*767 The petitioners acquired at different times and at different prices shares of stock, for which they held certificates, most of which were for the same number of shares. Upon a split-up of the stock, they surrendered at one time all of their certificates and received new certificates on the basis of five new shares for each old share. They maintained records of their acquisitions upon which, at the time of the exchange, they allocated each new certificate to a particular old one, which allocation was made on the basis of the certificate numbers, the lowest old certificate number being allocated to the lowest new certificate number, and the remainder being allocated in the same order. Held, that such records are sufficient to identify sales of shares represented by the new certificates, as sales of particular lots originally acquired at a particular cost, and the action of the Commissioner in applying the first in, first out rule must be disapproved.
*1230 The Commissioner determined deficiencies*768 in income taxes of the petitioners for 1929 and 1930 as follows:
| Petitioner | Docket No. | Year | Deficiency |
| Robert E. Ford | 68704 | 1929 | $795.82 |
| Sara C. Ford | 68705 | 1929 | 1,559.80 |
| Lina Y. Ford | 68706 | 1929 | 590.55 |
| Allyn K. Ford | 68707 | 1929 | 2,045.00 |
| Allyn K. Ford | 70738 | 1930 | 569.26 |
| Lina Y. Ford | 70739 | 1930 | 208.04 |
| Robert E. Ford | 70740 | 1930 | 108.91 |
The proceedings were consolidated. The only question for determination is the basis to be used in computing the amount of the profit realized by the petitioners from the sale by them in 1929 and 1930 of shares of stock of the Chase National Bank and the National City Bank.
FINDINGS OF FACT.
The petitioners are residents of Minneapolis, Minnesota. The petitioners Robert E. Ford and Allyn K. Ford are partners in the partnership known as Luther Ford Investment Co., which is engaged in the business of owning and dealing in real estate and securities.
The partnership acquired at various times between 1927 and 1929 shares of stock of the Chase National Bank of the par value of $100 per share. The number of shares acquired, together with the date of acquisition and the number of the certificate issued*769 for each lot, were as follows:
| Date of acquisition | Shares | Certificate No. |
| June 21, 1927 | 20 | 040594 |
| Sept. 8, 1927 | 10 | 044114 |
| Nov. 28, 1927 | 10 | 048087 |
| Apr. 21, 1928 | 10 | 064397 |
| July 2, 1928 | 10 | 078741 |
| Jan. 17, 1929 | 10 | 093174 |
| Feb. 4, 1929 | 10 | 095233 |
| Feb. 28, 1929 | 10 | 0102707 |
| Mar. 11, 1929 | 20 | 0105219 |
All of the foregoing were original purchases, except the 10 shares acquired on July 2, 1928, which were acquired by the exercise of subscription rights.
The nominee in the first seven certificates mentioned above was changed in March 1929, and eight new certificates for 10 shares each were issued, numbered 0102699 to 0102706.
*1231 The Chase National Bank in May 1929 reduced the par value of its stock from $100 per share to $20 per share and reissued five shares of stock of the par value of $20 for each share of old stock of the par value of $100. The partnership surrendered the nine certificates, numbered 0102699 to 0102707, for 10 shares each, and certificate 0105219 for 20 shares, and the Chase National Bank issued to it new certificates on the basis of five new shares for one old share. Eleven new certificates, numbered F 3382, F*770 34560 to F 34569, for 50 shares each, were received by the partnership. Thereafter, in 1929, the partnership acquired by the exercise of subscription rights in respect of its holdings and of subscription rights purchased, 138 shares, for which Chase National Bank issued to it certificate C 6389 for 100 shares and certificate F 19566 for 38 shares, and later in the same year it acquired 86 additional shares through stock dividends.
The partnership maintained a card record of the shares acquired by it, showing the date of each purchase, the number of shares purchased, the certificate number of each unit purchased, and the price paid. At the time when the new certificates were received in the exchange of May 1929, the partnership entered the new certificates on its records, and assigned to each new certificate the date of purchase and cost of an old certificate in the order of the numbers of the certificates. The old certificate representing the earliest purchase and bearing the lowest certificate number was treated on the record as having been exchanged for the new certificate bearing the lowest number, and the remaining new certificates were likewise applied in numerical order*771 against the corresponding old certificates.
The partnership sold the 50 shares represented by new certificate F 34568, and the 50 shares represented by new certificate F 34569, on October 8, 1929, for $26,600. These shares were treated on the partnership records as having been acquired in exchange for shares represented by original certificate 0105219, for 20 shares, which shares had been acquired on March 11, 1929, at a cost of $23,350. The partnership sold the 50 shares represented by new certificate F 34566 on February 4, 1930, for $8,172.60 and the 50 shares represented by new certificate F 34567 on February 5, 1930, for $8,172.60. The said shares were treated on the partnership records as having been acquired, respectively, in exchange for 10 shares represented by reissued certificate 0102706, and the original certificate 095233, which shares had been acquired on February 4, 1929, at a cost of $9,240, and for 10 shares represented by the original certificate 0102707, which shares had been acquired on February 28, 1929, at a cost of $10,200.
Allyn K. Ford, Lina Y. Ford, and Sara C. Ford acquired at various times between 1921 and 1929 shares of stock of the National *1232 *772 City Bank of the par value of $100 per share. The partnership maintained for itself and the said three petitioners a card record of their transactions in stock of the National City Bank in which entries were made in the same manner as the entries on the record maintained for the partnership's transactions in stock of the Chase National Bank.
Allyn K. Ford, Lina Y. Ford, and Sara C. Ford purchased shares of the stock of the National City Bank at the times and in the amounts, and received certificates therefor, shown below:
| Date of purchase | Shares | Certificate No. |
| Allyn K. Ford: | ||
| Aug. 24, 1921 | 10 | D 1533 |
| Nov. 28, 1923 | 20 | A 11254 |
| Lina Y. Ford: | ||
| Nov. 5, 1925 | 20 | A 24537 |
| Aug. 11, 1927 | 15 | A 56444 |
| Sara C. Ford: | ||
| July 14, 1921 | 10 | D 1452 |
| Jan. 15, 1926 | 15 | A 26091 |
| Apr. 29, 1926 | 10 | A 28136 |
By the exercise of subscription rights in respect of shares owned by them and subscription rights purchased, and additional subscriptions, they acquired at different times between 1925 and 1928 the following additional shares:
| Allyn K. Ford | Lina Y. Ford | Sara C. Ford | |||
| Shares | Certificate No. | Shares | Certificate No. | Shares | Certificate No. |
| 10 | A 17017 | 10 | A 46457 | 2 | A 77186 |
| 10 | A 46453 | 10 | A 46458 | 10 | A 46456 |
| 10 | A 46454 | 5 | A 46460 | 10 | A 46455 |
| 12 | A 77190 | 10 | A 77189 | 5 | A 46459 |
| 2 | A 77191 | 10 | A 77188 |
*773 Prior to 1929 certificates D 1452 for 10 shares and A 77186 for 2 shares, held by Sara C. Ford, were replaced by certificate A 83775 for 12 shares.
The National City Bank early in 1929 issued additional rights and at the same time reduced the par value of its stock from $100 per share to $20 per share and reissued 5 shares of stock of the par value of $20 for each share of old stock of the par value of $100. At the time of the split-up Allyn K. Ford, Lina Y. Ford, and Sara C. Ford each held 72 shares represented by the certificates referred *1233 to above, and rights entitling them to 8 additional shares, which rights they exercised. They received for their certificates and the rights exercised new certificates, on the basis of five new shares for one old share, as follows:
| Allyn K. Ford | Lina Y. Ford | Sara C. Ford | |||
| Shares | Certificate No. | Shares | Certificate No. | Shares | Certificate No. |
| 50 | C 51282 | 100 | D 21662 | 60 | C 51281 |
| 50 | C 51283 | 50 | C 51293 | 50 | C 51287 |
| 100 | D 21661 | 50 | C 51296 | 75 | C 51288 |
| 50 | C 51284 | 25 | C 51298 | 50 | C 51289 |
| 50 | C 51285 | 75 | C 51295 | 50 | C 51290 |
| 60 | C 51286 | 50 | C 51297 | 25 | C 51292 |
| 40 | C 52145 | 10 | C 51294 | 50 | C 51291 |
| 40 | C 52147 | 40 | C 52146 | ||
| 400 | |||||
| 400 | 400 |
*774 All of the certificates were held in the names of nominees, except certificate C 52145 for 40 shares, owned by Allyn K. Ford. The nominees were changed in March 1929, and Allyn K. Ford, Lina Y. Ford, and Sara C. Ford received certain certificates, as follows:
| Allyn K. Ford | Lina Y. Ford | Sara C. Ford | |||
| Shares | Certificate | Shares | Certificate | Shares | Certificate |
| 50 | C94499 | 100 | D28097 | 60 | C94511 |
| 50 | C94500 | 50 | C94507 | 50 | C94503 |
| 100 | D28096 | 50 | C94508 | 75 | C94514 |
| 50 | C94501 | 25 | C94498 | 50 | C94504 |
| 50 | C94502 | 75 | C94515 | 50 | C94505 |
| 60 | C94510 | 50 | C94509 | 25 | C94497 |
| 10 | C94496 | 50 | C94506 | ||
| 360 | 40 | C94512 | 40 | C94513 | |
| 400 | 400 |
Allyn K. Ford sold the 40 shares represented by certificate C 52145 in 1929 - 20 shares, on March 16, 1929, for $7,399.76, and 20 shares, on June 10, 1929, for $7,679.76. Lina Y. Ford sold the 40 shares represented by certificate C 94512 in 1929 - 20 shares on March 16, 1929, for $7,399.76, and 20 shares on June 10, 1929, for $7,679.76. Sara C. Ford sold the 40 shares represented by certificate C 94513 on July 29, 1929, for $16,079.48. The National City Bank in August 1929, issued new certificates*775 for outstanding certificates and Allyn K. Ford, Lina Y. Ford, and Sara C. Ford returned the certificates *1234 then held and received certain new certificates. The new certificates were as follows:
| Allyn K. Ford | Lina Y. Ford | Sara C. Ford | |||
| Shares | Certificate No. | Shares | Certificate No. | Shares | Certificate No. |
| 100 | G 4411 | 100 | G 4413 | 100 | G 4412 |
| 100 | G 4417 | 100 | G 4414 | 10 | F 33906 |
| 50 | F 119829 | 100 | G 4418 | 50 | 1 G 4415 |
| 50 | G 4420 | 50 | 1 G 4415 | 100 | G 4419 |
| 25 | F 33908 | 10 | F 33907 | 100 | G 4416 |
| 10 | F 33909 | 360 | 360 | ||
| 25 | F 10117 | ||||
| 360 |
Allyn K. Ford, Lina Y. Ford, and Sara C. Ford sold the shares represented by certificates G 4420, 4415, and 4418 on the dates and for the amounts shown below:
| Certificate No. | Shares | Date of sale | Selling price |
| Allyn K. Ford G 4420 | 50 | Dec. 11, 1929 | $11,998.00 |
| Lina Y. Ford G 4415 | 50 | Nov. 22, 1929 | 11,958.50 |
| Sara C. Ford G 4415 | 50 | Nov. 22, 1929 | 11,958.50 |
| Lina Y. Ford G 4418 | 100 | Mar. 31, 1930 | 24,498.72 |
*776 The 40-share lots sold by each of the petitioners in March, June, and July 1929 were treated on the partnership records as having been acquired by each of them through the exercise of subscription rights to eight shares and the issuance of five shares for one. The 50-share lot sold by Allyn K. Ford on December 11, 1929, was treated on the records as having been acquired in exchange for the 10 shares represented by original certificate A 46454, and reissued certificates C 51285 and C 94502, for 50 shares.
The 50-share lot sold by Lina Y. Ford on November 22, 1929, was treated on the records as having been acquired in exchange for the 10 shares represented by original certificate A 77189 and reissued certificates C 51297 and C 94509, for 50 shares.
The 50-share lot sold by Sara C. Ford on November 22, 1929, was treated on the records as having been acquired in exchange for the 10 shares represented by original certificate A 46455 and reissued certificates C 51289 and C 94504 for 50 shares.
The 100-share lot sold by Lina Y. Ford on March 31, 1930, was treated on the records as having been acquired in exchange for the *1235 15 shares represented by original certificate*777 A 56444, and reissued certificates C 51295 and C 94515 for 75 shares, and for the 5 shares represented by original certificate A 46460, and reissued certificates C 51298 and C 94498 for 25 shares.
OPINION.
MURDOCK: The parties state that the only question in issue in these proceedings is whether the shares sold are sufficiently identified as from particular lots purchased so as to take the basis of shares from those particular lots, or whether, because of insufficient identification, the "first in, first out" rule is applicable. Neither party invokes the rule first announced by the Board in (affd., ), and followed in (reversed ). The Board held in those cases that there could be no identification after a split-up of shares due to a reduction in their par value, the first in, first out rule would not apply, and the average cost would have to be used. Those cases on that particular issue were not like the case of *778 ; affd., , where the shares sold were all acquired at one time in a reorganization. The Fuller case has now been reversed and the court has rejected the averaging rule. To the same effect see ; certiorari denied, ; ; . The court held in the Fuller case that the shares sold were sufficiently identified as those which the taxpayer intended to sell. Each of the present taxpayers sold shares of stock from lots purchased at different times and at different prices. If any of the shares sold are identified in this record as shares purchased at some particular cost, then the gain from that sale must be computed by use of the basis applicable to those particular shares. Otherwise the determination of the Commissioner in which he applied his first in, first out rule can not be disturbed. *779 ; .
The petitioners, at the time of each sale, selected the lot from which they desired to make the sale. They delivered certificates which, according to their books, represented shares from the lot from which they desired to make the sale. The decision of the court in the Fuller case is authority for the proposition that the identity of the lots need not necessarily be lost when the old certificates are surrendered for the purpose of a stock split-up. These petitioners might possibly have obtained a statement from the transfer agent as *1236 to just what new certificates were issued for each of the old certificates, but we think that their method of arbitrarily assigning the lowest numbered new certificate to the earliest lot purchased was sufficient under the circumstances to preserve the identity and avoid the effect of the first in, first out rule.
Reviewed by the Board.
Decision will be entered under Rule 50.
Footnotes
1. Certificate 4415 was for 100 shares, and apparently was held by Lina Y. Ford and Sara C. Ford, and sold at the same time, as hereinafter shown. ↩