*1175 Petitioner was formed by a bondholders' committee, with the committeemen as its only stockholders, to hold title to property in process of foreclosure. Held, on the facts, petitioner was a mere conduit or agent for the bondholders, and rentals received by it and spent largely upon taxes and foreclosure expense did no constitute income to petitioner.
*493 These proceedings, duly consolidated, involve income and excess profits taxes as follows:
| Docket No. | Taxable year | Income tax | Excess profits tax | Total |
| 86776 | 1934 | $2,939.67 | $443.97 | 3,383.64 |
| 87378 | 1933 | 4,045.87 | 1,471.23 | 5,517.10 |
| 88616 | 1935 | 3,510.19 | 705.31 | 4,215.50 |
The questions presented are whether certain amounts received by petitioner constituted income taxable to it, or whether it was a mere conduit, agent, or trustee; and, in the alternative, whether petitioner, if taxable upon said receipts, is entitled to depreciation claimed upon the property producing the receipts and to deduction of*1176 taxes, paid or accrued, operating expenses, and interest.
We make the following findings of fact.
FINDINGS OF FACT.
1. In 1925-1926 the Applebrook Hotel co. (hereinafter called Applebrook) built at Jacksonville, Florida, a hotel, known at that time as the Hotel Carling, later known as the Hotel Roosevelt. The *494 contractor who built the hotel was paid $876,410. This did not include interest, bond discount, or amortization, or other financing costs. The hotel property, exclusive of furniture and fixtures, was carried on the books of Applebrook at a total cost of $1,424,023.87, allocated $387,000 to land and $1,037,023.87 to improvements. As a part of the financing, $1,000,000 par value 7 percent bonds were issued on September 1, 1925, to the Florida National Bank of Jacksonville, Florida, as trustee, and secured by first mortgage on the hotel, fixtures, and furniture. After completion the hotel was leased to a company which operated it until default in 1931, at which time Applebrook took over the assets of the company, including furnishings installed by it.
2. On September 1, 1931, Applebrook defaulted on its bond issue, which had by payment been reduced*1177 to $928,000, the default being failure to pay 1930 taxes, to pay bond interest due September 1, 1931, and to make sinking fund payments for retirement purposes.
3. On October 1, 1931, a protective agreement was entered into between bondholders depositing Applebrook bonds in certain banks as depositaries, and three men called the "Bondholders Protective Committee" (hereinafter called the committee). The agreement made the committee the agents and trustees for the depositing bondholders. It provided in part that removal of members of the committee might be by vote of the bondholders; that deposit of bonds constituted assignment of title thereto to the committee as the owner thereof, to be held subject to an express trust, without limitation except the duty of the committee to do whatever in its uncontrolled opinion was calculated to promote and protect the depositors' interest; that the committee had power to sell, transfer, or exchange the bonds deposited, to request or direct the trustee to foreclose, to take possession of, operate, or lease the mortgaged property, to cause the property to be sold at foreclosure or otherwise; to consent to adjournment of sale, to bid in the property*1178 at sale, to apply the bonds in satisfaction of any bid, to take and hold properties purchased by it, either in its own name or as a committee:
* * * or in the names of persons or corporations by it chosen for the purposes of this agreement, or in its discretion with all convenient speed to cause to be organized a corporation or corporations to take and hold such property, * * * and with full power to determine finally the form of the articles of association and charter of such new company or companies, the character and provisions of its or their securities and the rights to be enjoyed by the holders thereof, * * * and upon the adoption or approval of a plan and agreement of reorganization by the Committee, such property or the securities and shares representing the same then in the hands of the Committee shall be disposed of thereunder by the Committee or managers named in such plan, in the manner therein provided; to request or oppose the appointment of a receiver of the mortgaged property; * * * to arrange for the operation of said mortgaged *495 property or any part thereof and to take such action or proceedings as it may deem, in its uncontrolled discretion, advisable*1179 at any time in the interest of the depositors.
It was also provided:
The Committee may from time to time, in its discretion, make advancements or contributions for the operation of the property to the Trustee or Trustees under said mortgage, or to the Owners or any successor, or subsequent owner of its property, or to any Receiver or Receivers or to any Trustee or Trustees in bankruptcy of the Owners or to any agent or agents operating the property of the Owners on behalf of any such Receiver or Trustee, * * * and may enter into any agreements to guarantee or indemnify any person against any expenses, obligations or liability incurred by such person at the instance of the Committee or in the operation of the property, all of which shall be a charge on the bonds deposited hereunder.
* * *
Fifteenth - If and whenever the Committee shall have adopted a plan of reorganization of said Owners or mortgaged property, it shall deposit the same with the Depositary, with copies thereof for distribution to the depositors, and notice of such adoption and deposit shall be mailed to each depositor at his postoffice address registered with the Depositary. * * *
By December 31, 1933, $732,500*1180 in bonds had been deposited, by December 31, 1934, $734,500, by December 31, 1935, $837,400, and by December 31, 1936, $909,000.
4. The hotel had been erected upon property one-half of which was owned by Applebrook and upon the other one-half of which Applebrook held a 99-year lease, carrying ground rents. During 1932 Applebrook was 60 to 90 days late in making payment of ground rents. Nonpayment of taxes was ground for default under the lease, and the owner of the leased ground notified the trustee under the mortgage that there was default for nonpayment of taxes.
5. About May 1932 the Florida National Bank of Jacksonville, as trustee, instituted in a Circuit Court in Florida foreclosure proceedings upon the mortgage securing the bonds. The bondholders' protective committee requested the trustee to proceed.
6. On November 3, 1932, decree of foreclosure was entered.
7. The property was advertised for sale in December 1932 and January 1933, but the sale was postponed for lack of a satisfactory bidder.
8. Throughout this time Applebrook had been operating the hotel under an agreement to apply all net earnings to payment of past due taxes. There were, due to depressed*1181 conditions, practically no net earnings, but some past due personalty taxes had been paid by Applebrook, insurance had been maintained, and monthly ground rent payments made. Applebrook had been cooperating with the bondholders; protective committee. In January 1933 the committee, though contemplating buying the property at foreclosure, was faced with the fact that it could not complete foreclosure, for to do so required about *496 $75,000 for taxes, trustee's fees, and fees for attorneys for the trustee. The banking crisis was developing, and a buyer at a satisfactory price could not be found. After negotiations the committee told Applebrook that the committee would have to have a receiver appointed to get the income from the property for the bondholders, or that if Applebrook would deed the property the committee could get the income in that way.
9. On February 4, 1933, at a meeting of the directors of the petitioner, the Carling Holding Co. (hereinafter called Carling), the proposition of taking a deed from Applebrook and leasing to the Carling Operating Co. (hereinafter called the operating company) was discussed. Announcement was made that the deed was offered*1182 in consideration of the granting by Carling of a two-year lease to the operating company, that the property was worth only a fraction of the encumbrance, but the advantage to Carling would be a substantial annual income, and that it was hoped that by the expiration of the two-year lease the corporation could clear up a part of the outstanding liens, and be in a position to close the foreclosure by sale and master's deed. The proposition was adopted, and the president and secretary were authorized to take title and possession of the property, and to made the lease to the operating company.
10. On February 9, 1933, Applebrook executed and delivered a deed to Carling, a corporation organized by the bondholders' protective committee to hold title because the committee did not wish title to be in three individual names. Carling had been organized on February 2, 1933, with 50 shares of no par common stock, and was to have a capital of $500. The certificate of incorporation, dated February 1, 1933, shows the original subscribers to stock as F. B. James, H. B. Fozzard, and Z. Whitnell, but the $500 capital was never paid in, and the only stock certificate issued, being No. 1, dated*1183 February 4, 1933, for 50 shares, was issued to John W. Martin, James B. Hill, and Thomas M. Johnson, who were the bondholders' protective committee. It was signed by Martin as president and Johnson as secretary. The stock was endorsed in blank by the three members of the committee, who were the sole stockholders and directors of Carling Holding Co., and deposited with the Citizens & Southern National Bank, which was the depositary for the bondholders. This deposit was made because the committee felt that it was simply acting for the bondholders and as the committee, and that any security should be held by the depositary for the bondholders. The deed from Applebrook to Carling recited as consideration $10 and other valuable considerations, but the $10 was not paid. It recited that the conveyance was subject to all taxes, and to the foreclosure decree of November 2, 1932. The only consideration for the deed was the agreement by the committee to lease the property *497 for two years to the operating company, a company organized by the major stockholders of Applebrook, and some others. The committee agreed further that, if it was necessary to lease the property again at the*1184 end of two years, the operating company would be given the refusal on the same terms, or any better lease offer which the committee might receive from others; also that if the committee decided to sell the property for the bondholders and received a satisfactory offer, the operating company should have opportunity to equal or better such offer. It was understood between the committee and the trustee for the bondholders that Carling would use any receipts to pay back taxes.
11. On February 9, 1933, the day of the execution of the deed by Applebrook to Carling, a lease was executed between Carling and the operating company, under which the hotel was operated until December 1, 1934, at which time another lease was executed to the same company, which continued to operate the hotel until default by it on its terms, in August 1935. The operating company by the terms of the lease agreed to pay $20,000 per year plus 25 percent of room rentals over from $100,000 to $120,000, and 33 1/3 percent above $120,000, and to pay all taxes, repairs, insurance premiums, and ground rents. Provision was recited as to the option to lease, or purchase, on any terms others might offer acceptable to*1185 Carling, as hereinabove stated. The second lease, beginning December 31, 1934, provided a minimum rental of $30,000 per year and one-third of room rentals above $120,000, and provision for option to purchase at any offer from others acceptable to Carling. The leases were recited to be subject to the decree of foreclosure and possible sale thereunder.
12. The committee on March 1, 1933, reported the situation to the bondholders by circular letter or report. The report, after reciting the agreement for deed and lease, as hereinabove set forth, in part says:
* * * In the event the Committee decides to sell the property for the bondholders and receives a satisfactory offer, the Operating Company is to have an opportunity to equal or better such an offer.
All of the funds received under this lease are to be used in paying the past due taxes, Trustee's fee, Trustee Attorney's fee and to rebuild the Sinking Fund in the hands of the Trustee. * * *
The Committee of course, unless prevented by conditions beyond its control, hopes to effect a satisfactory sale or reorganization of the property and securities before the two year period is up, and will in either case submit the matter*1186 to the bondholders before they take action.
We feel the course we have adopted is the wisest and most economical one for the bondholders. If we had been able to borrow the $75,000.00 to complete foreclosure sale, it would have been necessary to give a first mortgage on the property as security and to pledge all income for the payment of the loan. This would have resulted in no income being available for the bondholders for four or five years.
*498 Under our present plan, there is hope of being able to work it out so that some income may be available for distribution to the bondholders in the third year unless a satisfactory sale or reorganization is effected before that time.
* * *
In conclusion, it was essential that some arrangement be made so that current taxes be cared for and funds realized for the payment of back taxes and other prior claims. Efforts were made in every direction and the plan outlined above was the best that the Committee could do at this time.
13. On May 15, 1934, a circular report was made to the bondholders by the committee, reciting in part, after referring to the report of March 1, 1933:
We stated at that time $13,500 had been paid*1187 under the lease. Up to this time we have received $46,500 including the payment already reported to you. These funds have been used to pay the following:
Then follows a list of taxes and expenses paid, totaling $45,942.05, including:
| Taxes and corporate expenses Carling Holding Company | $836.40 |
| Rogers and Towers, attorneys for Trustee, and Florida National Bank, Trustee, part payment foreclosure fees | 3,900.00 |
* * * We have received $46,500, and expect to receive next week $3,000 which will substantially reduce the arrearage in the lease. This will be applied on the ree due Rogers and Towers as demand has been made for the immediate payment of this fee in full.
A similar report was made to the bondholders July 12, 1934, containing the following: "The property is leased to the Carling Operating Company for $20,000.00 annually net to the Bondholders." On August 17, 1934, another report was made to the effect that the bondholders had voted not to accept an offer of which the report of July 12, 1934, had given notice, and stating in part:
* * * Unless a substantially higher offer is received in the future, the Committee understands it will be useless to submit*1188 it to the bondholders and will concentrate its efforts on paying up the taxes, etc., looking toward a reorganization of the property for the bondholders.
* * *
The Committee will continue to handle the property in the manner it considers to the ultimate best interest of the bondholders.
14. On August 4, 1934, the bondholders' protective committee, upon the signatures of its three members, upon a 90-day promissory note, with $740,500 Carling Hotel Co. bonds as collateral, borrowed $12,500 from the Citizens & Southern National Bank. The money was turned over to Carling, and was repaid on November 8, 1934, from receipts from the lease after partial payments. Aside from this money and rents received, Carling had no income. It never held any property other than the hotel, its furniture, fixtures, and equipment. It paid only one salary, $50 per month to the secretary. Its operating expenses consisted of telephone expenses, traveling expenses, and *499 expenses of attorneys for Carling and for the committee in the amount of $5,500.
15. After default by the operating company under the terms of its lease in August 1935, the committee requested the trustee to advertise*1189 the property for sale under the foreclosure decree. A sale set for early in October 1935 was advertised in September, and just before the sale day, Applebrook and the operating company both filed bankruptcy proceedings under section 77-B of the Bankruptcy Act. A few days later a member of the committee was appointed by the court as trustee to manage the property, and qualified October 18, 1935. Several plans of reorganization were presented, which the bondholders declined to accept and the proceedings were dismissed on June 20, 1936, by the Federal court. A member of the committee was then, on July 1, 1936, appointed receiver in the foreclosure proceedings in the state court.
16. Applebrook filed in the foreclosure action a petition for cancellation of the decree of foreclosure. Answer was filed thereto. The petition was denied by order of July 28, 1936. In the order the court in part found and recited:
It is thereupon ordered, adjudged and decreed as follows:
i. That the deed from Applebrook Hotel Company to Carling Holding Company dated Feb. 9, 1933, is a conveyance of the equity of redemption and not merely a mortgage or supplemental mortgage.
Upon the same day, *1190 the same court, in an order on a petition filed by the receiver to show cause, also held:
1. That Carling Holding Company, a corporation, referred to in said petition, is a creature of the Bondholders Protective Committee and that said Bondholders Protective Committee is a party to this suit and subject to the jurisdiction of this court.
17. On August 3, 1936, the hotel property was sold under the foreclosure decree, and was bid in by a member of the committee, in behalf of the committee. The bid was assigned to the North Florida Hotel Co., a corporation which had been organized on August 10, 1936, by the committee to take title to the property. It issued all of its stock to the committee for the benefit of the depositing bondholders. At that time the committee represented about 98 percent of the bondholders. The bonds deposited were surrendered in part payment of the purchase price upon foreclosure sale. As to those bondholders who had not deposited, a pro rata share of the sale price of the property was deposited with a special master for payment to them upon presentation of their bonds.
18. Petitioner was dissolved and a certificate of dissolution issued November 19, 1936. *1191 Its board of directors acted as trustees to settle its affairs under the law of Florida, and on its behalf in this proceeding. *500 Petitioner never declared or paid any dividends, or paid any money to the bondholders. At the time of hearing herein on February 24, 1939, petitioner's trustees owned nothing except a small bank deposit of approximately $31.
19. All receipts by the petitioner were deposited to its credit in the Citizens & Southern National Bank of Savannah, Georgia, and were paid out for taxes, foreclosure costs, including attorneys' fees, and a small amount for the expenses of the committee and organization expenses of Carling, as follows:
| 1933 | 1934 | 1935 | |
| RECEIPTS: | |||
| Account rent and taxes | $30,000.00 | $33,700.00 | $37,192.39 |
| Account loan | 12,500.00 | ||
| Total | 30,000.00 | 46,200.00 | 37,192.39 |
| DISBURSEMENTS: | |||
| Taxes for 1930, 1931, and 1932 | 24,186.27 | ||
| Taxes for 1930 and 1932 | 2,279.13 | ||
| Taxes for 1933 | 14,128.34 | ||
| Taxes for 1934 | 15,776.37 | ||
| Interest on 1932 taxes | 220.11 | ||
| Interest on loan | 124.75 | ||
| Repayment of loan | 12,500.00 | ||
| Salaries | 500.00 | 700.00 | 600.00 |
| Miscellaneous expenses | 4.33 | 112.03 | 901.18 |
| Expenses of protective committee | 66.30 | 264.48 | 1,676.05 |
| Attorney's fee relating to acquiring title | 30.50 | ||
| Attorneys' fees relating to litigation | 2,000.00 | ||
| Organization expenses | 140.93 | ||
| Payment of items constituting liens under foreclosure decree | 4,832.62 | 15,987.82 | |
| Total | 29,760.65 | 46,316.66 | 20,955.60 |
*1192 20. The only books of account maintained by the petitioner were a check book and stubs, a bank deposit book, and bank statements. It did not keep a ledger, journal, or cash book. The company was simply keeping an account of cash received and cash paid out. The Federal income tax returns were prepared by public accountants and filed for 1933, 1934, and 1935. In each the questions propounded as to "Basis of Return" were left blank, as follows:
Is this return made on the basis of cash receipts and disbursements?
If not, describe fully what other basis or method was used in computing net income.
No balance sheet was attached to any return. The respondent in the deficiency notice for 1933 denied that the return was upon the accrual basis. No statement in that regard is made in the deficiency notices for 1934 and 1935. No permission from the Commissioner to change the basis of accounting is shown. One item, that of taxes, in 1933 was accrued. Work sheets attached to a copy of the 1933 return show the $10,532.40 taxes claimed as deduction to be an accrued item. The amount is incorrect, the proper amount accruable from February 9, 1933, the date of acquisition of the property*1193 by petitioner, being *501 $14,128.34. The work sheet from which the 1934 return was prepared is captioned "Receipts and Disbursements." Some items were accrued and some were not in 1934 and 1935. The accounts and returns were neither upon a basis of accrual nor a cash basis.
OPINION.
DISNEY: The deficiencies in question are due, chiefly, to respondent's disallowance for each year of claimed depreciation deductions, on the ground that petitioner did not own a hotel in respect of which the depreciation was claimed. The respondent denied petitioner the right to deduct from gross income for the year 1933 accrued real estate taxes, because its books were not kept, in the opinion of the respondent, on the accrual basis. For the year 1935 respondent denied petitioner the right to a deduction for interest accrued under a foreclosure decree, constituting a lien on hotel property, asserting that petitioner did not assume liability for the interest.
In each proceeding an amended petition was filed, wherein petitioner claimed that respondent erred in holding that it was taxable upon the moneys received or receivable by it in respect of rent for the hotel property, and, in the*1194 alternative, claims that, if so taxable, respondent erred in failing to allow it deductions for depreciation, for interest on the foreclosure decree constituting a lien against the property, for accrued taxes on the property, and for some operating expenses in amounts set forth in the respective petitions.
Obviously the first question for consideration is whether petitioner was taxable upon the moneys involved. They were received from the operation of a hotel. Petitioner contends that respondent's view, when denying claim for depreciation, that it did not own the hotel, is a confession that the income from the hotel was not that of petitioner. We think such conclusion does not follow. Petitioner obviously might have income from property not owned by it, such as under some sort of contractual arrangement. On the other hand, the respondent is, we think, likewise in error in his contention that because petitioner is admittedly a corporate entity it follows that it is taxable upon the moneys received. Corporate entity in fact, that is, incorporation in due form of law, has often appeared in cases where the entity was ignored for tax purposes, e.g., *1195 ; ; and the very recent decision in . We must therefore ascertain whether the situation here presented requires recognition, or disregard, of corporate entity. In general, corporate entity is and must be respected. "Only in cases where there are exceptional circumstances may the separate entity of the corporation be disregarded and the courts look through form to the *502 substance." , citing , and other cases. Is this such an exceptional case? In sum, we have here a default upon nearly $1,000,000 in bonds issued by a hotel company; the formation of a hondholders' protective committee of three; inability of the committee to raise about $75,000 necessary for taxes, attorneys' fees, trustee's fees and other expenses before foreclosure could be completed and title obtained for the bondholders; demand by the committee upon the hotel company for either*1196 a receiver or title to the property in order that the income could be utilized to cut down the money required and eventually permit foreclosure; acquiescence by the hotel company in a transfer of title provided an operating lease be given to a company formed by the hotel people; disinclination of the committee to having title in their individual names; the formation of petitioner with the three members of the committee as sole stockholders with no capital paid in; a small amount of stock issued in one certificate and deposited with the bank serving as bond depositary; the passage of title to petitioner and an operating lease to those interested in the hotel company; financial assistance rendered petitioner by the committee and use of the major part of all receipts of petitioner to the discharge of taxes and expenses of the committee in the foreclosure, such as attorneys' and trustee's fees; the default of the operating company after about one and one-half years; the completion of foreclosure purchase of the property with bonds by the committee through a member; assignment of bid to a corporation formed to take title and to issue its stock in exchange for bondholders' rights; and the*1197 dissolution of petitioner.
In 112 , a corporation was duly organized with powers not dissimilar to those of petitioner, to hold title to real estate for an investment trust because of the absence from the country of the principal person concerned. As herein, the issuance of a small amount of stock was apparently perfunctory. Though there was no definite agreement that the corporation was agent or trustee for the real owner, the investment trust, the court held the corporation to be a mere conduit of profit made on resale, and not taxable thereon. The court pointed out that if the contest had been between the corporation and the investment trust, instead of a tax question, no court would have permitted the corporation to retain from the investment trust the property or the profits.
So here we think it is wholly obvious that if the petitioner, with its three stockholder-directors the same as the three members of the bondholders' protective committee, had by some good fortune, such as discovery of oil upon the hotel grounds, been able to sell the property for $2,000,000, for example, sufficient*1198 to discharge the bonds of about $1,000,000, the three committeemen, as the petitioner corporation, could *503 not have contended that the $1,000,000 surplus above debts belonged to petitioner and to them as its stockholders. The former hotel company owner was held by the local court having jurisdiction to have no further interest, its contention that its deed was by way of further security being denied. Such a profit as above supposed would therefore belong either to the bondholders whose committee had formed petitioner, or to petitioner, with the members of such committee as its stockholders. To hold the latter would be a travesty upon the law of agency or trusteeship; yet the example serves to emphasize the fact that the committee, and the petitioner corporation set up by it, was the servant of the bondholders. The local court in Florida, though apparently the committee was not a formal party to the foreclosure litigation, held that petitioner was a "creature of the Bondholders Protective Committee and that said Bondholders Protective Committee is a party to this suit and subject to the jurisdiction of this court." That the petitioner corporation was hardly more than a*1199 formality is indicated also by the fact that the three incorporators seem to disappear, receive no stock, and are immediately supplanted by the committee, the members of which receive stock certificate No. 1 and deposit it with the bond depositary. Though not holding that we are bound by the decision of the local court above mentioned, we think its pronouncement is enlightening in the situation. The petitioner corporation was in truth very plainly a mere creature of the bondholders' protective committee. Had some stranger hotel company, perhaps already organized and operating elsewhere, taken a deed to the hotel property under agreement to apply rents upon taxes, etc., as did petitioner, the situation would patently have involved no status of agency or trust, and the stranger company would have been entitled to any profits made. But that reflection only serves to show a different situation, and a different result, here.
In , a corporation was formed to hold title to property, because a title insurance company feared disastrous results of any publicity upon the fact that it had taken a great*1200 loss upon loans made upon the property through fraud of the mortgagors and others. The court called the corporation "a vehicle wherewith it [the executive committee, and officers of the insurance company mortgagee] should acquire and deal with the said properties for the insurance company", pointed out that the 14 shares of stock in the corporation were all, except a qualifying share, held by stockholders of the insurance company, that the stock was deposited with the insurance company (much as was to small amount of stock in petitioner herein deposited with the bondholders' depositary bank) and later transferred to the insurance company, that the insurance company provided money needed by the corporation (as was done by petitioner herein to the extent of *504 $12,500), that separate books were kept for the corporation, and that there was no thought in the minds of the stockholders of the corporation to profit by their holdings in the company. Herein, the petitioner's three stockholder-committeemen deposited the single certificate of stock issued to all with the bond depositary, because they "felt that anything in the way of security, and so forth, should be held by the*1201 depositary for the Bondholders." In the cited case the Board had recognized the corporate entity and its receipts as income to it. The court said that "It is difficult to reconcile this decision with the facts that gave rise to the birth of the Belhall Company [the corporation]" and pointed out that the insurance company-mortgagee, to prevent disaster, had incorporated the company "in which no third party had any stock or interest"; that substance and not form should govern; that no purpose of evading tax appeared; that the case presented the "peculiar circumstances" mentioned by ; and that, while in form there were two entities, in substance there was but one enterprise. The situation of the bondholders here is in no essential particular different from the mortgageholder insurance company in the North Jersey Title Insurance Co. case, supra.Other cases presenting strongly analogous situations which need not be analyzed are , and *1202 ; also, ; . Each case on the question rests peculiarly upon its own facts. We do not in this respect find helpful , where unusual circumstances justifying disregard of corporate entity were negatived rather than demonstrated; and in , the corporation, sought to be considered as the same entity as a partnership, had business and earnings in which the partnership in nowise participated. Other facts, not considered necessary of discussion, contribute to our conclusion that we have here a markedly peculiar situation requiring placing this proceeding in that category of decisions where corporate entity is subordinated to substance. We therefore conclude and hold that the sums received by petitioner and involved herein were received by it as a mere conduit or agent, and do not comprise income to petitioner.
In the light of this conclusion, it is unnecessary to pass upon the alternative*1203 questions presented. However, it is plain that the formation of petitioner and transfer of its stock to the committee did not effect a reorganization. The bondholders did not surrender anything to petitioner. On the contrary, they retained their bonds, purchased the property at the foreclosure sale with them, and apparently participated in a reorganization, since after the foreclosure sale it appears, though the evidence is incomplete, that a new *505 corporation, the North Florida Hotel Co., was formed on August 10, 1936, to take title to the property, and issued all its stock to the committee for the benefit of the depositing bondholders. It thus appears that there was no reorganization at any earlier date.
Reviewed by the Board.
Decision of no deficiency will be entered.
STERNHAGEN, dissenting: This decision is a strange anomaly. The petitioner is recognized as a taxpayer who may file a petition based upon a deficiency notice arising from its own return, but it may not be required to pay the tax upon its properly computed income. Why not? It was voluntarily conceived and organized and no doubt paid taxes to the state. It owned property, *1204 collected rents, and later conveyed the property. These facts denote vitality as a landlord; why not as a taxpayer? See People ex rel. Waclark Realty Co. v. Williams,198 N.Y. 54">198 N.Y. 54; 91 N.E. 266">91 N.E. 266. To characterize the corporation as a conduit or an agency or an instrument does not affect its status under the tax law, for every corporation is essentially that. The significant question under the revenue act is whether the corporation has income for the year. If there is income, the United States taxes it and the Board can offer no sanctuary.
MELLOTT and OPPER agree with this dissent.