*938 Prior to its dissolution a corporation transferred its assets to one of its officers, who, by declaration of trust, agreed to hold the assets in trust, relieve them from liability by paying the corporate debts, and distribute the proceeds among the stockholders. Held, that there was no distribution in kind of the corporate assets upon an exchange by the stockholders of shares of stock for trust certificates, nor was there a transaction whereby gain or loss resulted to the stockholders from the exchange.
*453 These proceedings, which were consolidated for hearing and report, involve deficiencies in income tax for the calendar year 1927 as follows:
| Taxpayer | Docket | Deficiency |
| No. | ||
| Whitney Realty Co., Ltd | 48192 | $24,649.47 |
| Katherine D. Douglas | 51719 | 48,589.37 |
| Jerome H. Remick | 51720 | 20,228.09 |
| David C. Whitney | 51721 | 103,940.30 |
| David M. Whitney | 51722 | 518.63 |
| Tracy W. McGregor | 51723 | $53,024.79 |
| John J. Hoff | 51724 | 78,897.85 |
| Susan M. Whitney | 57757 | 103,940.30 |
| Grace Whitney Hoff | 57758 | 78,897.85 |
| Katherine McGregor | 57759 | 53,024.79 |
*939 It was stipulated by counsel that a joint order of redetermination could be entered covering the appeals of David C. Whitney and Susan M. Whitney, Docket Nos. 51721 and 57757, respectively; that a joint order of redetermination could be entered covering the appeals of Tracy W. McGregor and Katherine McGregor, Docket Nos. 51723 and 57759, respectively; and that a joint order of redetermination could be entered covering the appeals of John J. Hoff and Grace Whitney Hoff, Docket Nos. 51724 and 57758, respectively. Upon the death of Jerome H. Remick, the executors of his estate were substituted as parties petitioner herein.
*454 The stipulations of counsel with respect to the entering of joint orders of redetermination hereinabove mentioned leave but one issue for decision, viz., whether the respondent erred in holding that the trustee for the stockholders of the Continental Lumber Co. should be treated as a trustee in dissolution or an assignee under articles 548 and 622 of Regulations 69.
FINDINGS OF FACT.
In 1927 the petitioners, with the exception of John J. Hoff and Susan M. Whitney, were stockholders of the Continental Lumber Co., a Michigan corporation, engaged*940 in the timber and lumber business, owning and developing timberlands, logging timber, operating sawmills, and selling lumber. The Continental Lumber Co.'s predecessors in the timber and lumber business were the Whitney Co., Ltd., a partnership association formed in 1902, and The Whitney Co., a corporation formed in 1918 which took over all the assets and liabilities of the partnership association. On November 20, 1926, the name of The Whitney Co. was changed to Continental Lumber Co. For the purposes of this report a reference to the Continental Lumber Co. includes either or both of its predecessors.
The original capital was $1,250,000, which was increased in 1918 by $1,230,000, and by $2,090,600 in 1923, less $20,000 treasury stock, leaving $4,500,600 of common stock issued and outstanding on March 12, 1927. This was the only class of stock outstanding in 1927. Assessments made and paid during the period 1907 to 1917 were $112,000, making a total capital paid in of $4,662,700.
On March 1, 1913, the petitioners in these proceedings owned the following number of shares of stock in the Whitney Co., Ltd. (partnership association):
| Grace Whitney Hoff | 148.4375 |
| David C. Whitney | 158.9125 |
| Jerome H. Remick | 93.35 |
| Katherine McGregor | 148.4375 |
*941 Petitioner Katherine D. Douglas acquired 148.4375 shares of the capital stock of the partnership association by inheritance on September 18, 1915, of a value equal to their March 1, 1913, value. Petitioner David M. Whitney acquired 7 1/2 shares of stock of the partnership association on June 21, 1915, by purchase for the total sum of $9,498.75. Petitioner Whitney Realty Co. acquired 4,265 shares of stock on June 7, 1923, of a par value of $426,500, at a cost as shown by the books of $426,500.
*455 On March 1, 1913, the partnership association owned the following assets in addition to the timber and timberlands hereinafter set forth and described as a part of the Hastings valuation report:
| Cash | $11,052.83 |
| 20 shares Columbia River Co. stock | 11,120.40 |
| 5 shares Toll Road stock | 503.65 |
| Receivables: | |
| Kilches River Co | 10,320.21 |
| Russell Hawkins | 62,500.00 |
| Timberlands: | |
| Humboldt County, Calif | 81,128.50 |
| Sonoma County, Calif | 25,960.61 |
| Mendocino County, Calif | 5,467.29 |
| Columbia County, Oreg | 47,607.65 |
| Clatsop County, Oreg | 9,771.34 |
| Wilson River Ranch Lands | 123,565.86 |
The Hastings valuation report shows the fair market value of timber and timberlands*942 owned by the partnership association on March 1, 1913, as follows:
| Land | Timber | ||||
| Acres | Value | Footage | Value | Total value | |
| Columbia River | |||||
| block | 9,360 | $23,400.00 | 369,444 M | $1,108,332.00 | $1,131,732.00 |
| Bewley Creek | |||||
| block | 5,750 | 0 | 300,251 M | 625,668.50 | 625,668.50 |
| Fawcett Creek | |||||
| block | 7,546.8 | 15,094.00 | 261,250 M | 584,906.00 | 600,000.00 |
| Kilches River | |||||
| block | 26,055.37 | (*) | 1,630,000 M | 3,260,000.00 | |
| Miami River | |||||
| block | 6,048.67 | 12,097.34 | 203,778 M | 440,028.30 | 452,125.64 |
| Trask River | |||||
| block | 1,300.09 | (* $ | 6,177 M | 9,265.50 |
The only liability of the Whitney Co., Ltd., partnership association, as of March 1, 1913, consisted of accounts payable as follows: Columbia River Co., $7,921.15 and LaComas Booming Co., $250.
As of March 1, 1913, the capital of the partnership association consisted of 1,250 shares, 10 shares of which were in the treasury. These shares had a par value of $1,000 a share.
The March 1, 1913, value of the assets owned by the partnership association on that date totaled $5,328,786.83, or a value per share on that date of $4,297.4087. This value per share was in*943 excess of the cost per share of the stock to the petitioners.
Prior to 1921 the operations of the partnership association and its successor corporation were confined to the sale of stumpage. At that time they were extended to include logging and the manufacture of lumber. Every year thereafter operations resulted in losses.
*456 In the fall of 1918 a disastrous fire swept over 35,000 acres of timberland and burned out the middle of the main block of timber owned by the Continental Lumber Co. Within a year practically all of the area had been defoliated and the timber killed.
In 1923 or 1924 an infestation of hemlock looper started on the lower Nehalan River and impaired the value of the remaining timber in the area swept by fire.
The Continental Lumber Co., in an attempt to salvage a portion of the burned timber, built a railroad about 12 or 14 miles into the burned area. The country was exceedingly rough, the timber shattered badly as it fell, and the cost of logging proved to be so excessive that logging operations were abandoned after two or three years. The corporation then built an incline to get out some green timber left by the fire. The incline had*944 a very steep grade and had to be parbuckled to hold it up with a load. The operation of the incline was slow and expensive as only one car could be lowered at a time. As a general rule inclines are not used if there is any other way of working the timber.
At some time subsequent to 1921, The Whitney Co. invested a large sum in equipment entirely unsuited for logging in Oregon. It also invested a large sum of money in a high class sawmill adapted for cutting flooring. The company's mill was located in an isolated place with such poor harbor facilities that it was limited to coastwise vessels which could carry not more than 25,000 feet of lumber. These conditions restricted the company to the California markets and prohibited it from securing Chinese, Japanese, or Atlantic Coast trade. An additional marketing handicap was an adverse differential of $1.50 to $2 on coast lumber by rail to the middle west markets, which prevented the company from competing in these markets.
In 1926 the officers of the Continental Lumber Co. employed Henry F. Chaney, vice president and western manager of Baker, Fentress & Co., underwriters of timberlands and operators of timber properties, to*945 investigate conditions with respect to its Oregon properties and submit recommendations for possible distribution of the property, or to enter into negotiations with a view to disposing of it. As a result of his investigations Chaney concluded that the remaining timber in the Kilches and the Miami River blocks, where the fire and the hemlock looper infestation occurred, could not be sold for $1 per thousand feet and that the recovery on the equipment and sawmill would be no more than their junk value, which might amount to $300,000 or $400,000. With these facts before him Chaney felt that, if the Continental Lumber Co. could consolidate its properties with the properties of the Hammond Lumber Co., which had 30,000 acres of timber north of Tillamook, it would be able to realize more than *457 the mere junk value from its investments, and that mutual benefits to both companies would result from such a combination.
Accordingly, on March 12, 1927, an agreement was entered into between the Continental Lumber Co. and the Hammond Lumber Co. whereby the former agreed to convey, to a new corporation to be formed, its mill, equipment, logging railroad, etc., for $750,000 of stock*946 in the new company at par; to convey all logs and lumber at going prices, less carrying charges, loading expenses, commissions, and allowances, to be paid in stock at par; to convey specific timberlands at $2.50 per thousand feet for fir, cedar, and spruce, and $1 per thousand feet for hemlock and inferior grades, to be paid in stock at par. The Hammond Co., which owned timberlands, agreed to convey its lands to the new company on the same terms. It was provided that the Hammond Co. should be entitled to acquire a majority of the stock of the new Company by transfer of property to it or by purchase at par.
This agreement was performed. The new company was named "The Hammond-Tillamook Lumber Company." It was incorporated March 22, 1927. The assets transferred by the Continental Lumber Co. were valued, according to the terms of the agreement of March 12, 1927, at $2,173,549.91. The total of all assets transferred to the new company by the Continental Lumber Co. and the Hammond Lumber Co. was $5,625,624.40. Since the agreement limited the stock of the new company to $5,000,000, Continental accepted $1,931,800 par value of stock in the new company and $30 in cash, and the Hammond*947 Co. took the balance of the stock in the new company. The books of the Continental Lumber Co. show a loss of $3,896,757.48 on the above transaction.
On or about April 1, 1927, the Continental Lumber Co. conveyed to the Hammond-Tillamook Lumber Co. 8,336.9 acres of the Kilches River Block, with a timber footage of 538,611,000; also 2,880 acres of the Miami River Block with a timber footage of 97,894,000. No other timber or timberlands were conveyed by the Continental Lumber Co. to the Hammond-Tillamook Lumber Co.
On April 1, 1927, the Hammond-Tillamook Lumber Co. assumed possession of the properties transferred, and began operation of the mill, etc. The remaining assets of Continental Lumber Co. (apart from the Hammond-Tillamook Lumber Co. stock) were Columbia River Co. liquidation certificates, cash, accounts, notes, warrants and contracts receivable, timber, and land, of a book value of $858,007.78 on December 26, 1927.
The Continental Lumber Co. ceased logging and manufacturing lumber on March 31, 1927. The operating accounts were closed on that date, and the books and records were sent to the Detroit office. *458 The Continental Lumber Co. thus became principally*948 a stock-owning company. The fee paid for Chaney's services by the Continental Lumber Co. was $25,000 in cash and 889 shares of Hammond-Tillamook Lumber Co. stock. Chaney became a director and an officer in the Hammond-Tillamook Lumber Co., representing the minority stockholders.
On March 12, 1927, when the agreement between the Continental Lumber Co. and the Hammond Lumber Co. was entered into, the petitioners owned shares of stock in the Continental Lumber Co. as follows:
| Whitney Realty Co., Ltd | 4,265 |
| Katherine D. Douglas | 7,923 |
| Jerome H. Remick | 3,417 |
| David C. Whitney | 10,434 |
| David M. Whitney | 150 |
| Tracy W. McGregor | 1 |
| John J. Hoff | 0 |
| Susan M. Whitney | 0 |
| Grace Whitney Hoff | 2,969 |
| Katherine McGregor | 8,503 |
Susan M. Whitney and John J. Hoff owned no Continental Lumber Co. stock and Tracy W. McGregor owned only one share. The same is true with respect to holdings in the trust hereinafter considered. The total number of shares of the Continental Lumber Co. on that date (March 12, 1927) was 45,506.
In August 1927 the Continental Lumber Co. was the owner of 3,828.76 acres of the Bewley Creek Block, hereinabove mentioned, and as of that date the timber*949 footage thereon amounted to 212,845,000, consisting of fir, 97,466,000; cedar, 6,338,000; hemlock, 63,947,000; and spruce, 45,094,000.
On August 15, 1927, the ranch lands retained by Continental Lumber Co. were sold to the Kilches River Club for $50,000.
In October 1927 the Continental Lumber Co. refused to pay its real estate taxes for 1926 upon approximately 20,000 acres of timberlands that were burned over in 1918 and later infested by hemlock looper, because it felt that the land had no value whatever. These lands formed a part of a 33,000-acre tract, a portion of which was conveyed to the Hammond-Tillamook Lumber Co. under the agreement of March 12, 1927.
On December 12, 1927, at a meeting of the stockholders of the Continental Lumber Co., it was resolved to transfer all the assets of the company to Nathan T. Viger, as trustee, and to authorize the directors and officers to convey all the assets to such trustee. At this meeting the articles of association of the Continental Lumber Co. were amended so that the term of existence of the company ended 5 years, 9 months and 15 days from March 11, 1922.
On December 24, 1927, the Continental Lumber Co. conveyed to Nathan*950 T. Viger all of its real estate by ordinary form of warranty deed, without any trust expressed. On the same date the Continental Lumber Co. conveyed to Nathan T. Viger all of its personal property *459 by a written instrument which recited that the lumber company "by reason of the approaching expiration of its charter and the unfinished distribution of its assets among its stockholders, and in completion of its liquidation, has transferred and granted and for value received does hereby assign and deliver to Nathan T. Viger, all and singular the items of personal property mentioned in the schedule hereto attached, IN TRUST, to take, hold and collect the same according to their terms and conditions and with all the powers of absolute ownership thereof, and to distribute the proceeds from time to time to the stockholders of said company, their legal representatives or assigns according to their respective holdings therein at the date thereof, as evidence by liquidation certificates of said Trustee, issued in exchange for their certificates of stock and the terms, conditions and provisions of the Declaration of Trust of said Trustee, of even date herewith." The instrument was signed*951 "The Continental Lumber Company, by Tracy W. McGregor, Vice-President, and Nathan T. Viger, Assistant Secretary."
The schedule of personal property above referred to consisted of the following items:
| SCHEDULE OF PERSONAL PROPERTY | ||
| Cash in bank | $6,548.51 | |
| Certificates of deposit | 32,000.00 | |
| Contracts receivable: | ||
| Kilches River Club | $43,500.00 | |
| Russell Hawkins | 62,500.00 | |
| 106,000.00 | ||
| Notes receivable: | ||
| A. F. Coats | 15,000.00 | |
| Accounts receivable: | ||
| Customer's (estimated collectible) | 10,000.00 | |
| Stocks: | ||
| 18,429 shares Hammond Tillamook Lumber Co | 2,064,048.00 | |
| Columbia Liquidation Certificates | 1,400.00 | |
| 2,065,448.00 | ||
| Total | 2,234,996.51 |
On December 26, 1927, Nathan T. Viger executed and delivered his declaration of trust of the real estate conveyed to him on December 24, 1927. The instrument recites that all the parcels of real estate were conveyed to Viger in trust to have and to hold in trust, for the following uses:
To take and have possession of said property:
To manage and control the same and receive the rents, issues, and profits thereof;
To sell and convey the same with all convenient speed, and in order to accomplish distribution*952 free and clear of all liens and charges by virtue of *460 having been corporate assets, to discharge, for the benefit of the registered owners of Continental Liquidation Certificates, any obligations of said Continental Lumber Company, and thereupon to divide the residue of said income and proceeds among the registered owners of Continental Liquidation Certificates, according to their respective interests thereby shown and as thereby provided; the sales of said property may be in whole or in parcels and at such times and for such prices and upon such terms as to me shall seem best. Pending such sales I shall have full authority, in my discretion, to lease, mortgage or otherwise convey, pledge, vend, improve and grant options upon the whole or any part thereof; and like authority to pay all taxes and assessments upon the same and all expenses incident to its care or improvement; and with full authority reserved in me, the said Trustee, to act according to my best judgment in all matters pertaining to said property and the proceeds thereof;
This Declaration of Trust shall be construed with the provisions of a certain declaration of trust in personal property made by me in respect*953 of the personalty of said corporation of even date herewith, to which reference is hereby made for all provisions in respect of this trust;
And I further declare that I will hold, manage, control and sell said property for the sole use and benefit of the holders of the said liquidation certificates, according to their respective interests as thereby evidenced and the terms of said Declaration of Trust in Personal Property of even date herewith, and will discharge the obligations of said corporation in order to benefit said holders of said liquidation certificates by relieving the assets of this trust from the charge for corporate debts, reserving unto myself and my associate or successor-in-trust, the entire and exclusive control of said property and every detail whatsoever as to any and all management and sales thereof, until it shall have been finally liquidated.
This instrument shall not be construed to make the said Continental Lumber Company or its creditors beneficiaries of this trust, or to make the Trustee a representative or continuation of the said Continental Lumber Company.
* * *
This instrument was duly signed "Nathan T. Viger as Trustee", witnessed and acknowledged*954 on December 26, 1927, at Detroit, Michigan.
On December 26, 1927, Nathan T. Viger Executed and delivered his declaration of trust of the personal property so conveyed to him, which reads in part as follows:
THIS DECLARATION OF TRUST, made at Detroit, Michigan, this 26th day of December, A.D. 1927, by NATHAN T. VIGER, of the City of Highland Park, in said State, hereinafter called the Trustee,
WITNESSETH:
I The Trustee has received the property mentioned in the annexed schedule, IN TRUST, for the use and benefit of the cestuis que trustent who shall be trust beneficiaries only and without partnership association or any other relation between themselves; and it is hereby expressly declared that a trust, and not an association or partnership, is hereby created; that neither the trustee nor the beneficiaries shall ever be personally liable hereunder, and that said trust fund shall be the limit of liability for all obligations of which it is the source.
IN TRUST FURTHER for the benefit of the cestuis que trustent to relieve the trust assets transferred to the Trustee from liability to meet debts of the Continental *461 Lumber Company by paying the debts of said*955 Continental Lumber Company (formerly the Whitney Company) a corporation of the State of Michigan; but this provision shall not be construed to make the said Continental Lumber Company or its creditors beneficiaries of this trust, or to make the Trustee a representative or continuation of the said Continental Lumber Company.
II The Trustee shall have all the power of absolute ownership for the management of said trust fund; he shall have entire authority to sell, exchange, collect, invest, reinvest, and distribute the same as he may consider proper pending its final distribution, and all or any acts done by him in regard to said fund shall be final and conclusively binding upon the beneficiaries. The Trustees shall have full power and discretion to borrow money for the affairs and business of the trust and to pledge or mortgage property belonging to the trust, provided that the aggregate amount of such obligations shall not at any time exceed forty per cent (40%) of the value of the property held by him hereunder.
* * *
IX. The interests or shares represented by the certificates may be transferred on the books or records of the Trustee by the owner thereof, or his legal representative, *956 upon the surrender of the certificate properly endorsed, and a new certificate shall be issued to the transferree (upon his execution of the agreement endorsed upon the old certificate), who shall thereupon become a beneficiary hereunder according to the terms and provisions of, and subject to, all the conditions of this declaration and a certain other declaration respecting real property conveyed to said Trustee by said corporation, of even date herewith.
* * *
The above declaration of trust was duly signed by "Nathan T. Viger, as Trustee," withnessed, and acknowledged on December 26, 1927, and was subscribed to and approved by each of the petitioners herein.
The omitted portions of the above trust declaration provide that third parties need not inquire regarding the application of trust funds; that liquidating dividends may be declared by the trustee; that annual accounts shall be furnished beneficiaries; that the trustee shall receive an annual fee; that the trustee may resign or select and appoint an associate trustee; that no assessments shall ever be made upon beneficiaries; that beneficiaries shall never be personally liable or have any rights except as provided in the*957 trust instrument; that the trustee may individually own interests or shares in the trust fund; that the realization, liquidation, and distribution of the trust fund shall be accomplished with all convenient speed; that the trustee can not accumulate income but shall distribute same periodically to beneficiaries; that the trustee shall be personally responsible only for his own willful and corrupt breach of trust; and that the trustee shall have power to make rules and regulations for administering the trust.
The book value as per the books of the Continental Lumber Co. of the assets transferred to Nathan T. Viger, trustee, on December 26, 1927, was $2,700,907.78, of which $1,842,900 was Hammond-Tillamook *462 Lumber Co. stock, 18,429 shares (889 shares of the original 19,318 shares having been paid to the agent, Henry F. Chaney, as part of his fee).
The liabilities of the Continental Lumber Co. on its books on December 26, 1927, were $441,483.23. The liabilities of Nathan T. Viger, trustee, on December 27, 1927, were $456,483.13, an increase of $15,000 being a reserve for customers' fright and unpaid commissions on lumber sales. The other liabilities were notes payable, *958 Whitney Realty Co., Ltd., $364,900; accrued interest, $18,620; attorney fees, $7,582.57; safety deposit box rent, $1.40; deferred credit on cutting contract, $50,379.26.
On December 27, 1927, a formal notice of dissolution of the Continental Lumber Co. was filed with the Secretary of State of Michigan.
The net loss of the Continental Lumber Co. for the year 1927, according to the books, was $4,040,112.26. This included the loss on sale of capital assets, loss on operations from January 1 to March 31, 1927, loss due to land abandonment, and to administrative and general expense, and, in so far as it exceeded the loss of $3,896,757.48 on the sale to Hammond-Tillamook Co. resulted in a further reduction of the assets remaining in the Continental Lumber Co.
The March 1, 1913, value carried in the timber accounts of the Continental Lumber Co. was in excess of the March 1, 1913, value as determined by the timber section of the Bureau of Internal Revenue. The net loss reported by the Continental Lumber Co. in its income tax return was $2,930,836.09.
The distributees of the trust were the stockholders on December 27, 1927, of the Continental Lumber Co., numbering 20, with holdings*959 from 1 to 8,503 shares. Their respective interests in the trust were in the same proportion as their holdings in the corporation. Eight thousand shares in the name of George T, Canfield and 2,434 shares in the name of Nathan T. Viger, were actually owned by David C. Whitney and held by these persons in trust for him, so that his holding was actually 10,434 shares.
On their returns for 1927 the petitioners claimed deductions for losses sustained as a result of the liquidation of the Continental Lumber Co. as follows: Whitney Realty Co., Ltd., $182,158.15; Katherine D. Douglas, $858,607.63; Jerome H. Remick, $460,563.96; David C. Whitney, $1,010,677.70; David M. Whitney, $6,406.50; Tracy W. McGregor, $883,927.33; John J. Hoff, $642,446.78; Susan M. Whitney, $1,010,677.70; Grace Whitney Hoff, $642,466.78; Katherine McGregor, $883,927.33.
The loss of each petitioner was computed as follows: The total value of petitioner's holdings of March 1, 1913, was determined by taking *463 the March 1, 1913, value as $4,341.82 per share; to this value was added the cost of additional stock purchased subsequent to March 1, 1913, and the amount of assessments made and paid subsequent*960 to March 1, 1913, which gave the total basis for determining gain or loss; from this total each petitioner subtracted the fair market value of his or her beneficial interest in the trust assets, evidenced by liquidation certificates. The fair market value of the liquidation certificates was determined by valuing the assets conveyed to the trustee and arriving at a value of $57.29 per liquidation certificate or share. The exhibits showing the loss computed by each petitioner are incorporated herein and made a part hereof solely for the purpose of showing the computations made in determining the amount of the loss claimed.
The respondent disallowed the loss claimed in each instance upon the theory that the trustee should be treated as a trustee in dissolution, with no loss resulting to the stockholders under Regulations 69, articles 548 and 622.
The stipulations of fact and the declarations of trust introduced as evidence in these proceedings are incorporated herein and made a part hereof by reference.
OPINION.
ADAMS: The principal question raised by these proceedings is whether the conveyance of the assets of the Continental Lumber Co. to Nathan T. Viger, as trustee, was*961 a transfer of its assets, in complete liquidation of the lumber company, to its stockholders, so that the stockholders sustained a loss based on the difference between the fair market value of the property received and their capital investment. If the law question is decided in favor of the petitioners, a question of fact is presented as to the amount of loss sustained. We have included in our findings the facts relating to the amount of loss sustained, if any, for the reason that these facts provide an historical background for the issue of law.
The petitioners contend that there was a complete liquidation of the Continental Lumber Co. which resulted in a loss to the former stockholders; that the transfer to Viger, coupled with his declaration of trust, was a distribution in kind to the stockholders, Viger holding title as their nominee; that the procedure followed was a practical short cut to the same net result, viz., title in the trustee and beneficial ownership in the stockholders, which saved time and money and avoided the legal complications that would follow a direct distribution to the stockholders and a conveyance from each of them to the trustee. The petitioners rely*962 particularly upon the decision of *464 the Board in , as supporting their position.
The respondent contends that the transfer of the corporate assets to Viger, as trustee, falls squarely within the provisions of article 548 of Regulations 69 (Revenue Act of 1926); 1 that legislative approval has been given to the administrative interpretation of article 548 by the repeated reenactment in the same terms of the gross income provisions of the statute; that in any event petitioners have failed to prove any loss because their interest in the assets before and after the transfer was the same; and that Viger is a trustee in liquidation and the transfer to him did not constitute a distribution in kind; citing .
*963 The applicable section of the Revenue Act of 1926 is set out in the margin. 2
Since the petitioners claim that the exchange of their shares of stock for trust certificates constituted a complete liquidation of the corporation, we have omitted that portion of the section relating to distributions in partial liquidation.
In the last analysis this issue truns upon the question of whether a distribution to the stockholders in complete liquidation results from exchanging corporate shares of stock for liquidating trust certificates. In such a case, have the stockholders realized all that they may hope to receive from their investment in the corporation, so that they can definitely and finally determine the loss sustained by*964 each in 1927?
In , a resolution was passed which required the president and cashier of the bank "to take measures to liquidate the balance due to the original plaintiffs and other banks." In the opinion the Supreme Court said:
Some criticism has been employed on the meaning of the word "liquidate", in the resolution above stated. It is said, to mean, not a payment, but an ascertainment of the debts of the bank. We think otherwise. Its ordinary sense, as given by lexicographers, is to clear away, to lessen debts. And in common parlance, especially among merchants, to liquidate a balance, means, to pay it; *465 and this, we are satisfied was the sense in which the words were used in this resolution; and, consequently, that the appropriation of this note to the payment of the debt was within the scope of the authority given to the president and cashier.
In , the Supreme Court stated that "the power of the president or other officer of the bank to bind it by transactions after it was put into Liquidation is that which results by implication from the*965 duty to wind up and close its affairs. That duty consists in the collection and reduction to money of the assets of the bank, and the payment of creditors equally and ratably so far as the assets prove sufficient." (Italics supplied.)
Similarly, the state courts have held that liquidation is the winding up of a firm's or company's affairs by getting in its assets, settling with its debtors and creditors, and appropriating the amount of profit or loss; ; ; ; ; ; .
Can it be said that the exchange of corporate certificates of stock for trust certificates of interest lessened or cleared away the debts of the corporation? Did the trust certificates give the stockholder anything materially different from what he already had, i.e., a right to share ratably in the assets after the payment of the corporate debts?
Here, there was no collection and reduction of assets into money no settling with creditors*966 and debtors, no appropriation of the amount of profit or loss, no distribution of assets to the stockholders, and no payment of a liquidating dividend. There was only a transfer of corporate assets to a trustee who was authorized to collect and reduce the assets to money, settle with creditors and debtors, and then distribute whatever balance remained to the former stockholders as their pro rata part of the corporate assets. This was not a distribution to the stockholders in complete liquidation of the corporation. Cf. . It merely transferred that duty to a trustee who acted for the corporation in discharging the statutory duty imposed upon the board of directors. (Cahill's Comp. Laws of Michigan, 1922 supp., sec. 9053(15) to 9053(39), inclusive). Until that duty is performed the corporation has not been completely liquidated. Cf. . From a taxing standpoint, the stockholder realizes his gain or sustains his loss when the final liquidation payment or dividend is received. It is at this time that a closed transaction results, from which he can determine*967 the gain realized or the loss sustained. .
*466 The petitioners cite , as controlling our decision on this issue. In that case the transfer was made by the corporation to the stockholders by virtue of a liquid ating dividend distributing the assets in kind. Prior to physical distribution the stockholders, as owners of undivided interests in the corporate assets, assigned their interests and requested the corporation to convey the assets, undivided, to a trustee who would act for the stockholders, individually and collectively. Apparently there were no commercial debts. We think that case is clearly distinguishable from the one before us upon the facts.
The respondent relies upon our decision in ; affd., . In that case a sale of the corporation's assets was negotiated, after which the stockholders authorized the transfer of all the assets to Hellebush and others, as trustees, and the dissolution and liquidation of the corporation. The transfer*968 was made by the officers of the corporation and, therefore, the trustees consummated the sale of the assets, paid the liabilities, distributed the proceeds to the stockholders, and the corporation was dissolved.
In holding the transactions resulted in a taxable gain to the corporation, the Board said:
The action taken at the stockholders' meeting, April 20, 1927, appointing Hellebush and Lippelman as trustees and conveying to them the corporate property, was a corporate action, and being the act of the corporation, the trustees would necessarily be responsible to and acting for the creator of the trust, even though the stockholders were beneficially interested in the property. The trust was closed when the property was sold, the debts owing the corporation were collected, the debts of the corporation paid, and the money distributed to the stockholders. It was then that the stockholders came into possession of the proceeds of the property. It is true, of course, that if a corporation really makes a distribution of its property in kind to its stockholders, no gain or loss therefrom results to the corporation. If, thereafter, the stockholders sell the property which they have*969 received as a distribution in kind, any gain or loss resulting from such sale would be taxable to them and not to the corporation. But that, in our judgment, is not the situation which we have before us in this proceeding. [Italics supplied.]
Situations similar to the one arising in the Hellebush case, supra, have been considered by the Board and the courts in ; ; ; ; ; ; ; ; affd., ; certiorari denied, ; and . In all of these cases the corporation has been held liable and its attempt *467 to avoid liability by transfer of corporate assets to trustees or agents, who completed the*970 sale, was ineffectual. In most of these cases the contention advanced by the taxpayers was to the same effect as that advanced by these petitioners, namely, that a distribution in kind was made by the corporation and the trustees acted for the former stockholders in making the sale. The principal difference lies in the fact that here the corporation is still in the process of liquidation while in the cited cases a contemplated sale was consummated.
In these proceedings the trustee was, in our opinion, acting for the corporation, despite the express disavowal contained in the trust instrument, The trust is not closed until the property is sold, the debts owed to the corporation collected, the debts owed by the corporation paid, and the money distributed among the stockholders. When these events occur a taxable transaction results, from which gain or loss is to be determined. However, testimony at the hearing was positive to the effect that the trustee was still engaged in collecting the debts due the corporation, indicating that liquidation had not yet been completed.
It is our judgment that petitioners have not as yet realized anything from their investment in the Continental*971 Lumber Co. or its predecessors. The transaction resulted in a mere change in the evidence of their ownership. Their rights in the assets held by the trustee were identically the same rights in those assets that were evidenced by shares of stock of the corporation, and neither gain nor loss will result until there has been a final disposition of the liquidation certificates. .
Reviewed by the Board.
Decision will be entered for the respondent.
Footnotes
1. Proceedings of the following petitioners are consolidated herewith: Katherine D. Douglas; Adelaide McCreery Remick, Jerome H. Remick, Jr., and Union Guardian Trust Company, a Michigan Corporation, Executors under the Last Will and Testament of Jerome H. Remick, Deceased; David C. Whitney; David M. Whitney; Tracy W. McGregor; John J. Hoff; Susan M. Whitney; Grace Whitney Hoff; Katherine McGregor. ↩
*. Data to be furnished later. ↩
1. ART. 548. Gross income of corporation in liquidation.↩ -When a corporation is dissolved, its affairs are usually would 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 section 282 and articles 1293 and 1294.) 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 upon dissolution, however, they may have appreciated or depreciated in value since their acquisition. (See further articles 622 and 1545.)
2. SEC. 201. (c) 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 of full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 202, but shall be recognized only to the extent provided in section 206. * * * ↩