*200 In Docket No. 111179 a decision of no deficiencies will be entered. In Docket No. 111180 a decision of no transferee liabilities will be entered. In Docket No. 111181 an order dismissing the proceeding for lack of jurisdiction will be entered.
1. Where a Texas corporation was duly dissolved and no receiver was appointed to settle up its affairs, and within three years after dissolution the Commissioner had notice of the dissolution but did not issue a deficiency notice to the dissolved corporation until more than three years after it was dissolved, and a proceeding was instituted by a petition which was filed in the name of the dissolved corporation and was signed by counsel and verified by the former president and a director of the dissolved corporation, held, that after three years from the date of dissolution the corporation no longer had existence under Texas law and this Court has no jurisdiction to determine the proceeding. Lincoln Tank Co., 19 B. T. A. 310, followed.
2. Where prior to dissolution and as a part of the plan of dissolution the stockholders met and resolved to dissolve the corporation and to liquidate it and caused the *201 corporation to transfer all of its net assets to two trusts for the exclusive use and benefit of the stockholders, held, article 22 (a)-21, Regulations 101, is applicable and the income from the property during the two taxable years involved in this proceeding, while the corporation still was in existence for limited purposes, was the income of the dissolved corporation and not of the trusts which were liquidating the property.
*204 In Docket No. 111179 the respondent determined deficiencies in income and excess profits taxes for the period February 7 to December 31, 1938, and for the calendar year 1939, against the First National Bank of Wichita Falls, trustee of Trust No. 2, in amounts as follows: Deficiency in income tax, 1938, $ 12,338.29; 1939, $ 9,325.91; and deficiency in excess profits tax, 1938, $ 8,973.30; 1939, $ 6,782.48.
In Docket No. 111181 the respondent determined deficiencies in income and excess profits taxes for the calendar years 1938 and 1939 against the First National Co. of Wichita Falls, a dissolved Texas corporation, in amounts*202 as follows: Deficiency in income tax, 1938, $ 12,623.37; 1939, $ 8,986.27; and deficiency in excess profits tax, 1938, $ 8,992.74; 1939, $ 6,845.35.
In Docket No. 111180 the respondent determined that the First National Bank of Wichita Falls was liable as transferee of the assets of the First National Co. of Wichita Falls for the above mentioned deficiencies in income and excess profits taxes determined against that taxpayer for the years 1938 and 1939, plus interest as provided by law.
The three proceedings have been consolidated. In his brief the respondent now concedes that there is no transferee liability of the First National Bank of Wichita Falls and "that petitioner in Docket No. 111179 is not liable for excess profits taxes for the years in question." The appropriate effect will be given to these concessions and no further reference need be made to the questions there involved.
The respondent has determined that the same identical income is the taxable income of both the First National Co. of Wichita Falls in Docket No. 111181 and the First National Bank of Wichita Falls, trustee of Trust No. 2, in Docket No. 111179. The respondent has also included in the taxable income*203 of the First National Co. of *205 Wichita Falls in Docket No. 111181 certain income which, in a proceeding not before us, he has also determined was the taxable income of McGregor, McCutchen, and McGregor, trustees of Trust No. 1. On the same day that the respondent determined the deficiencies here in question, he also determined deficiencies against McGregor, McCutchen, and McGregor, trustees of Trust No. 1, which latter deficiencies have been paid. We do not have that proceeding before us.
Notwithstanding the filing of a petition in the name of the dissolved corporation (Docket No. 111181) which was signed by counsel and verified by the former president and a director of the First National Co. of Wichita Falls, petitioners in their opening brief challenge for the first time our jurisdiction in that proceeding upon the ground that the deficiency notice was mailed more than three years after the corporation was dissolved, although the respondent within the three-year period provided for in article 1389 of Vernon's Annotated Texas Statutes had notice of the dissolution. Our first question, therefore, is whether the proceeding in Docket No. 111181 should be dismissed for lack*204 of jurisdiction.
Our second question is to determine the ownership of the duplicated income. If we determine that the income in question belongs to the dissolved corporation, and if we have jurisdiction in Docket No. 111181, the deficiencies determined against that corporation will be sustained in full, and the deficiencies determined against the First National Bank of Wichita Falls, trustee of Trust No. 2, in Docket No. 111179 will be disallowed in full. If we determine that the income in question belongs in part to Trust No. 1 and in part to Trust No. 2, then the deficiencies determined against the First National Co. of Wichita Falls in Docket No. 111181 (in case we have jurisdiction in that proceeding) will be disallowed in full and there will remain further questions to be decided in the case of the First National Bank of Wichita Falls, trustee of Trust No. 2, in Docket No. 111179. These additional questions are as follows: (1) Did the respondent err in determining that the First National Bank of Wichita Falls, trustee of Trust No. 2, was an association taxable as a corporation rather than a liquidating trust the income of which was taxable entirely to the beneficiaries of *205 the trust? and, (2) if held to be an association taxable as a corporation, did the respondent err in disallowing certain deductions for depletion and depreciation for the period in 1938 and the calendar year 1939 and in including in the income of Trust No. 2 for the calendar year 1939 certain proceeds from the sales of rights of way?
All of the above stated questions and alternative questions, except the jurisdictional question, are raised by appropriate assignments of error.
*206 FINDINGS OF FACT.
All of the tax returns involved in these proceedings that were filed were filed with the collector of internal revenue for the second district of Texas.
The First National Co. of Wichita Falls, Texas, hereinafter sometimes referred to as the company, was a Texas corporation chartered in 1927. Its office was in Wichita Falls, Texas. Its original capital was $ 250,000. It was organized to make loans and deal in notes and securities of a type not ordinarily handled by national banks.
In 1935 the company reduced its capital stock from $ 250,000 to $ 50,000. In carrying out this reduction it transferred to W. M. McGregor, C. E. McCutchen, and Carter McGregor as trustees, various notes, *206 parcels of real estate, and other assets which it then had on hand. The assets so transferred consisted of all of its remaining assets after it had segregated for retention sound assets equal to its reduced capital stock plus its liabilities. The transfer to McGregor, McCutchen, and McGregor, trustees, was for the use and benefit of the stockholders of the company. The trust thus created is sometimes referred to in the record as Trust No. 1. Although this trust filed fiduciary returns, all income and deductions with respect to the property so transferred to Trust No. 1 up to February 7, 1938, were treated by both the company and respondent as the income and deductions of the company, as a segregation of assets rather than as a distribution. Prior to the reduction in capital stock in 1935 the company had been indebted on two promissory notes -- one for $ 6,000 and one for $ 2,500 -- but these were assumed and renewed by McGregor, McCutchen, and McGregor, trustees of Trust No. 1.
Between 1935 and February 1, 1938, the company acquired through foreclosure a tract of land in the K M A Oil Field in Wichita County, Texas, together with one-half of the minerals under the land. During*207 this period oil was discovered upon this property. At February 1, 1938, all of this property was under oil and gas leases and was producing large quantities of oil. The principal asset of the company at that date was its royalty interest in these lands and certain oil payments which had been retained in oil and gas leases made on these lands.
At a meeting of the stockholders of the company, held on February 1, 1938, pursuant to and in accordance with article 1387, subdivision 3 of Vernon's Annotated Texas Statutes, at which more than four-fifths of the stock was represented, the stockholders unanimously adopted a resolution, the material provisions of which are as follows:
(1) It is for the best interest of the First National Company aforesaid and its stockholders that said Company be dissolved.
*207 (2) The stockholders present in person or by proxy at this meeting, constituting more than four-fifths (4/5ths) in interest of all of the stockholders of said Company, hereby consent to the dissolution of the First National Company aforesaid, and signify said consent in writing by signing this resolution.
(3) All debts of every kind and character, direct or indirect, of the First*208 National Company aforesaid have heretofore been fully paid off, discharged or satisfied, and there exists no necessity for an administration of the assets of the First National Company for the purpose of paying debts, and no one, save the stockholders of the First National Company, has any right to or lien or claim upon the assets now owned by said Company.
(4) To accomplish and complete the dissolution of the First National Company aforesaid, and its complete and final liquidation, the directors and officers are hereby authorized, empowered and instructed to:
(a) Quitclaim and relinquish unto C. E. McCutchen, Carter McGregor and W. M. McGregor, as trustees, all of the rights, interests and claims of the First National Company, and its stockholders, in and to the assets conveyed by the First National Company to the said C. E. McCutchen, Carter McGregor and W. M. McGregor, as trustees, in accordance with a resolution adopted by the Stockholders of the First National Company at a special meeting held November 22, 1935, so that the assets so received by the said C. E. McCutchen, Carter McGregor and W. M. McGregor, as trustees, and all funds and properties which they may have heretofore, *209 or may hereafter receive by virtue of said trusteeship shall be held, disposed of and distributed in accordance with the terms of the aforesaid resolution for the use and benefit of those to whom they, the said C. E. McCutchen, Carter McGregor and W. M. McGregor as trustees, may have issued receipts evidencing an interest in said assets, which administration shall be entirely separate and apart from the trusteeship hereafter provided for for the assets now owned by the First National Company.
(b) All of the remaining assets and properties of the First National Company of every kind and character shall be conveyed to the First National Bank of Wichita Falls as Trustee to be held, controlled and disposed of by said bank, and its successors in trust, for the ratable use and benefit of the present stockholders of the First National Company aforesaid and those who succeed to their interest. The conveyances and trust agreement presented to this meeting, copy of which is incorporated in these minutes, is [sic] hereby approved and shall be used by the directors and officers of this Company in conveying said assets to the First National Bank of Wichita Falls.
(c) When the conveyances *210 provided for in the two preceding sub-Paragraphs have been executed and delivered, the directors and officers of this Company shall take all such other and further steps as may be necessary in order to accomplish the complete dissolution of this Company and to surrender its charter, and to carry out fully and completely the spirit and purpose of this resolution.
The "conveyances and trust agreement" to First National Bank of Wichita Falls, referred to in the stockholders' resolution above described, were executed by the company on February 1, 1938, and were then delivered to and accepted by the said bank. The trust thus created is sometimes referred to in the record as Trust No. 2. On February 7, 1938, the documents necessary to dissolve the company and surrender its charter were filed in the office of the Secretary of State of Texas.
*208 The pertinent provisions of the aforesaid "conveyances and trust agreement" (Trust No. 2) may be summarized as follows:
(a) The company as grantor conveyed to the First National Bank of Wichita Falls, in trust for the stockholders of the company, assets summarized and valued in the conveyance as follows:
| Cash | $ 1,590.06 |
| Various unsecured notes | 24,234.72 |
| Various real estate notes | 22,648.54 |
| 1/16 royalty and mineral rights in blocks 26, 27, 28, 29, and | |
| 44, Kemp's Wichita Valley Farm Lands, Wichita County, | |
| Texas -- book value | 16,747.37 |
| An undivided 1/2 interest in the fee title less mineral rights | |
| to the above described lands | 29,545.87 |
| Obligations payable out of oil given in part payment for leases | |
| sold -- face value | 88,968.55 |
*211 The real estate was conveyed subject to existing oil and gas leases, right of way grants and other valid and outstanding contracts affecting the property. This much of the instrument is an ordinary deed and assignment with covenants of warranty by, through, or under the grantor, but not otherwise.
(b) The instrument then recites that it was a conveyance in trust and that the bank was to hold the property for 20 years, unless the trust was sooner terminated by complete liquidation and distribution, under the terms and conditions thereafter set out.
(c) The beneficiaries of the trust thus created were described as:
* * * the present stockholders in the grantor, The First National Company of Wichita Falls, Texas, and those who may succeed to their interests and rights in the manner hereafter specified. Said Company has an authorized and outstanding capital stock of Fifty Thousand ($ 50,000.00) Dollars, divided into five hundred (500) shares of a par value of One Hundred ($ 100.00) Dollars each. Subject to the terms hereof, each such stockholder is hereby granted an undivided share of the beneficial interest in the property and estates conveyed hereby in the proportion in which he*212 now owns capital stock in the First National Company aforesaid and is and shall be entitled to a like share of all benefits and distributions arising from the property so conveyed. The officers of the First National Company aforesaid shall prepare and certify to the Trustee a list of all of the stockholders in the First National Company as of this date, showing the names and addresses of such stockholders, and the number of shares in First National Company owned by each. To each such shareholder the Trustee shall issue an appropriate receipt. Said receipts and the rights and estates evidenced thereby, and hereby granted, shall be non-transferable, except as hereinafter provided for.
(d) Article IV of the trust instrument provided:
The purpose of this Trust is not to engage in business, but to provide a practical method by which the properties conveyed hereby can be advantageously sold or reduced to cash without sacrifice, and for the use and benefit of the aforesaid beneficiaries and receipt holders, and the funds thereby realized distributed to them ratably; and all of the provisions hereof shall at all times be construed so as to effectuate this purpose.
*209 The trustee*213 was given authority (with respect to the properties so conveyed to it) to collect or sell notes; to sell and dispose of real estate, including oil and mineral interests; and, pending such disposition, to manage and control the property. Article VII of the trust instrument provided:
The Trustee hereunder shall never have or acquire the power or authority on behalf of this Trust:
(a) To invest any funds coming to it hereunder as such Trustee, or to acquire additional property.
(b) To engage, except as landlord or lessor, in farming, ranching or producing oil or gas.
(c) To make any obligation, contract or agreement which will create or give rise to a personal obligation upon the part of any beneficiary hereunder, or which can be satisfied out of any property of any beneficiary hereunder, save and except such beneficiary's share of the trust property.
The power to sell real estate (including mineral or royalty interests) was limited by a provision that each such sale had to be approved by the majority of an advisory committee of three. The original committee consisted of C. E. McCutchen, W. M. McGregor, and Carter McGregor. Vacancies in the committee were to be filled by the remaining*214 members.
(e) The trustee was required to distribute periodically, and at least once each three months "all of the receipts from its operations and transactions hereunder, after deducting from such receipts all taxes and expenses then due or accrued, and its compensation as such trustee." All such receipts were to be distributed "without any distinction being made as to whether they represent capital or income." At the termination of the trust the trustee was to convey, ratably, to the beneficiaries all property and funds then on hand and to make a final accounting.
(f) As to the transfer of beneficial interests, article X of the trust instrument provided:
The whole, or any part, of the beneficial interest in the trust property held by any receipt holder hereunder may be transferred in the following way, and in that way only. The receipts issued hereunder evidencing the ownership of the interest to be conveyed, shall be surrendered to the Trustee, and with it there shall be delivered to the Trustee appropriate instruments of conveyance and transfer, and appropriate evidence of the validity of such instruments. The Trustee shall keep and retain such receipt and the other instruments*215 and shall, thereupon, execute and deliver new receipts in accordance with said instruments. Thereafter, those designated in the new receipts shall be, for all purposes hereafter, substituted as beneficiaries hereunder in lieu and in place of those designated in the receipt so surrendered. The one desiring such a transfer shall defray all of the reasonable costs and expenses incurred by the Trustee in examining into the validity and appropriateness of the instruments tendered, including all attorneys' fees incurred in this connection.
*210 (g) The trust instrument contained the other provisions customarily found in instruments of this character, including a provision for compensation to the trustee and indemnification out of trust property against liabilities properly incurred.
All of the shareholders in the company duly surrendered their stock certificates in the company and accepted receipts issued by the bank as trustee in accordance with the trust agreement. This receipt merely recited that the holder was the beneficial owner of a specified undivided interest in all of the property held by the bank as trustee under the aforesaid deed of trust; that it was the sole and only*216 evidence of such ownership and could be transferred, assigned, or encumbered only in the manner specified in the trust deed; and that, by accepting it, the holder agreed to all of the terms and provisions contained in the trust deed.
Between the date it accepted the trusteeship and the date of the hearing of these causes, the activities of the First National Bank of Wichita Falls as trustee consisted of the following: The collection of the amounts due for royalty oil produced from the K M A property; the collection of the oil payments on hand at February 7, 1938 (all but one of these having been collected in full); the collection of the notes conveyed to the trustee (all but one of these having been collected in full); the sale of four parcels of land (three of these being partially upon credit); the renting of the surface of the K M A lands for farming by tenants on shares; sales of right of ways; and the distribution of receipts to the beneficiaries after payment of expenses and charges. The trustee of Trust No. 2 distributed $ 137,500 in 1938 and $ 50,000 in 1939. The trustee made no advances to the agricultural tenants. These tenants financed themselves. The trustee made no*217 new oil and gas leases and did not in anywise modify any of the oil and gas leases which were outstandinging at the date the property was conveyed to it. When the company was dissolved its bank account was closed and another was opened up for the trust. In 1938 there was paid from the funds of Trust No. 2, in four installments, the income tax for 1937 of the company, and on March 14, 1939, there was paid from the funds of Trust No. 2 $ 6,189.70 as representing the corporate income and excess profits taxes due by the company for the period January 1 to February 7, 1938. In 1939 there were also paid from the funds of Trust No. 2 ad valorem taxes due various taxing bodies with respect to the K M A lands, a substantial amount of these payments being taxes for 1938.
The First National Bank of Wichita Falls, as trustee of Trust No. 2, has made no investments whatsoever. There have been but two or three transfers of "Receipt" certificates of beneficial interest. These arose in connection with the distribution of estates. The two notes *211 executed by McGregor, McCutchen, and McGregor, as trustees of Trust No. 1, in renewal of indebtedness which the company had owed in 1935 were*218 paid in full from the funds of Trust No. 1 on February 16 and July 14, 1938, respectively. In 1942, after the controversies here involved arose the bank, as trustee of Trust No. 2, filed capital stock tax returns for the years ended June 30, 1938, and June 30, 1939, declaring capital stock values of $ 750,000 and $ 725,658.21, respectively, and paid the capital stock tax, interest, and penalties disclosed by these returns. Each return contained a recitation that it was filed without admitting that the trust was taxable as a corporation, but expressly denying it, and solely for the purpose of protecting the trust against the excess profits tax liabilities then being asserted.
For the period February 7 to December 31, 1938, the bank, as trustee of Trust No. 2, filed a fiduciary return on Form 1041, showing a net income of $ 43,628.57 before distributions to beneficiaries of $ 137,500, and no tax due by the trust. This return disclosed the following receipts:
| Interest | $ 817.08 |
| Proceeds from sale of right of ways | 2,000.00 |
| Collections from oil payments | 23,723.12 |
| Collections from oil royalties | 72,490.97 |
| Farm and ranch rents | 1,085.71 |
All of the receipts from oil payments *219 were applied against the value of these payments on February 7, 1938, and no income was reported from this source. The return claimed a deduction for depletion upon oil royalties in the amount of $ 30,938.70, upon the following basis: "Cost depletion at 50 cents per barrel on 61,938.70 barrels -- value at which received upon liquidation of First National Co. on Feb. 7, 1938," and depreciation upon farm and ranch buildings in the amount of $ 452.61. The other deductions consisted of a trustee's fee of $ 1,000, a storm loss of $ 179.76, and office supplies and miscellaneous expenses amounting to $ 194.12.
For the year 1939 the bank, as trustee of Trust No. 2, filed a fiduciary return on Form 1041, disclosing a net income of $ 33,658.21 before distributions to beneficiaries of $ 50,000, and no tax liability.
The item of $ 33,658.21 is made up of the following:
| Income | |
| Interest | $ 580.46 |
| Royalties | 67,261.33 |
| Receipts from oil payments | 12,970.48 |
| Farm rents | 518.15 |
| Total | 81,330.42 |
| Deductions | ||
| Depletion on royalties | $ 33,258.82 | |
| Depletion on oil payments | 6,858.39 | |
| Depreciation on farm improvements | 479.38 | |
| Real estate repairs | 137.13 | |
| Expense of baling hay | 60.74 | |
| Ad valorem taxes | 6,380.87 | |
| Trustee's fees | 1,300.00 | |
| Miscellaneous expenses | 196.88 | |
| $ 48,672.21 | ||
| Net income | 32,658.21 | |
| Error in substraction on face of return | 1,000.00 | |
| Net income as shown on return | 33,658.21 |
*220 On March 15, 1939, the company filed a corporation income and excess profits tax return for the period January 1 to February 7, 1938, and reported therein a net income of $ 27,894.50 and a resulting tax liability of $ 6,189.70. In this return there were also reported "Distributions in Liquidation -- February 7, 1938" in amounts summarized as follows:
| Distributed | Distributed | ||
| to | to | ||
| Trust No. 1 | Trust No. 2 | ||
| Assets: | |||
| Cash | $ 1,097.39 | $ 1,047.67 | |
| Notes receivable | 38,693.76 | 46,883.26 | |
| 1/16 royalty and mineral rights in blocks 26, | |||
| 27, 28, 29, and 44, Kemp's Wichita Valley | |||
| Farm Lands, Wichita County, Texas | 290,000.00 | ||
| An undivided 1/2 interest in the fee title less | |||
| mineral rights to the above described lands | 8,025.00 | ||
| Obligations payable out of oil given in part | |||
| payment for leases sold | 51,409.96 | ||
| Real estate | 39,198.06 | ||
| Improvements | 13,700.00 | 1,975.00 | |
| Accounts receivable | 40.00 | ||
| Total assets | 92,689.21 | 399,380.89 | |
| Liabilities. | |||
| Bills payable | 8,500.00 | ||
| Taxes | 4,033.91 | 12,097.04 | |
| Total liabilities | 12,533.91 | 12,097.04 | |
| Net assets distributed | 80,155.30 | 387,283.85 |
Under date of November 1, 1939, the respondent caused*221 an examination to be made of the 1938 return filed by W. M McGregor and wife, who had reported a gain of $ 21,743.96 upon the complete liquidation of the company. McGregor was the largest stockholder in the company at the date of its dissolution. In this examination it was determined that the net assets distributed to Trust No. 1 and Trust No. 2 were $ 80,155.30 and $ 497,283.85, respectively. The increase of $ 110,000 on the net assets distributed to Trust No. 2 over that reported by the company in its return for the period January 1 to February 7, 1938, was due to the determination that the value of the one-sixteenth *213 royalty and mineral rights on February 7, 1938, was $ 400,000, instead of $ 290,000 as reported by the company. In this examination it was also determined that the cost of McGregor's stock in the company and units of interest in Trust No. 1 was $ 37,110.02. Based upon these two determinations, McGregor's taxable gain upon the complete liquidation of the company was determined to be $ 37,151.67, computed as follows:
| Value of dividend: | ||
| 96 shares of stock times $ 994.5677 ($ 497,283.85 | ||
| 1 divided by 500 equals $ 994.5677) | $ 95,478.50 | |
| 397 3/5 units of interest times $ 40.07765 ($ 80,155.30 | ||
| divided by 2,000) | 15,934.87 | |
| Total value of dividend | 111,413.37 | |
| Cost of stock and units of interest | 37,110.02 | |
| Gain realized on complete liquidation of the company | 74,303.35 | |
| Gain taxable (stock held over two years -- 50%) | 37,151.67 |
This adjustment and two other minor adjustments resulted in deficiencies totaling $ 4,109 against McGregor and his wife for the year 1938, which were agreed to by these two individuals.
Under date of October 25, 1939, the respondent caused an examination to be made of the fiduciary return filed by the bank as trustee of Trust No. 2 for the period February 7 to December 31, 1938. In this examination the theories that the company had been completely liquidated on February 7, 1938, and that Trust No. 2 was a liquidating trust were not disturbed. The value of the one-sixteenth royalty and mineral rights on February 7, 1938, was increased from $ 290,000, as claimed by the trust, to $ 400,000. The adjustments*223 made as a result of this examination were agreed to by the trustee.
Under date of November 23, 1940, the respondent caused a reexamination to be made of the fiduciary return filed by the bank as trustee of Trust No. 2 for the period February 7 to December 31, 1938, and of the corporation return filed by the company for the period January 1 to February 7, 1938. In a preliminary statement attached to this report the examining officer stated in part as follows:
Principal causes of additional tax: Conclusion that the income reported by the Corporation and by Trustees of the Trust No. 1 and Trust No. 2 should be combined and taxed as the income of one entity; disallowance of excessive depletion and depreciation and the addition to income of amount received for grant of right of ways.
All changes were discussed with Mr. W. M. McGregor, one of the Trustees, who does not agree to the adjustments.
*214 Basis for taxpayer's objection: The Trustees contend that the corporation was completely liquidated at date of transfer of assets to Trustee in 1938, therefore the stockholders realized a taxable gain on the transaction; and the two trusts are liquidating trusts, the income being taxable*224 to the beneficiaries of the trusts; that depletion should be allowed on basis previously computed.
* * * *
When the returns for 1938 were originally investigated the examiners accepted the theory that the corporation liquidated and that the two trusts were liquidating trusts as contended by the Trustees and the original R. A. R's were prepared accordingly. The assets of the corporation were valued as at February 7, 1938, and the stockholders reported a profit on the transaction as a complete liquidation. The values were changed in the R. A. R. and some of the stockholders paid deficiencies.
The Bureau made a post audit of the cases and returned same to the Field for further consideration. A complete review has been made of all the facts, the law, regulations, and decisions of the Board and of the Courts which are considered controlling and it has been concluded that there was not a liquidation in February, 1938, when the assets were transferred by the corporation to the Trustees, therefore the stockholders realized no loss or gain when their stock was sent in for cancellation at which time they received receipts or certificates of beneficial interest in the Trust pro rata according*225 to the number of shares of stock owned in the corporation. * * *
* * * *
The Trustees stated that they will protest the recommendations made in this report and in view of that fact it is recommended that the cash distributions made in 1938 and 1939 as shown in Exhibits D and E, be treated as ordinary dividends in the hands of the distributees, taxable to each as shown in said Exhibits, in order to protect the interests of the Government.
On November 8, 1940, an examination was made of the 1939 returns filed by W. M. McGregor and wife. These taxpayers had reported, as their distributive share of the income of Trust No. 1 and Trust No. 2, $ 104.16 and $ 6,462.38, respectively, although they had received from these trusts in 1939 distributions of $ 1,590.40 and $ 9,600, respectively. The examining officer treated the entire amount of these distributions as dividends and accordingly added to income $ 4,623.86, with the following explanation:
In the report submitted under even date First National Bank of Wichita Falls, Trustee of The First National Company of Wichita Falls, it is held that the entire amount of the distributions are ordinary dividends and 100% taxable.
McGregor and his*226 wife paid the deficiencies so found against them for 1939 in the aforesaid agent's report, filed claims for the refunding of the tax, and, upon these claims being denied, instituted, in the District Court of the United States for the Northern District of Texas, Dallas Division, a suit against W. A. Thomas, the collector of that district, to recover so much of the deficiencies as was predicated upon the holding that these distributions were dividends and that they were taxable upon them as such, rather than upon their distributive share of the income of the two trusts as reported. This cause was heard *215 upon the merits and decided in favor of the plaintiffs. No appeal has been taken from this judgment and the judgment has been duly paid.
The petition in Docket No. 111181 was filed in the name of the dissolved corporation, was signed by counsel herein, and was verified by W. M. McGregor, who, after "being duly sworn, says that he was the President and a Director of the First National Company of Wichita Falls, a Texas corporation, referred to in the foregoing petition as Petitioner, at the date such corporation completely liquidated * * *." The company dissolved on February*227 7, 1938.
OPINION.
We shall decide the questions in the order previously stated.
The first question is whether we have jurisdiction in the case of the dissolved corporation in Docket No. 111181. This question was raised for the first time in petitioner's opening brief. This Court being a tribunal of limited jurisdiction, a plea of no jurisdiction may be raised at any time. French & Co., 10 B. T. A. 665, 671. See also section 50.07, vol. 9, Mertens Law of Federal Income Taxation. The petition in Docket No. 111181 was filed in the name of "First National Company of Wichita Falls." The petition was signed by Harry C. Weeks, Benjamin L. Bird, and R. B. Cannon as "Counsel for Petitioner" and was verified by W. M. McGregor, who, upon "being duly sworn, says that he was the President and a Director of the First National Company of Wichita Falls, a Texas corporation, referred to in the foregoing petition as Petitioner, at the date such corporation was completely liquidated * * *."
By a resolution of the stockholders of the company adopted at a meeting held on February 1, 1938, in accordance with subdivision 3 of article 1387 of Vernon's Annotated Texas Statutes, *228 provision was made for the liquidation and dissolution of the company. The company was duly dissolved on February 7, 1938. Article 1389 of Vernon's Annotated Texas Statutes provides:
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. In case a receiver is appointed by a court for this purpose, the existence of such corporation may be continued by the court so long as in its discretion it is necessary to suitably settle the affairs of such corporation.
No receiver has been appointed to settle up the affairs of the company. The respondent had notice of the dissolution within the three-year period provided for in article 1389, supra but did not issue the deficiency notice in question until after the expiration of such three-year *216 period. The petition of the company was filed in this proceeding on May 23, 1942. The company ceased to exist on February 7, 1941, at which time the power and authority of its officers and directors terminated. It follows that we have no jurisdiction to determine the proceeding in Docket No. 111181. *229 Lincoln Tank Co., 19 B. T. A. 310. Doubtless if the Commissioner had determined the deficiency prior to three years after the dissolution of the company and the company had filed its petition with this Court prior to three years from the date of its dissolution we would have acquired jurisdiction and the directors would have had the authority to carry on the litigation to completion. Cf. Burkburnett Refining Co. v. Ilseng, 292 S.W. 179">292 S. W. 179. We, however, have no such situation before us.
The second question is to determine the ownership of the duplicated income. This is the income produced by the assets transferred to the two trusts. Although the respondent in determinations of equal rank and dignity has determined that the income produced by the assets transferred to each trust is taxable both to the respective trusts and to the dissolved corporation, he now in his reply brief clarifies his position by contending primarily that the income produced by the assets transferred to the two trusts (Trust Nos. 1 and 2) is all taxable to the dissolved corporation, and only in the alternative does he now contend that the income*230 produced by the assets transferred to each trust is taxable to each respective trust. Although we do not have jurisdiction to determine this matter as far as the dissolved corporation is concerned, we are forced to determine the ownership of the income produced by the assets transferred to Trust No. 2, for if such income belonged to the dissolved corporation it would follow that the deficiencies determined against the trustee of Trust No. 2 should be disallowed. On the other hand, if such income is the income of Trust No. 2, we must determine the remaining questions relating to that proceeding. These remaining questions are set forth in our opening statement.
The respondent bases his primary position on the further contentions that the company did not liquidate on February 7, 1938, when it transferred its net assets to the two trusts in accordance with the resolution of the stockholders; that the 98 stockholders were wrong in treating these transfers as a complete liquidation of the company; that the respondent was himself wrong in first recognizing and approving these transfers as a complete liquidation of the company; that the decision of the Federal District Court for the Northern*231 District of Texas in McGregor v. Thomas, June 2, 1942, is not res adjudicata of the question now under consideration; and that the trustees of Trust No. 1 and the trustee of Trust No. 2 should for income tax purposes be treated for the taxable periods which we have before us as the liquidating *217 agents of the company rather than as separate trust entities. In support of this clarified position the respondent cites and relies upon such cases as Wells Fargo Bank & Union Trust Co. v. Blair, 26 Fed. (2d) 532; Taylor Oil & Gas Co. v. Commissioner, 47 Fed. (2d) 108; certiorari denied, 283 U.S. 862">283 U.S. 862; Mrs. Grant Smith, 26 B. T. A. 1178; Hellebush v. Commissioner, 65 Fed. (2d) 902; Whitney Realty Co., Ltd. v. Commissioner, 80 Fed. (2d) 429; certiorari denied, 298 U.S. 668">298 U.S. 668; First Nat. Bank of Greeley v. United States, 86 Fed. (2d) 938. We think respondent must be sustained on the strength of the authorities cited.
The*232 Treasury regulation which was approved and given effect in the cited cases is one which has been in force for many years and is the same as printed in the margin. 2
The facts in First Nat. Bank of Greeley v. United States, supra, *233 are very similar to those present in the instant case. The court, after stating the facts in that case, said:
It seems entirely clear that appellant is trustee for the corporation. It was to convert assets into cash; collect on this large contract, and if necessary sue on it, and it was such a contract as might well have resulted in litigation; it was to pay taxes and debts; it was measurably subject to the control of the stockholders. In fact, it carried out the liquidation precisely as the corporation would have done if it had completed the task. Conceding that the corporation might have distributed these assets, including this contract, in kind to the stockholders, and that the stockholders might then have selected a trustee and assigned to it, and thus avoided a corporate tax -- this was not in fact done. Doubtless because of the inconvenience of such a transaction, perhaps because it could not be sure each stockholder would assign to a trustee, or the same trustee, or for other reasons we know not of, this was not done, and we cannot decide this case on what might have been done. Before dissolution, the corporation selected the trustee, assigned its property to it, agreed*234 upon its powers -- in fact, did everything which was done. The stockholder did nothing except vote to dissolve.
The case of Merchants National Building Corporation, 45 B. T. A. 417; affd., 131 Fed. (2d) 740, is distinguishable on its facts. In that case the income in question which the Commissioner sought to tax to the dissolved corporation was from securities transferred to a trustee for purposes of liquidation and distribution of the proceeds to the stockholders some four months prior to the time that the dissolution of the corporation itself had been decided upon. We laid stress on this latter fact and emphasized that it was this circumstance which *218 made the case distinguishable from First Nat. Bank of Greeley v. United States, supra, and other similar cases. In pointing out this distinction we said:
* * * While it is, of course, true that the solution of each case of this nature depends upon its own peculiar facts, we must give due consideration to a Treasury regulation which has been so often accorded by this Board and the courts the force and effect of law. This makes application*235 of articles 22 (a)-21 and 52-2 of Treasury Regulations 86 and 94 obligatory if the assets were all transferred as a step toward dissolution, regardless of the form of the dissolution, unless there has in fact been a distribution in kind to the stockholders.
The record negatives the conclusion that dissolution was contemplated prior to September 1934, four months after the May 1934 transfer of assets to the bank in trust for the stockholders. In May there was no dissolution contemplated. The minutes of the directors' and stockholders' meetings in May, and the resolutions adopted thereat, clearly show that the action then taken was intended to effect only a liquidation of those assets of the corporation the retention of which would violate the provisions of section 20 of the Banking Act of 1933, and to continue the corporation with curtailed activities. * * *
We have no such condition in the instant case. Clearly, the setting up of the First National Bank of Wichita Falls as trustee of Trust No. 2 and the transfer to it by First National Co. of Wichita Falls of its remaining assets were a part of the plan for the dissolution and final liquidation of the company. Therefore, we think*236 article 22 (a)-21 of Regulations 101, printed in footnote No. 2, supra, is applicable and that the income in question for 1938 and 1939 was not the income of the First National Bank of Wichita Falls, trustee of Trust No. 2, but was the income of the corporation in dissolution, the First National Co. of Wichita Falls.
Petitioner in Docket No. 111179, in support of its contention that the income from the property transferred to Trust No. 2 on February 7, 1938, was income to it and not to the dissolved corporation, strongly relies upon the judgment of the District Court of the United States for the Northern District of Texas in McGregor v. Thomas, decided June 2, 1942. The pleadings and judgment in that suit are in evidence in these proceedings. Petitioners do not contend that this judgment is res judicata and, of course, it is not. If, as petitioners contend, the judgment of that court be interpreted to mean that from February 7, 1938, to December 31, 1939, the income from the property transferred to Trust No. 2 was income of the trust and not of the dissolved corporation, then with all due respect to the learned court, we decline to follow the judgment. We feel *237 compelled to give effect to the applicable regulation we have quoted in the margin and to follow the line of cases which we have cited. It follows that the First National Bank of Wichita Falls, trustee of Trust No. 2, had no income for the period February 7 to December 31, 1938, and none for the calendar year 1939. Since the trust had no income for *219 those periods, it is unnecessary to determine whether it was an association taxable as a corporation or to determine the other issues raised by the petitioner in the alternative.
It should be pointed out that the Commissioner has not determined any liability against Trust No. 2, as transferee. Therefore, we do not have before us its liability, if any, as transferee of the assets of the company. Cf. Milk Bottle Exchange, Inc., 43 B. T. A. 33.
In holding that article 22 (a)-21 of Regulations 101 is applicable to the facts of this proceeding and that the income in question for the period February 7 to December 31, 1938, and for the calendar year 1939 was not the income of Trust No. 2, we express no opinion as to what the tax status of the trust became after the expiration of the three-year period*238 provided for by article 1389 of Vernon's Annotated Texas Statutes for the continued existence for limited purposes of a corporation in dissolution. The tax periods which we have before us embrace the first 23 months following the dissolution of the company, when it did have an existence for limited purposes.
In Docket No. 111179 a decision of no deficiencies will be entered. In Docket No. 111180 a decision of no transferee liabilities will be entered. In Docket No. 111181 an order dismissing the proceeding for lack of jurisdiction will be entered.
Footnotes
1. At the time the company reduced its capital stock from $ 250,000 to $ 50,000, McGregor owned 497 shares, which he surrendered in return for 99 2/5 new shares in the company and 397 3/5 units of interest in Trust No. 1, and in 1937 he sold 3 2/5 shares in the company, which left him 96 shares at the time of dissolution.↩
2. Art. 22(a)-21. [Regulations 101.] Gross income of corporation in liquidation↩. -- When a corporation is dissolved, its affairs are usually wound up by a receiver or trustees in dissolution. The corporate existence is continued for the purpose of liquidating the assets and paying the debts, and such receiver or trustees stand in the stead of the corporation for such purposes. (See sections 274 and 298.) Any sales of property by them are to be treated as if made by the corporation for the purpose of ascertaining the gain or loss. No gain or loss is realized by a corporation from the mere distribution of its assets in kind in partial or complete liquidation, however they may have appreciated or depreciated in value since their acquisition. * * *