*302 Decision will be entered under Rule 50.
Under the facts, held, that the profit from the sale of timber and lease of land was not realized and did not accrue for income tax purposes in 1940.
*183 Respondent determined deficiencies in the Lodwick Lumber Co.'s income and declared value excess profits tax liability for the calendar year 1940 in the respective amounts of $ 20,236.95 and $ 8,153.05, constituting a total of $ 28,390. This deficiency with respect to the Lodwick Lumber Co. was assessed by respondent against petitioner as transferee of the Lodwick Lumber Co.'s assets. The question is whether the Lodwick Lumber Co., as distinguished from its stockholder-transferees, realized income in 1940 from the leasing of certain land and the sale of timber standing thereon. The Lodwick Lumber Co. filed its returns on the accrual basis with the collector of internal *184 revenue for the district of Louisiana at New Orleans. The case has been submitted on oral testimony, exhibits and stipulations of fact. The facts as stipulated are so found.
FINDINGS*303 OF FACT.
Petitioner is an individual, residing in Shreveport, Louisiana. He was primarily responsible for incorporating the Lodwick Lumber Co. (hereinafter referred to as the company) under the laws of Louisiana in 1909. The company was organized to buy, sell, and manufacture lumber and had its principal offices in Shreveport. From 1926 until the time of its dissolution in 1940, petitioner was president, general manager, and majority stockholder of the company.
The company originally issued 500 shares of capital stock having a par value of $ 100 each. On December 22, 1919, the capital stock was increased to 5,000 shares with a par value of $ 100 each. From 1927 to 1934, the company reacquired certain of its outstanding shares, which it thereafter held as treasury stock, as follows:
| Shares | Shares remaining | |
| Date | reacquired | outstanding |
| Sept. 24, 1927 | 500 | 4,500 |
| Dec. 21, 1927 | 1,725 | 2,775 |
| Dec. 11, 1928 | 25 | 2,750 |
| Dec. 31, 1932 | 168 | 2,582 |
| Feb, 28, 1934 | 30 | 2,552 |
| Mar. 17, 1934 | 52 | 2,500 |
On December 31, 1934, the company's articles were amended, reducing its capital stock from 5,000 shares with a par value of $ 100 each to 2,500 shares with no par value. The necessary*304 book entries were made to reflect this change in its capital structure.
On December 31, 1935, the company acquired from petitioner 180 shares having a book value then of $ 8,084.88 in exchange for approximately 249 acres of land with a sawmill situated thereon, located in Tyler County, Texas. The land and sawmill conveyed by the company to petitioner in return for this stock had a book value at that time of $ 7,060.30. The land and sawmill conveyed to petitioner were part of a 2,500-acre tract which had been acquired by the company in 1919 or 1920. The company had cut timber from this tract and had sawed such timber into lumber at the sawmill until about 1932, after which time these operations were discontinued because they had become unprofitable. After 1932 the company had disposed of certain locomotives, railroad and logging equipment, wagons, and mules which had been used in connection with these operations. Sometime after 1935 the company officials informally agreed to liquidate.
On May 26, 1936, the company, pursuant to appropriate resolutions, acquired from its stockholders 222 shares of its stock, paying therefor *185 $ 100 a share. It does not appear whether this*305 stock was canceled or was held as treasury stock. On October 7, 1937, the company bought 18 shares of its stock at $ 100 a share from J. H. Brown, president of the Hicks Co., Ltd. Thereafter, the company had 2,080 shares of stock outstanding which at dissolution, according to the company's return for 1940, were held as follows:
| Shares | |
| J. T. Wurtsbaugh | 1,318 |
| J. P. Wurtsbaugh | 339 |
| L. Moseley Moffitt | 192 |
| J. H. Jordan | 22 |
| Hicks Company, Ltd | 83 |
| Mrs. Laura V. Scovell | 81 |
| T. Hampton Scovell | 9 |
| Mrs. Mary V. Long | 9 |
| Mrs. Florence L. Vaughan | 9 |
| Mrs. Ruth W. Knighton | 18 |
| 2,080 |
The company acquired, in 1919 or 1920, 2,500 acres of land in Tyler County, Texas, which has already been mentioned above. In 1931 the company acquired 5,000 acres of land in Red River County, Texas. No lumber operations were ever conducted with respect to this land, which was sold by the company in September 1935. On October 6, 1934, at a sheriff's sale, the company acquired 10,000 acres of land in Bossier Parish, Louisiana, at an approximate cost of $ 82,500. Within a year after this acquisition, litigation was instituted in the Louisiana courts challenging the company's title to this land. Any*306 action pursuant to the informal decision to liquidate was postponed by this title controversy. This litigation continued until January 9, 1940, at which time the Supreme Court of Louisiana decided the question in favor of the company. The Supreme Court of Louisiana denied rehearing with respect to this decision on February 5, 1940.
On February 8, 1940, the company paid a cash dividend of $ 4.50 a share to its stockholders, or a total of $ 9,360. No resolution was passed with respect to this distribution. On December 5, 1940, the stockholders consented in writing to the company's liquidation, and petitioner was thereby appointed liquidator without bond, with full power to dispose of the assets. This consent was recorded December 10, 1940. On December 13, 1940, petitioner, as liquidator, conveyed the 10,000-acre tract of land located in Bossier Parish, Louisiana, to the stockholders in proportion to their stockholdings. This conveyance contained the following paragraph:
The transferees herein acknowledge that they are familiar with that certain contract entered into by The Lodwick Lumber Company, the corporation, with the Southern Kraft Corporation, of Bastrop, Louisiana, of *307 date, October 31st, 1940, which is specifically made a part hereof for greater certainty, and that each of them specifically assumes the obligations of The Lodwick Lumber Company as contained in the said contract, and bind and obligate themselves to perform all of the obligations of the said Lodwick Lumber Company as set forth therein.
The conveyance further recited that "This conveyance is made for and in consideration of the surrender by each of the transferees herein *186 of all of his stock in The Lodwick Lumber Company and is in partial liquidation of the affairs of the said corporation."
On December 27, 1940, petitioner, as liquidator, transferred to the former stockholders, in proportion to their former holdings, all the remaining property of the company of whatsoever kind and wheresoever situated, "it being the intention to completely liquidate * * * all of the assets of the said corporation * * *."
The former stockholders of the company formed a partnership, each partner's interest corresponding proportionately to his former stockholdings in the company. All the assets of the company which were transferred to the stockholders in liquidating the company were held by this*308 partnership. The assets and liabilities held by the partnership as a result of the company's liquidation were entered on the partnership books as of January 1, 1941, as follows:
| Bills Receivable | $ 18,700.00 | ||
| Furniture & Fixtures | 305.94 | ||
| Real Estate | 12,532.06 | ||
| Bossier Parish Timber | 150,000.00 | ||
| Mineral Rights | 65,000.00 | ||
| Mrs. Agnes R. Horkrider | 417.94 | ||
| Hicksbaugh Lbr. Co. | 339.14 | ||
| L. G. Morgan | 6.84 | ||
| L. G. Smith | 686.34 | ||
| L. G. Smith Sawmill | 908.60 | ||
| J. T. Wurtsbaugh | 1,970.73 | ||
| D. Wurtsbaugh Estate | 213.48 | ||
| 251,081.07 | |||
| Bills Payable | $ 38,500.00 | ||
| Ruth Grey Knighton | 3,143.50 | ||
| L. M. Moffitt | 239.00 | ||
| J. P. Wurtsbaugh | 879.53 | ||
| Jewel Wurtsbaugh | 318.93 | ||
| Laura V. Scovell | .11 | ||
| Co-Partnership | 208,000.00 | ||
| 251,081.07 |
On October 31, 1940, the company's directors passed the following resolution:
Be It Resolved that J. T. Wurtsbaugh, the President of this corporation, be and he is hereby authorized and empowered to contract to sell upon such terms and conditions as to him may seem wise, the land or any right in and to the land, as well as the timber, wood and forest products located upon the same, the said land being located in Bossier Parish, *309 Louisiana; it being the intention to authorize the said President to enter into a contract to sell all or any portion of the lands of the said corporation located in said parish, and without limiting the general authority he is specifically authorized and empowered to enter into a contract to sell the same in accordance with the terms and conditions set out *187 in a tentative contract, copy of which has been filed in the archives of this corporation.
The tentative contract referred to in the above quotation had been prepared after preliminary negotiations by attorneys representing the company and attorneys representing Southern Kraft Corporation, the prospective purchaser, hereinafter referred to as Kraft or purchaser. On October 31, 1940, a contract was signed by petitioner on behalf of the company, which was signed on November 4, 1940, by J. H. Friend on behalf of Kraft. This contract provided in part:
That for the consideration and upon the terms and conditions herein set out Seller has agreed to sell or cause to be sold and Buyer has agreed to buy, all of the timber of every size, kind and character standing, growing and being situated upon the property described in copy*310 of proposed deed attached to this contract as Exhibit "A".
The proposed deed referred to in the above quotation as Exhibit "A" described the 10,000-acre tract in Bossier Parish, Louisiana, and was in form a conveyance of the timber thereon and a lease of the land for a period of 60 years. By the terms of the contract of October 31, 1940, Kraft agreed to purchase the timber and lease the land for a cash consideration of $ 150,000 and the company agreed to sell at such price. The price was subject to a reduction in the event title failed to portions of the tract. The agreement to purchase was conditioned on title approval. It was further provided that if the sale was not consummated by February 1, 1941, either party not responsible in bad faith for such delay could withdraw from the contract. With respect to the proposed liquidation of the company, the contract recited:
The Buyer recognizes that the Seller contemplates liquidating and winding up its affairs as a corporation, in the immediate future and that such liquidation will probably be consummated prior to the execution of the deed and conveyance of the property, and any transfer to liquidators, stockholders or other parties*311 of the rights of the Seller shall be subject to the obligations imposed by this contract.
On January 21, 1941, the former stockholders of the company to whom the Bossier tract had been conveyed by the company signed an instrument conveying the timber upon such tract and granting a 60-year lease on the land to Kraft. This instrument was, with minor exceptions, the same as the proposed deed which had been referred to and attached as Exhibit A to the contract of October 31, 1940, signed by petitioner and J. H. Friend. On January 21, 1941, a check for $ 150,000 drawn by Kraft was delivered to the stockholders in payment of the conveyance and lease. This check had been made payable to Kraft's attorneys, who in turn had endorsed it to the company's former stockholders, who in turn had endorsed it for deposit to their partnership account. After the receipt of this $ 150,000 check the partnership paid the company's liabilities as they had existed on December 27, 1940, *188 and the following amounts were received or credited to the partners during 1941:
| J. T. Wurtsbaugh | $ 75,126 |
| J. P. Wurtsbaugh | 19,323 |
| L. M. Moffitt | 10,944 |
| J. H. Jordan | 1,254 |
| Hicks Company, Ltd. | 4,731 |
| Mrs. Laura V. Scovell | 4,617 |
| T. Hampton Scovell | $ 513 |
| Mrs. Mary V. Long | 513 |
| Mrs. Florence L. Vaughan | 513 |
| Mrs. Ruth W. Knighton | 1,026 |
| Total | 118,560 |
*312 From November 7, 1940, to February 5, 1941, numerous letters were exchanged between the attorneys representing the company and the attorneys representing Kraft. These letters concerned various details concerning the final sale. In a letter dated November 7, 1940, Kraft's attorneys stated to the company's attorneys that with certain minor exceptions "the agreement as submitted is entirely satisfactory." The agreement referred to in the above quotation refers to the proposed conveyance of the timber and the lease of the land. On December 2, Kraft's attorneys, in a letter to the company's attorneys stated, among other things, that "as a whole the abstract will be found to be sufficient," referring to the abstract of title with respect to the Bossier Parish lands. On February 5, 1941, Kraft's attorneys submitted their final title opinion, having submitted a preliminary opinion earlier, which preliminary opinion was relied on in making the conveyance and lease on January 21, 1941. In the course of this correspondence the attorneys representing the company in writing Kraft's attorneys urged haste in the following language:
2. You are advised that it is contemplated by the Lodwick Lumber*313 Company and its stockholders that the corporation will be liquidated before this transaction is completed. We have drawn the liquidation papers which are in the process of being filed and completed. * * *
* * * *
We shall appreciate it if you will carefully scrutinize these papers and indicate whether or not they meet with your approval. If they do not, please advise what changes you desire to have made. This phase of the matter is sufficiently urgent that we request that you call us at our expense by long distance phone as quickly as possible after you have looked over these papers. Our clients wish this liquidation to go into effect at the very earliest opportunity.
On March 8, 1941, the company filed its income, declared value excess profits, and defense tax return for the calendar year 1940, reporting a net loss of $ 1,796.76. In a schedule attached to this return it was stated that the company had liquidated on December 27, 1940. Schedule L, being a balance sheet attached to this return, listed among the company's assets at the beginning of the calendar year 1940 land valued at $ 12,532.06 and timber valued at $ 69,821.44. No assets were listed as held by the company at*314 the end of the calendar year 1940. On April 8, 1941, an extension of time having been obtained, the company filed its excess profits tax return, showing no tax due. The *189 company filed no tax returns for the calendar year 1941. On June 19, 1942, respondent wrote the company, stating that no returns had been received from it for 1941. Petitioner, as the company's former president, noted in response to this communication that the company had been dissolved in December 1940.
In a statutory notice of deficiency dated May 12, 1944, respondent notified the company that deficiencies had been determined in the company's income and declared value excess profits tax liability for the year 1940 in the respective amounts of $ 20,236.95 and $ 8,153.05. On the same date respondent notified petitioner of this determination and stated that this deficiency would be assessed against petitioner as transferee of the company's assets. The deficiency resulted largely from the determination that the company had realized taxable income during the calendar year 1940 as a result of the lease of land and sale of timber to Kraft. The income realized on the sale of timber and the lease was in the*315 amount of $ 92,692.27.
OPINION.
Respondent contends that the sale of the land in question was in reality made by the company and that the stockholders merely carried out the company's obligations as agents and conduits of title. Respondent relies in this connection primarily on . Respondent further argues that the profit from such sale was sufficiently certain in fact and ascertainable in amount in 1940 to constitute accrued income in that year for income tax purposes. Petitioner contends that the sale was made by the stockholders and that in so far as the company was involved in the negotiations it acted as agent for the stockholders. Petitioner further argues that in any event the profit on the sale was not realized until 1941. We agree with petitioner that the profit from the sale was not realized for income tax purposes in 1940.
By the end of 1940 the negotiations and agreements concerning the sale in question had reached the stage where there existed an executory agreement to sell at a prescribed price, the form of the prospective deed of conveyance had been in general accepted, and the abstract*316 of title had been found as a whole sufficient. But it was not until 1941 that title was finally approved and the deed of conveyance was signed passing title and the right of possession to the vendee or that any consideration passed. Under these circumstances, we do not think the sale constituted a closed transaction or that either the benefits or burdens of ownership passed to the vendee in 1940 so as to render the vendee liable for the purchase price in that year. For these reasons we do not think that any profit from the sale was realized or accrued for income tax purposes in 1940. . See also .
Holding as we do that the profit from the sale was not realized for income tax purposes in 1940, the only year before us, it becomes unnecessary to decide whose profit it was. Certain adjustments were not contested by petitioner and consequently,
Decision will be entered under Rule 50.