*786 Before STERNHAGEN and LANSDON.
This is an appeal from the determination of a deficiency in income tax for the calendar year 1919 in the amount of $3,429.67, all of which is in controversy. The single issue involved is how much profit, if any, the taxpayer realized from the sale of the assets of T. C. Tanke, a business firm of which he was the sole proprietor, to T. C. Tanke, Inc., for stock of the par value of $160,000 and cash in the amount of $40,000. From the pleadings and evidence the Board makes the following
FINDINGS OF FACT.
1. The taxpayer is an individual residing at Buffalo, N.Y. For about 21 years prior to February 20, 1919, he was associated with his father, T. C. Tanke, first as an employee and later as a partner, in a jewelry business, under the firm name of T. C, Tanke. For at least one year he owned a one-half interest in this business. Some time during the year ended February 20, 1919, T. C. Tanke retired from the partnership and made a gift of his one-half interest in the same to the taxpayer, who thereby became the sole owner of all the*2263 assets of the business theretofore conducted as a partnership and so continued to the date of sale of such assets to T. C. Tanke, Inc.
2. T. C. Tanke, Inc., was organized on February 20, 1919, with an authorized capital of $200,000, divided into 2,000 shares of the *787 par value of $100 each. At the date of such incorporation 400 shares of the capital stock were sold to Harry C. McCormack for $40,000 and the stock certificates evidencing such sale were issued directly to the said McCormack. At the same time 1,535 shares were issued to Eugene Tanke and 65 shares to T. C. Tanke, but the 65 shares so issued to T. C. Tanke were immediately endorsed over to T. C. Tanke, Inc., and reissued to Eugene Tanke, who thereby became the owner of 1,600 shares of the stock of the corporation.
3. On February 20, 1919, T. C. Tanke sold to T. C. Tanke, Inc., all its assets, including cash, accounts receivable, merchandise, good will, trade name, lease on business premises, customers lists, and all other property owned by it, and received therefor capital stock of the par value of $160,000 and cash in the amount of $40,000. Resulting from this transaction, Eugene Tanke, at that time*2264 the sole owner of the assets and business, received the entire consideration realized from the sale.
4. At the date of incorporation, Harry C. McCormack became a stockholder of T. C. Tanke, Inc., by virtue of an agreement between himself and Eugene Tanke, in which he proposed to purchase 548 shares of stock for $50,000. This agreement was carried out by the issue of 400 shares to McCormack by the corporation in exchange for $40,000 in cash and by the transfer of 148 shares, owned by Eugene Tanke, to McCormack for $10,000. The steps by which McCormack acquired 548 shares of stock constituted a single transaction. On December 6, 1920, the taxpayer sold 1,452 shares of T. C. Tanke, Inc., to Arthur J. Block and Edgar N. Block, and received cash therefor in the amount of $134,352.41.
5. The net worth of the assets sold by Eugene Tanke to T. C. Tanke, Inc., on February 20, 1919, was $159,336.32, as evidenced by the following balance sheet of T. C. Tanke as of January 1, 1919, the effective date of the transfer. The Commissioner and the taxpayer agree that this balance sheet is correct:
| Assets. | |
| Cash | $23,084.75 |
| Accounts receivable | 9,150.57 |
| Inventory (at cost) | 116,703.03 |
| Fixtures and equipment | 15,793.56 |
| Deferred assets | 475.00 |
| 165,206.91 | |
| Liabilities. | |
| Accounts payable | $4,912.93 |
| Due bills | 42.61 |
| Reserves | 915.05 |
| Net worth | 159,336.32 |
| 165,206.91 |
*2265 6. The fair market value of the 1,600 shares of stock to T. C. Tanke, Inc., at the date of issue to Eugene Tanke was $91.24 a share, or a total of $145,984; the total consideration received by Eugene Tanke for the assets of T. C. Tanke was $185,984; and the total gain resulting from the transaction was $26,647.68.
*788 DECISION.
The deficiency should be computed in conformity with the foregoing findings of fact. Final determination will be made on consent or on 15 days' notice, under Rule 50.
ARUNDELL not participating.