*1821 1. Petitioners were stockholders in two corporations that were consolidated into a new corporation. Upon the record, held, both in substance and in form petitioners exchanged stock in the old corporations for stock and securities in the new, and then, in a separate transaction, sold part of the stock and securities in the new corporation. The intermediate step can not be ignored in computing the tax liability resulting from the reorganization.
2. Petitioners reported on the cash receipts and disbursements basis. A part of the consideration (cash) for the sale of the new stock and securities was not received by them until the year following the year the sale took place. Held, that only the cash actually received in the taxable year should be taken into consideration in computing the profit realized upon the sale in that year. Charles C. Ruprecht,16 B.T.A. 919">16 B.T.A. 919, and A. W. Henn,20 B.T.A. 1133">20 B.T.A. 1133, followed.
*805 These proceedings, which were consolidated for hearing and decision, *1822 are for the redetermination of deficiencies in income taxes for the calendar year 1925, as follows:
| Petitioner | Docket No. | Deficiency |
| W. A. Hoult | 39868 | $1,149.74 |
| Arline M. Hoult | 39869 | 12,187.53 |
| Bertha Hoult Dregge | 39870 | 12,187.53 |
| Florence L. Hoult | 39887 | 13,938.56 |
| Edward Henry Idema | 39888 | 3,249.01 |
| Chauncey H. Fisher | 39975 | 1,004.40 |
| Estate of W. A. Bowen | 40168 | 4,498.42 |
| J. Hampton Hoult | 45364 | 18,117.31 |
| Martin J. Dregge | 45365 | 21,212.72 |
Petitioners were stockholders in two corporations that were consolidated into a new corporation. The petitioners, as amended, assign three errors, namely, (1) in regarding the transaction as an exchange of stock for stock and cash, instead of an exchange of stock for stock and bonds, and the sale by petitioners of part of their stock and all of their bonds in the new company; (2) in using incorrect costs and sales proceeds; and (3) in including in the amount received and taxable for 1925, amounts not actually received until 1926.
The facts were stipulated, in which stipulation the errors complained of in assignment number (2) were corrected. This leaves for our consideration only the first and third assignments*1823 of error.
FINDINGS OF FACT.
During the taxable year 1925, W. A. Bowen, now deceased, and the remaining eight petitioners were all individuals and stockholders of either the Luce Furniture Company or The Furniture Shops, which were two michigan corporations engaged in the manufacture *806 and sale of furniture, with their respective principal offices located in Grand Rapids, Mich.
On October 27, 1925, the stockholders of the Luce Furniture Company and The Furniture Shops, hereafter referred to as the "old companies," signed a mutual agreement among themselves to organize under the laws of the State of Michigan a new corporation, which when organized became known as The Luce Durniture Shops and is referred to hereafter as the "new company." According to the agreement the new company was to have an authorized nonvoting 7 per cent preferred capital stock of $3,000,000 and 50,000 shares of non-par value voting stock. The new company was to acquire substantially all the common stock of the old companies "by exchanging therefor its own securities on substantially the following basis: approximately 33,500 shares of non-par value stock at the agreed value of $35 per share, *1824 approximately 9,000 shares of preferred stock of the par value of $100 per share at the agreed value of $90 per share, and the par amount of first mortgage bonds of the new company at the agreed value of 92 1/2 per cent of their par value, to make a total agreed value of $2,375,000."
The October 27, 1925, agreement also provided that each party to the agreement would transfer, convey and deliver to the new company on demand his or her entire common stockholdings in the old companies and receive in full consideration therefor his or her due proportion (determined in the manner therein provided) of the securities of the new company of the agreed value of $2,375,000. The agreement then contained the following provisions:
We hereby authorize the new corporation or its organizers acting on our behalf, to sell all of the securities to be received by us respectively as herein provided, excepting and reserving 25,000 shares of non-par value stock of the new company, at a price of not less than $35 per share for the non-par value stock, $90 per share for the preferred stock and 92 1/2 per cent of par for the bonds, and to remit to the undersigned the proceeds of the sale of the securities*1825 issuable to each of us * * *.
On October 26, 1925, petitioner J. Hampton Hoult and petitioner Martin J. Dregge, acting for themselves and all the other stockholders of the old companies, signed an agreement with Howe, Snow & Bertles, Inc., a Michigan corporation, hereafter referred to as the "Bankers." That part of the agreement which is material here is as follows:
Said stockholders agree that said Companies shall be organized or consolidated into one corporation (herein sometimes referred to as the "Consolidated company"), which will acquire substantially all of the capital stock, and will eventually acquire all of the assets of every kind, of both of said Companies and will assume their liabilities, except that capital liabilities will be modified so that the capital structure of the Consolidated Company will be substantially as follows:
| Character of security | Amount authorized | Amount outstanding |
| First-mortgage 6 1/2 per cent sinking-fund gold bonds | $3,000,000 | $1,600,000 |
| 7 per cent cumulative, quarterly dividend, prior lien preferred stock | $3,000,000 | $750,000 |
| Nonpar value voting common stock (shares) | 50,000 | 31,250 |
*807 * * *
Upon the*1826 performance of the obligations of said Stockholders and the Consolidated Company hereunder the Stockholders will sell or cause to be sold, and the Bankers agree to purchase One Million Five Hundred Thousand Dollars ($1,500,000) par amount of said bonds, more or less, (but not more than $1,600,000, nor less than the amount approved by the Michigan Securities Commission), and Eight Hundred Fifty Thousand Dollars ($850,000) par amount of said preferred stock, more or less, but not to exceed $1,000,000 par amount, (the total par amount - subject to the limitations of the Securities Commission - of said bonds and preferred stock so sold and purchased being agreed upon as $2,350,000); and Three Thousand Seven Hundred Fifty (3,750) shares of said non-par value stock, plus the number of shares thereof equal to one-half of the number of shares of said preferred stock of the par value of $100 each. In case the number of shares of non-par value stock to be purchased under this contract shall exceed 6,250, then the number of shares equal to such excess shall be taken from the 18,750 shares of unissued stock, increasing the 31,250 shares of issued stock by an equal amount.
The price paid by*1827 said Bankers for said securities is as follows:
| First Mortgage Bonds | 92 1/2 plus accrued interest. |
| Prior Lien Preferred Stock | $90 per share plus accrued dividends. |
| Non-par value stock | $35 per share. |
Payment of one-half of the total purchase price of said securities shall be made by said Bankers when the same are ready for delivery * * *. Delivery of securities designated by the Bankers and paid for as above provided shall be made upon the tender of payment; and one-third of the balance of the purchase price shall be made within Thirty (30) days after said first payment; one-third within Sixty (60) days; and all of the balance on or before Ninety (90) days. As respective payments are made the Bankers shall be entitled to securities so paid for and designated by them.
On November 3, 1925, the incorporators of the proposed new company held an organization meeting and among other things adopted by unanimous vote the following resolution:
RESOLVED that after the completion of the organization of this corporation the Board of Directors be and it hereby is authorized to issue approximately Nine Thousand (9,000) shares of preferred Stock at $90 per share and*1828 approximately Eighty-two Hundred and Fifty (8250) shares of Non-Par Value Stock at $35 per share, or at such other price per share as the Michigan Securities Commission shall fix for said stocks, in addition to the twenty-five thousand (25,000) shares to be subscribed in the Articles of Association, to the former stockholders of The Luce Furniture Company and The Furniture Shops of Grand Rapids in exchange for the stocks of said corporations acquired by this company and to issue First Mortgage Bonds of this company in the par amount of approximately Four Hundred Thirty-five Thousand Dollars ($435,000) at the agreed price of 92 1/2 per cent to make up the balance of securities to be *808 received by said stockholders in accordance with the understanding with the organizers of this company.
On November 7, 1925, the common stockholders of the old companies transferred their stock to the new company.
On November 9, 1925, the board of directors of the new company held a special meeting, at which it was announced that the new company was then the owner of the entire capital stock of the old companies, whereupon a resolution was adopted to take over all the assets and assume*1829 all the liabilities of the old companies. The directors also authorized the mortgaging of all the real estate of the new company in a principal amount of not to exceed $3,000,000. The minutes of this meeting also record the adoption of the following resolution:
RESOLVED FURTHER that the President and Secretary be and they hereby are authorized to issue and dispose of said bonds in a par amount not exceeding approximately $1,500,000 when executed and certified by the Trustee, the price to be received for the same to be par less 7 1/2% to net this company 92 1/2%; issuing and delivering approximately Four Hundred Thirty-five Thousand Dollars ($435,000) par amount of said bonds to the former stockholders of The Luce Furniture Company and The Furniture Shops of Grand Rapids, and the remainder thereof to Howe, Snow & Bertles, as provided in the underwriting writing contract of October 26, 1925, which contract is hereby approved and adopted by this company so far as it relates to the remainder of said bonds after providing for the securities necessary to make the exchange with the former stockholders of the old companies, subject to approval of the Michigan Securities Commission.
*1830 RESOLVED FURTHER that the President and Secretary of this corporation be and they hereby are authorized and instructed to act on behalf of the former stockholders of the old companies as requested by them in selling securities, namely, Preferred Stock Non-Par Value Stock and Bonds, issuable to them respectively on account of the acquisition of the stock of the two old companies as provided and contemplated by said underwriting agreement.
On November 17, 1925, the new company issued directly to the stockholders of the old companies 25,000 shares of no par value common stock, and delivered to the Bankers the certificates for the common and preferred stocks and bonds to be sold by the Bankers in accordance with the above mentioned agreement of October 26, 1925. All the funds resulting from the sale of such securities of the new company were paid by the Bankers to the new company. The first payment was made on December 8, 1925. As soon as the funds were received by the new company from the Bankers the new company immediately paid them over to the respective stockholders of the old companies as provided for in the above quoted paragraph of the October 25, 1925, agreement.
The*1831 following journal entries are taken from the journal of the new company as having been recorded by it on November 2, 1925:
| Debits | Credits | |
| Stock in Other Corporations | $3,054,461.21 | |
| No-Par Value Stock Outstanding | $875,000.00 | |
| Paid-in Surplus | 679,794.54 | |
| Luce Furniture Co. Stockholders | 1,105,458.45 | |
| Furniture Shops Stockholders | 394,208.22 | |
| To record the acquisition of all of the outstanding common stock of the Luce Furniture Co. and of The Furniture Shops in exchange for 25,000 shares of no-par value stock of The Luce Furniture Shops having a declared value of $35.000 per share, Plus an amount of $1,499,666.67 to be paid to the Stockholders of The Luce Furniture Co. and The Furniture Shops which amount is the net proceeds of all of the securities to which the Stockholders became entitled, exclusive of the above 25,000 shares, which securities have been sold to Howe, Snow & Bertles, Bankers for the account of the Stockholders. | ||
| Howe, Snow & Bertles | 2,440,000.00 | |
| Preferred Stock Discount | 90,000.00 | |
| Unamortized Bond Discount | 108,750.00 | |
| Preferred Stock Outstanding | 900,000.00 | |
| First Mortgage Gold Bonds | 1,450,000.00 | |
| No Par Value Stock Outstanding | 288,750.00 | |
| To record the sale of the following securities to Howe, Snow & Bertles: | ||
| 9,000 shares Preferred Stock at 90. | ||
| $1,450,000 First Mortgage Bonds at 92 1/2. | ||
| 8,250 shares no-par value stock at $35.00 per share. | ||
| Luce Furniture Co. Stockholders | 1,105,458.45 | |
| Martin J. Dregge | 270,654.27 | |
| J. Hampton Hoult | 224,224.25 | |
| John Hoult Estate | 203,028.75 | |
| Arline M. Hoult | 184,260.61 | |
| Bertha Hoult Dregge | 184,260.61 | |
| Chauncey H. Fisher | 16,223.71 | |
| Florence L. Hoult | 12,523.68 | |
| C Bennett Ainsworth, Trustee | 4,411.95 | |
| Henry Idema | 4,038.25 | |
| Edward J. Gamble | 1,458.82 | |
| John Berghuis | 373.45 | |
| To segregate liability to Luce Furniture Co. Stockholders. | ||
| Furniture Shops Stockholders | 394,208.22 | |
| Martin J. Dregge | 124,476.70 | |
| J. Hampton Hoult | 124,476.70 | |
| W. A. Bowen | 61,932.51 | |
| E. H. Idema | 36,034.18 | |
| Wm. A. Hoult | 16,881.08 | |
| Allan B. Sohus | 16,881.08 | |
| Otto A. Ohland | 5,627.10 | |
| C. P. Markhoff | 4,508.74 | |
| Henry Idema | 3,390.13 | |
| To segregate liability to Furniture Shops Stockholders |
*1832 *809 The holders of common stock of the old companies and the number of shares held by each were as follows:
| Common stock | ||
| Stockholder | Luce Furniture Co. | Furniture Shops |
| J. Hampton Hoult | 2,434 | 1,105 |
| Martin Dregge | 2,938 | 1,105 |
| John Hoult Estate | 2,204 | |
| Arline M. Hoult | 2,000 | |
| Bertha Hoult Dregge | 2,000 | |
| Florence L. Hoult | 136 | |
| Chauncey H. Fisher | 176 | |
| C. Bennett Ainsworth, Trustee | 48 | |
| Henry Idema | 44 | 30 |
| Edward J. Gamble | 16 | |
| John Berghuis | 4 | |
| W. A. Bowen | 550 | |
| E. H. Idema | 320 | |
| W. A. Hoult | 150 | |
| A. B. Sohus | 150 | |
| C. P. Markoff | 40 | |
| Otto A. Ohland | 50 | |
| Total | 12,000 | 3,500 |
All the common stock held by W. A. Bowen and the remaining petitioners in the old companies was acquired by them prior to the year 1922.
*810 The following schedule shows (a) the cost to petitioners of their holdings of common stock in the old companies immediately prior to the consolidation, (b) the total cash received by petitioners in 1925 pursuant to the contracts and resolutions above mentioned, (c) the total cash received by petitioners in 1926 pursuant to the same contracts and resolutions, and (d) the number of shares of no par value common*1833 stock in the new company the petitioners had remaining after said contracts and resolutions were carried out.
| Petitioner | (a) | (b) | (c) | (d) |
| W. A. Hoult | $15,000.00 | $10,346.00 | $6,535.08 | 282 |
| Arline M. Hoult | 156,250.00 | 183,450.00 | 810.61 | 3,071 |
| Bertha Hoult Dregge | 156,250.00 | 187,100.00 | None. | 3,071 |
| Florence L. Hoult | 8,808.33 | 8,700.00 | 3,823.68 | 209 |
| Edward Henry Idema | 9,000.00 | 24,750.00 | 11,284.18 | 601 |
| Chauncey H. Fisher | 6,000.00 | 11,100.00 | 5,123.71 | 270 |
| W. A. Bowen Estate | 56,000.00 | 60,750.00 | 1,182.51 | 1,033 |
| J. Hampton Hoult | 228,253.90 | 294,100.00 | 54,600.95 | 5,812 |
| Martin J. Dregge | 266,012.90 | 319,166.69 | 75,964.38 | 6,586 |
The following schedule shows (e) the fair market value of the no par value common stock of the new company appearing in column (d) above at $35 per share, (f) the taxable income reported by petitioners as resulting from the actions taken in respect of the contracts and resolutions above mentioned, and (g) the taxable income in that respect determined by the respondent in arriving at the deficiencies here in question.
| Petitioner | (e) | (f) | (g) |
| W. A. Hoult | $9,870.00 | $7,403.18 | $16,881.08 |
| Arline M. Hoult | 107,485.00 | 86,760.37 | 184,260.61 |
| Bertha Hoult Dregge | 107,485.00 | 86,760.37 | 184,260.61 |
| Florence L. Hoult | 7,315.00 | 104,043.96 | 215,552.43 |
| Edward Henry Idema | 21,035.00 | 11,840.00 | 36,034.18 |
| Chauncey H. Fisher | 9,450.00 | None. | 16,223.71 |
| W. A. Bowen Estate | 36,155.00 | 26,944.50 | 61,932.51 |
| J. Hampton Hoult | 203,420.00 | 213,470.81 | 348,700.95 |
| Martin J. Dregge | 230,510.00 | 194,292.64 | 395,131.07 |
*1834 The income-tax returns of petitioners for the taxable year 1925 were prepared on a cash receipts and disbursements basis.
OPINION.
LOVE: The ultimate question in these proceedings is to determine the amount of taxable income that should have been included in petitioners' income-tax returns for the calendar year 1925 as a result of their transactions in connection with the consolidation of the two old companies into the new company.
The respondent has admitted that in his determinations he used incorrect costs and in some cases incorrect proceeds, which errors have all been corrected in the stipulation of facts filed by the parties. *811 It should be noted at the outset, however, that the stipulation is not specific as to whether petitioners acquired their stock in the old companies before or after the adoption of the Sixteenth Amendmend to the Constitution. It merely recites that the stock in the old companies was acquired "prior to the year 1922." But this apparent omission is not fatal in the instant proceedings for the reason that if the old stock had been acquired prior to March 1, 1913, the value on that date would be used as a basis for determining gain or*1835 loss only if it were greater than cost. Section 204(b). Revenue Act of 1926. And if that were a fact, since petitioners are not claiming any loss, the only result would be a smaller gain than that now contended for by petitioners. Both parties have used cost as a basis, and, we will, therefore, assume that to be the proper basis, for if a more favorable basis were available to petitioners, it must be assumed they would have so pleaded.
Upon the basis of the foregoing assumptions the applicable sections of the Revenue Act of 1926 (with italics supplied) are as follows:
SEC. 202. (a) Except as hereinafter provided in this section the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis provided in subdivision (a) or (b) of section 204 * * *
SEC. 202. (c) The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received.
SEC. 202. (d) In case of a sale or exchange, the extent to which the gain or loss determined under this section shall be recognized for the purposes of this*1836 title, shall be determined under the provisions of section 203.
SEC. 203. (a) Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 202, shall be recognized, except as hereinafter provided in this section.
SEC. 203. (b) (2) No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
SEC. 203. (d) (1) If an exchange would be within the provisions of paragraph (1), (2), or (4) of subdivision (b) if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
SEC. 203. (h) As used in this section and sections 201 and 204 -
(1) The term "reorganization" means (a) a merger or consolidation*1837 (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation) * * *
(2) The term "a party to a reorganization" includes a corporation resulting from a reorganization and includes both corporations in the case of an *812 acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation.
SEC. 204. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that -
SEC. 204. (a) (6) If the property was acquired upon an exchange described in subdivision (b), (d), (e) or (f) of section 203, the basis shall be the same as in the case of the property exchanged * * *.
The respondent contends that in substance there was but one transaction, namely, the exchange of old stock for new no par value stock and cash, and that under section 203(d)(1) *1838 gain should be recognized in 1925 to the extent of the cash received in 1925 and 1926. On the other hand, petitioners contend that both in form and in substance there were two transactions - (1) an exchange of old stock for new no par value stock, preferred stock and bonds, and then (2) a sale of all the preferred stock and bonds and part of the no par value stock for cash, part of which was received in 1925 and part in 1926; that under section 203(b)(2) neither gain nor loss should be recognized on the first transaction; and that the second transaction is controlled by section 204(a)(6).
In order to more concretely illustrate the contentions of the parties we will set forth the computations of gain contended for by each party as they apply to petitioner W. A. Hoult. The computations as to the other petitioners would in principle be the same. The necessary facts, taken from our findings, to make such computations are the following:
| Cost of old stock to Hoult | $15,000.00 |
| Cash received by Hoult in 1925 | 10,346.00 |
| Cash received by Hoult in 1926 | 6,535.08 |
| Number of shares of new no par value stock Hoult had remaining after the contracts and resolutions were carried out | 282 |
| Fair market value of the 282 shares at time of receipt in 1925 | $9,870.00 |
*1839 According to the respondent's contentions petitioner W. A. Hoult's taxable gain in 1925 would be $11,751.08, computed as follows:
| Only one transaction: | |
| Amount realized [sec. 202(c)]: | |
| Cash received in 1925 | $10,346.00 |
| Cash received in 1926 | 6,535.08 |
| Total cash received | 16,881.08 |
| Fair market value 282 shares new no par value stock | 9,870.00 |
| Total amount realized | 26,751.08 |
| Deduct: Basis [sec. 204(a)]: | |
| Cost of old stock | 15,000.00 |
| Gain [sec. 202(a)]: | 11,751.08 |
*813 Respondent says section 203(d)(1) is applicable and that under this section the entire gain of $11,751.08 should be recognized since it is less than the total cash received in both years of $16,881.08.
According to petitioner's contention his taxable gain in 1925 would be $880.36 computed as follows:
| First transaction: | |
| No gain [sec. 203(b)(2)] | |
| Second transaction: | |
| Amount realized [sec. 202(c)]: | |
| Cash received in 1925 | $10,346.00 |
| Deduct: Basis [sec. 204(a)(6)]: | |
| Cost of old stock $15,000 allocated: | |
| (See 21 B.T.A. 629) | |
| $5,534.36 to new stock received that was not sold, and $9,465.64 to new securities received that were sold | 9,465.64 |
| Gain [sec. 202(a)] | 880.36 |
| Taxable gain 1925 [sec. 203(a)] | 880.36 |
*1840 We agree with petitioners' contention that both in form and in substance there were two transactions, first, an exchange of old stock for new no par value stock, preferred stock and bonds, and, second, a sale of all the preferred stock and bonds and a part of the no par value stock for cash, part of which was received in 1925, and part in 1926. The entire record supports that conclusion. The agreement of October 27, 1925, specifically provided that the new company should acquire the stock of the old companies "by exchanging therefor its own securities"; and that each stockholder would deliver his old stock to the new company "and receive in full consideration therefor his or her due proportion of the securities of the new company of the agreed value of $2,375,000." In the agreement of October 27, 1925, the stockholders of the old companies specifically authorized "the new corporation or its organizers" to act on their behalf and "sell all of the securities to be received by us respectively as herein provided, excepting and reserving 25,000 shares of non-par value stock of the new company, at a price of * * * and to remit to the undersigned the proceeds of the sale of the securities*1841 issuable to each of us * * *." The agreement of October 26, 1925, with the Bankers was to the same effect. It provided that "the stockholders (of the old companies) will sell or cause to be sold and the Bankers agree to purchase, etc." The resolution of the board of directors of the new company adopted November 9, 1925, provided that the president and secretary of that company "be and they are hereby authorized and instructed to act on behalf of the former stockholders of the old companies as requested by them in selling" a part of the new securities issuable to them. The respondent, in his brief, argues *814 that, since petitioners did not physically receive the securities that were sold to the Bankers, we should find that "at no time was there any intention that the stockholders of the old companies have in their possession or control any of the securities of the new company other than the 25,000 shares of no-par value stock." This would be contrary to the agreements and resolutions set out in our findings and already referred to in this opinion. It was not necessary for petitioners to physically receive the securities that were sold. The appointment of an agent to*1842 receive the securities and sell them for petitioners' account was sufficient. Both in form and in substance this is what was actually done.
The last assignment of error concerns the cash received in 1926. Petitioners contend that since they reported on the cash receipts and disbursements basis; that since cash was the consideration to be paid by the Bankers; and that since part of the cash was not received until 1926, under our decisions in , and , only the cash received in 1925 should be considered in the "amount realized" in determining the taxable gain for the year 1925 under section 202(a) and 203(a) of the Revenue Act of 1926, supra. In the Ruprecht case we said:
We do not consider, however, that the respondent's views with respect to the deferred payments are correct, for the reason that the obligation of the Standard Oil Co. to pay was not so evidenced that it could have been converted into cash, the only record thereof being in the deed of conveyance signed by the grantors. There was no contract in writing and no vendors' lien nor notes of any description which could*1843 have been discounted at the bank. In short, the obligation of the Standard Oil Co. amounted to nothing more than a mere noninterest-bearing account receivable.
The facts in the Henn case, supra, are also analagous to the facts in the instant proceedings. In that case petitioner reported on the cash basis. He and another jointly sold certain leaseholds to a corporation in 1923 and received part of the consideration in 1923 and the balance in 1924. The balance of the consideration was not represented by promissory notes or other evidences of indebtedness. We determined the profit on the sale of the leaseholds as follows:
| 1923 | 1924 | |
| Consideration received | $60,859.53 | $23,505.04 |
| Cost of leaseholds | 34,646.16 | |
| Profit on sale of leaseholds | 26,213.37 | 23,505.04 |
And in our opinion we said:
Based upon the evidence and the admissions of counsel for the respondent at the hearing, there are findings of fact that the net incomes reported by the *815 petitioner in his returns for 1923 and 1924 were computed upon the cash receipts and disbursements basis, and that the respondent's determination of deficiencies for those years is based upon net incomes*1844 computed upon the same basis. Under these findings, it is clear that the respondent erred in holding that the entire profit from the sale of the Hatch and Dagleisch leaseholds was realized in 1923, because a substantial part of the consideration involved in that transaction was not received until 1924.
In the instant proceedings a portion of the new securities was sold for cash as the consideration to be received. A substantial part of this consideration was not received until the following year. Petitioners reported on the cash receipts and disbursements basis. Only the cash received in 1925 should be considered as "realized" in determining the gain taxable to petitioner for the year 1925. ;
The deficiencies should be redetermined in accordance with the foregoing findings and opinion.
Judgment will be entered under Rule 50.