*1696 In the taxable years the petitioner conducted a business for profit and for such years was an association taxable as a corporation. Hecht v. Malley,265 U.S. 144">265 U.S. 144.
*61 In his notices to the petitioners herein the respondent has asserted liabilities under section 280 of the Revenue Act of 1926 for the years 1923, 1924 and 1925, in the identical amounts of $1,045.58, $703.63 and $279.83, respecting alleged unpaid income taxes of Dominguez Harbor Tract No. 2, which was a trust instituted to subdivide and sell a certain tract of real estate. The only question at issue is whether such trust was an association taxable as a corporation in the years under review. The several proceedings have been consolidated for hearing and report. The parties have stipulated that, if the trust is an association taxable as a corporation, the several petitioners are liable as set forth in the letters of the respondent.
FINDINGS OF FACT.
The several petitioners are individuals residing in or near the city of Los Angeles, *1697 Calif.
Prior to 1907, certain real estate operators had subdivided a parcel of land containing 108 acres situated between Long Beach and Wilmington, Calif., and known as the Dominguez Tract, and had sold a few lots. In the panic of 1907 the subdividers failed and the property reverted to the mortgage holders, the Henry Matson Estate. A *62 representative of such estate later asked petitioner C. O. Middleton to take over the property for the purpose of liquidation.
In 1912 Middleton made a nominal payment and in 1913, after inviting several others to join him in thematter, he took title to the property in the name of Charles O. Middleton and J. E. Adams as joint tenants and as trustees for all the parties interested in the acquisition and disposition thereof, and on September 1, 1913, Middleton and Adams executed the following declaration of trust:
THIS INDENTURE made this first day of September, A.D., 1913, WITNESSETH: That CHARLES O. MIDDLETON and J. E. ADAMS of Los Angeles, California, being designated the "trustees," have and hold the legal title in fee simple in joint tenancy with right of survivorship to the following described real estate, situated in the County*1698 of Los Angeles, State of California, to wit:
All that property conveyed to Charles O. Middleton and J. E. Adams, as joint tenants with right of survivorship, by Frank R. Bell, in Deed of Grant, dated March 1, 1913, and recorded in Book 5742 at Page 94 of Deeds, Records of Los Angeles County, being certain lots in the Dominguez Harbor Tract, as per map of said tract, recorded in Book 12, Pages 14 & 15 of Maps, Records of Los Angeles County, and all of Dominguez Harbor Tract, Sheet #2, as per map recorded in Book 22, Page 176 of Maps Records of Los Angeles County.
Subject to an existing incumbrance in the amount of $139,345.00.
That the said real estate is held by said trustees in trust for the beneficiaries hereinafter named, their lawful assigns and legal representatives according to their respective interests, for the following uses and purposes with the following powers in said trustees, to wit:
To sell the whole or any part of said real estate and to that end to lay out and subdivide said lands or any part thereof; to pay commissions for the sale of said lands; to improve the same and to execute conveyances for said land or any part theeof; also to mortgage or lease said*1699 real estate or any part thereof; and to receive the rents and profits of said real estate and, as incidental to said powers, to prosecute and defend all actions at law or in equity relating to said property or any thereof; to collect moneys owing upon any sale or sales thereof and to satisfy judgments and claims relating thereto and to otherwise exercise full control and management of said property. When said property shall have been sold, to divide the proceeds of the sales thereof after deducting all necessary expenses, among the several beneficiaries or their lawful assigns or legal representatives according to their respective interests.
The said beneficiaries and their assigns and legal representatives shall not have or hold any title to said land or any part thereof and shall not be authorized to maintain any suit for partition theeof or to annul or terminate this trust, except as herein provided.
The beneficial interest in said property shall be divided into One Thousand shares among the following named beneficiaries with he following number of respective shares to each:
| P. H. O'Neil | One Hundred Shares |
| J. E. Adams & J. H. Miller, joint | Three Hundred Shares |
| tenants with right of survivorship | |
| J. A. Anderson | One Hundred Shares |
| Charles O. Middleton | Two Hundred Fifty Shares |
| G. F. Sloan | One Hundred Fifty Shares |
| Alisal Ranch Company | One Hundred Shares |
*1700 *63 A separate certificate shall be issued to each beneficiary for his number of shares and upon surrender thereof, such certificate may be divided and separate certificates isued for such shares to those entitled thereto.
In case of the death, removal or inability to act of either of said trustees, the survivor shall fill such vacancy by proper conveyance.
Certificates of trust issued under this instrument may be transferred by assignment and delivery.
Three fourths of the beneficiaries in interest may by an instrument in writing, remove any trustee under this instrument and appoint another in his stead and may require such trust property to be conveyed to such surviving trustee and new trustee in joint tenancy by proper conveyances and in case of the death or inability of both said trustees, may fill such vacancies. Three fourths in interest of said beneficiaries may likewise terminate this trust at any time and partition said property by their own act or by judicial proceedings for partition, but in any event this trust shall cease and determine upon the decease of all the natural persons in being named in this instrument.
The trustee shall be empowered at*1701 any time prior to the determination of this trust whenever in their judgment it may be expedient and proper, to declare dividends of money among the respective beneficiaries, derived from sales of real estate.
WITNESS our hands and seals.
CHARLES O. MIDDLETON (SEAL)
J. E. ADAMS (SEAL)Certificates of beneficial interest were issued in conformity with the trust instrument. Two of such certificates were assigned to other parties and such assignments were recognized by the trustees.
On November 25, 1914, Middleton resigned as trustee and Adams appointed P. H. O'Neil as his successor. On February 15, 1915, O'Neil resigned and Adams appointed G. F. Sloan as his successor.
On February 29, 1924, March 9, 1925, and March 15, 1926, respectively, the trustees filed fiduciary returns for the years 1923, 1924 and 1925. On March 15, 1929, the trustees executed and caused to be filed with the collector of internal revenue at Los Angeles and with the revenue agent in charge at the same city, an election to be taxed for the years 1923, 1924 and 1925 as a trust under the provisions of section 704(b) of the Revenue Act of 1928.
The trustees never acquired any land in addition to*1702 the lots taken over in 1913 and through agents sold all such lots prior to 1923. Throughout the taxable years they sold no lots and their activities were limited to collecting installment payments on sales contracts previously made, paying expenses, executing deeds for lots covered by paid up contracts, and distributing proceeds of collections to the beneficiaries. None of the receipts from sales was reinvested or retained as working capital.
The beneficiaries never held a meeting, removed or appointed a trustee, terminated the trust or petitioned the law.
*64 OPINION.
LANSDON: The petitioners contend that the sole function of the trust herein was to liquidate a certain parcel of real property which came into the possession of one of the beneficiaries in a manner and at a cost not clearly disclosed by the record. In support of this theory they rely on ; ; ; *1703 ; ; ; ; ; ; .
A careful study of these cases indicates that the real test applied in each was not that there was a liquidation of real estate, but that there was no continuing business operation carried on for profit. This is the rule laid down in , in which it is clearly set forth that a trust transacting business for profit is liable to excise tax as a corporation. Upon this principle the courts and this Board have uniformly held that a trust operating a business for profit is an association taxable as a corporation. ; *1704 ; ; ; ; ; ; .
In the light of the opinions and decisions cited above, it remains only for us to determine whether the trust was engaged in business for profit. The petitioners contend that its operation had no other purpose than the liquidation of the real estate involved. Liquidation means realization or conversion of property for the benefit of its owners. If such a liquidation is effected through a trust, the owners of the property are the beneficiaries of the trust and certificates of beneficial interest issued to them represent their former ownership of assets that have become the corpus of the trust. Up to the date of the declaration of trust, only two, if any, of the beneficiaries herein were owners of any interest in the parcel of land. The others came into the trust by invitation or solicitation*1705 and presumably paid for their certificates of beneficial interest with cash which was used to purchase he land from its original owners or from the receivers in charge of the liquidation of their affairs, Everything in the record indicates that the beneficiaries herein entered into a voluntary association for the purpose of acquiring, subdividing, improving and selling Dominguez Harbor Tract No. 2, with the expectation of realizing a profit therefrom. Through a *65 period of ten years or more they engaged in the activities necessary to accomplish their purposes. This state of facts discloses a situation far different from the institution of a trust merely to conserve or liquidate property already owned by the beneficiaries.
Decision will be entered for the respondent.