*3182 Evidence as to time of transfer of property considered and held sufficient to overthrow the respondent's determination of deficiency.
*781 This proceeding is for the redetermination of a deficiency in income taxes asserted by the respondent for the year 1921. The deficiency, amounting to $33,550.84, arises from the respondent's determination that the petitioner derived a taxable gain during 1921 from the liquidation of a corporation of which Thomas Burke was the sole stockholder.
FINDINGS OF FACT.
The Barber Manufacturing Co. was incorporated in Massachusetts in 1905 with 50 shares of capital stock of the par value of $5,000. In May, 1909, Thomas Burke purchased 15 shares of the Barber Company stock for $6,000. In November, 1912, Burke acquired the other 35 shares of Barber Company stock in exchange for stock in another corporation. This latter stock had cost Burke $9,424.80 in August, 1910. The value of the 50 shares of Barber Company stock on March 1, 1913, was $11,844.85. The company was located in*3183 Lowell, Mass.
A special stockholders' meeting of the Barber Company, held on December 15, 1920, authorized the sale of the company's real estate to Burke. On the same date the company executed a quitclaim deed to Burke for the real estate. The evidence, although not definite on that point, indicates that the deed was delivered to Burke in December, 1920, but it was not recorded until March 5, 1923.
On December 28, 1920, at a stockholders' meeting of the Barber Company, it was voted to transfer the company's personal property to Burke. On the same date the company duly executed a bill of sale to Burke of all its personalty. The executed bill of sale was delivered to Burke on the same day.
On December 29, 1920, the Barber Company stockholders voted to authorize the filing of a petition in court praying the dissolution of said corporation. On the same day such a petition was so filed. As required by law, the petition alleged that all of the company's assets had been sold, and that all of the company's debts and liabilities had been paid, canceled and extinguished.
*782 Beginning January 1, 1921, the business formerly conducted by the Barber Company was carried*3184 on by Burke as an individual. He employed a firm of accountants to open books for him. In so doing they found the accounts kept by the Barber Company to be very indefinite and were obliged to go back to 1916 and construct ledger accounts, basing them on the company's cash books. Using the opening book entries, so constructed, as of January 1, 1921, the respondent has determined the deficiency by adding to Burke's net income for that year the amount of $86,739.83. This sum represents an alleged gain from the liquidation of the Barber Company, the gain being computed by the respondent as follows:
| Adjusted net worth of corporation or | ||
| value of 50 shares of its stock | $102,164.18 | |
| Cost of said 50 shares to petitioner | 15,424.80 | |
| Alleged gain on liquidation | 86,739.38 | |
| The net worth of $102,164.18 is | ||
| computed by the respondent as follows: | ||
| Net worth, as shown by balance sheet | ||
| December 31, 1920 | 125,369.41 | |
| Less: Taxes paid in 1921 | $16,904.25 | |
| Additional taxes (final adjustment in | ||
| 1925) | 6,300.98 | |
| 23,205.23 | ||
| Net worth adjusted | 102,164.18 |
The said balance sheet of Barber Manufacturing Co., used by the respondent as of December 31, 1920, in making*3185 his said computation, is as follows:
| Assets | Liabilities | |||
| Cash | $37,529.06 | Accounts payable | $5,721.05 | |
| Inventory | 20,676.83 | Salary payable, | ||
| T. Burke | 6,447.68 | |||
| Loans receivable | 18,742.08 | Loan payable | 5,800.00 | |
| Accounts | 14,072.29 | Capital stock | 5,000.00 | |
| Machinery | $26,123.09 | |||
| Less: Reserve | ||||
| for depreciation | 9,279.79 | |||
| 16,843.30 | Surplus | 120,369.41 | ||
| Furniture and | ||||
| fixtures | 2,514.84 | |||
| Less: Reserve | ||||
| for depreciation | 648.28 | |||
| 1,866.56 | ||||
| Autos | 1,349.07 | |||
| Less: Reserve | ||||
| for depreciation | 365.05 | |||
| 984.02 | ||||
| Buildings | 26,400.00 | |||
| Less: Reserve | ||||
| for depreciation | 2,376.00 | |||
| 24,024.00 | ||||
| Land | 8,600.00 | |||
| 143,338.14 | 143,338.14 |
The present appeal was filed March 30, 1926. On June 3, 1926, Thomas Burke, the petitioner, died; and Gertrude E. Burke, as executrix of the estate of Thomas Burke, deceased, was substituted as petitioner.
*783 OPINION.
MARQUETTE: The question here presented is, Did Thomas Burke receive in 1921 a taxable gain from the liquidation of the Barber Manufacturing Co., and if so, how much?
The respondent's argument is that because Burke began conducting the business as an individual enterprise*3186 on January 1, 1921, and because there is some indefiniteness as to the exact date of delivery of the deed transferring the real estate from the company to Burke, therefore the property was actually received by Burke in 1921. We do not think the record sustains this contention. There is not one syllable in the evidence to indicate that Burke received the property in 1921. The deed transferring the real estate was executed by the company on December 15, 1920. It had been prepared by one O'Donnell, an attorney, who testifies as follows:
Q. I now hand you another paper, Mr. O'Donnell, will you state what it is?
A. A deed of the land and buildings on Perkins Street and Pawtucket Street in Lowell, from the Barber Manufacturing Company to Thomas Burke,, dated December 15, 1920; attached to it is a copy of the vote authorizing the transfer to the said Thomas Burke from Barber Manufacturing Co., of the land and buildings as described in the deed.
Q. The vote evidencing the action of the stockholders attached to that paper was prepared by you?
A. In this office under my direction. Q. When was it prepared? A. On December 15, 1920.Q. Was Mr. Thomas Burke the sole*3187 stockholder present?
A. He was the only one present, and he told me that he was the sole stockholder.
Q. And that was the minute of the vote taken December 15, 1920, as the legal basis for your effecting the sale of the real estate?
A. It was. Q. It was recorded when? A. The deed shows the 5th day of March, 1923. Q. Was there any reason for the delay?A. I do not know. It was not recorded by us, it was given to Mr. Burke.
At that time Burke owned every share of the capital stock of the Barber Company. He was the only stockholder at the meeting on December 15th; he executed the deed as an officer of the company; the deed ran to him as an individual; it was turned over to him by the attorney who prepared it. The only reasonable view, in our opinion, is that when Burke, as an officer of the company, and pursuant to a vote of the company, executed the deed to himself, as an individual, he then and there made delivery of the deed from the company to himself as grantee, and thereafter retained it in that capacity.
*784 In our findings of fact we have determined that the bill of sale transferring the personal property from the Barber Manufacturing*3188 Co. to Burke, was executed and delivered on December 28, 1920. It is quite apparent, therefore, that the liquidation of the company's assets was completed and that Burke as an individual received them, prior to January 1, 1921.
The alleged receipt of the property by Burke in 1921 was the sole basis for the respondent's deficiency notice. As the evidence contradicts that theory, it follows that the determination was erroneous and should be set aside.
Judgment will be entered for the petitioner.