*207 Decision will be entered under Rule 50.
Amounts received by the petitioner upon transfer of shares of preferred stock to the issuing corporation held to constitute a distribution in partial liquidation and to be taxable as a short term capital gain with respect to part of the shares and a distribution in complete liquidation and taxable as a long term capital gain with respect to the remainder of the shares.
*942 This is a proceeding for the redetermination of a deficiency of $ 118,226.69 in the petitioner's income tax for the year 1939. In 1939 the petitioner transferred to the Gremoco Corporation 3,256 shares of the preferred stock of that corporation for a cash consideration, and the principal question for decision is whether the petitioner received distributions in partial liquidation and is taxable on the entire amount of the gain realized, or whether he made a sale of capital assets and is taxable only to the extent of 50 percent of the gain. The right of the petitioner to a deduction of $ 3,612 for office rent and wages was raised in the petition, but, as there is no evidence upon which we may find the facts concerning that item, we do not disturb the respondent's action in disallowing the deduction.
FINDINGS OF FACT.
The petitioner resided in Englewood, New Jersey, in 1939. He filed his income*209 tax return for that year with the collector for the fifth New Jersey district.
The Gremoco Corporation was organized under the laws of Delaware in 1931, with an authorized capital stock of 23,500 shares divided into 3,500 preferred and 20,000 common shares of the par value of $ 100 per share. Cumulative preferential dividends at the rate of 4 percent per annum were payable on the preferred stock, and the holders of such stock had the right to receive $ 102 per share and accrued *943 dividends either upon redemption of the stock in the discretion of the board of directors, or upon liquidation of the corporation.
At the time of the organization of the corporation (hereinafter sometimes referred to as Gremoco) 3,456 shares of the preferred stock were issued to the petitioner, and shares of the common stock were issued to the petitioner's sister, Louise Cochran Savage, his nephew, a son of Louise Cochran Savage, Thomas C. Savage, his sister-in-law, Margaret D. Cochran, Alfred G. Wigren, and George Jordan. In December 1937 Margaret D. Cochran transferred her shares to the Old Colony Trust Co. of Boston, Massachusetts, as trustee under a trust agreement. During the years 1938 and*210 1939, 10,008 shares of the common stock were outstanding and were owned as follows:
| Shares | |
| Louise Cochran Savage | $ 3,420 |
| Old Colony Trust Co., trustee in Trust created by Margaret | |
| D. Cochran | 3,420 |
| Thomas C. Savage | 1,180 4/5 |
| Alfred G. Wigren | 993 3/5 |
| George Jordan | 993 3/5 |
The business of Gremoco consisted of holding investment property and buying and selling and reinvesting in such property. During the years 1938 and 1939 its assets, with the exception of a few pieces of real estate of comparatively small value, consisted of stocks and bonds of other corporations, most of which were marketable and income-producing stocks. Gremoco was organized under the direction of the petitioner's brother, Thomas Cochran, for the purposes of holding the investments of the petitioner and other members of the Cochran family and of providing for the proper management thereof through Alfred G. Wigren and George Jordan, who had been in the employ of Thomas Cochran for many years as secretaries and business managers. Wigren was president and Jordan was secretary-treasurer of the corporation throughout its entire existence, and they, together with the petitioner and Thomas C. *211 Savage, constituted the board of directors. Thomas C. Savage held the office of vice president for several years.
Wigren and Jordan regarded their positions with Gremoco as a reward or "pension" for past services to Thomas Cochran and other members of the Cochran family, and, upon the death of Thomas Cochran in October 1936, they were told by Louise C. Savage and Margaret D. Cochran that the latter two wanted Gremoco "to continue." When the Old Colony Trust Co., as trustee, became the owner of the common stock of Margaret D. Cochran, its officers decided to dispose of such stock, and early in 1938 it offered to sell all or part of it to Wigren and Jordan or to exchange it for shares of the preferred stock of Gremoco, but both offers were rejected.
*944 Prior to 1935 and up to the year 1934 the petitioner was a member of a firm of stock brokers and owned a seat on the New York Stock Exchange. He received a substantial income as a member of the firm. He retired in 1934, and thereafter, and during the years 1938 and 1939, his income was derived principally from dividends on his Gremoco preferred stock and from a trust created for him by Thomas Cochran. The trust income amounted*212 to $ 10,000 per annum. The petitioner's annual income in 1938 and 1939, exclusive of any gains from sales of Gremoco stock, was less than the amount required by him for living expenses and other obligations, such as life insurance premiums, education of children, care of relatives, and real estate repairs.
In May 1938, while petitioner was the sole preferred stockholder, in order to enable the petitioner to meet certain obligations Wigren and Jordan each purchased 100 shares of the petitioner's preferred Gremoco stock for the sum of $ 16,400, or $ 82 per share. Wigren and Jordan purchased the stock with the understanding that the petitioner would apply part of the proceeds on his note payable to Gremoco in the amount of $ 10,000, and on May 16, 1938, the petitioner paid $ 5,000 on the note.
In a letter dated September 10, 1938, addressed to Wigren, Jordan, and Gremoco, the petitioner granted them an option to purchase his Gremoco preferred stock at the price of $ 83 per share. The option was effective for six months. In order to secure funds with which to purchase preferred stock from the petitioner, it would have been necessary for Gremoco to sell some of its marketable securities, *213 and, as Wigren and Jordan in September 1938 anticipated a substantial rise in the market prices of securities during the following winter and spring, they felt that the common stockholders of Gremoco should be compensated for any disadvantage which they would suffer by reason of premature sales by Gremoco of its marketable securities. It was therefore agreed between them and the petitioner to provide a so-called "leverage" for the common stockholders by fixing the option price for the preferred stock at a figure lower than the redemption price of $ 102. The option price was thereupon fixed at $ 83 per share.
On October 5, 1938, Jordan wrote a letter to Thomas C. Savage in which he stated that the opinion seemed to be that "we will have a 15 or 20 point raise in the averages without much of a setback," and "if we do get anything like that, we will have a chance to liquidate to some extent and get * * * in shape for a possible preferred stock deal."
In October 1938 a representative of the Old Colony Trust Co. conferred with Wigren and Jordan in New York City and discussed with them the matter of the liquidation of Gremoco and proposed, among other things, that they liquidate the interest*214 of the Margaret D. Cochran trust without disturbing the interests of the other stockholders. *945 Wigren and Jordan informed them of the option obtained from petitioner on September 10, 1938, and that they proposed to make purchases under the option as soon as higher prices could be obtained for the securities held by Gremoco, and that after the preferred stock was acquired and removed they would proceed with liquidation. After the conference, and under date of October 17, 1938, Jordan wrote to Thomas C. Savage that he and Wigren had told the officers of the Old Colony Trust Co. "that inasmuch as we saw that endeavoring to continue the corporation was rather hopeless, * * * we planned to liquidate within the next year, provided prices reached a point where we felt the preferred stock leverage had about benefited us to an extent where we felt satisfied."
On or about November 5, 1938, the petitioner conferred with Wigren and Jordan and insisted upon the immediate liquidation of Gremoco. The petitioner at the time was in need of money, and Wigren and Jordan arranged for him to borrow the funds required from the Bankers Trust Co. of New York. On November 16, 1938, the petitioner*215 borrowed $ 20,000 from the Bankers Trust Co. on his note maturing May 16, 1939, and secured by his 3,256 shares of preferred stock, and Gremoco agreed to purchase a sufficient amount of the stock at $ 83 per share to pay off the loan if the Bankers Trust Co. should so request.
In a letter dated November 16, 1938, to Wigren, Jordan, and Gremoco, the petitioner granted to them, jointly and severally, an option to purchase, at any time within six months from date, all or any part of his 3,256 shares of Gremoco preferred stock.
On November 15, 1938, Jordan wrote to Thomas C. Savage, telling him of the negotiation of the loan for the petitioner at the Bankers Trust Co. and the renewal of the option, and stated: "We have rather doped out that we should continue to have a rather substantial market on the upside until sometime next Spring. If this is so, and Spring brings higher prices, we can proceed with an orderly liquidation looking to dissolution." At that time the corporation intended as a preliminary to "orderly liquidation" to get in the preferred stock in order to assist in making more equity for the common stockholders.
At the beginning of the year 1939 the petitioner's financial*216 secretary estimated that his expenses for the year, including living expenses, life insurance premiums, education of children, and annuities to relatives and servants, would amount to about $ 25,000. In addition to the foregoing obligations, the petitioner in 1939 was in need of funds for the purpose of meeting numerous other obligations, consisting of his note for $ 20,000 at the Bankers Trust Co., his indebtedness of $ 5,000 to Gremoco, a mortgage of $ 10,000 for which he had assumed personal liability and repairs of $ 10,000 to property at Westhampton *946 which had been damaged by storm. He also desired to raise $ 5,000 for the purchase of a home in St. Paul, Minnesota.
On May 1, 1939, the petitioner wrote to Gremoco and Jordan, stating that he was willing to extend the option to purchase his preferred stock at $ 83 per share for another six months and that it was his understanding that they would purchase enough of the stock to pay all or part of the loan with the Bankers Trust Co. and to provide $ 15,000 for the repair of certain Westhampton property and the purchase of a house in St. Paul. On May 8, 1939, the petitioner renewed the option on the same terms for a period*217 up to November 16, 1939, and subsequently on October 31, 1939, he extended it to January 16, 1940.
On May 8, 1939, Gremoco acquired 256 shares of its preferred stock from the petitioner at the price of $ 83 per share, or the total sum of $ 21,248. The petitioner paid the stock transfer tax. The shares were acquired pursuant to a written offer made by the petitioner on May 8, 1939, and, on the same day the board of directors of Gremoco adopted a resolution authorizing acceptance of the offer and Gremoco sent the petitioner a letter accepting the offer, together with its check for $ 21,248. Wigren and Jordan waived their right to purchase the 256 shares under the option. The petitioner surrendered his stock certificate for 3,256 shares and received a new certificate for 3,000 shares. No stock certificate was issued for the 256 shares acquired by Gremoco.
The board of directors of Gremoco adopted a resolution on May 8, 1939, directing that "the 256 shares of Preferred Stock purchased be held by the Corporation in its Treasury." Gremoco, in reporting the change in ownership of the preferred stock required to be made to its resident agent in Delaware, stated that the 256 shares were*218 being so held. The transaction was reflected on Gremoco's books by an entry under date of May 8, 1939, crediting cash account in the amount of $ 21,248, with the notation "Preferred Stock in Treasury-Pur. 256 sh. at 83," and by setting up the 256 shares of preferred stock as an asset in a ledger account entitled "Preferred Stock in Treasury." Gremoco, under date of June 30, 1939, furnished its stockholders with a balance sheet taken from its books, in which the 256 shares of preferred stock were carried as an asset, together with a statement of the net worth of the corporation and the equity of the common stockholders, computed on the basis of the market value of its assets as of June 30, 1939. The latter statement contains the following:
| Net Worth | $ 811,064.75 |
| 3,456 shs. Preferred issued | |
| 256 " " in treasury | |
| 326,400.00 | |
| Equity for common | 484,664.75 |
*947 On May 9, 1939, the petitioner paid $ 5,000 on his note to the Bankers Trust Co. and on May 16, 1939, he renewed his note for the balance of his indebtedness for a further period of six months. On May 10, 1939, Wigren informed the Old Colony Trust Co. of the purchase of the 256 shares of preferred*219 stock and of the renewal of the option.
On August 7, 1939, Gremoco acquired 100 shares of its preferred stock from the petitioner at the option price of $ 83 per share, and paid him the sum of $ 8,300. The petitioner paid the stock transfer tax.
On October 4, 1939, Jordan wrote to the Old Colony Trust Co., stating that Gremoco intended to purchase some additional preferred stock in the near future.
In a letter to Thomas C. Savage of October 4, 1939, Jordan stated:
Inasmuch as we do not intend to make any repurchases of securities, we are planning to buy 900 shares of preferred stock under the option * * *.
The equity for the common shares * * * is based on the full redemption price * * *. Calculating this at 83 per share instead of at 102, the redemption price, will increase the common equity by about $ 59,000.
The letter further stated: "We are, of course, still planning to continue liquidation on a scale, with no new commitments and before the end of the year we should have all our preferred in."
On October 12, 1939, Gremoco acquired 900 shares of preferred stock from the petitioner at the option price of $ 83 per share and paid him the sum of $ 74,700. The petitioner paid the*220 stock transfer tax. A few days later, on October 17, 1939, the petitioner paid the balance of his indebtedness to the Bankers Trust Co., in the amount of $ 15,000, and accrued interest.
Enclosed in the letters of October 4, 1939, to Old Colony Trust Co. and Thomas C. Savage were copies of the corporation's balance sheet showing a cash balance on hand on September 30, 1939, of over $ 100,000.
A short time before October 22, 1939, Thomas C. Savage conferred with Wigren and Jordan in New York and informed them that he and his mother, Louise C. Savage, desired that Gremoco be liquidated immediately. On October 22, 1939, Thomas C. Savage wrote to Jordan as follows:
Thank you for your letter enclosing the latest Gremoco statement. * * * I am glad that you are proceeding with the liquidation of Gremoco, but I think you should do it a little more rapidly. To review the situation, I believe the understanding first was to liquidate last spring, by about June 1st, but inasmuch as the market was very low at that time, we all agreed to wait for higher prices of stocks. But now I think that the market is high enough so that liquidation can be -- and should be -- completed in the very near *221 future. * * * Furthermore Uncle Bill [the petitioner] is very anxious to liquidate his preferred stock as soon as possible -- as he wants and needs the money. * * * I think the company should be completely liquidated by the last day of November at the latest.
*948 In reply to this letter, Jordan wrote Thomas C. Savage on October 30, 1939, as follows:
We are * * * proceeding with the liquidation of Gremoco and this month have bought a further 900 shares of Preferred. * * * This leaves him [the petitioner] with 2,000 shares. We will make further purchases as we are able to in accordance with your wishes. * * *
We are checking markets on our inactive holdings and disposing of them if possible. It would be our plan * * * to retain sufficient cash to provide for expenses and possible taxes and tax adjustments, until such tax matters can be cleared up, and distribute the remaining cash and securities. We would select a certain day and calculate market values as of that day. * * *
When you were here we felt that your rather unexpected attitude for quick liquidation was due to your desire to get some cash and we had intended to suggest that the corporation make an advance to you. *222 * * * If you would like an advance of $ 5,000 or $ 10,000 it could easily be done. * * *
Your letter sounded almost as if you felt we were "stalling" in this liquidation and that you have a feeling of resentment about it. It might be well to review the whole situation briefly, as there are aspects of it which you may have neglected to consider.
Mr. Cochran always expressed his desire to have Gremoco continue and constantly referred to our carrying it on both as a means of a continuing contact with the family and as a job for us for the future in the nature of a "pension" in view of our long service. Directly after Mr. Cochran's death, the matter was discussed and all agreed that it would continue. Then came Mrs. Cochran's action, the method of which shocked us all. Bill at that time went so far as to suggest the purchase of her interest in order that we could carry it on. Gradually came the change in this attitude. Feeling that times change we, of course, had to acquiesce. Bill needed money and Adolph and I bought some of his preferred so that Gremoco would not have to sacrifice any securities. On your mother's last visit to New York, she was disturbed at the rate Bill was*223 spending his money and she told me we had better postpone liquidation. Subsequently this attitude again changed and then as you say, it was felt that the level of prices did not warrant liquidation and we expressed the hope that liquidation could be accomplished by the end of the year.
None of us is infallible, of course, when it comes to judgment of market actions, but in view of all conditions and the best information available, it seemed we were warranted in expecting the preferred stock leverage to work to the benefit of the common. Adolph and I have a particular interest in using this leverage on the upside. We are the only stockholders in the position of having paid for our stock. Our common cost us each about $ 100,000 and today it is worth about $ 65,000. While this factor under no circumstances would be permitted to influence our judgment, it does seem a legitimate and reasonable endeavor to take advantage of the more constructive outlook which exists. We have been reporting regularly to the Old Colony Trust Company and they have expressed approval of our course.
In spite of all this we have been progressing with the liquidation as you will note from the October 31st*224 statement.
On November 6, 1939, Thomas C. Savage wrote Jordan as follows:
I'm afraid you misunderstood parts of my letter because I have no feeling of resentment whatsoever -- nor do I have any criticisms regarding your actions to date. My letter was entirely directed at the future -- and I just wanted to tell you that I feel that the time for liquidation has come. * * *
*949 I was very glad to see by the last statement that you are making some real progress toward liquidation by buying in the preferred, and I should think you could complete this retirement of the preferred in the very near future. * * * I think your plan for finishing the liquidation as outlined in your letter should be followed. Of course, as you retire more and more preferred, the leverage becomes less and less -- and the advantages of continuing the corporation become correspondingly less.
In a letter dated November 1, 1939, to Thomas C. Savage, Jordan stated:
We expect to take another 1,000 or 1,200 shares of Preferred with the cash on hand and will augment our cash balance gradually to enable us to finish up on the Preferred shortly.
In a letter dated November 1, 1939, to Old Colony Trust Co., Jordan*225 stated: "We have made further liquidation progress and are planning to use our available cash for additional preferred stock purchases."
On November 10, 1939, Gremoco acquired the remaining 2,000 shares of preferred stock owned by the petitioner at the option price of $ 83 per share and paid the petitioner the sum of $ 166,000. The petitioner paid the stock transfer tax. On the same day the petitioner paid his indebtedness to Gremoco in the amount of $ 5,000.
The acquisition by Gremoco of the lots of 100, 900, and 2,000 shares of preferred stock in August, October, and November, 1939, as hereinabove stated, was made in each instance upon a written offer by the petitioner followed by corporate action by Gremoco with respect to acceptance, payment, handling of stock certificates, book entries, reports to resident agent, and balance sheets furnished to stockholders, identical with the action taken when Gremoco acquired the 256 shares of preferred stock on May 8, 1939.
On November 17, 1939, the remaining 200 shares of preferred stock, which were owned by Wigren and Jordan, were acquired by Gremoco upon the payment to them of $ 100 per share, or the total sum of $ 20,000.
In a letter*226 to Old Colony Trust Co. dated November 17, 1939, Jordan stated:
Our Gremoco liquidation has gone along to the point where we have now purchased all our preferred stock and we are discussing formal steps necessary to wind up the affairs of the Corporation.
On November 20, 1939, the board of directors of Gremoco adopted a resolution providing for the immediate liquidation and dissolution of the corporation, and the stockholders executed a certificate of consent to dissolution which was filed with the Secretary of State of Delaware in the latter part of November 1939. Later in the year 1939 the assets of Gremoco, with the exception $ 7,338.24 in cash, *950 were distributed, and on March 15, 1940, after all liabilities had been paid, the remaining cash on hand was distributed.
The basis in the hands of the petitioner of the 3,256 shares of preferred stock of Gremoco was $ 65,280, and the gain realized by him from the disposition of such shares was $ 204,968. In his income tax return for 1939 the petitioner reported a long term capital gain from the sale of capital assets held for more than 24 months in the amount of $ 204,968, and he included 50 percent of that amount, or $ 102,484*227 in his income. The respondent held that the petitioner received $ 100 per share for the 3,256 shares, or a total consideration of $ 325,600, and that he realized a gain of $ 260,320, and, further, that the gain was a short term capital gain "through the partial liquidation of 3,256 shares of preferred stock of Gremoco." He accordingly adjusted the income as reported by the petitioner by eliminating therefrom the long term capital gain of $ 102,484, and including therein $ 260,320, as a short term capital gain.
The amounts received by the petitioner for the 1,256 shares of preferred stock on May 8, August 7, and October 12, 1939, were amounts distributed in partial liquidation of the Gremoco Corporation; and the amount received by the petitioner for the 2,000 shares of preferred stock on November 10, 1939, was received pursuant to an agreement for the immediate liquidation of Gremoco Corporation made by the controlling stockholders some time between October 13 and 22, 1939, and constituted an amount distributed in complete liquidation of that corporation.
OPINION.
Section 117 of the Internal Revenue Code (as it stood in 1939) classifies gains from the sale or exchange of capital assets*228 as long term and short term capital gains, depending upon whether the taxpayer has held the asset for more or less than 18 months; and it confers upon the taxpayer the advantage of accounting for only part of his gain if it is a long term capital gain and requires him to account for all of it if it is a short term capital gain. Section 115 (c) of the code 1 makes an exception in the case of gains from distributions in *951 partial liquidation. It states that, despite the provisions of section 117, a gain recognized upon a distribution in partial liquidation shall be considered as a short term capital gain. Hence, all of the gain from a distribution in partial liquidation is subjected to tax, irrespective of how long the stock has been held.
*229 The respondent determined that the petitioner had a short term capital gain through the partial liquidation of 3,256 shares of preferred stock of Gremoco, and the questions presented are whether amounts received by petitioner for those shares are distributions in partial liquidation within the meaning of section 115 (c), as the respondent contends, or whether the amounts were received through a purchase of the stock by Gremoco, or, alternately, as distributions in complete liquidation of Gremoco, as the petitioner contends. 2
Section 115 contains its own definition of a partial liquidation. Subdivision (i) thereof states that the term "amounts distributed in partial liquidation" means "a distribution by a corporation*230 in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock." We are not called upon to decide whether there was a liquidation of a corporation or its business. The question to be decided is, Were the amounts received by petitioner for his preferred stock in Gremoco in complete cancellation or redemption of that part of Gremoco's stock? Cohen Trust v. Commissioner, 121 Fed. (2d) 689; Hamilton Allport, 4 T. C. 401; W. C. Robinson, 42 B. T. A. 725; Salt Lake Hardware Co., 27 B. T. A. 482.
In the absence of actual retirement of the stock, it has been held that the purpose of the corporation to retire the stock must exist at the time of its acquisition in order that the amounts received for it may be treated as distributions in partial liquidation. Alpers v. Commissioner, 126 Fed. (2d) 58; Harold F. Hadley, 1 T.C. 496">1 T. C. 496.
At the time of the acquisition of the first 1,256 shares of preferred*231 stock (that is, 256 shares acquired on May 8, 1939, 100 shares acquired on August 7, 1939, and 900 shares acquired on October 12, 1939), the Gremoco Corporation had the intention of acquiring all of the preferred stock owned by the petitioner and retiring it. The plan was to purchase shares of that stock in varying amounts under the option, and *952 to pay for them out of the proceeds of sales of Gremoco's marketable securities, which were to be made when higher prices could be realized for such securities, and to dissolve Gremoco after all of petitioner's preferred stock had been acquired in this manner. However, no specific date was set for dissolution. After Gremoco had operated under this plan, and after it had acquired the 900 shares of preferred stock on October 12, 1939, and before it acquired the 2,000 shares on November 10, 1939, the common stockholders believed that market prices for its securities had risen to the point where liquidation was justified, and they then determined that Gremoco should be completely liquidated at once. Gremoco thereafter purchased the remaining 2,000 shares of petitioner's preferred stock on November 10, 1939, and a few days later, on*232 November 20, 1939, its directors voted for immediate dissolution and the stockholders executed a certificate of consent.
Certain correspondence between Wigren and Jordan, as officers and directors of the corporation, and some of the common stockholders shows beyond doubt that the stockholders in 1938 were anxious to liquidate the corporation and that they contemplated liquidation as soon as the petitioner's preferred stock could be acquired. Thus, in October 1938, shortly after the option had been obtained, Jordan told representatives of the Old Colony Trust Co. that Gremoco intended to make purchases under the option as soon as higher prices could be obtained and that after the preferred stock had been acquired it would proceed to liquidate. He also stated that, as endeavoring to continue the corporation was hopeless, it was planned to liquidate within the next year, provided prices of securities reached a point where the preferred stock leverage benefited the common stockholders. In the following November Jordan wrote to Thomas C. Savage stating that, if market prices for securities should be higher by the following spring "we can proceed with an orderly liquidation looking to*233 dissolution." The correspondence between Savage and Jordan dated October 22 and 30, 1939, which appears in the findings of fact, confirms these earlier statements of the corporate intent. We think that this evidence establishes conclusively that Gremoco intended to retire the preferred stock at the time of its acquisition.
The petitioner argues that an intention not to retire the stock is shown by the action of the directors, at the time of each purchase, in directing that the preferred stock acquired be held as treasury stock, and by the action of Gremoco in treating it as treasury stock on its books and other records, and that, under the authority of such cases as Alpers v. Commissioner, supra;William A. Smith, 38 B. T. A. 317; W. C. Robinson, supra;R. W. Creech, 46 B. T. A. 93; and Harold F. Hadley, supra, we should hold that the proceeds received for the stock were not amounts distributed in partial liquidation. The corporations involved in the cases relied upon were going concerns and, unlike *953 Gremoco, they had no *234 intention of liquidating or discontinuing their businesses. The carrying of purchased stock as treasury stock may, under circumstances like those present in the cases above cited, be indicative of an intent not to retire the stock, but such action is of no significance where, as here, all hope of continuing the business has been abandoned and the stockholders have determined to liquidate the corporation after acquiring all of the preferred stock. Cf. Hammans v. Commissioner, 121 Fed. (2d) 4.
The petitioner suggests various other reasons for characterizing the transactions as sales rather than distributions in partial liquidation. They are that the purchase was made in the exercise of an option, that the price paid was not the amount due upon redemption of the stock or in case of dissolution, and that the stock transfer taxes were paid by the petitioner. The fact that the transaction was carried out by resort to forms usually found in cases of sales or that it had the legal effect of transferring title to the stock is not controlling, Cohen Trust v. Commissioner, supra;L. B. Coley, 45 B. T. A. 405;*235 and Harold F. Hadley, supra.The fact that the parties regarded the transfer as one which is subject to the stock transfer tax has little bearing upon what the corporation intended to do with the stock. The fact that the price paid varied from the redemption price is a factor entitled to consideration, L. B. Coley, supra; but it is not controlling. See Benjamin R. Britt, 40 B. T. A. 790; affd., 114 Fed. (2d) 10. And we may add that, if the purpose to retire the stock is shown, the fact that the corporation had the power to reissue it is of no consequence. Hill v. Commissioner, 126 Fed. (2d) 570.
The petitioner also makes some point of the fact that his motive in selling the stock to the corporation was to obtain money to meet his living expenses and other obligations, but the statute is not concerned with the intent of the stockholder in the matter. Hamilton Allport, supra.
We think the petitioner's alternative contention, that all amounts received by him from Gremoco for his preferred stock constituted*236 distributions in complete liquidation, is untenable in so far as it applies to the 1,256 shares, and that it should be sustained as to the block of 2,000 shares of the preferred stock transfers.
Although the stockholders of Gremoco planned to liquidate as soon as all of the preferred stock had been acquired, their plan, as it existed prior to the decision for immediate liquidation made in mid-October 1939, did not provide for completion of the liquidation within a specified time. For this reason the amounts received by the petitioner for the 1,256 shares disposed of on May 8, August 7, and October 12, 1939, were not distributions in "complete liquidation" within the meaning of section 115 (c). The complete liquidation defined in that section *954 requires that the distributions be made in accordance with a bona fide plan of liquidation under which the transfer of the property under the liquidation is to be completed within a time specified in the plan not exceeding the period fixed in the statute; and where, as here, specification of a time limit is made after the stock has been acquired, the plan can not be given retroactive effect to cover prior distributions, Amory L. Haskell, 46 B. T. A. 164, 174;*237 affd., 133 Fed. (2d) 202, such as those mentioned in this paragraph.
The block of 2,000 shares of preferred stock was disposed of on November 10, 1939, after the stockholders of Gremoco had decided to liquidate the corporation at once. The decision to liquidate at once was made sometime between October 12 and October 22, 1939, the resolution to dissolve immediately was passed on November 20, 1939, pursuant to that decision, and the corporation was dissolved as of November 30, 1939. The distribution with respect to the 2,000 shares, therefore, was a distribution in complete liquidation within the meaning of section 115 (c).
We hold that the distributions received with respect to the 1,256 shares of preferred stock were distributions in partial liquidation and that the gain thereon is taxable in full; and that the distributions received with respect to the 2,000 shares were distributions in complete liquidation and that the gain thereon is a long term capital gain, taxable to the extent of 50 percent thereof.
Decision will be entered under Rule 50.
Murdock, J., dissenting: I am unable to find from the facts in this case that the purchase *238 by Gremoco of its preferred stock from the petitioner was "one of a series of distributions made by a corporation in complete cancellation or redemption of all of its stock in accordance with a bona fide plan of liquidation and under which the transfer of the property under the liquidation is to be completed within a time specified in the plan." This provision of the statute contemplates a plan of the corporation as such for complete liquidation within a specified time and not something in the minds of the individual stockholders which they have not made the plan of the corporation and which is not definite and complete. Here the corporation never took any action until November 20, 1939, which was after all of this preferred stock had been acquired. Prior to that time there was nothing more than some more or less indefinite hopes, expectations, or intentions in the minds of some of the stockholders and officers. The evidence shows that these individuals were never able to make any definite plan for complete liquidation until all of the preferred stock had been acquired. Jordan's letter of October 30, 1939, is typical. It said in part: "This leaves him [the petitioner] with 2,000*239 shares. *955 We will make further purchases as we are able to in accordance with your wishes." Future action depended upon what the corporation was able to do and there was no definite plan for complete liquidation within any specified time.
Furthermore, if there was any plan, then 3,256 of the petitioner's shares were within that plan and not just 2,000, as is held in the majority opinion.
Footnotes
1. SEC. 115. DISTRIBUTIONS BY CORPORATIONS.
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(c) Distributions in Liquidation. -- Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. Despite the provisions of section 117, the gain so recognized shall be considered as a short-term capital gain, except in the case of amounts distributed in complete liquidation. For the purpose of the preceding sentence, "complete liquidation" includes any one of a series of distributions made by a corporation in complete cancellation or redemption of all of its stock in accordance with a bona fide plan of liquidation and under which the transfer of the property under the liquidation is to be completed within a time specified in the plan, not exceeding, from the close of the taxable year during which is made the first of the series of distributions under the plan, (1) three years, if the first of such series of distributions is made in a taxable year beginning after December 31, 1937, or (2) two years, if the first of such series of distributions was made in a taxable year beginning before January 1, 1938. In the case of amounts distributed (whether before January 1, 1939, or on or after such date) in partial liquidation (other than a distribution to which the provisions of sub-section (h) of this section are applicable) the part of such distribution which is properly chargeable to capital account shall not be considered a distribution of earnings or profits. * * *
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2. In computing the amount of the gain, the respondent erroneously found that the petitioner received $ 100 per share for the stock and computed the gain at $ 260,320. He now concedes, as he must under the facts, that the petitioner received only $ 83 per share and that the gain realized was $ 204,968.↩