*239 Decisions will be entered under Rule 50.
On July 15, 1943, the petitioner purchased all the stock of a corporation whose primary asset was a citrus grove. The stock was purchased for the purpose of acquiring the grove. The corporation was dissolved and its assets distributed in December 1943. In the interim certain sales of maturing fruit were made.
1. Held, the proceeds of the fruit constituted taxable income of the corporation.
2. Held, further, the petitioner realized no taxable gain on liquidation of the corporation. Commissioner v. Ashland Oil & R. Co., 99 F.2d 588">99 F. 2d 588, followed.
*850 In these consolidated proceedings the petitioner contests in Docket No. 24533 a deficiency in individual income tax of $ 780.83 determined for 1943. In an amended answer the respondent has redetermined this deficiency to be $ 21,920.26.
In Docket No. 25807 the petitioner admits his liability as transferee of the assets of Meloso Fruit Company (hereafter called Meloso or the corporation), but contests the following deficiencies determined in the taxes of Meloso for 1943:
| Declared value excess-profits tax | $ 3,574.99 |
| Excess profits tax | 35,895.01 |
The issues to be decided are: (1) Did Meloso realize additional income for 1943 from sales of citrus fruit in the amount of $ 40,683.75 or, in the alternative, if Meloso did not realize such income, is the petitioner taxable with it in 1944, instead of 1943 as reported? (2) Did the petitioner realize taxable gain, and in what amount, on the liquidation of Meloso in 1943?
The disposition of other issues has been agreed upon.
*241 *851 FINDINGS OF FACT.
Some of the facts have been stipulated and are so found.
H. B. Snively (hereafter called the petitioner) is an individual residing at Winter Haven, Florida. He filed his income tax return for 1943 with the collector for the district of Florida.
Meloso was a Florida corporation organized about 1912. Its principal place of business was at Winter Haven, Florida. For the year 1943 its corporate income and excess profits tax returns were filed with the collector for the district of Florida.
Meloso, just prior to 1943, had some six or seven stockholders, most of whom lived outside Florida. Its principal asset was a citrus grove of about 125 acres. C. O. Bradbury, who lived in Winter Haven, owned a qualifying share and was general manager of the Meloso properties.
The petitioner's principal business is that of a citrus grove owner and operator. He has three sons, Frank, Harvey B., Jr., and Robert. In early 1943 the petitioner was interested in obtaining the Meloso grove so that it could be turned over to his sons after the war was over. Negotiations toward that end were carried on with Bradbury. Because of tax considerations the Meloso stockholders would*242 not sell the grove, but were willing to sell their stock. Though the petitioner was primarily interested in buying the grove he made an offer of $ 110,000 for the Meloso stock after being advised by his accountant that the corporation could be liquidated and the grove thus obtained by him individually.
The offer was accepted and on March 17, 1943, an agreement was entered into providing that the Exchange National Bank of Winter Haven should act as escrow agent to receive the stock and deliver it to the petitioner upon receipt of the purchase price. The petitioner deposited $ 25,000 with the escrow agent on execution of the agreement. An agreement was also made permitting the petitioner to direct sales of any fruit made by Meloso until July 15, 1943. Money received from such sales until that date was to be deposited to the account of the corporation and not disbursed without the petitioner's consent except for certain current obligations.
The Meloso stockholders were to deliver their stock to the escrow agent prior to July 15, 1943, and the petitioner was to pay the balance of the purchase price on that date. The stock certificates were delivered to the escrow agent on or about*243 April 8, 1943.
Proceeds from the sale of fruit prior to July 15, 1943, from the Meloso grove amounted to $ 45,000. This sum was deposited in Meloso's account at the Exchange National Bank. On July 12, 1943, there was a balance of $ 45,144.41 in the account. On July 14, 1943, *852 this balance was increased to a total of $ 85,983.33 by a deposit in the account of the proceeds of a $ 25,000 loan from the Federal Land Bank, a $ 7,500 loan from the Land Bank Commissioner, and a $ 10,000 loan from the Exchange National Bank.
The Federal Land Bank loans, which totaled $ 32,500, were obtained upon applications filed by the petitioner's son Frank and were secured by mortgages on the Meloso grove. Title to the grove was conveyed by Meloso to Frank by a deed dated July 14, 1943. Arrangements for the loans had been made and the mortgages by Frank to the Land Bank had been executed prior to that date. This procedure was adopted primarily because the Land Bank would not lend funds to a corporation and the conveyance was made simply as a matter of convenience.
The $ 10,000 loan from the Exchange National Bank was made to Meloso on July 14, 1943. It was secured by the Meloso stock which*244 the petitioner was purchasing and was evidenced by Meloso's 90-day note. This loan was repaid on October 19, 1943, by a check drawn on Meloso's account at Exchange National Bank.
On July 15, 1943, a check for $ 85,000 was drawn on Meloso's account at the Exchange National Bank and delivered to the bank in payment of the balance due from the petitioner for the purchase of the Meloso stock. The bank immediately disbursed these funds together with the $ 25,000 which it already held pursuant to the stock purchase agreement.
The Exchange National Bank did not physically deliver the Meloso stock certificates to the petitioner on the date the balance of the purchase price was paid, but held the stock as collateral security for the $ 10,000 loan until October 19, 1943, when that loan was repaid. The petitioner acknowledged delivery of the stock on that date by signing a receipt "Meloso Fruit Co. By H. B. Snively."
Prior to July 14, 1943, Bradbury was authorized to sign checks on behalf of Meloso on its account at Exchange National Bank. On that date, a new signature card was submitted to the bank authorizing the petitioner to sign checks drawn on the account as Meloso's president.
During*245 negotiations to purchase the stock and in subsequent transactions involving Meloso the petitioner was represented and advised by his attorney, Harry E. King, and an accountant. The petitioner was advised to liquidate Meloso and he planned to follow that course. About July 7, 1943, before the purchase of Meloso's stock was completed, a petition was filed in the Circuit Court of Polk County, Florida, for dissolution of the corporation, signed by the petitioner, King, and King's secretary, Mildred C. Smith. The petition recited that these individuals were all of Meloso's stockholders. On July 8, 1943, the Circuit Judge of Polk County, Florida, signed and ordered *853 publication of a notice to all interested parties stating that a petition to dissolve Meloso had been filed, that a final hearing would be held on July 13, 1943, and that unless good cause were shown on order dissolving the corporation would issue. The scheduled hearing was not held on July 13, 1943, and Meloso was not dissolved on that date.
On August 3, 1943, the petitioner's son Frank executed a deed reconveying title to the grove property to Meloso. When title to the grove was first conveyed to Frank it was*246 contemplated he would reconvey the property to Meloso sometime after the Land Bank loans were arranged. This deed was delivered to King and placed in his safe.
At an undisclosed date late in 1943 the petitioner's accountant suggested to King that he proceed with the dissolution of Meloso. Thereafter, on December 13, 1943, Meloso's stockholders and directors who were the petitioner, King, and Mildred C. Smith (King's secretary), held special meetings at which dissolution of Meloso and conveyance of its assets to the petitioner were authorized. Following these meetings and on December 20, 1943, a new notice to all interested parties was signed and ordered published by the Circuit Judge of Polk County, Florida, which recited that a hearing on the petition for the dissolution of Meloso would be held on December 31, 1943. The scheduled hearing was held and Meloso was formally dissolved by court order dated December 31, 1943.
On February 22, 1944, Meloso filed an information return, Treasury Department Form 966, which disclosed that a plan for its dissolution had been adopted on December 13, 1943. This return was signed for Meloso by the petitioner as president and by Mildred C. Smith*247 as secretary. Copies of minutes of the special stockholders and directors meetings of December 13, 1943, were attached.
Incident to the dissolution, the deed of August 3, 1943, reconveying title to the grove property from Frank to Meloso was filed for record on December 30, 1943. By a deed dated and recorded December 31, 1943, the property was then conveyed by Meloso to the petitioner. The next day, January 1, 1944, the petitioner conveyed it to Frank and on January 3, 1944, Frank conveyed an undivided one-half interest therein to his brother Harvey B. Snively, Jr. All of these deeds recite that the conveyances were made subject to the Land Bank mortgages. The reconveyances were advised by King so that the affairs of Meloso would be wound up in orderly fashion.
On December 31, 1943, Meloso was liquidated and all of its assets were transferred to the petitioner. After such liquidation Meloso had no assets. The fair market value of the assets transferred to the petitioner in liquidation was in excess of the deficiencies in declared value excess-profits tax and excess profits tax involved in Docket No. 25807.
*854 Lake Hamilton Cooperative, Inc., was a cooperative agricultural*248 marketing association organized in 1943 of which the petitioner was president and a substantial stockholder during that year. The petitioner made advances to the Cooperative during 1943 totaling $ 51,400.57 between February 1943 and December 31, 1943. Payments totaling $ 54,029.21 were made during the same period by the Cooperative to the petitioner, leaving a balance due from him of $ 2,628.64 on December 31, 1943. On that date, the Cooperative had cash balances in three banks totaling $ 34,090.48. No balance sheet of the Cooperative for 1943 is in the record.
Throughout the late summer and early fall of 1943 Meloso made expenditures for the cultivation and care of the citrus grove, and during the fall of that year fruit was harvested therefrom. The early fruit thus harvested was sold through Great Southern Fruit Co. for $ 14,978.19. The proceeds of this sale were received by Lake Hamilton Cooperative and credited on its books to the petitioner's personal account by entry dated November 30, 1943. On his personal books the petitioner credited this sum to an account entitled "Meloso Fruit Co." and described the item as "Fruit money received from Great Sou." This amount was included*249 by Meloso in the gross receipts from fruit sales reported on its 1943 income tax return.
Other fruit was also harvested from the Meloso grove in the fall of 1943 which was handled through the Lake Hamilton Cooperative, the net proceeds from the sale of which were $ 40,683.75. These proceeds were credited to the petitioner's personal account on Lake Hamilton's books by an entry dated August 31, 1944. They were also recorded on the petitioner's personal books by a journal entry dated December 31, 1943, which read as follows:
| Debit | Credit | |
| Packing House pool | $ 40,683.75 | |
| Meloso Citrus Groves fruit | $ 29,531.00 | |
| Fruit sales | 11,152.75 |
To record sales of Meloso Grove Fruit to Dec. 31, 1943, date of dissolution.
On his 1943 income tax return the petitioner reported gross receipts from fruit sales in the amount of $ 72,210.71. This amount included the sum of $ 11,152.75 from the sale of fruit from the Meloso grove computed as follows:
| Net fruit returns per books of Lake Hamilton Cooperative | $ 40,683.75 |
| Less: Appraised value of fruit on Meloso groves | 29,531.00 |
| Net amount included in gross receipts per return | $ 11,152.75 |
The remainder of the 1943-1944 crop*250 on the Meloso grove was sold in 1944 by Frank B. Snively and Harvey B. Snively, Jr., for $ 24,086.70. The partnership information return which they filed discloses that no cost for this crop was deducted.
*855 Meloso's account at Exchange National Bank was closed on February 9, 1944, by a withdrawal of $ 1,059.77. Between July 15, 1943, and the date of closing there were 12 deposits totaling $ 52,296.57 made to the account. In the same period 61 withdrawals were made therefrom.
There was a deposit of $ 14,186.25 made to Meloso's account on July 19, 1943. It consisted of the net proceeds of a loan obtained by the petitioner from Production Credit Association. The loan was secured by a mortgage on the crop growing on Meloso's grove executed by Frank B. Snively.
A deposit of $ 4,792.22 was made to Meloso's account on August 16, 1943. It included a check from Waverly groves in the amount of $ 4,232.22 for fruit sold for Meloso earlier in the year or possibly in the preceding year.
In July, August, and September of 1943 the sums of $ 3,000, $ 3,000, and $ 800, respectively, were withdrawn from Meloso's account and advanced to Lake Hamilton Cooperative. These sums were credited*251 on Lake Hamilton's books to the petitioner's personal account. The items are described in the ledger as cash advances for "a/c Meloso Fruit Company." Lake Hamilton repaid the advances by two checks, one for $ 3,800 dated October 27, 1943, payable to the petitioner for "c/o Meloso Fruit Company" and the other for $ 3,000 dated November 13, 1943, payable to Meloso Fruit Company, and from time to time during the fall of 1943 the petitioner deposited funds in the amount of approximately $ 21,000 in the bank account of Meloso. On the petitioner's personal books these sums were debited to the Meloso account.
On Meloso's income tax return for the taxable year 1943, which is marked "FINAL RETURN," the following was reported:
| Gross receipts from fruit sales: | ||
| Waverly groves | $ 13,361.25 | |
| Polk Packing Association | 45,000.00 | |
| Great Southern | 14,978.19 | |
| $ 73,339.44 | ||
| Less: Cost of operations | 31,610.92 | |
| Gross income from fruit sales | 41,728.52 | |
| Other income | 1,206.46 | |
| Total income | 42,934.98 | |
| Less: Deductions | 7,785.49 | |
| Net income | $ 35,149.49 |
In the statement accompanying the deficiency notice the respondent determined that gross receipts from fruit sales were $ 114,023.19*252 in lieu of $ 73,339.44 as reported. This increase resulted from adding to the *856 amount reported the proceeds of the fruit sold through the Lake Hamilton Cooperative, or $ 40,683.75.
Meloso's 1943 return also disclosed that the following assets and liabilities were distributed to its sole stockholder in complete liquidation and cancelation of its outstanding capital stock on December 31, 1943:
| Assets: | |||
| Cash | $ 1,059.77 | ||
| Accounts receivable | 73,211.14 | ||
| Waverly groves stock | 8,760.00 | ||
| Land | 11,000.00 | ||
| Citrus trees, grove improvements and | |||
| buildings | $ 50,780.56 | ||
| Reserve for depreciation | 27,086.70 | ||
| 23,693.86 | |||
| Excess profits tax post-war refund | 3,822.11 | ||
| Total assets | $ 121,546.88 | ||
| Liabilities: | |||
| Notes payable: | |||
| Federal Land Bank | 23,353.00 | ||
| Land Bank Commissioner | 7,495.62 | ||
| Prod. Credit Association | 14,186.25 | 45,035.17 | |
| Income and excess profits tax | 24,657.54 | ||
| Total liabilities | 69,692.71 | ||
| Net assets distributed | $ 51,854.17 |
On his 1943 income tax return the petitioner reported a net long-term capital gain of $ 2,197.16 from the liquidation of Meloso.
Respondent in his notice of deficiency determined that the *253 petitioner's gain on liquidation of Meloso was a short-term capital gain and that it should be increased by the amount of $ 4,895.41. In making this determination the respondent allowed as an offset against the gross value of the assets received by the petitioner in the liquidation of Meloso a tax liability against the corporation of $ 36,921.19. This liability has not been paid. By amended answer the respondent alleges this allowance of the tax liability as an offset was erroneous and increased the petitioner's capital gain accordingly with a corresponding increase in the deficiency determined.
OPINION.
The petitioner, with the primary purpose of acquiring a citrus grove, purchased the stock of Meloso and immediately set about its liquidation in order to achieve that purpose. In the period of about six months between the stock purchase and formal dissolution of the corporation the citrus crop matured. The bulk of *857 this crop was treated by the petitioner as his own and it was harvested and sold pursuant to his direction for his own account. He reported the net proceeds of the sale as his individual income for 1943. The respondent, on the one hand, has adjusted the petitioner's*254 individual income for that year by eliminating therefrom the proceeds of the fruit sale and, on the other hand, has determined that the $ 40,683.75 which the fruit brought should be added to Meloso's 1943 gross income, thus bringing about the deficiencies in declared value excess-profits tax and excess profits tax which are in contest.
The parties have presented several theories, some in the alternative, on which the question of who should be taxable with the fruit proceeds could be decided, and we have carefully studied them all. By amended answer the respondent justifies his action in taxing the proceeds to Meloso either as an exercise of the authority conferred on him by section 451*255 or under the broad provisions of section 22 (a), 2 Internal Revenue Code.
We think the income attributable to the sale of the fruit should be taxed as proposed by the respondent and we approve his action in this respect. There is no doubt that the petitioner owned all of Meloso's stock in the fall of 1943 when the fruit was harvested and thus was in control of the corporation's business. Nor is there any doubt that the fruit on the trees represented potential or unrealized income of Meloso. See and compare United States v. Lynch (C. A. 9), 192 F. 2d 718;*256 Floyd v. Scofield (C. A. 5), 193 F.2d 594">193 F. 2d 594; Commissioner v. First State Bank (C. A. 5), 168 F. 2d 1004; Helvering v. Horst, 311 U.S. 112">311 U.S. 112. As far as we can determine from the record, all of the expenses of cultivating the grove and maintaining the trees during the growing season were borne by Meloso and title to the grove and the fruit at the time of harvest was in the corporation. No corporate action to distribute the fruit to the petitioner had been taken, and even if it had, the principle of the above cited cases would still tax the proceeds of the sale to Meloso. It would thus seem fair and proper that the income arising from sale of the fruit be attributed to Meloso, if for no other reason *858 than, in the words of section 45, "clearly to reflect the income" of Meloso. We think the income was in fact Meloso's and that Meloso's imminent liquidation should not affect the tax consequences of the realization of that income. See Floyd v. Scofield, supra, where the proceeds of a liquidating dividend of accounts receivable, collected after*257 liquidation, were held taxable to the corporation in liquidation rather than to the stockholder who had received the accounts as a dividend. Discussion of the applicability of section 45 is unnecessary. We hold the income was that of Meloso and so is taxable under section 22 (a).
The petitioner argues, in effect, that his purchase of the stock and the succeeding moves to liquidate Meloso in some way incapacitated Meloso from earning, receiving, or being taxable with income from and after the date of the stock purchase. His main reliance is on Commissioner v. Ashland Oil & R. Co. (C. A. 6), 99 F. 2d 588, certiorari denied 306 U.S. 661">306 U.S. 661. We do not understand that case, which will be discussed later, to stand for such a proposition and find no merit in this argument. The stock purchase coupled with the intent to dissolve the corporation and the taking of some steps to that end, in our opinion did not ipso facto either destroy the existence of the corporation as a taxable entity or permit the petitioner to appropriate as his own income which would otherwise be taxable to the corporation.
This does not dispose of the *258 matter, for the petitioner contends further that neither he nor Meloso, both being on a cash basis, received cash either actually or constructively from the fruit in 1943, the year in which the respondent determined the income was received. Respondent's determination is presumptively correct and the burden of establishing otherwise is on the petitioner. In our opinion this burden has not been met. Petitioner who was in a better position to know the facts than anyone else reported this income on his individual return as having been received in 1943. He was the president and a substantial shareholder in Lake Hamilton Cooperative to which he turned over the harvesting and sale of the fruit in 1943. There is no affirmative proof that the fruit was not sold before the end of that year and the reasonable inference is that it was. The petitioner's own books contain a journal entry as of December 31, 1943, indicating that he had control of the fruit proceeds as of that date. On the record we hold that the presumptive correctness of the respondent's determination has not been overcome.
The petitioner also makes an argument with regard to the item of $ 14,978.19 which represented the *259 proceeds of fruit sold earlier through Great Southern Fruit Co. This item was reported in 1943 as income by Meloso, an action which the petitioner now says was a mistake. We have doubt that the $ 14,978.19 item is properly in issue on the pleadings, *859 but if it is, what we have said above about the proceeds of subsequent sales is equally applicable, and we hold that both the $ 40,683.75 and $ 14,978.19 items were properly treated by the respondent as income of Meloso in 1943.
We turn to the problems of the petitioner's individual income tax for 1943. The respondent has adjusted the petitioner's income for that year to eliminate the net proceeds of $ 11,152.75 from the controversial fruit sale which he reported. This adjustment is approved in view of our holding that the income from the fruit sales is taxable to Meloso.
That leaves us with the question of whether or not the liquidation of Meloso was a taxable transaction, and if so, the amount of the petitioner's gain therefrom. On his 1943 return the petitioner treated the transaction as taxable and reported a long-term capital gain. He now contends this treatment was erroneous and argues that on the authority of Commissioner v. Ashland Oil & R. Co., supra,*260 his purchase of the stock and the liquidation and dissolution of Meloso are to be taken as a single transaction, the substance of which was the acquisition of the Meloso grove. We think this argument is well taken. At the risk of over-simplification, the Ashland Oil case involved a taxpayer who was forced to purchase the stock of a corporation in order to reach the primary objective of acquiring the corporate property through liquidation and dissolution. That is essentially the same situation facing us here. The court concluded that the two steps -- the stock purchase and the liquidation -- were to be taken as a single transaction despite their separation in time by a considerable period. The question was whether the taxpayer realized a gain on liquidation. It was held that though the transaction was, in form, a purchase of stock, in substance, it was a purchase of property and that since the taxpayer still held the property, no taxable gain was realized on the liquidation.
This Court has approved and utilized the principle of the Ashland Oil case in varying situations, sometimes to the advantage of the taxpayer and sometimes to his disadvantage. We think the principle*261 can properly be applied here. See Koppers Coal Co., 6 T. C. 1209; Kimbell-Diamond Milling Co., 14 T. C. 74, affd. 187 F. 2d 718, certiorari denied 342 U.S. 827">342 U.S. 827; Ruth M. Cullen, 14 T. C. 368; John Simmons Co., 14 T. C. 29; Western Wine & Liquor Co., 18 T.C. 1090">18 T. C. 1090.
Against its application the respondent argues that the Meloso stock was purchased in July 1943, that the corporation was not finally dissolved until the following December, and that in the interim Meloso continued to carry on its corporate business as before. However, a somewhat similar fact situation existed in the Ashland case, the corporation whose stock was purchased there continuing in operation *860 for almost a year before final dissolution. Here, the dissolution proceeded with reasonable speed. A petition to dissolve was presented to the court even before the stock changed hands. The petitioner's intention right along was to dissolve. The fact that final dissolution did not occur until December*262 1943 is not controlling. The various conveyances and loans were made simply to facilitate the stock purchase and the orderly winding up of the corporate affairs. This Court has said that the length of time consumed is not fatal to a determination that the corporation was in process of complete liquidation. Estate of Charles Fearon, 16 T.C. 385">16 T. C. 385. This case is not distinguishable from Ashland Oil on that ground.
At the end of 1943, the crucial year, the citrus grove which the petitioner had acquired through his purchase of the Meloso stock was still in his hands and under the Ashland Oil case, "no taxable gain has been realized." This makes it unnecessary to go into the question of the amount of gain.
It has been stipulated that the petitioner is personally liable for any deficiencies that may be determined in declared value excess-profits tax and excess profits tax. Adjustments not treated above have been agreed on.
Decisions will be entered under Rule 50.
Footnotes
1. SEC. 45. ALLOCATION OF INCOME AND DEDUCTIONS.
In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Commissioner is authorized to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses.↩
2. SEC. 22. GROSS INCOME.
(a) General Definition. -- "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service * * * of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *↩