328 will not be considered."
On April 18, 1924, the trustees received from the Internal Revenue Bureau refund of $18,100.32 accompanying certificate of overassessment No. 272541, Schedule No. 7673, and statement showing the tax for the "period of corporate existence, April 3 to August 14, 1920," was $7,982.18 and since $26,082.52 had been paid, $18,100.32 was refunded and $26,082.51 was abated.
The trustees retained funds in order to meet the tax obligations to the Federal Government. In August, 1922, suit was filed by the stockholders seeking a distribution of the funds in their hands. This they successfully defended on the ground that funds should be held to meet such taxes. Following the refund made by the Government, *3585 the trustees distributed all the funds and property in their hands. On February 13, 1926, respondent mailed to Trustees in Dissolution, Gonzolus Creek Oil Co., the deficiency letter which is *318 the basis of this proceeding, and therein determined that said trustees should be taxed as a corporation, basing his determination on Hecht v. Malley,265 U.S. 144">265 U.S. 144. For the year 1920, respondent computed petitioner's income and invested capital and credits for a period of 4 17/30 months, being the period from August 14, 1920, to December 31, 1920.
OPINION.
MILLIKEN: The deficiency involved in this proceeding arises from the fact that respondent, having determined that the trustees in dissolution were taxable as a trust, has reversed his position and now determines that the organization represented by them was an association and therefore taxable as a corporation.
The trust under which petitioners were acting was not created by any trust agreement. It was not founded on contract. It was the creature of statute and all the rights, powers and duties of the trustees were derived from the Texas statute. Article 1205 of the Revised Statutes of Texas (1911) *3586 provides that where four-fifths in interest of outstanding stock files with the Secretary of State of Texas a consent similar to that set forth in the findings of fact "the corporation is dissolved and such officer shall so note on the ledger of his office." Article 1206 of the Revised Statutes of Texas (1911) provides:
Unless a Receiver appointed, President etc. to be trustees and close business. Upon the dissolution of any corporation, unless a receiver is appointed by some court of competent jurisdiction, the President and directors or managers of the affairs of the corporation at the time of its dissolution, by whatever name they may be known in law, shall be trustees of the creditors and stockholders of such corporation, with full power to settle the affairs, collect the outstanding debts, and divide the moneys and other property among the stockholders after paying the debts due and owing by such corporation at the time of its dissolution, as far as such money and property will enable them after paying all just and reasonable expenses; and to this end and for this purpose they may, in the name of such corporation, sell, convey and transfer all real and personal property belonging*3587 to such company, collect all debts, compromise controversies, maintain or defend judicial proceedings, and to exercise the full power and authority of said company over such assets and properties, and the existence of every corporation may be continued for three years after its dissolution from whatever cause for the purpose of enabling those charged with the duty to settle up its affairs, and in case a receiver is appointed by a court for this purpose, the existence of such corporation may be continued by the courts so long as in its discretion it is necessary to suitably settle up the affairs of such corporation; provided that the dissolution of a corporation shall not operate to abate, nor be construed as abating any pending suit in which such corporation is a defendant, but such suit shall continue against such corporation and judgment shall be rendered as though the same was not dissolved, and in case no receiver has been appointed for said corporation, suit may be instituted on any claim against said corporation, as though the same had not been *319 dissolved, and service of process may be obtained on the president, directors, general manager, trustee, assignee, or other*3588 person in charge of the affairs of the corporation at the time it was dissolved by whatever name they may be known in law, and judgment may be rendered as though the corporation had not been dissolved, and the assets of said corporation shall be liable for the payment of such judgment just as if said corporation had not been dissolved.
The effect of this article is discussed in Moody-Hormann-Boelhauwe v. Clinton Wire Cloth Company (C.C.A.), 246 Fed. 653. It was there held that the dissolution of a Texas corporation under articles 1205 and 1206 was an act of bankruptcy. After quoting article 1206 the court said:
A general assignment, within the meaning of the cited provision of the Bankruptcy Act, embraces any act by the alleged bankrupt having the effect of a conveyance of all its property and an appropriation of it to raise funds to pay its debts, share and share alike. The name and form which the transaction assumes are not material. In re Thomlinson Co.,154 Fed. 834, 83 C.C.A. 550; *3589 In re Utley (D.C.) 235 Fed. 905; 5 Corpus Juris, 1118. The Texas statute (article 1206, supra) gives to the action alleged the effect of divesting the corporation of the title to all its property and vesting it in designated persons as - "trustees of the creditors and stockholders of such corporation, with full power to settle the affairs, collect the outstanding debts, and divide the moneys and other property among the stockholders, after paying the debts due and owing by such corporation at the time of its dissolution, as far as such money and property will enable them after paying all just and reasonable expenses; and to this end and for this purpose they may, in the name of such corporation, sell, convey and transfer all real and personal property belonging to such company, collect all debts, compromise controversies, maintain or defend judicial proceedings, and to exercise the full power and authority of said company over such assets and properties."
We do not think that there is any merit in the suggestion that the transaction alleged was one by the corporation's stockholders, and was not one by the corporation, because not effected by the officers or agents*3590 of the corporation having authority to bind it. An effect of the statute is to make the corporation's stockholders the agency by which a conveyance or transfer of its property and an appropriation of it to raise funds to pay its debts, share and share alike, are accomplished. The transfer was as effectually that of the corporation as it would have been if made in the name of the corporation, by its officers or agents ordinarily vested with authority to take such action in its behalf. The conclusion is that the transaction alleged had the essential features of a general assignment for the benefit of creditors, within the meaning of the above-cited provision of the bankruptcy Act. This being so, the Bankruptcy Act gave the corporation's creditors the right to have it adjudged bankrupt and to have its assets administered by the bankruptcy court, instead of by the trustees in effect nominated by it stockholders. (Italics supplied.)
While we may have here all the essentials of a trust, it does not necessarily follow that such an organization is not taxable as a corporation. If a trust is organized by voluntary agreement, for the purpose of transacting business under corporate forms*3591 and methods, and does transact business in such manner, it is an association within the meaning of the Revenue Acts. E. A. Landreth Co.,11 B.T.A. 1">11 B.T.A. 1*320 wherein Crocker v. Malley,249 U.S. 223">249 U.S. 223, and Hecht v. Malley,265 U.S. 144">265 U.S. 144, are discussed. The record does not disclose anything which indicates that the trustees conducted their affairs after the manner of a corporation, much less that they in connection with the beneficiaries conducted the trust affairs in such manner. Neither was the trust created to transact business. It was created to wind up a business. The term "business" as used in the various revenue acts, has a well defined meaning. Thus it is said in Von Baumbach v. Sargent Land Co.,242 U.S. 503">242 U.S. 503:
As to the second question: Were the respondents carrying on business, within the meaning of the Corporation Tax Act? This question was dealt with by this court in the first of the Corporation Tax Cases, Flint v. Stone Tracy Co.220 U.S. 107">220 U.S. 107, 55 L. Ed. 389">55 L.Ed. 389, 31 Sup.Ct.Rep. 342, Ann. Cas. 1912B, 1312. As the tax was there held to be assessed upon the privilege of doing*3592 business in a corporate capacity, it became necessary to inquire what it was to do business, and this court adopted with approval the definition, judicially approved in other cases, which included within the comprehensive term "business," "that which occupies the time, attention, and labor of men for the purpose of a livelihood or profit." (Italics supplied.)
After referring to various cases, the court continued:
It is evident, from what this court has said in dealing with the former cases, that the decision in each instance must depend upon the particular facts before the court. The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails, and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain, and such activities as are essential to those purposes. (Italics supplied.)
In the instant case, we do not have before us a corporation which has reduced its activities. We have before us three trustees*3593 for the creditors and stockholders of a dissolved corporation, whose sole duty was to wind up the defunct concern. The trust was not created "for the purpose of continued efforts in the pursuit of profit and gain" but for the purpose of distributing the assets of a corporation which had been organized for such purpose but which was then dissolved. The end for which a corporation is organized is a material element in determining whether it transacts business. See Edwards v. Chile Copper Co.,270 U.S. 452">270 U.S. 452, where it is said:
If the corporation was one that Congress had power to tax in this way, it is hard to say that it is not within the taxing acts. It was organized for profit and was doing what it principally was organized to do in order to realize profit. The cases must be exceptional, when such activities of such corporations do not amount to doing business in the sense of the statutes. The exemption "when not engaged in business" ordinarily would seem pretty nearly equivalent to when not pursuing the ends for which the corporation was organized, in the cases where the end is profit. In our opinion the plaintiff was liable to the tax.
*321 *3594 To hold that the trustees for the creditors and stockholders of the Gonzolus Creek Oil Co. conducted a business as above defined would be to impute to them a violation of the trust imposed upon them and would perhaps lay them open to proceedings by the state in the nature of quo warranto. Cook on Corporations, 8th Ed., sec. 641. In the absence of convincing evidence, we should be slow to impute to these trustees a violation of their trust and the evidence in the record does not, in our opinion, disclose any such violation. Respondent points out that Well No. 2 was completed and paid for after the dissolution of the corporation; that petitioners expended large amounts for labor, tools, tanks, etc.; that they checked the flow of the oil; that they sold a part of the oil lease and that in the division orders they retained a power of change or revocation. The payment for the completion of Well No. 2 was made in satisfaction of an obligation of the dissolved corporation. The expenditures for tools, tanks, etc., were made to conserve the assets of the trust and were a proper trust expenditure. The sale of the small part of the lease was made in the exercise of a purely statutory*3595 power, to-wit, to dispose of the assets and distribute the proceeds. The power of revocation or change was properly inserted to the end that the trustees might have sufficient funds to pay the obligations of the corporation and in fact this power was exercised for that very purpose and none other. The trustees attempted to sell the whole lease but failed because they could find no purchaser who would pay what it was then deemed to be worth. If the sale had been consummated, the trustees would have been compelled to exercise the power and revoke all payments to the stockholders. On the other hand, the trustees at once exercised their statutory power to distribute the assets of the corporation to the extent of their then existing ability. They made provision for the distribution to the stockholders of the proceeds of the oil and they tried to but failed to sell the lease. They entered into no new operations. The only acts done by them were either in the nature of conservation of the assets of the trust or a distribution thereof. We are of opinion that neither the trustees in dissolution nor such trustees in connection with the stockholders of the dissolved corporation were an*3596 association as that term is used in the Revenue Acts of 1918 and 1921.
Respondent invites our attention to section 239 of the Revenue Act of 1918. This section in part provides:
* * * In cases where receivers, trustees in bankruptcy, or assignees are operating the property or business of corporations, such receivers, trustees, or assignees shall make returns for such corporations in the same manner and form as corporations are required to make returns. Any tax due on the basis of such returns made by receivers, trustees, or assignees shall be *322 collected in the same manner as if collected from the corporations of whose business or property they have custody and control. * * *
Section 239 of the Revenue Act of 1921 is to the same effect. The effect of this section is that receivers, trustees in bankruptcy or assignees who are operating the property or business of corporations "shall make returns for such corporations." It is the income of the corporations and not the income of receivers and trustees or assignees which is to be taxed. Thus, when such a fiduciary sells property purchased by the corporation which he represents, the basis for computing gain or loss*3597 is the cost of the property to the corporation and not its value when acquired by the fiduciary. Whether section 239 is applicable to a dissolved corporation which has transferred the title to its assets to trustees in liquidation, is not before us. Here respondent determined the tax due by the corporation and it has been paid. He now seeks to determine a tax, not against the corporation, but against petitioners as a taxable entity entirely distinct and separate from the corporation. He makes the date of dissolution the dividing point and computes the income and invested capital of the corporation and of petitioners and treats them as though they had no relation to each other.
The sole question before us is whether petitioners, together with the stockholders of the Gonzolus Creek Oil Co. constituted an association. This question is answered in the negative. The conclusion reached disposes of all other issues raised.
Judgment of no deficiency will be entered.