*153 Decision will be entered under Rule 50.
The decedent was sole shareholder of a Mexican commercial corporation which owned only real estate situated in Mexico. In 1934 the Mexican Commercial Code was amended to provide that any commercial corporation upon becoming owned by less than five shareholders was dissolved. A liquidation procedure was prescribed, projecting the juridical personality of the corporation through the liquidation period and requiring the intervention of a liquidator for winding up the corporate affairs and making final distribution of remaining assets to shareholders. At decedent's death no liquidation had been initiated. Held, the value of the corporate shares was properly included in gross estate; and, as decedent did not own the real properties, they can not be deemed real property of the estate situated outside the United States and excepted from the estate tax by section 811, Internal Revenue Code.
*57 The Commissioner determined a deficiency of $ 31,691.02 in estate tax in part by including in gross estate the value of shares in a Mexican corporation. Petitioner assails the inclusion, contending that the corporation was dissolved by law prior to decedent's death; that by the dissolution decedent became owner of its assets consisting entirely of real properties situated outside of the United States, which properties are excepted from the gross estate subject to estate tax by section 811, Internal Revenue Code. A second issue was settled by stipulation; a third was abandoned.
FINDINGS OF FACT.
Petitioner is the estate of James M. B. Hard, a citizen of the United States, who died on February 22, 1943, a resident of Cuernavaca, Mexico. Henry von L. Meyer and the Chemical Bank & Trust Co. of New York duly qualified as his executors and were appointed as such on April 24, 1943, by the Surrogate's Court, New York County, *155 New York. At the time of death decedent was the owner of 1,000 shares, representing the entire outstanding stock of the Hard Guevara Co., a Mexican corporation, of the type designated anonymous society (sociedad anonima). This corporation was organized in 1929, with a subscribed capital of 100,000 Mexican pesos, by decedent, his wife, Leonor Ladron de Guevara Hard, and Ramon Arreguin, to administer and improve real estate. Decedent transferred to it certain real properties, receiving therefor 998 shares of its stock, and the other two organizers *58 received 1 share each, paying 100 pesos. On October 14, 1932, the corporate charter was amended to authorize the company to acquire, sell, and exchange real estate. But at decedent's death its assets consisted entirely of the real estate that he had transferred to it, all of which was located in Mexico. Among assets of the estate listed in the return filed with the Mexican Government for imposition of the Mexican inheritance tax, decedent's widow as executrix reported: "1000 bearer shares of the Hard Guevara Co., according to valuation of expert, Mex. $ 337,577.54."
On April 19, 1944, the widow, as holder of 999 shares and Arreguin*156 as nominal holder of 1 share, held a shareholders' meeting at which the widow declared:
* * * the adjudication to her as the sole heir of her late husband Dr. James Hard, by the Judge of the Fifth Civil Court in Mexico City, of 1000 fully paid shares of the capital stock of the Hard Guevara Company, S. C. A. * * *
She then pointed out that as a "civil society" the corporation was imbued with all characteristics incidental to corporate entities and was subject to the General Corporation Law, which, in fixing a minimum of five shareholders for a corporation, provided that when the number was less than five "the company may be dissolved prematurely." The shareholders thereupon resolved that the corporation "hereby is prematurely dissolved," and appointed Jose del Valle as liquidator, with full authority to carry out liquidation within a term of six months. A public instrument so declaring was executed, and on July 3, 1944, it was recorded in the Public Property Registry of Mexico, D. F.
The corporation was organized under the Civil Code of Mexico, which permits a minimum of two shareholders, but by virtue of the charter amendment of 1932 it became subject to provisions of the Commercial*157 Code (Wheless Compendium of the Laws of Mexico, 1938 Ed.). The latter by article 879 provides that: "To constitute an anonymous society it is necessary: 1. To have five members at minimum, each to subscribe for at least one share of stock * * *." On August 4, 1934, this code was amended by article 904 to provide that: "Societies are dissolved: * * * 4. by the number of shareholders becoming less than the legal minimum, or because one shareholder acquires the entire interests * * *." This and other provisions of the amendment "govern the juridical effects of acts anterior thereto if their application is not retroactive." Art. 911. And by article 14, chapter 1, of the Mexican Constitution, "no law shall be given a retroactive effect to the prejudice of any person."
Article 905 of the Commercial Code provides that, upon dissolution for any reason, the society:
* * * will be put in liquidation, through one or more liquidators, who shall legally represent the society * * *. Until the appointment of liquidators is *59 inscribed in the Public Register of Commerce and they have assumed their duties, the administrators will continue to act. * * *
The administrators (managing shareholders) *158 by article 906 are required to deliver the corporation's property to the liquidator, together with its records and a list of its assets and liabilities, and the liquidator must thereupon proceed to wind up the business, collect amounts due, sell property, pay obligations, and make up the final liquidating balance for the shareholders. When this balance is approved by the latter, he must file a report with the Public Register of Commerce and cancel the "inscription of the social contract," or charter registration.
The liquidators cannot be required by a member to pay over the entire amount of assets due him, but only so much as may not jeopardize the interests of creditors of the society, until their claims are paid or the amounts due them are deposited, if there is any obstacle to their payment; * * * Even after dissolution, societies retain their juridical personality for the effects of the liquidation.
In making final distribution among shareholders as indicated by the balance, the liquidator must publish the balance three times at 10-day intervals in the officially designated newspaper of the corporation's domicile, and 15 days after the third publication must call a meeting*159 of shareholders. With their approval, the liquidator will make payments to them upon surrender of their share certificates. Art. 907. By another section of the Mexican Code, unregistered documents for which public registration is required are effective only between those who execute them and can not prejudice third parties.
At the time of death decedent owned 1,000 shares of stock in the Hard Guevara Co.
OPINION.
Although it does not specifically appear from the deficiency notice or other evidence, we assume from the parties' contentions that in determining petitioner's estate tax the Commissioner included in the value of the gross estate $ 69,439.70 representing the value of 1,000 shares of the Hard Guevara Co. Petitioner assails this determination, alleging that the corporation was dissolved under Mexican law prior to decedent's death; that, as sole shareholder, decedent became the owner of its assets, which consisted entirely of real estate located in Mexico; that shares of the dissolved corporation had no value, and the value of "real property situated outside of the United States" is expressly excluded from gross estate by section 811, Internal Revenue Code. Respondent contends, *160 to the contrary, that the corporation was not dissolved until its liquidation was completed and notice of its dissolution formally entered of record in the public registry, as required by law.
Both parties introduced in evidence parts of the Mexican Code and the testimony of witnesses expert in Mexican law. Petitioner's witness *60 was of opinion that dissolution automatically occurred in 1934, because the corporation was not owned by five shareholders. He reasoned that by virtue of the 1934 amendment to the Commercial Code it was ipso facto dissolved, regardless of the fact that it was continued in operation, was not liquidated until 1944, and no record of dissolution was entered in the public registry. This witness, an American lawyer practicing in Mexico, could produce no judicial decisions or text books to support his view, and on cross-examination he admitted that it was "debatable." Respondent's principal witness, an American lawyer who has specialized for many years in Mexican law and has translated a compendium of Mexican legislation into English, was of opinion that the corporation was not dissolved until liquidation was completed and the proper record thereof*161 had been entered in the public registry.
Both witnesses discussed the effects of the constitutional inhibition against retroactivity of a law and of the statutory provision that an unregistered document for which registration is required is effective only between the parties and can not prejudice third persons. Section 811 requires that the value of the gross estate include the value of all decedent's property at the time of death, "except real property situated outside of the United States." To bring the Mexican real estate here in controversy within this exception, it is not enough to establish that the corporation was dissolved. It must affirmatively appear that decedent thereby acquired in the corporate lands an interest which can be properly classified as realty, and from the statutory provisions governing dissolution and liquidation in Mexico, as construed by respondent's witness, it is clear that he did not.
If we assume, arguendo, that the amendment of August 4, 1934, was applicable to commercial corporations which at and after its enactment had fewer than five shareholders and that the corporation was ipso facto dissolved, dissolution did not operate to transfer*162 ownership or to convey to decedent a more direct interest in assets than any shareholder normally has in corporate property. If the "managing members" (shareholders), as required by law, had promptly delivered the assets to a liquidator empowered to "represent the society" and charged with a duty to sell its property, pay its obligations, and distribute the remainder among shareholders, even during this period of liquidation the corporation would have retained its "juridical personality" and decedent could not be said to hold any such direct interest in the corporate lands as to constitute realty, for "the liquidators can not be required by a member (shareholder) to pay over the entire amount of assets due him." Distribution must be preceded by three published notices of the liquidator's intent and approval thereof by all the shareholders. The liquidator would have held the land in trust for disposition and other purposes prescribed by law, and decedent's *61 right to participate in the ultimate distribution would have been personalty, not realty. Tait v. Dante (C. C. A., 4th Cir.), 78 Fed. (2d) 303; certiorari denied, 296 U.S. 614">296 U.S. 614.*163
As liquidation had not even been initiated when decedent died, the character of his interest was a fortiori personalty. The executrix so recognized by reporting shares, not real property, as an asset of the estate in the inheritance tax return filed with the Mexican Government; the Mexican probate court so recognized by adjudicating shares to the widow as sole heir, and the widow so recognized by initiating in 1944 the liquidation proceeding prescribed by statute. The corporation never lost its juridical personality and ownership of its real estate remained in it until formal transfer in the course of the statutory liquidation. Hence the decedent at the time of death owned not real estate but shares, and the Commissioner properly included their value in the gross estate. Cf. Anderson v. Wilson, 289 U.S. 20">289 U.S. 20; John K. Brinckerhoff, 8 T.C. 1045">8 T. C. 1045.
The parties are agreed that the Commissioner erroneously included in gross estate cash of $ 450, and proper adjustment should be made to eliminate that amount.
Decision will be entered under Rule 50.