*579 1. BASIS. - In 1926 corporation A acquired all the assets of corporation B in exchange for shares of A's common stock and the assumption by A of B's liabilities. A's stock, so received by B in exchange for its assets, was immediately distributed pro rata among B's stockholders and B was dissolved. Petitioners, stockholders in B corporation, surrendered shares of B's stock and received in exchange therefor shares of A's stock, which they sold in 1930. Held, the basis for computing gain or loss to petitioners was the cost to them of B's stock so exchanged.
2. Held, that where grantor of a trust reserved the power to reacquire the trust corpus upon payment of a small amount, the income realized therefrom on disposition is taxable to him. Charles T. Fisher,28 B.T.A. 1164">28 B.T.A. 1164.
*1215 Respondent determined a deficiency in the income tax of petitioners for the year 1930 in the amount of $100,597.83, from which determination petitioners appeal. The issues raised by the pleadings are (1) whether the basis for computing gain or*580 loss from the sale in 1930 of certain shares of General Motors Corporation common stock is the original cost to petitioners of common stock of the Fisher Body Corporation which they exchanged in 1926 for said General Motors Corporation common stock, or whether such basis is the fair market *1216 value of the General Motors stock at the time of the exchange; (2) whether certain income received in the taxable year by the trustees of the Charles T. Fisher Trust, incorporated in 1923, is taxable to petitioner Charles T. Fisher; and (3) whether petitioners are entitled to a deduction for charitable contributions computed by including capital gain in net income, subject to the statutory limitation.
FINDINGS OF FACT.
On October 16, 1923, Charles T. Fisher, one of the petitioners herein, transferred to Fred J. Fisher, the Security Trust Co. of Detroit, Michigan, and himself, as trustees, 21,000 shares of common stock of the Fisher Body Corporation, a corporation organized under the laws of the State of New York. The 21,000 shares of Fisher Body Corporation common stock were acquired by Charles T. Fisher on August 21, 1916, and were continuously owned by him from that date until*581 they were transferred as aforesaid. On the same date, October 16, 1923, the trustees executed a declaration of trust, pursuant to the terms of which they thereupon issued to Charles T. Fisher 21,000 shares of class A interest in the trust and issued 3,500 shares of class B interest in the trust to each of his six children.
Under the terms of the declaration of trust the income from the corpus was payable to the holders of class B interest, and the corpus was likewise to be distributed to the holders of the class B interest in the discretion of the trustee, but not later than 21 years after the death of the last surviving child.
The declaration of trust provided that any holder of shares of class A interest in the trust could at any time prior to the termination of the trust, upon the surrender of one share of class A interest and the payment of $10 to the trustee, be entitled to receive from the trust one share of stock of the Fisher Body Corporation.
On March 2, 1925, Charles T. Fisher surrendered to the trustees, 12,500 shares of class A interest in the trust out of the said 21,000 shares of class A interest and paid to the trustees the sum of $125,000. Upon this surrender*582 and payment the trustees transferred and delivered to Fisher 12,500 shares of common stock of the Fisher Body Corporation pursuant to the provisions of the declaration of trust. Shortly thereafter the Fisher Body Corporation declared and paid a 300 percent stock dividend on its outstanding common stock, and the trustees received as a result thereof an additional 25,500 shares of common stock of the Fisher Body Corporation, making a total of 34,000 shares held by the trustees.
The Fisher Body Corporation, from the time of its organization in August 1916, was engaged in the manufacture and sale of automobile *1217 bodies and automobile body parts, and on December 3, 1919, it entered into a written agreement with the General Motors Corporation, a corporation organized under the laws of the State of Delaware and engaged principally in the manufacture and sale of automobiles, which contemplated the furnishing by the Fisher Body Corporation on a cost-plus basis of all of the automobile bodies required by the General Motors Corporation for the period of 10 years beginning November 1, 1919. Pursuant to that contract the Fisher Body Corporation manufactured for the General Motors*583 Corporation the automobile bodies required by the General Motors Corporation and continued to do so until the events which occurred in the year 1926, as hereinafter set forth, took place. At that time about 85 percent of the business of the Fisher Body Corporation consisted of the manufacture of automobile bodies for the General Motors Corporation under said contract.
For business reasons (among which was the necessity of providing itself with a suitable arrangement for procuring the automobile bodies which it would require in its business after the termination of the above mentioned contract and its desire to secure the profits resulting to the Fisher Body Corporation under the contract and its other business) the General Motors Corporation during the early part of the year 1926 determined to endeavor to acquire the assets of the Fisher Body Corporation, and, in furtherance of that desire, on May 13, 926, its board of directors adopted a resolution authorizing its officers to take such action as might be necessary to effectuate the transaction.
On the same day, May 13, 1926, the General Motors Corporation made a written offer to the board of directors of the Fisher Body Corporation*584 to purchase all of the properties and assets of the Fisher Body Corporation, including its business and good will, as of June 30, 1926, and to pay in exchange therefor 1,600,000 shares of the common stock of the General Motors Corporation (being in the ratio of one share of such stock to each one and one-half shares of Fisher Body Corporation common stock then outstanding). The common stock of the General Motors Corporation was to be entitled to all dividends declared payable to common stockholders of record on and after June 30, 1926, and the General Motors Corporation agreed to assume and pay and perform all liabilities and obligations of the Fisher Body Corporation of whatsoever character. The offer provided that the Fisher Body Corporation was to be dissolved immediately and its assets conveyed to the General Motors Corporation pursuant to such dissolution. It was further stated that it was an essential stipulation of the offer that the Fisher Body Corporation, upon making such conveyance, should immediately cause the General Motors Corporation common stock to be distributed by the Fisher Body Corporation, *1218 or upon its order, to its stockholders. The transaction*585 was to be closed as of June 30, 1926.
On May 14, 1926, the board of directors of the Fisher Body Corporation adopted a resolution accepting the offer of the General Motors Corporation, subject to the authorization and consent of the stockholders, and setting forth in detail a plan of action in accordance with the proposal. The resolution recited that:
Pursuant to an offer of purchase made by General Motors Corporation (a Delaware corporation, hereinafter called General Motors), and by order of the Board of Directors of Fisher Body Corporation (a New York corporation, hereinafter called Fisher Body), the following plan of reorganization, providing for the acquisition by General Motors of all the properties of Fisher Body, is hereby adopted, subject to the authorization of the dissolution of Fisher Body by vote of the holders of record of two-thirds of its outstanding shares:
On June 3, 1926, a special meeting of the stockholders of the Fisher Body Corporation was held, at which resolutions were adopted providing that the Fisher Body Corporation be forthwith dissolved pursuant to the New York statute, and authorized the directors, upon such dissolution of the corporation, to*586 sell the assets of the corporation to General Motors Corporation in accordance with the terms of the offer dated May 13, 1926, and to take in payment in exchange therefor common stock of the General Motors Corporation, and to distribute said common stock among the stockholders of the Fisher Body Corporation in proportion to their interests therein.
On June 4, 1926, a certificate of dissolution of the Fisher Body Corporation was filed with the Secretary of State of New York, who on that date issued a certificate of such filing, and publication in newspapers as required by the statute was had.
On June 30, 1926, the total outstanding capital stock of the Fisher Body Corporation was 2,400,000 shares of common stock, of which General Motors owned 1,402,928 shares (being approximately 58.455 percent). For several years prior thereto the General Motors Corporation had owned substantially the same percentage of capital stock of the Fisher Body Corporation.
On June 30, 1926, the requisite indentures and agreements conveying and transferring to the General Motors Corporation as of June 30, 1926, all the assets of the Fisher Body Corporation were executed and delivered. On the same*587 day the General Motors Corporation executed and delivered an agreement under which it assumed and agreed to pay all the liabilities and obligations of the Fisher Body Corporation.
On June 30, 1926, the Fisher Body Corporation caused notice to be sent to each of its stockholders advising that the corporation had been dissolved pursuant to the New York statute, and giving instructions *1219 for the surrender of Fisher stock in exchange for General Motors stock as a final distribution in liquidation.
On June 30, 1926, the General Motors Corporation delivered to the Fisher Body Corporation, by letter, certificates evidencing 1,600,000 shares of General Motors Corporation stock.
On July 1, 1926, a letter signed "Fisher Body Corporation by W. A. Fisher, President" was transmitted to the stock transfer department of the General Motors Corporation, together with the stock certificates aggregating 1,600,000 shares of common stock of the General Motors Corporation, authorizing the stock transfer department of the General Motors Corporation to act for the Fisher Body Corporation in distributing the stock to the stockholders of the Fisher Body Corporation.
The 1,600,000 shares*588 of common stock of the General Motors Corporation which were transmitted to the Fisher Body Corporation in connection with the aforesaid transaction were obtained in the following manner: 638,401 shares were shares of an original-issue stock; 26,319 shares were shares of treasury stock; and the remaining 935,280 shares were represented by certificate WC 21242, which the General Motors Corporation obtained from the General Motors Securities Co., which certificate was assigned in blank by the General Motors Securities Co. and delivered to the General Motors Corporation.
Immediately after the delivery of the 1,600,000 shares of the common stock of the General Motors Corporation to the Fisher Body Corporation as aforesaid, the entire outstanding capital stock of the General Motors Corporation was as follows:
1,303,332 shares of 7 percent cumulative nonvoting preferred stock of the par value of $100 per share;
17,959 shares of 6 percent nonvoting preferred stock of the par value of $100 per share;
5,722,585 shares of common stock without par value.
Immediately after the transfer of all of the assets of the Fisher Body Corporation to the General Motors Corporation and immediately*589 after the distribution of the 1,600,000 shares of General Motors Corporation common stock the Fisher Body Corporation or its stockholders (exclusive of the General Motors Corporation) or both the Fisher Body Corporation and its stockholders (exclusive of the General Motors Corporation) owned substantially less than 80 percent of the voting stock and substantially less than 80 percent of the total number of shares of all other classes of stock of the General Motors Corporation.
Upon the receipt of the 1,600,000 shares of General Motors stock by the stock transfer department of the General Motors Corporation from the Fisher Body Corporation, said certificate WC 21242 for *1220 935,280 shares was distributed by the stock transfer department of the General Motors Corporation to the General Motors Corporation upon the surrender by the General Motors Corporation for cancellation of its Fisher Body Corporation stock. The remaining portion of said 1,600,000 shares was distributed forthwith to the other stockholders of the Fisher Body Corporation in proportion to their respective stockholdings, upon surrender of their Fisher Body Corporation stock for cancellation.
Upon distribution*590 of certificate WC 21242 to the General Motors Corporation, which occurred on or about July 1, 1926, the General Motors Corporation returned it to the General Motors Securities Co. Appropriate transfer stamps were placed upon the certificate when it was delivered by the General Motors Corporation to the Fisher Body Corporation and also when it was returned to the General Motors Corporation by the Fisher Body Corporation in exchange for Fisher Body stock. No transfer tax stamps were affixed or used by the parties concerned in connection with the delivery of certificate WC 21242 from the General Motors Securities Co. to the General Motors Corporation and from the General Motors Corporation to the General Motors Securities Co.
In connection with the distribution to the stockholders of the Fisher Body Corporation the trust referred to hereinabove received 22,666 2/3 shares of common stock of the General Motors Corporation and surrendered therefor the said 34,000 shares of common stock of the Fisher Body Corporation.
In September 1926 the trust received a 50 percent stock devidend of 11,333 1/3 shares of common stock of the General Motors Corporation, making a total of 34,000 such*591 shares held by the trust.
In September 1927 the trust received a 100 percent stock dividend of 34,000 shares of common stock of the General Motors Corporation, making a total of 68,000 such shares held by the trust.
In December 1928 the trust received a 150 percent stock dividend of 102,000 shares of common stock of the General Motors Corporation, making a total of 170,000 such shares held by the trust.
During the years 1929 and 1930 petitioner Charles T. Fisher surrendered the remaining 8,500 shares of class A interest in the trust held by him, paid the trustees the sum of $85,000, and received from the trust said 170,000 shares of the General Motors Corporation common stock pursuant to the terms and provisions of the declaration of trust.
In 1930 Fisher sold 36,000 shares of common stock of the General Motors Corporation out of said 170,000 shares which he had acquired from the trust as aforesaid. The total selling price of the 36,000 shares of common stock of the General Motors Corporation was $1,578,888.68. In filing his income tax return for the year 1930 *1221 Fisher reported a profit of $1,509,048.14 on the sale of said 36,000 shares, and in determining*592 that profit he used a cost basis of $69,840.54.
In the income tax return of petitioner Charles T. Fisher he reported in schedule C, among others, sales of 11 separate blocks of shares of General Motors Corporation common stock totaling 51,000 shares and consisting of the 36,000 shares hereinabove referred to and the 15,000 hereinafter referred to. The date of acquisition of each of the 11 blocks of stock was reported on said return as August 21, 1916, which date, together with the cost reported for each of the 11 blocks of stock, represented the acquisition date and the allocated cost or basis of the shares of the common stock of the Fisher Body Corporation which, upon the said exchange in 1926 of Fisher Body Corporation common stock for General Motors Corporation common stock and upon the subsequent distributions of the common stock dividends by the General Motors Corporation, resulted in the aforesaid 51,000 shares of common stock of the General Motors Corporation.
On June 30, 1926, when the aforesaid transactions were consummated, both petitioners herein were the owners of common stock of the Fisher Body Corporation, and, as such stockholders, each received the notice sent*593 by Fisher Body Corporation on June 30, 1926, to its stockholders. Pursuant to that notice, petitioner Charles T. Fisher sent or caused to be sent 3,648 shares of common stock of the Fisher Body Corporation to the stock transfer office of the General Motors Corporation, and received in exchange therefor 2,432 shares of common stock of the General Motors Corporation; and petitioner Sarah W. Fisher sent or caused to be sent in like manner 20,800 shares of common stock of the Fisher Body Corporation and received in exchange therefor 13,866 2/3 shares of common stock of the General Motors Corporation; and the trust referred to above sent or caused to be sent in like manner 34,000 shares of common stock of the Fisher Body Corporation and received in exchange therefor 22,666 2/3 shares of common stock of the General Motors Corporation. At the time of receipt of said General Motors Corporation stock, each share had a fair market value of $148.3125 per share.
Each of these petitioners treated the aforesaid exchange of their common stock of the Fisher Body Corporation for common stock of the General Motors Corporation as a nontaxable exchange, and in filing their Federal income tax returns*594 for the year 1926 reported no taxable profit resulting from that exchange.
In the years subsequent to 1926 and including the taxable year 1930, when petitioners sold any of the common stock of the General Motors Corporation which they had received in the aforesaid exchange in 1926 each petitioner, in computing and reporting the taxable profit *1222 derived from said sales on their income tax returns, determined the same by using as a cost basis the cost of their original common stock of the Fisher Body Corporation. Petitioners kept books and records in which they reported their individual business transactions, and their books and records show that in 1926 Charles T. Fisher exchanged 3,648 shares of common stock of the Fisher Body Corporation for 2,432 shares of common stock of the General Motors Corporation and that Sarah W. Fisher exchanged 20,800 shares of common stock of the Fisher Body Corporation for 13,866 2/3 shares of the General Motors Corporation. The acquisitions, transfers, exchanges, and sales, and the dates thereof, the costs and selling prices of petitioners' General Motors common stock and Fisher Body Corporation common stock, and from whom acquired, were*595 set out and disclosed by said books and records, and that information was used by each petitioner in making out his income tax returns for the years 1926 to 1930, inclusive.
Prior to the expiration of the time for making assessments of deficiency of income tax against each petitioner for the years 1926 to 1930, inclusive, under the laws applicable thereto, a Federal revenue agent of the Bureau of Internal Revenue made investigations of the Federal income tax returns of petitioners for those years, and in that connection he examined the books and records of each petitioner, and as a result of his investigations made reports to the Commissioner of Internal Revenue. After the Commissioner received the revenue agent's reports he determined the tax liability of petitioners for the years 1926 to 1930, said determinations being made not collectively, but at different times, and with respect to petitioner Charles T. Fisher for the year 1926, the Commissioner's determination is reflected in the notice of deficiency attached to the petition in Docket No. 51044. With respect to petitioner Sarah W. Fisher and her tax liability for the year 1926, a statement was mailed to her by respondent*596 on April 22, 1930. Thereafter she filed a protest against the deficiency proposed and claimed therein that she had overpaid her income tax on the sale of 6,000 shares of common stock to the General Motors Corporation and filed a claim for refund of the sum of $4,678.22. The respondent thereafter considered the protest and claim for refund and issued a certificate of overassessment in the sum of $4,678.22 tax and $280.69 interest, and those amounts were paid to Sarah W. Fisher by Treasury check transmitted with the certificate of overassessment.
The tax liability of petitioner Charles T. Fisher for the taxable year 1926 was before this Board for determination under proceedings in Docket No. 51044 which were consolidated for hearing with other proceedings (Docket Nos. 47047 and 55321) of this same taxpayer *1223 that involved years other than 1926, and the hearing was held on December 15, 1932. On September 30, 1933, the Board entered its decision in the aforesaid consolidated proceedings, which decision has not been modified or set aside and has become final.
The respondent in auditing the Federal income tax returns of each petitioner for the years 1926 to 1930, inclusive, *597 concurred in and approved the action of each petitioner in the manner of determining the taxable profit upon the sale of shares of common stock of the General Motors Corporation received in exchange for shares of the Fisher Body Corporation as aforesaid and sold during said years, and accepted the cost basis as shown by the petitioners on their income tax returns. Under date of October 25, 1929, the General Counsel for the Bureau of Internal Revenue mailed letters to the Fisher Body Corporation, to the General Motors Corporation, and to Fisher & Co. et al. (a stockholder of the Fisher Body Corporation on and prior to June 30, 1926, and also a stockholder of the General Motors Corporation). Subsequently the General Counsel for the Bureau of Internal Revenue rendered an opinion to the Bureau of Internal Revenue which is known as G.C.M. 7472 and was published in Internal Revenue Bulletin No. 11 of volume 9, under date of March 17, 1930, pp. 4-13 (C.B. IX-1, p. 184). The "M Company" referred to in that opinion was the Fisher Body Corporation and the "N Company" referred to was the General Motors Corporation.
*598 In connection with the promulgation of G.C.M. 7472 neither of these petitioners attended any conferences with representatives of the Bureau of Internal Revenue and the General Counsel's Office of the Bureau of Internal Revenue, nor did they present any contentions in support of or in opposition to the questions ruled upon in that memorandum opinion.
Sometime during the month of June 1934 petitioners' attention was called to the rulings as embodied in G.C.M. 7472, it being suggested to them for the first time that probably they were entitled to use the fair market value of the General Motors stock at the time in 1926 petitioners exchanged their Fisher Body Corporation common stock for General Motors Corporation common stock, instead of the allocated cost of their original Fisher stock, which latter basis the petitioners had used in filing their income tax returns for the years 1926 to 1930, inclusive. This suggestion was made to petitioners by one of their salaried employees who was handling their Federal income tax matters. Subsequent to the making of this suggestion and during the latter part of June or the early part of July 1934, petitioners requested*599 Benjamin E. Jaffe, the attorney for the petitioners in these proceedings, to render to them a legal opinion on the matters and things considered in G.C.M. 7472. Under date of July 16, 1934, Jaffe rendered *1224 such an opinion, holding that the transfer of the assets of the Fisher Body Corporation to the General Motors Corporation did not constitute a reorganization and that the basis of the shares of General Motors Corporation common stock received in exchange for the shares of Fisher Body Corporation common stock in the said transaction was the fair market value thereof at the time of the exchange. Jaffe advised petitioners to file an amended petition to raise that issue, and petitioners thereupon filed their amended petition herein.
In filing their amended petition the petitioners accompanied it with a motion for leave to file the same, which motion was granted by the Board ex parte on November 6, 1934. The respondent had no knowledge of the filing or granting of the motion or the filing of the amended petition until they were served on him on November 7, 1934, on which date the respondent for the first time learned that these petitioners were now taking*600 the position that as a result of the exchange of their Fisher Body Corporation common stock for General Motors Corporation common stock they were entitled to use as a cost basis of the latter its fair market value at the time of the exchange.
At the time the amended petition was filed with the Board, November 5, 1934, and for approximately eight months prior thereto, the respondent was prevented from making an assessment or collection of any additional income tax from either petitioner for the taxable year 1926 by reason of the running of the statute of limitations.
Neither petitioner herein offers or has offered or consented to pay any additional taxes for the taxable year 1926 on account of the aforesaid exchange of Fisher Body Corporation common stock for the stock of General Motors Corporation. The fair market value of the General Motors Corporation common stock on the date of the exchange was in excess of the cost basis of the Fisher Body Corporation common stock.
On November 13, 1923, Fisher made a gift to petitioner Sarah W. Fisher, his wife, of 2,000 shares of Fisher Body Corporation common stock. The cost basis of these 2,000 shares to Fisher was $35 per share. *601 In December 1924 Sarah W. Fisher received thereon a 300 percent stock dividend of 6,000 shares of Fisher Body Corporation common stock, making a total of 8,000 shares. In connection with the exchange of the Fisher Body Corporation stock for the General Motors Corporation stock, Sarah W. Fisher, on or about June 30, 1926, received in exchange for said 8,000 shares of Fisher Body Corporation common stock 5,333 1/3 shares of General Motors Corporation common stock. In September 1926 she received a 50 percent stock dividend of 2,666 2/3 shares of General Motors Corporation common stock, making a total of 8,000 shares of that stock owned and held by her.
*1225 On or about November 3, 1926, Sarah W. Fisher made a gift to Charles T. Fisher of 3,000 shares out of said 8,000 shares of General Motors Corporation common stock owned and held by her. Thereafter Fisher received thereon a 100 percent stock dividend of 3,000 shares of General Motors Corporation common stock, making a total of 6,000 shares, and in December 1928 Fisher received thereon a 150 percent stock dividend of 9,000 shares of General Motors Corporation common stock, making a total of 15,000 shares of that stock*602 owned and held by Fisher as a result of the gift from Sarah W. Fisher.
In 1930 Fisher sold said 15,000 shares of General Motors Corporation common stock, the total selling price being $662,706.45. In his income tax return for the year 1930 Fisher reported a profit of $636,456.45 on this sale, using as a cost basis thereof the sum of $26,250.
In the income tax return of petitioner Charles T. Fisher for the year 1926 it was reported in "Schedule G, gain or loss" that he had sold 1,000 shares of General Motors Corporation common stock, and that he had acquired it in 1916; that the amount received upon the sale was $210,285; that the cost of the 1,000 shares was $38,790; and that the net gain thereon was $171,495. The acquisition date (1916) so reported in said income tax return represented the date of acquisition of the shares of Fisher Body Corporation common stock which he exchanged for shares of General Motors Corporation common stock in 1926 as set out hereinabove. The cost of said 1,000 shares so reported in said income tax return represented the allocated cost of the shares of Fisher Body Corporation common stock for which Fisher received in said exchange shares of General*603 Motors Corporation common stock as set out above.
In the income tax return of petitioner Sarah W. Fisher for the year 1926, she reported a sale in that year of 6,000 shares of General Motors Corporation common stock which she had acquired in 1921, the amount received for the 6,000 shares was $1,071,585; the cost thereof was $173,750; and the net gain thereon was $897,835. Sarah W. Fisher received said 6,000 shares of General Motors Corporation common stock in 1926 in the exchange of Fisher Body Corporation common stock for General Motors Corporation common stock set out above. The acquisition date (1921) so reported in her income tax return represented the date of the acquisition of said shares of Fisher Body Corporation common stock, and the cost of said 6,000 shares so reported represented the cost of the shares of Fisher Body Corporation common stock for which Sarah W. Fisher received in said exchange the 6,000 shares of General Motors Corporation common stock.
*1226 Other than those hereinbefore set out, no dividends or distributions were received by the trust or either of the petitioners which would affect the cost basis of their shares of General Motors Corporation*604 stoct.
During the year 1930 Charles T. Fisher and Sarah W. Fisher made charitable contributions within the meaning of section 23(n) of the Revenue Act of 1928 in the sum of $112,996.87.
OPINION.
ARNOLD: The first issue in this case is whether the basis for computing gain or loss from the sale in 1930 of certain shares of General Motors Corporation common stock is the original cost to petitioners of the Fisher Body Corporation common stock which they exchanged therefor in 1926, or whether the basis is the fair market value of the General Motors stock at the time of the exchange, and this involves a determination of the question of whether the transaction by which General Motors acquired all the assets of the Fisher Body Corporation was a nontaxable reorganization. Petitioners were stockholders of the Fisher Body Corporation, and upon its dissolution in 1926 surrendered their stock therein and received in exchange shares of General Motors common stock, which they sold in 1930. Petitioners treated the transaction as a nontaxable reorganization, and reported the profit derived from sales of General Motors stock in the subsequent years, to and including the taxable year 1930, *605 computed on the basis of the cost to them of their original Fisher stock.
Respondent accepted as correct the method of computing the profits as reported by petitioners in their returns, and the present deficiency does not result from any adjustments of such profits by respondent. However, in 1934 petitioners filed an amended pleading herein substantially to the effect that they had overstated the taxable gain realized from the sales of General Motors stock, for the alleged reason that the transaction between the General Motors Corporation and the Fisher Body Corporation in 1926 did not constitute a reorganizaton, and that the proper basis of the shares of General Motors stock received in exchange for the Fisher stock was the fair market value of the General Motors stock at the time of the exchange.
Respondent contends that the transaction in 1926 between the two corporations mentioned constituted a nontaxable reorganization, and that the petitioners computed upon the correct basis the profits derived from the subsequent sales of General Motors stock. Respondent further asserts that since petitioners reported no gain in their returns from the exchange of the Fisher stock for*606 the General Motors stock in 1926, but at all times treated the transaction as a nontaxable reorganization until after limitations had barred adjustment of their *1227 tax liability for 1926, they are now estopped to change their position and assert otherwise, to the injury of the Government.
Petitioners take the position that the Fisher Body Corporation was first dissolved and afterwards its assets were transferred by the directors to the General Motors Corporation in exchange for shares of the latter stock, and that the exchange was pursuant to the dissolution of the Fisher Body Corporation, and was made by the directors as trustees for the stockholders. It is argued, therefore, that the transaction was not a reorganization, and that any gain derived in that connection was taxable, and hence petitioners are entitled to a new cost basis for the General Motors stock received in exchange for their Fisher stock.
We are not impressed by this argument. There is no evidence before us that the directors of the Fisher Body Corporation were acting as trustees for the stockholders rather than for the corporation. A corporation can act only through its officers or directors, and*607 while the Fisher Body Corporation had been formally dissolved prior to the exchange of its assets for General Motors stock, it was continued in existence as a matter of law for the purpose of disposing of its assets, distributing the proceeds, paying debts, and otherwise winding up its affairs. Hence it must be assumed that the Fisher directors were acting for the corporation in transferring the assets to General Motors. Taylor Oil & Gas Co. v. Commissioner, 47 Fed.(2d) 108; certiorari denied, 283 U.S. 62">283 U.S. 62; Northwest Utilities Securities Co. v. Commissioner, 67 Fed.(2d) 619; Hellebush v. Commissioner, 65 Fed.(2d) 902.
The record does not show that the Fisher assets were transferred by the corporation to its directors as trustees for the stockholders, but only that pursuant to dissolution the assets were transferred by the directors to General Motors for stock of the latter.
It is to be noted that the Fisher Body Corporation joined with the directors in effecting such transfer; that the corporation received the proceeds of the exchange, and through its agent, the stock transfer department of the General*608 Motors Corporation, made distribution thereof to its stockholders. While it is true that the Fisher assets were transferred pursuant to the dissolution of the corporation, such transfer was nevertheless also pursuant to a definite plan of reorganization formally adopted by the directors of the Fisher Body Corporation. The plan of reorganization contemplated and required the dissolution of the transferor corporation, and the entire transaction was carried out step by step as provided for in the prearranged plan.
Section 203(h)(1) of the Revenue Act of 1926 defines the term "reorganization" as meaning, among other things, "A merger or consolidation *1228 (including the acquisition by one corporation of * * * substantially all the properties of another corporation)."
It is not contended here that there was a strict statutory merger or consolidation, but that the transaction partook "of the nature of a merger", which is sufficient to constitute a reorganization within the purivew of the above statute where in that connection one corporation acquires substantially all the properties of another corporation. *609 Pinellas Ice & Cold Storage Co. v. Commissioner,287 U.S. 462">287 U.S. 462. General Motors Corporation acquired all the properties of the Fisher Body Corporation in exchange for shares of its stock, merged the Fisher business with its own, and thereafter operated the two businesses as a single enterprise. Thus the transferor acquired a substantial interest in the transferee corporation. The Fisher stockholders then exchanged their stock in that corporation for General Motors stock, and so retained a substantial and continuing interest in the transferred assets. The transaction constituted a reorganization. Helvering v. Minnesota Tea Co.,296 U.S. 378">296 U.S. 378; Helvering v. Winston Brothers Co., 76 Fed.(2d) 381; Milton Smith,34 B.T.A. 702">34 B.T.A. 702.
Petitioners having exchanged their stock in the Fisher Body Corporation, a party to the reorganization, solely for stock in General Motors Corporation, also a party to the reorganization, all pursuant to the plan of reorganization, it follows that no gain or loss resulting therefrom was recognizable for tax purposes. Sec. 203(b)(2), Revenue Act of 1926. Petitioners, therefore, properly*610 reported no gain from the transaction in 1926. It likewise follows that the basis for computing gain from the sales by petitioners of their General Motors stock in 1930 was "the same as in the case of the property exchanged", that is, the cost of their Fisher stock. Sec. 113(a)(6), Revenue Act of 1928. The contention of petitioners on this issue is denied.
Having reached the foregoing conclusion, it becomes unnecessary to consider the question of estoppel raised by respondent.
The second issue involves the taxability to petitioner Charles T. Fisher of certain income received in 1930 by the trustees of the Charles T. Fisher Trust under the facts and circumstances set out hereinabove. The same question, arising under the same facts but relating to income received by the trustees in prior years, was decided by the Board adversely to petitioner in Charles T. Fisher,28 B.T.A. 1164">28 B.T.A. 1164. We hold that this income was taxable to Charles T. Fisher.
Petitioners do not press this issue here, but state in their brief that the point is reserved on appeal to the Circuit Court of Appeals, *1229 if such an appeal should be taken. Respondent's action on the second*611 issue is approved.
The third issue involves the deduction to which petitioners are entitled on account of charitable contributions made during the taxable year. The parties have stipulated, and we have found, that petitioners made such contributions within the meaning of section 23(n) of the Revenue Act of 1928 in the amount of $112,996.87. In computing the deficiency respondent allowed no deduction for charitable contributions for the reason that all of petitioners' income was determined to be capital gain, which respondent held was not includable in computing such deductions. Subsequently, the Supreme Court, in Helvering v. Bliss,293 U.S. 144">293 U.S. 144, ruled that a taxpayer is entitled to include capital gain in net income in determining the base for computing the 15 percent deduction allowable for charitable contributions, and respondent now confesses error. Respondent's action on this issue is reversed, and the deduction to which petitioners are entitled will be computed under the limiting provision of the statute last above referred to.
Reviewed by the Board.
Judgment will be entered under Rule 50.