*1424 Where two members of a syndicate bought in a certain property for the benefit of the members of the syndicate and transferred their title to a corporation organized by the trustees of the syndicate for the purpose of holding such title, which corporation issued no stock or other evidences of beneficial interest, held no corporate meetings, had no paid-in cash capital, and paid no dividends, the entire transaction being financed by contributions or borrowings of the syndicate members and the proceeds on sale of the property being distributed according to the agreement among the syndicate members, the profit arising from such sale is taxable to the syndicate members and not to the corporation.
*1135 In these proceedings, duly consolidated, the petitioning corporation seeks redetermination of income taxes for the calendar years *1136 1923, 1924, 1925, 1926, 1927 and 1928, as to which years respondent has determined deficiencies in the respective amounts of $6,701.30, $1,237.31, $1,488.89, *1425 $1,599.27 $1,622.59 and $6,574.43. The controversy arises from the respondent's determination that in the several years taxes were due from petitioner on account of an installment sale of certain property made in the year 1923, it being petitioner's contention that it was a mere holding corporation and chargeable with no tax.
FINDINGS OF FACT.
In 1920, prior to the organization of petitioner corporation, an apartment house located at 1 West 70th Street, New York, known as Lorrington Apartments, was built by one Jacob A. Zimmerman and subsequently in the same year taken over by the Blessington Company. The property was subject to a first mortgage of $50,000, a second mortgage of $800,000 and a third mortgage of $120,000. The owners of the third mortgage had instituted foreclosure proceedings and had obtained a judgment of foreclosure and sale under which the property was to be sold at auction on June 16, 1920.
On March 11, 1920, Herman Marx had obtained an option to purchase the property from the Blessington Company, having paid $15,000 on account. Marx was associated with one Robert Lyons in a project to sell the property to the then tenants on a cooperative basis. By*1426 reason of the foreclosure action Marx and Lyons stood in danger of losing the payment under the option contract and the Blessington Company stood to lose its equity in the property. Lyons approached Percival R. Moses with a view to working out a financial plan to save the situation, with the result that in June, 1920, a syndicate was formed to provide funds to take over the third mortgage and permit Moses and Lyons to carry through their plan to sell the apartment.
The parties agreeing to participate in the syndicate were the Blessington Company, Edwin L. Kalish, Percival R. Moses, William R. Rose, Raymond Marx, Estelle C. Lyons (wife of Robert Lyons), and Herman K. Harrison. A formal syndicate agreement, dated June 17, 1920, was entered into by these parties and contained, among others, the following provisions:
FIRST: All of parties hereto will and hereby agree to subscribe the various amounts of money respectively set after their names.
Percival R. Moses, Fifteen thousand ($15,000) Dollars.
Edwin L. Kalish, Twenty thousand ($20,000) Dollars.
William R. Rose, Thirty thousand ($30,000) Dollars.
Estelle C. Lyons, Seventeen thousand five hundred ($17,500) Dollars.
*1427 Raymond Marx, Seventeen thousand five hundred ($17,500) Dollars, (of which Fifteen thousand ($15,000) Dollars has heretofore been paid, as described in Paragraph Seventh.)
Herman K. Harrison, Twenty thousand ($20,000) Dollars.
*1137 The word "Syndicate" wherever used herein shall be deemed to include all of the parties hereto except the Blessington Company.
The said sums of money shall be known throughout this agreement as Syndicate Moneys and shall be deposited with William R. Rose for the purpose of taking an assignment of the third mortgage and bond now held by the Baltic Holding Co, together with an assignment of the judgment of foreclosure and sale and all rights and privileges incidental thereto, including all moneys and claims now or hereafter in the hands of the Receivers in such foreclosure action, which assignments shall be taken in the name of William R. Rose and Percival R. Moses as Trustees for the syndicate under the terms and conditions following, namely:
The said bond and mortgage and the foreclosure action shall be held by the trustees for a period of not more than one hundred and twenty days from the date hereof and the various subscribers shall*1428 be deemed to have a participation interest in the principal sum of the said bond, mortgage and interest and all of the rights and proceeds thereunder in the proportion of their respective advances as aforesaid with the exception, however, that in each and every respect, the interest of Messrs. Rose, Kalish and Moses shall be prior and superior to the interests of the other parties hereto. During the time that said mortgage and foreclosure action shall be held by the trustees for the period mentioned, the Blessington Co. shall and hereby does empower the syndicate and William R. Rose and Percival R. Moses as trustees to undertake a sale of the property at private sale. The price at which the property is to be sold at private sale shall be not less than One million, two hundred thousand ($1,200,000) Dollars. All legal proceedings and legal details connected with the foreclosure action, the Syndicate, the sale of the premises and other incidentals, shall be under the advice and guidance of Messrs. Rose & Paskus, and Kalish & Kalish, which shall be an expense of the undertaking. The Trustees shall act without compensation for performing their services as such. If within the one hundred*1429 and twenty day period aforesaid, a sale of the property at private sale shall be accomplished, the purchase price over and above the first and second mortgages, aggregating as aforesaid Eight hundred and fifty thousand ($850,000) Dollars and interest, shall be paid to said Rose and Moses as trustees who shall as soon thereafter as reasonably may be under the advice of counsel, pay or distribute the proceeds in the following order:
1st. All costs and expenses incurred or paid by the Trustees.
2nd. To Messrs. Moses, Rose and Kalish the respective sums of money advanced by each of them together with interest thereon and all moneys, if any, which may be advanced by them on account of the taxes and water rents and interest thereon as hereinafter set forth in Paragraph THIRD.
3rd. To Messrs. Lyons, Marx and Harrison the amount of their respective advances and interest thereon, (excepting the item of Fifteen thousand ($15,000) Dollars contributed by Marx described in Paragraph Seventh hereafter) and all moneys, if any, which may be advanced by them on account of the taxes and water rents and interest thereon as hereinafter set forth in Paragraph THIRD.
4th. A profit of fifty*1430 (50%) per cent to Moses, Rose and Kalish upon the amount of their respective original subscriptions, and one hundred (100%) per cent upon such additional amounts as may be advanced by each of them respectively for such taxes, water rents, etc.
5th. To Raymond Marx the Fifteen thousand ($15,000) Dollars and interest from date hereof described in Paragraph Seventh herein.
*1138 6th. A profit of fifty (50%) per cent to Lyons, Marx and Harrison upon the amount of their respective original subscriptions inclusive of the Fifteen Thousand ($15,000) Dollars of Marx referred to in Paragraph SEVENTH, and one hundred (100%) per cent upon such additional amounts as may be advanced by each of them respectively for such taxes, water rents, etc.
7th. Ninety thousand ($90,000) Dollars to the Blessington Co.
8th. Any balance remaining shall be divided between the Blessington Co. and the Syndicate in the proportion of one half to each. (The various members of the Syndicate each to receive the proportion of the total interest of the Syndicate that his respective advance bears to the total amount advanced.)
If the Trustees do not sell the premises mentioned upon terms which shall*1431 net all cash above the first and second mortgages aforesaid, then Blessington Co. agrees that it will accept in lieu of the Ninety thousand ($90,000) Dollars agreed upon as aforesaid, a mortgage upon the premises in the principal sum of One hundred fifteen thousand ($115,000) Dollars, which mortgage shall be subordinate in lien to first and second mortgages aforesaid and to any other mortgage that may be required to protect the Syndicate advances, interest and profits for any amount not paid to it in cash. The said bond and mortgage, if any, to Blessington Co. shall bear interest at 6% per annum, payable semi-annually, the principal of which shall become due seven years from date thereof; such bond and mortgage shall be in the form used by the Lawyers Title & Trust Co. for such bond and mortgage including subordination clauses and likewise subject to the approval of the Trustees.
SECOND. For the purpose of carrying out the foregoing agreement, the Blessington Co. shall simultaneously with the execution hereof convey to Alfred L. Rose and Elmer Kimbark individually all its right, title and interest in and to the premises aforesaid, and do and perform every act and thing necessary*1432 to vest in said Grantees, title in fee free and clear of all incumbrances or liens other than the mortgages and taxes hereinbefore referred to, and such other incumbrances, if any, as are set forth in the policy of title insurance insuring title to the said premises in favor of the said Blessington Co.
The Blessington Co. shall also further simultaneously therewith execute, acknowledge, and deliver unto the said Rose and Moses a full and complete power of attorney, authorizing them to perform any act or thing and to sign any paper or document whatsoever that may be required to continue to operate and rent the said premises; to enforce all rights of the owner thereof with respect to all leases and other contracts; to continue fire insurance in full force and effect, and generally to operate and manage the building and premises in whatever manner they may see fit.
THIRD: In the event that it shall be necessary prior to the expiration of the 120-day period mentioned in Paragraph FIRST hereof, to pay the taxes and other charges now due and unpaid and which may become due during such period upon the premises, said trustees shall give immediate notice of such requirement to the Blessington*1433 Co. by mailing such notice in a post-paid addressed envelope addressed to the said Blessington Co. care of Jacob A. Zimmerman at 18 East 41st, Borough of Manhattan, City of New York. In the event that the Blessington Co. shall pay the said charges, said moneys so expended by it shall be repaid to it upon a re-sale of the property under the provisions in Paragraph FIRST hereof, which payment shall be made however, only after all of the Syndicate moneys, expenses, interest and profit shall have been paid to the Syndicate. In the event that the cash proceeds of the sale shall be insufficient to fully pay and discharge the subscriptions, expenses, profit and interest of the Syndicate and the moneys paid by the Blessington *1139 Co. pursuant to the requirement of said notice, the Blessington Co. shall receive whatever amount of cash remains after the payments of and to the Syndicate as aforesaid, and the balance thereof shall be included in the mortgage to be given to the Blessington Co. under the provisions of Paragraph SECOND hereof, the principal sum of which mortgage shall in such event, be accordingly increased by an amount equal to the unpaid balance. If for a period of*1434 seven (7) days after the date of mailing of said notice the Blessington Co. shall fail to pay and discharge the taxes and other charges as mentioned in the said notice, the Syndicate shall have the right to pay same, in which event, each of the parties constituting the Syndicate as aforesaid shall advance and pay the proportion of the aggregate sum so required to be paid, which his original subscription aforesaid bears to the total of the Syndicate moneys. It is understood that any advances which may be made by Messrs. Rose, Moses and Kalish hereunder shall be added to and become part of their original subscriptions with interest and shall be likewise prior and superior in each and every respect to the interest of all the other parties hereto. In the event that any member of the Syndicate shall fail to advance his respective proportion of such taxes and interest, etc. any other or others of the Syndicate may advance such respective amount and thereby become entitled to share in the profits accordingly. If the Syndicate shall make such payment for taxes, etc. it shall receive out of the proceeds of the sale of the premises whatever sum it shall have advanced therefor with interest*1435 thereon together with a profit of 100% of the amount of such advancements, all of which payments shall be prior and superior to the payment herein agreed to be made to the Blessington Co. in accordance with the provisions of Paragraph FIRST hereof. The moneys thus advanced and interest, and the 100% profits thereon, shall be divided among the members of the Syndicate in proportion to the amount of their respective advancements and in the order of priority as hereinbefore set forth.
FOURTH: In the event that within a period of 120 days from the date hereof the Syndicate and William R. Rose and Percival R. Moses as Trustees, shall be unable to sell the premises at private sale they shall at once continue the foreclosure action hereinbefore referred to and sell the premises at public auction pursuant to the judgment of foreclosure and sale. At such sale, the trustees, acting for and on behalf of the Syndicate, shall bid until a price is reached which will net the aggregate amount of the Syndicate subscriptions and interest thereon, after payment of all other expenses, costs and disbursements in the foreclosure action. The trustees shall be permitted, if in the judgment of Kalish, *1436 Moses and Rose, it shall be deemed advisable or advantageous, to bid more than the sum required as aforesaid, but there shall be no obligation upon the trustees so to do. In the event such Trustees, with the concurrence of Mr. Kalish, shall make such bid, all the parties herein, except the party of the first part, shall be liable in proportion to the amounts of their original subscriptions for such amount as may be necessary to complete the excess required by such bid.
If, at such foreclosure sale, the property is sold to third parties, the proceeds thereof including any surplus about the mortgage costs and expenses, etc. shall be distributed in accordance with the provisions of Paragraph FIRST of this agreement as though the sale had been made at private sale, except that Blessington Co. shall no longer have any interest whatsoever in said premises or the proceeds thereof, and the share which the Blessington Co. would have taken under Paragraph FIRST, shall be distributed among the members of the syndicate in the proportions and in the order set forth in Paragraph FIRST. If the property should be bought in by the Trustees for the benefit of the *1140 Syndicate at such*1437 foreclosure sale, title shall be taken in the name of the Trustees or some corporation or Massachusetts Trust to be formed by them for the benefit of the members of the Syndicate. In the event of such incorporation or Massachusetts Trust, the interest of the Syndicate members shall be provided for in the same manner as to priorities in principal, interest and profits as is provided for the distribution of proceeds under Paragraph FIRST of this agreement and the Blessington Co. shall have no interest whatsoever therein. The control of such corporation or trust shall rest exclusively in Messrs. Rose, Moses and Kalish or their nominees.
Upon any foreclosure sale in the present pending foreclosure action or any other action or foreclosure, the Blessington Co. shall be barred from every right, title and interest in said property or proceeds thereof, both legal and equitable and shall not participate in any respect, nor shall it receive any re-payment of any moneys advanced by it. Any member of this Syndicate shall be entitled to purchase said premises at such foreclosure sale for his own account provided his bid shall be in excess of any bid the Trustees shall make for said premises*1438 upon such sale.
As provided in the above agreement, the parties paid over to the syndicate trustees the amounts of their several subscriptions. Percival R. Moses and William R. Rose assumed the duties of syndicate trustees and acted without compensation for such services. The third mortgage and judgment of foreclosure were assigned to the syndicate trustees, the subscription payments being used to pay off the holder of the mortgage; the proposed extensions of the first and second mortgages were obtained, the pending foreclosure proceedings were held in abeyance for a 120-day period and, as provided in paragraph second of the agreement the Blessington Company conveyed its title to Alfred L. Rose and Elmer Kimbark.
Lyons and Marx were unsuccessful in their attempts to sell the property within the 120-day period and the plan to sell on a cooperative basis was abandoned. The provision of paragraph fourth of the syndicate agreement that the property should be sold under judgment of foreclosure if no sale was made in 120 days was not strictly complied with since Blessington Company agreed to relinquish its entire interest under the syndicate agreement. Whereupon the syndicate members*1439 entered into a supplemental agreement executed in December, 1920, which provided as follows:
WE, the undersigned being all of the subscribers to a certain syndicate created under and by virtue of an agreement dated the day of June, 1920, which syndicate under the terms of the said agreement purchased a third mortgage upon premises 1 West 70th Street, Borough of Manhattan, City of New York for the purposes and under the conditions mentioned in the said agreement, do hereby request William R. Rose and Percival R. Moses, the syndicate trustees named in the said agreement, to cause a corporation to be organized for the purpose of taking title to the said named premises, 1 West 70th Street, without completing the foreclosure action heretofore begun upon said third mortgage, so as to accomplish the same result insofar as the syndicate is concerned as if a foreclosure sale had been had and the property bid in by the trustees of the syndicate in the manner mentioned in paragraph Fourth of the said agreement. We do further waive the provisions in the said agreement *1141 requiring the trustees to complete the foreclosure of the said third mortgage after the expiration of one hundred*1440 and twenty days from the date of said agreement, substituting in place of such requirement permission to the trustees to complete the said foreclosure if and when they in their discretion, by and with the advice of Edwin R. Kalish, see fit, and we do hereby consent that the trustees do every act and thing necessary without completing the said foreclosure, to take title to the said premises in a corporation of which they are to be the sole stockholders, and to carry into effect by and through said corporation any and all acts and things that may be necessary or advisable for the proper protection, management, upkeep, leasing, selling and financing the said premises without restriction. We do further agree that any and all profit whether from income or from the sale of the said premises, either at public or private sale, shall be distributed by the trustees in the same manner and in the same proportions and subject to the same priorities and limitations as was provided in the said agreement of June , 1920 for the distribution of the proceeds of the sale of the said premises, either at public or private sale.
The Blessington Company released its interest in the syndicate and thereafter*1441 never participated in the project or in the proceeds of the property.
Pursuant to the provisions of paragraph fourth of the syndicate agreement of June 17, 1920, and to the provisions of the supplemental agreement of December, 1920, a corporation was organized under the laws of the State of New York to take title to the apartment property. This corporation was known as the Moro Realty Holding Corporation and is the petitioner in the present proceedings. By a certificate of incorporation it was authorized, among other things, to purchase, hold, exchange, lease, rent and deal in land, buildings, real estate and interest therein and to issue 100 shares of common stock of no nominal or par value, the certificate providing that "the amount of capital with which the corporation will carry on business is $500." The directors who were designated were also the three incorporators, all three being employees in the law office of Kalish & Kalish.
The officers of the corporation were as follows: President, Alfred L. Rose (the son of William R. Rose); treasurer, Percival R. Moses; assistant treasurer, S. J. Miller (an employee in the office of Percivil R. Moses); secretary, Elmer M. Kimbark*1442 (an employee of Edwin L. Kalish). The corporation never issued any stock and no stockholders' or directors' meetings were ever held. No cash was paid in to the corporation by any stockholder or by any member of the syndicate. It has had at no time a paid-in capital or surplus, the $500 capital provided for in the certificate of incorporation never being paid in. An exhaustive search failed to disclose the existence of a corporate minute book or of any corporate minutes.
Title to the property was conveyed by Alfred L. Rose and Elmer M. Kimbark, who had received title from the Blessington Company, to the corporation by deed dated December 22, 1920, recorded January 28, 1921.
*1142 No certificates of interest were ever issued, either by the corporation or the syndicate, the syndicate agreement being the only evidence of the rights of the parties.
After conveyance of the title to the corporation, continuous efforts were made by the syndicate trustees and the individual members of the syndicate to sell the property, but no sale was effected until April 13, 1923. During the intervening period the apartment property was managed by Percival R. Moses and William R. Rose*1443 in the name of the Moro Realty Holding Corporation, but any matter of policy was referred for decision to the members of the syndicate. A real estate firm was employed to manage the renting of the building and an engineering company to handle the mechanical maintenance thereof. To finance the carrying charges of the property the individual syndicate members made additional advances in 1920 aggregating $36,000. These advances were not paid to the corporation, but were paid direct to the parties to whom money was owed. Thereafter additional funds required for operation of the property were obtained through loans from banks effected in the name of the corporation upon the guarantee or indorsement of the individual members of the syndicate. On March 7, 1921, the syndicate members entered into an agreement among themselves respecting their several liabilities by reason of such obligations, which was in the following form:
WHEREAS the undersigned are parties to a certain agreement dated June 17th, 1920, with reference to premises No. 1 West 70th Street, Borough of Manhattan, City of New York, and by the terms of said agreement said parties hereto agreed and did advance the sum of*1444 $120,000 in the following proportions:
P. R. Moses, $15,000 or 3/24Edwin L. Kalish, $20,000 or 1/6
William R. Rose, $30,000 or 1/4
Estelle C. Lyons, $17,500 or 7/48
Raymond Marx, $17,500 or 7/48
Herman K. Harrison, $20,000 or 1/6
and
WHEREAS Jacob Hilder one of the undersigned has acquired from Edwin L. Kalish an interest to the extent of $5,000 or 1/24 thereby reducing the proportion of said Edwin L. Kalish to $15,000 or 3/24; and
WHEREAS for the purpose of carrying out the provisions of said agreement it is necessary for the undersigned to guarantee the payment of the note of the Moro Realty Holding Corporation to the Metropolitan Bank, now this agreement, witnesseth:
The parties hereto agree to and with each other that the liability of each of the parties hereto occurring out of or by reason of the guarantee executed and delivered to the Metropolitan Bank, shall be as between themselves, limited to the same proportion as mentioned above, and in like proportion each of the parties hereto indemnifies each of the other parties hereto by reason of any default of any party hereto.
Dated, March 7th, 1921.
[Signatures omitted.]
*1143 A similar agreement, *1445 dated April 14, 1922, was made with respect to a later bank loan.
Edwin L. Kalish assigned one twenty-fourth of his interest in the syndicate to one Jacob Hilder. Edwin L. Kalish died in 1922 and thereafter his widow, as executrix, participated in the syndicate in his stead.
The income from the property consisted of rent and receipts from the sale of electricity. This income was used to pay operating expenses, taxes, interest on mortgages and amortization of mortgages. The property was operated at a loss of $3,094.72 in 1921, at a profit of $1,780.93 in 1922, and at a loss of $84.26 for the first three months of 1923.
The apartment property was sold April 13, 1923, for $1,125,000, the purchaser assuming the $820,000 unpaid balance of the existing mortgages, paying $130,000 in cash and giving a purchase money mortgage of $175,000 with interest at the rate of 6 per cent, the principal sum thereof to be paid in quarterly installments as follows: During the first three years, $2,500; during the balance of the term, $3,750; the entire balance becoming due and payable April 1, 1933.
The terms of the sale were approved by all the members of the syndicate, but no corporate meeting*1446 or meeting of the directors of the Moro Holding Corporation was held in connection therewith.
The proceeds of the sale were paid to the corporation and by it distributed to the individual syndicate members in accordance with two supplemental agreements entered into by the syndicate members on May 1, 1923, which provided, so far as pertinent, as follows:
FIRST: That the actions of Messrs. William R. Rose and Percival R. Moses, as trustees named in the agreement of June 17, 1920, hereinbefore recited and referred to, be and the same hereby are in all respects ratified and confirmed, and that the said persons, as trustees are hereby directed by each of the several parties hereto to cause Moro Realty Holding Corporation to disburse the sum of $98,781.82 now in its treasury, as the result of the sale of The Lorrington made on April 13, 1923, as hereinbefore more fully recited and set forth, in accordance with the following schedule:
(a) unto the parties of the first, second and third parts hereto, Seventy per cent (70%) of the aggregate sum of the respective amounts of money subscribed, paid or advanced by them or their predecessors in interest to the syndicate and/or the Moro Realty*1447 Holding Corporation, for the purpose of carrying out the said agreement of June 17, 1920, and the various objects thereof,
(b) unto the parties of the fourth, fifth and sixth parts, Sixty per cent. (60%) of the aggregate sum of the amounts of money subscribed, paid or advanced by each of the parties hereto and/or their assigns, to the syndicate and/or the Moro Realty Holding Corporation, for the purpose of carrying out the said agreement of June 17, 1920, and the various objects thereof.
It is agreed that the following schedule states the amounts respectively advanced by the parties named, as their original subscriptions and as subsequent subscriptions:
| Original Subscription | Subsequent Subscription and Advance | |
| William R. Rose | $30,000.00 | $13,679.52 |
| Percival R. Moses | 15,000.00 | 6,839.16 |
| Edwin L. Kalish | 15,000.00 | 6,838.44 |
| Jacob Hilder (assignee of a part of the subscription of Edwin L. Kalish) | 5,000.00 | 2,279.72 |
| Raymond Marx | 17,500.00 | |
| Estelle C. Lyons | 17,500.00 | 6,363.16 |
| Herman K. Harrison | 20,000.00 |
*1144 That the trustees are hereby authorized and directed to make the payments provided for in Article 1st hereof, upon and according*1448 to the schedule in this Article set forth, and to consider the amounts herein set forth as the proper aggregate amounts, which have the approval of all parties hereto.
Payments were made on the $175,000 mortgage until 1928, when the mortgagor paid off the balance in full. On July 3, 1928, a complete accounting was made between the syndicate members of all the proceeds of the apartment, with the exception of $18,152.38, which amount was held as a reserve against the proposed tax liability here involved.
Books of account for the corporation were kept in the office of Percival R. Moses, showing receipts and disbursements in connection with the operation of the apartment house. On these books the profit on the sale of the apartment was credited to the syndicate members and not to profit and loss of the corporation. The books were set up on the basis of the syndicate agreement. The corporation never declared or paid any dividends and never held title to any property other than the one apartment building herein referred to. In their dealings with the public the syndicate members treated the property and the mortgage received upon its sale as though they and not the corporation*1449 were the owners thereof. The corporation had no letterheads and correspondence regarding the property was conducted on the stationery of Percival R. Moses. The corporation filed income-tax returns for 1921 and subsequent years, but paid no tax on any such returns, the profit made in the year 1922 being less than the credit of $2,000 allowed a domestic corporation. The profit derived on the sale of the apartment house was not reported as income to the corporation, but was reported for taxation by the individual members of the syndicate in accordance with their respective receipts.
Attached to the 1921 tax return of petitioner was a balance sheet revealing the following data:
| Assets (February, 1921) | |
| Cash | $4,560.47 |
| Lorrington Apartment House | 1,006,000.00 |
| Subscription account | 500.00 |
| Showson & Hobbs | 1,854.19 |
| Total | 1,012,914.66 |
| Liabilities | |
| Capital stock | $500.00 |
| Mortgages | 1,006,000.00 |
| Rent and electric current | 6,414.66 |
| Total | 1,021,914.66 |
*1145 The tax return for this year disclosed the following income and expenses:
| Rentals | $129,754.24 |
| Sale of electric current | 2,179.06 |
| Total | 131,933.30 |
| Deductions: | |
| Operating expenses | 36,896.94 |
| Interest | 60,322.32 |
| Taxes | 30,469.72 |
| Depreciation | 6,484.16 |
| Repairs | 854.88 |
| Total | 135,028.02 |
| Net loss | 3,094.72 |
*1450 Though the corporation has maintained its corporate existence by reason of the pendency of these proceedings, it has done no business of any kind since 1928.
The respondent treated the sale of the apartment as one upon the installment basis and computed the total profit to be realized therefrom to be $124,372.88, which amount petitioner concedes to be correct. The deficiencies here involved arose from the holding of the respondent that "since the legal title to property and to the mortgage was vested in the corporation the interest and profit represent taxable income to the corporation."
OPINION.
VAN FOSSAN: The question before us is whether or not petitioner was the real owner of a certain property known as the Lorrington Apartments and entitled to the benefits of ownership, or whether petitioner was merely a dummy corporation holding bare record title, the real ownership and all rights to the benefits being in a certain syndicate.
The syndicate agreement provided that the trustees of the syndicate were empowered to buy in the specified property for the benefit of the syndicate and take title "in the name of the trustees or some corporation or Massachusetts trust to*1451 be formed by them for the benefit of the members of the syndicate." The agreement further specified the contributions and share of the profits of each of the subscribers, but provided that the control of the corporation, if one were organized, should rest exclusively in Rose, Moses and Kalish. The property was bought in by Rose and Kimbark and by them transferred to the corporation. Rose and Kimbark, however, had no beneficial ownership in the property as individuals, but held the same in trust for the benefit of the members of the *1146 syndicate. Consequently, the corporation acquired no beneficial interest by the transfer to it of the record title.
Thus it is clear that the corporation was, as characterized by one of the witnesses, a legal shall holding bare record title only, all beneficial interest in the property and rights to the usufruct being in the syndicate members. The corporation was formed solely for the purpose of holding title, issued no stock or other evidences of beneficial interest, held no corporate meetings, had no paid-in cash capital, paid no dividends and exercised none of the usual rights or privileges of corporate ownership.
The entire*1452 transaction was financed by contributions of the syndicate members or by borrowings on their indorsement. On sale of the property the corporation acted only as a conduit for the transferring of the proceeds to the syndicate members.
The income from the sale of the property was income to those entitled to the beneficial interest, the real owners of the property, and distributable to them in accordance with the syndicate agreement as modified. Theirs is the tax liability. The petitioning corporation derived no income from such sale and has no tax liability on account thereof.
The question presented is not new. It was fully considered in , in which case we held that where real property situated in New York is conveyed to one person for the benefit of another, the legal and equitable title vests in the latter under the laws of the state. Consequently, it was held that no part of the rents or profits from the sale of such property is income to the person in whose name the property is held.
By reason of the ample evidence introduced by petitioner, we are not left in a situation such as confronted us in 112 *1453 , where we said:
We may state at the outset that the petitioner has not presented us with any definite evidence as to how it obtained title to the property in question or as to the circumstances of the sale of the property in 1921. There is no evidence as to any trust or agency agreement between the petitioner and the Beaumont Investment Trust, and we see no merit in petitioner's contention that petitioner was agent of or trustee for the Beaumont Investment Trust. Petitioner's contention is that under the law of New York there was a resulting trust in favor of the Beaumont Investment Trust, based upon the hypothesis that the property was purchased with funds of the Beaumont Investment Trust, although title was taken in the name of the petitioner. The evidence before us does not sustain this position. So far as we are able to determine from the record the property was purchased by Louis D. Beaumont on behalf of the Beaumont Investment Trust, was later sold to petitioner in a formal manner, and all the capital stock of petitioner was issued to the Beaumont Investment Trust in part payment therefor. Apparently the petitioner*1454 continued to owe the Beaumont Investment Trust a part of the purchase price. These facts distinguish the instant proceeding from the numerous cases of the courts of New York, cited by petitioner.
*1147 The evidence before us is complete and amply sustains petitioner's contention.
Reviewed by the Board.
Decision will be entered for the petitioner.
STERNHAGEN dissents.