*3747 A national bank desiring to form a trust company to perform certain functions which were prohibited by its charter, secured agreements from a majority of its stockholders that in the event of the declaration of a cash dividend, such stockholders would allow the dividend to be used in payment for stock in the trust company to be formed. The dividend was declared and the amount thereof, in so far as assented to by a majority of the stockholders, was used in payment for stock in the trust company. Held, that the dividend constituted taxable income to the stockholders.
*659 The Commissioner determined a deficiency in income tax of $3,766.91 for the year 1924. The issue is whether the petitioner received a taxable dividend in 1924 when a dividend was declared by the National Bank of Commerce in connection with a proposed plan for the formation of a trust company, which plan had previously been approved by a majority of the stockholders of the bank *660 in their individual capacities and under which plan those*3748 accepting it obligated themselves to allow the dividends to which they were entitled to be used in payment for stock in the trust company. The facts are stipulated.
FINDINGS OF FACT.
At all the times hereinafter mentioned, the National Bank of Commerce of St. Louis, Mo., was a corporation organized under the National Banking Act and operating a national bank in the City of St. Louis, Mo. It had outstanding $10,000,000 in par value of capital stock, divided into 100,000 shares of the par value of $100 each. Petitioner was president of said bank, owning 1,410 shares.
Said National Bank of Commerce was advised that as a national bank it could not engage in various financial endeavors advantageous for banks to undertake and in which state banks and trust companies may freely engage and, feeling that the National Banking Act so restricted its endeavors that it was handicapped in competing with said banks and trust companies, said National Bank of Commerce in the year 1923 concluded that it would be advantageous to its business to organize a Missouri corporation to engage in the business in which it was restricted or handicapped by the National Banking Act and the rules and regulations*3749 promulgated thereunder. Thereupon the National Bank of Commerce, through its president and acting under authority of its board of directors, under date of June 18, 1923, addressed the following circular letter to all of its stockholders advising them of its purpose to organize and setting forth its plan for the organization of a new company.
As you know, we have established a Savings Department which now has nearly 50,000 depositors, with total deposits of over eight millions. We have also put in a Bond Department which is doing a very satisfactory business By special permission of the Federal Reserve Board, the bank qualified to act in a fiduciary capacity, and our Trust Department is now handling a large volume of trust matters. We have also taken over and are now operating our Safe Deposit Vaults.
There are, however, some financial matters that cannot be transacted through a National Bank, and yet are allied with commercial banking so closely that we have realized for some time the necessity of having a way to take care of this business. And so, at a recent meeting of the Board of Directors, the officers of the bank were directed to formulate a plan for creating a company*3750 to be called Commerce Company or some other suitable name which will have the power of dealing in all kinds of securities, including first mortgage on real estate, real estate, and other matters of like character, it being the purpose that the charter of this company shall be broad enough to enable the company to supplement the service now performed by the bank.
The new company is to be owned by the stockholders of the bank in proportion to their holdings of stock in the bank. We have examined a number of different plans that have been adopted by national banks throughout the *661 country, and have concluded that the best is that known as the Chicago plan. Under this plan, the directors of this bank will declare a 10% cash dividend, amounting to a million dollars, and the stockholders will be asked to subscribe for stock in the new company in an amount equal to this dividend and authorize the committee to apply the proceeds in payment of their stock in the new company. In this way, each subscribing shareholder in the bank will have one-tenth of a share of fully paid stock in the new company for each share of stock in the bank.
Believing that the interests of the stockholders*3751 of this bank will best be served if their interests in the bank and the new company are kept identical, the plan of organization provides that the stock in the new company shall be held by the trustees named in the agreement for the benefit of the subscribers, except a few shares that may be necessary for the directors to qualify. While such trust continues, the beneficial interest in the stock of the new company deposited with the trustees will pass with the transfer of the stock in this bank.
Each stockholder, therefore, is requested to sign the enclosed acceptance and power of attorney so that the new company may be promptly organized and put in operation. The gentlemen named in the power of attorney are directors and large stockholders in the bank.
Inclosed with the letter was a form of acceptance of the plan addressed to the president of the bank and power of attorney, which form of acceptance follows:
Replying to your circular letter of June 18th, 1923, in which you refer to a proposition and plan to form a new company to be called "Commerce Company" or some other suitable name the undersigned hereby accepts and approves such proposition and plan.
The undersigned*3752 hereby designates and appoints W. Frank Carter, Chas. Rebstock and John Strauch, jointly and severally, a Committee, and hereby vests in said Committee jointly and severally full right, power and authority for and on behalf and in the name of the undersigned, to do anything they or either of them deem proper and desirable to consummate and carry into effect the above or any similar proposition and plan, and to deposit the shares of stock and certificates representing the same, of said new company in trust with Trustees, all the terms and provisions of the agreement creating said trust and of the charter of the new company, to be such as said committee jointly or severally shall determine. And said committee shall for me have the authority and power to receive the ten per cent (10%) dividend when declared by the National Bank of Commerce in St. Louis, and to use the same to pay my interest in full in the company to be organized and called Commerce Company, or some other suitable name. And said committee jointly or severally is hereby given full right, power and authority to do everything in the premises that said committee jointly or severally shall deem fit or proper, hereby ratifying, *3753 confirming and approving everything that said committee jointly or severally shall do under or by virtue hereof.
Prior to January 2, 1924, stockholders, including petitioner, owning in excess of 80 per centum of the stock of the National Bank of Commerce, to wit, 93,820 shares of its stock, out of a total of 100,000 shares outstanding on that date, had signed acceptance and power of attorney and filed it with the National Bank of Commerce.
*662 January 2, 1924, the board of directors of the National Bank of Commerce adopted a resolution in the following words, to wit:
WHEREAS, response to the June 18th, 1923 circular letter of the President to the stockholders indicates that the formation of the new "COMMERCE COMPANY" (The name of which has been determined to be "NATIONAL COMMERCE COMPANY") is generally favored, and
WHEREAS, the capital of this bank is $10,000,000.00, its surplus $2,000,000 and its undivided profits in excess of $3,000,000, and said $2,000,000 surplus was accumulated in the years and in the amounts following:
| 1889 | $100,000.00 | Original | $100,000.00 |
| 1890 | 500,000.00 | Added making | 600,000.00 |
| 1899 | 400,000.00 | Added making | 1,000,000.00 |
| 1902 | 400,000.00 | Added making | 1,400,000.00 |
| 1907 | 600,000.00 | Added making | 2,000,000.00 |
*3754 and no part of said surplus has ever been reduced, and
WHEREAS, it is desired to declare a special $1,000,000 ten per cent, dividend from a "Special $1,000,000 Dividend Account" of undivided profits to be drawn from surplus, and it is desired in drawing said $1,000,000 from the present 20% surplus of $2,000,000 that the surplus be not reduced below the required $2,000,000 and the only way that result can be had is by increasing surplus $1,000,000 from undivided profits before, rather than after, the $1,000,000 is withdrawn from said $2,000,000 surplus to said "Special $1,000,000 Dividend Account," and
WHEREAS, the purpose of said special dividend is that each stockholder so minded may, with said dividend, cause the payment in full of his interest in said "NATIONAL COMMERCE COMPANY,"
NOW, THEREFORE, IT IS RESOLVED, That $1,000,000 of undivided profits be transferred to surplus, making total surplus $3,000,000, so that when said 10% dividend is transferred from the said surplus of $2,000,000 to said "Special $1,000,000 Dividend Account," the surplus may not be reduced below the required 20% or $2,000,000, and that a "Special $1,000,000 Dividend Account" of undivided profits be*3755 and is hereby established to receive $1,000,000 from the said $2,000,000 of surplus for said special dividend for said "NATIONAL COMMERCE COMPANY."
AND IT IS FURTHER RESOLVED, That a special $1,000,000 10% dividend as of this date be and is hereby declared from said "Special $1,000,000 Dividend Account" of undivided profits drawn as above from said surplus in order that each stockholder so minded may with such dividend cause the payment in full of his interest in said "NATIONAL COMMERCE COMPANY."
Eventually stockholders of the National Bank of Commerce owning 98,178 shares of the stock of the bank, out of a total of 100,000 shares outstanding, signed the acceptance and power of attorney and thereby agreed that the dividend payable upon their stock might be used to pay up the stock of the new company.
The new company, contemplated by the above-described plan and called the National Commerce Co. in the resolution of the board of directors of the National Bank of Commerce, dated January 2, 1924, was incorporated under the laws of Missouri as the Federal Commerce Trust Co., with an authorized capital stock of $800,000 and a *663 paid-in surplus of $181,780. The 10 per cent*3756 dividend declared by the National Bank of Commerce upon all its stock held by persons who signed said power of attorney (including petitioner's stock) was paid by it to W. Frank Carter, Charles Rebstock, and John Strauch, the committee named in the acceptance and power of attorney, and was used by them to pay for the stock of the Federal Commerce Trust Co.
January 9, 1924, attorneys for the stockholders of the National Bank of Commerce, who subscribed to the acceptance and power of attorney, entered into a trust agreement with John G. Lonsdale, W. L. Hemingway, W. B. Cowen, David Sommers, and L. N. Moffitt, as trustees, and there was deposited with these trustees all of the stock of the Federal Commerce Trust Co., including the stock paid for with the dividend upon petitioner's stock in the National Bank of Commerce, to hold the same during the continuance of said trust and in the manner provided therein. The trust agreement has been in full force and effect since the execution thereof. The trust agreement follows:
AGREEMENT, Made at St. Louis, Missouri, dated as of the ninth day of January, 1924, between John G. Lonsdale, W. L. Hemingway, W. B. Cowen, David Sommers, and N. *3757 L. Moffitt, hereinafter called the Trustees, and W. Frank Carter, Charles Rebstock and John B. Strauch, as a committee representing certain stockholders of National Bank of Commerce in St. Louis, hereinafter called the Bank.
WHEREAS, the Bank has heretofore declared a ten per cent (10%) dividend of $1,000,000.00, upon its capital stock issued and outstanding; and,
WHEREAS, the great majority of its stockholders have through said Committee caused the same to be devoted to the payment of the capital and surplus of the Federal Commerce Trust Company, a corporation organized under the laws of Missouri, hereinafter called Trust Company; and,
WHEREAS, it is desired that the beneficial ownership of said shares of the Trust Company should be evidenced by and transferred only as appurtenant to the shares of stock of those shareholders of the Bank who have contributed thereto; and,
WHEREAS, it is believed that the interest of all said stockholders will be greatly benefited by entering into said agreement; and WHEREAS, said Committee have been fully authorized to represent the said stockholders who have contributed their respective shares in said dividend toward the payment of said capital*3758 stock of the Trust Company;
Now, THEREFORE, the parties agree as follows:
The said John G. Lonsdale, W. L. Hemingway, W. B. Cowen, David Sommers and N. L. Moffitt, all of whom are now directors of the said Bank, are hereby appointed Trustees hereunder.
There are hereby vested in and imposed on the Trustees each and all the rights, powers, privileges and duties in this agreement specified. Any three or more of the Trustees acting at any time and from time to time shall have all the powers, rights and privileges hereby created in and may discharge all the duties imposed upon all trustees collectively, and the act of any three or more *664 shall constitute and be the act of the Trustees. The Trustees are given power and authority at any time and from time to time to remove any of their number and to fill any vacancy in membership caused by removal, death, resignation, absence, sickness, inability or refusal to act or otherwise. The Trustees may select and remove from time to time a Chairman (who shall be a Trustee) and a Secretary (who need not be a Trustee) of the Trustees and may, from time to time, adopt and change such rules, regulations and procedure of every kind*3759 and nature for the government of the Trustees, as the Trustees may deem proper. No person who is not at the time a director of the Bank or its successor, shall ever act as or be appointed a Trustee hereunder. When any Trustee ceases to be a Director of said Bank or its successor, he shall immediately without further action cease to be a Trustee hereunder.
There shall be deposited with the Trustees, and there shall remain on deposit with them as long as the trust hereby created continues the certificates (except as otherwise herein stated) representing all the shares of the present or future capital stock of the Trust Company. Such certificates (except as otherwise herein stated) shall all be transferred on the books of the Trust Company into the names of the Trustees or of such person or persons acting for the Trustees as the Trustees may from time to time designate for the benefit of said trust.
The Trustees may, however, from time to time, sell, transfer and assign to each person who becomes a Director of the Trust Company sufficient shares to qualify each such Director, and take back from each such person an appropriate agreement that when he ceased to be a Director of*3760 the said Trust Company, his said shares of capital stock of that Company shall and will be forthwith sold and transferred by him or his legal representatives, to the Trustees for the same price such person paid therefor.
The Trustees may at any time and from time to time increase or decrease the capital stock of the Trust Company, or change its name, or amend, extend or renew its charter or effect a consolidation or merger of any other companies lawfully entitled to consolidate or merge with it. The Trustees shall, in case of such increase of the capital stock arrange that the total amount of such increase, including that which would otherwise be allotted to the Directors of the Trust Company by reason of their ownership of shares of stock in that company, shall be issued to and held by the Trustees in the same manner and subject to the same rights, powers, privileges and duties under which the Trustees hold the original stock of the Trust Company hereunder. All the stock held by the Trustees of the Trust Company hereunder, shall be held by them for the benefit of such person as from time to time shall be the owners of those shares of the Bank of which the ten per cent (10%) dividend*3761 declared by the Board of Directors of said Bank on the 2nd day of January, 1924, has been devoted to the payment of the capital stock and surplus of said Trust Company and for the benefit of any person or future holder of any share of the capital stock of said Bank, the owner of which has not heretofore made such contribution to such stock of the Trust Company at any time after any owner of such share of stock shall have paid to said Trust Company for its surplus fund an amount equal to the said Ten per cent (10%) dividend on such share or shares of the capital stock of the Bank, together with interest thereon at not to exceed five per cent (5%) from the date of the organization of the Trust Company to the date of such payment but such payment shall not entitle the owner of such share or shares to the benefit of any dividends declared on capital stock of the Trust Company prior to the date of making such payment.
All the stock of the Trust Company held by the Trustees hereunder shall be held by them as herein provided and the Trustees may exercise during the life *665 of the trust hereby created, all of the rights, powers and privileges of absolute owners of said stock except*3762 as otherwise herein provided and except also to the extent and in so far as they may receive express directions, in writing, signed by a majority of at least two-thirds in interest of the persons beneficially interested in said stock and subject to distribution of dividends upon said stock as hereinafter provided. All dividends received by the Trustees on said stock shall be immediately distributed by the Trustees either through the Trustees or through the said Bank if turned over to it by the Trustees among the persons beneficially interested as aforesaid in the capital stock of said Trust Company pro rata according to their ownership of record of shares of stock of said Bank, or its successors for the time being that is to say each stockholder of the bank or its successors who shall be the owners of stock, the dividend of which shall have been applied to the payment of the capital stock of surplus of the Trust Company as hereinbefore provided, shall participate in any dividend so distributed in proportion to his holdings of record of such stock of the Bank or its successor on the day of payment of the dividend by the Trust Company so to be distributed. The Trustees may, upon the*3763 receipt of such dividend from the Trust Company turn same over to the Bank or its successor for immediate distribution by the Bank or its successor among the persons beneficially interested as aforesaid. The turning over of said dividend by the Trustees to the Bank for distribution as aforesaid, shall be a complete and absolute release and discharge of the Trustees to the extent of the dividends that may from time to time be turned over to the Bank for distribution, as aforesaid.
The trust hereby created shall continue so long as the Bank or its successor or successors shall continue to do a banking business unless the said trust shall be sooner terminated, and it may be so terminated by the affirmative request in writing of a majority of at least two-thirds in interest of the holders of record of the entire capital stock at the time of the Bank or its successor for the time being and upon the termination of said trust the shares of stock of said Trust Company shall belong to and be distributed among the then stockholders of record of the Bank or its successor for the time being in proportion of their holdings of those shares of the Bank or its successor; the dividends upon which*3764 shall have been paid to the Trust Company for its capital or surplus aforesaid.
While the stock of the Trust Company shall be held by the Trustees as hereinbefore provided, no person beneficially interested therein shall have the right to transfer his interest therein, or any part thereof otherwise than by the transfer of the ownership of his stock in the Bank or its successor for the time being upon the books of the Bank or its successor, and no beneficial interest in the said stock of the Trust Company shall be capable of being severed from the ownership of said stock of the Bank or its successor and the only evidence of such beneficial interest of any person in the stock of the Trust Company shall be that given by an endorsement placed upon all certificates of stock of the Bank, the dividend of which shall have been applied as aforesaid, and a corresponding memorandum shall thereafter until the termination of the trust always be placed as aforesaid on the back of the certificate of stock of such Bank or its successor which shall be entitled to the benefit of said trust as hereinbefore set forth, and no person owning any beneficial interest in stock of the Trust Company shall*3765 be entitled to share in the distribution of any dividends received by the Trustees until his certificate for his stock in the Bank shall be presented to the Trustees, and said endorsement shall have been placed thereon, but the Trustees may, at their election, cause such dividend to be paid to any stockholder of the Bank entitled thereto who from inadvertence *666 or for some valid reason has failed to present his certificate for such endorsement, although otherwise entitled to the benefit of this agreement.
The capital stock of the bank may be increased or decreased from time to time as by law provided, and in case of any such increase or decrease a corresponding increase or decrease shall be made in the beneficial interest of present stockholders of the bank in the stock of the Trust Company so that the holders of all stock hereafter issued shall forthwith become and be beneficially interested in common with other stockholders of the Bank or its successor who have contributed to the capital or surplus of the Trust Company in a pro rata amount of the stock of said Trust Company under the trust hereby created.
Each and all the provisions herein contained shall govern and*3766 apply with the same force and effect to any successor or successors to either the Bank or Trust Company, and shall also govern and apply if the name of either the Bank or Trust Company shall be changed or if the charter of said Bank or said Trust Company shall be amended, extended or renewed, or if any other bank or banks shall be merged into or consolidated with the bank or its successors.
WITNESS THE SIGNATURES of the parties on the date first above written.
(signed) W. FRANK CARTER.
CHARLES REBSTOCK.
JOHN B. STRAUCH.
(signed) DAVID SOMMERS,
W. B. COWEN, N. L. MOFFITT,JOHN G. LONSDALE,
W. L. HEMINGWAY,As Trustees.
As a committee for the stockholders of the National Bank of Commerce in St. Louis who have contributed a certain ten per cent dividend declared upon its stock as a payment on the capital and surplus of the Trust Company.
Pursuant to the terms of the trust agreement, all of the stock of the Federal Commerce Trust Co. was issued to the trustees and is held by them. The trustees were stockholders and directors of the National Bank of Commerce. No certificates of beneficial interest were issued by the trustees. Evidence of the beneficial*3767 interest in the stock of the Federal Commerce Trust Co. of petitioner and the other stockholders of the National Bank of Commerce is an endorsement stamped upon the certificates of stock of the National Bank of Commerce.
The amount of a dividend of 10 per cent upon the stock of the National Bank of Commerce held by petitioner at the time of the adoption of the Directors' resolution above written is $14,100, and the Commissioner held that petitioner received in the year 1924 a taxable dividend amounting to $14,100. The deficiency found by the Commissioner is based upon the addition of that amount to the petitioner's income for the taxable year.
OPINION.
LITTLETON: The issue is whether there was taxable income to the petitioner on account of the dividend declared by the National *667 Bank of Commerce and used under an agreement between the bank and the petitioner to pay for stock in the Federal Commerce Trust Co. The argument of the petitioner is that "as to those stockholders who accepted the proposal of the National Bank of Commerce for the organization of the Federal Commerce Trust Company, the dividend declared by the National Bank of Commerce was not payable in*3768 cash, but was payable in a pro rata interest in the stock of the Federal Commerce Trust Company"; and that since the dividend in question was payable in stock, the transaction here involved constituted a reorganization of the National Bank of Commerce under section 203(c), Revenue Act of 1924, providing as follows:
If there is distributed in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized.
We do not understand that the petitioner is contending that the dividend in question should not be taxed for the reason that it is a stock dividend and, therefore, exempt from tax under the principle laid down in . Nor do we understand it to be contended that even though it should be found that the dividend was not a cash dividend, but a dividend payable in stock of the trust company, this would of itself exempt*3769 the dividend from tax as a stock dividend, since a dividend of one corporation payable in stock of another corporation may be taxable in the same manner as a cash dividend. ; .
Was the dividend paid in stock of the trust company? At the time the dividend was declared, the trust company had not yet been formed and, of course, the bank did not have any stock in the trust company which it could use in liquidating the liability to its stockholders arising on the declaration of the dividend. Nor did the bank ever come into ownership of any of the stock of the trust company. What the bank had when the dividend was declared was a cash surplus sufficient to pay the dividend, and agreements from 93.82 per cent of its stockholders that the amounts to which they were entitled under the dividend declaration would be used to pay for stock in the trust company. The persons entitled to receive the dividend were the stockholders of the bank, and a majority agreed that they would allow it to be used in payment for stock in the trust company. We think it would not be possible, *3770 even disregarding form and considering only substance, to say that the dividend was paid in stock which the bank neither then, nor subsequently, owned. It may be true that *668 the bank would not have declared the dividend at this time had it not had agreements with the stockholders that cash would not be demanded, but that the liability of the bank to the stockholders would be met through the transfer of the bank's cash surplus appropriated for the purpose to the trust company and the issuance of stock of the trust company to trustees. It is also true that the stock of the trust company did not come into the hands of the stockholders of the trust company, and that no certificates of beneficial interest in such stock were issued to the stockholders, but the stock was issued to trustees who held the stock under a trust agreement by means of which the purpose in forming the trust could be accomplished, and evidence of the beneficial interest of the stockholders in such stock was shown only by an indorsement on the stock certificates. These facts, however, would not make the payment of the dividend a payment by the bank in stock of the trust company, which it did not then or*3771 subsequently own, and which stock was essentially different in character from the stock of the bank.
That which took place in this instance is clearly distinguishable from the cases of , and , on which petitioner places much emphasis. Those cases involved an issuance of stock dividends by the Gulf Oil Corporation. The facts in those cases and the reasons for holding the dividends exempt from tax are briefly stated in the syllabus accompanying the Mellon case, as follows:
Where a corporation, which was using its earnings in extending its business and was not in a financial position to declare or pay a cash dividend, in order to secure funds with which to pay existing indebtedness and to conduct its business, adopted a plan providing for the sale at par of an amount of stock equal to the outstanding stock to existing stockholders pro rata, and for the issuance to each purchaser, in addition to the stock purchased at par, 100 per cent. of extra stock, and where large stockholders, to insure the success of the plan, agreed to take and pay for shares declined*3772 by other stockholders, the extra stock issued to such a heavy stockholder, who had purchased stock other than his proportionate share, on other stockholders' refusal to subscribe therefor, held not subject to income tax, since the receipt of such stock did not increase his income; "income" being something coming to a man.
Plainly, the foregoing is far from being analogous to the situation before us. Likewise, ; ; ; and , all involved instances where no second corporation consideration for this reason as well as for others unnecessary to be mentioned.
Consistent with the argument that the dividend was paid in stock of the trust company, the petitioner contends that the dividend is *669 exempt from tax under the provisions of section 203(c), supra, since the transaction in question constituted a reorganization within the meaning of section 203(h)(1)(B), which reads as follows:
(h) As used in this section and sections 201 and 204 -
(1) The term "reorganization" means * * * (B) a transfer*3773 by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred, * * *
But was there a transfer of assets by the bank to the trust company in the sense contemplated by the foregoing provisions? Of course, if we look only at the fact that bank had certain cash which found its way to the trust company, and disregard the steps by which this was accomplished, it might be said that there had been a transfer of assets from the bank, and that after the transfer, such assets are in another corporation which is now controlled by the stockholders of the corporation from which the assets came. But apparently, the very purpose of the plan followed was to avoid the transfer or exchange of a part of the bank's assets in such a way that it would appear that the bank was forming a branch bank which the bank was prohibited from operating. Section 11737(1), Revised Statutes of Missouri (1919) and *3774 . What the bank desired was a corporation to carry on certain activities which were prohibited under its charter, and there is no evidence that the desired results were accomplished in any way that placed the bank in a position where it could not defend its action as having been carried out in a manner which conformed to the legal requirements under its charter and the Missouri statutes. The assets that passed to the trust company were assets legally owing by the bank to the stockholders after the dividend declaration, but which the stockholders had voluntarily agreed should be used by a committee representing them in payment for stock in the trust company. Under such circumstances, the assets that came to the trust company would in reality represent assets belonging to the individual stockholders and paid in by them for stock in the trust company. The Board is, therefore, of opinion that the transaction here in question does not constitute a reorganization such as would exempt the dividend from tax under the statute.
Finally, the petitioner says that he did not receive anything that he did not have before, and*3775 that, therefore, it can not be said that income has come to him which would be taxable. Even conceding that this was, in effect, a dividend payable in stock of the trust company, we think the petitioner's contention is unsound. That stock in the bank prior to the issuance of the dividend was not the same as stock in the bank plus stock in the trust company, after assets from *670 the bank had found their way to the trust company, is readily apparent. In the case of , in which a situation arose involving a trust company which was formed in connection with a national bank similar to the plan followed in the case under consideration, the court said:
Because the bank and the loan company were distinct legal organizations, operating under separate charters derived from different sources, and possessing independent powers and privileges, we are constrained to hold that, notwithstanding the identity of stock ownership and their close affiliation in management, for some purposes they must be regarded as separate corporations, for instance, as being capable in law of contracting with each other.
*3776 The very fact that it was necessary to form the trust company because the bank could not perform the functions which it was desired to have the trust company perform, shows that stock of an entirely different nature was issued by the trust company from that issued by the bank. In , in which the assets and liabilities of one corporation were transferred to a new corporation formed under the laws of another State, the stockholders remaining practically the same, the court, in holding that taxable gain resulted through the exchange said:
In the case at bar, the new corporation is essentially different from the old. A corporation organized under the laws of Delaware does not have the same rights and powers as one organized under the laws of New Jersey. Because of these inherent differences in rights and powers, both the preferred and the common stock of the old corporation is an essentially different thing from stock of the same general kind in the new.
The difference between the stock in the trust company and the stock in the bank was even more marked than in the foregoing case, for the reason that the trust company was formed*3777 in order to have done things which the bank could not do. The fact that the stock of the trust company could not be sold separate and apart from the stock of the bank does not alter the fact that such stock is something of value even though inseparably attached to the stock of the bank, and carries with it rights and powers that did not exist in the stockholders of the bank before the formation of the trust company.
In view of the foregoing, the Board is of the opinion that the action of the respondent in holding that the dividend in question constituted taxable income to the petitioner should be sustained.
Reviewed by the Board.
Judgment will be entered for the respondent.
TRUSSELL dissents.