*2098 The sale evidenced by the facts in this proceeding held to have been a sale of the assets of the transferor corporation by the corporation itself, subsequently liquidated and dissolved, and not a sale of the stock by the stockholders of said corporation. Respondent's determination approved in fixing the amount of the deficiency and petitioners held liable as transferees of the assets of the dissolved corporation to the extent of the cash which they each received in the liquidation, not to exceed the amount of the tax.
*596 These proceedings have been consolidated for hearing and decision and involve the question whether petitioners are liable as transferees of the assets of the Bank of Hampden, a dissolved corporation of *597 the State of Maryland. Respondent has determined liabilities of petitioners, as transferees, in the following amounts, plus any accrued interest:
| George M. Brady | $10,261.49 |
| Milton C. Davis | 4,000.00 |
| William M. Maloy | 8,040.00 |
| John T. Hill | 3,500.00 |
| Grace B. Adams, Administratrix for the estate of Edwin W. Adams and Grace B. Adams | 6,000.00 |
| Robert P. Simpson | $10,261.49 |
| Charles H. Benson | 5,000.00 |
| John W. Backer | 3,500.00 |
| Albert H. Carrill | 3,000.00 |
| L. L. Chambers | 5,000.00 |
| T. Edward Hambleton | 3,500.00 |
*2099 The question at issue is whether or not there was a sale of assets, or only a sale of stock arising from transactions at the close of the taxable year 1925, through which the Baltimore Trust Company acquired the legal title to all of the assets and the going business of the Bank of Hampden for a consideration of $200,000.
Petitioners deny that they are transferees of the assets of the Bank of Hampden, contending that what they did was to sell their stock to the Baltimore Trust Company and that the latter became the owner of the assets of the Bank of Hampden by virtue of becoming the owner of all of its capital stock; that there was no sale of assets by the Bank of Hampden to the Baltimore Trust Company; that, therefore, the Commissioner has erroneously held that the Bank of Hampden derived a profit from the sale of its assets during the taxable year 1925 and upon the basis thereof has erroneously determined a deficiency against said corporation of $10,261.49.
FINDINGS OF FACT.
The Bank of Hampden was a banking corporation organized under the laws of the State of Maryland, with its chief office and place of business at Baltimore, Md. In 1925, Waldo Newcomer, chairman of*2100 the board of the Baltimore Trust Company, started negotiations with Robert P. Simpson, president of the Bank of Hampden, looking to the purchase of the stock of the Bank of Hampden by the Baltimore Trust Company. These negotiations progressed to the point where a verbal offer on behalf of the Baltimore Trust Company was made to purchase all the capital stock of the Bank of Hampden at $40 per share, provided this offer was accepted by at least 70 per cent of the stock outstanding.
On October 5, 1925, this offer was submitted by Simpson to the board of directors of the Bank of Hampden. As shown by the minutes of the board of directors of said corporation, this offer was as follows:
The President, Mr. Simpson, discussed at length a proposition made by the Baltimore Trust Company for a merger with the Bank of Hampden. He stated that a committee composed of Mr. Maloy, Mr. Corkran, and himself had been *598 in consultation with Mr. Newcomer, Chairman of the Baltimore Trust Company, at Mr. Newcomer's request.
The result of the interview, based on a complete layout of the assets of the Bank of Hampden, has resulted in an offer of $40.00 per share for the stock, which in the*2101 opinion of the Committee, was a very attractive price, providing it was advisable to consider an offer at this time.
The board of directors thereupon adopted on the same day a resolution reading:
That it is the sense of the Board that the offer for the stock of the Bank, if two-thirds or more thereof be tendered at the price of $40.00 per share, which offer has been made by the Baltimore Trust Company, be accepted by the stockholders of the Bank of Hampden, and the Board does hereby recommend to the stockholders of the Bank of Hampden that said offer be accepted.
And the President of the Bank of Hampden be and he is hereby authorized and directed to communicate to each stockholder the opinion of the Board, and if he see fit, to send a copy of this resolution to each stockholder.
The Directors present hereby signifying their assent to the acceptance of the offer of the Baltimore Trust Company so far as their individual holdings are concerned, and as individuals agree to sell them to the Baltimore Trust Company at the price of $40.00 per share.
The directors present, who accepted this offer, so far as their individual holdings were concerned, owned between 1,400 and 1,500*2102 shares of the outstanding 5,000 shares of the capital stock of the Bank of Hampden.
On October 9, 1925, Simpson, in pursuance of the foregoing resolution, mailed a letter to all of the stockholders of record, in which, among other things, he said:
I am gratified to announce and to give you full particulars regarding the plan to merge the interests of the Bank of Hampden with the Baltimore Trust Company. * * * No change will be made in the personnel of the Hampden Bank office. The present directors of the Bank of Hampden will serve as the Advisory Board of the Hampden Bank office. All the other employees will be retained. As Vice-president of the Baltimore Trust Company, I shall continue my present executive duties at the Hampden office. * * *
Under this plan the Bank of Hampden is to transfer its assets to the Baltimore Trust Company and the price to be paid by the Baltimore Trust Company for the capital stock of the Bank of Hampden is $200,000, equivalent to $40 per share on your present stock, which has a par value of $10 and a book value of $24.60 per share. Payment to the stockholders is to be made in cash.
With the above letter was enclosed a blank proxy and a*2103 notice of special stockholders' meeting called for October 20th to vote upon the proposition outlined.
In response to this letter, Simpson and two of his associates received proxies for 2,601 shares. After the negotiations between Newcomer and Simpson had progressed to the point where Newcomer, on behalf of the Baltimore Trust Company, made a verbal offer to purchase all the stock of the Bank of Hampden at $40 per share, provided at least 70 per cent could be purchased at that price, and Simpson agreed to submit the proposition to stockholders of the *599 Bank of Hampden, with recommendation that it be accepted, Newcomer requested counsel for Baltimore Trust Company to draw up whatever papers were necessary to effect the transaction in a legal way. Counsel drew up an agreement whereby the Bank of Hampden was to sell and convey its assets to the Baltimore Trust Company and thereafter dissolve. This agreement was submitted to a special meeting of the board of directors of the Bank of Hampden, held October 9, 1925, and was approved, as will be seen from a copy of the minutes of a meeting of said directors, held October 9, 1925, and reading in part as follows:
The President*2104 submitted to the Board of Directors for its consideration a proposed agreement between the Bank and the Baltimore Trust Company, covering the sale of the business and assets of the Bank to the Baltimore Trust Company, which agreement is made part of these minutes.
* * *
RESOLVED that the Board of Directors of the Bank of Hampden does hereby approve the said agreement, and the terms and conditions of the proposed sale as set forth therein, and does hereby authorize the proper officers of the Bank to execute said agreement.
* * *
RESOLVED that the Board of Directors of the Bank of Hampden recommends to the stockholders that this Bank be placed in voluntary liquidation under the provisions of the laws of Maryland.
* * *
RESOLVED that a special and extraordinary meeting of the stockholders of the Bank of Hampden is hereby called to consider and take action on the said agreement between the Bank and the Baltimore Trust Company for the sale of the business and assets of said Bank to the Baltimore Trust Company, to consider placing the Bank of Hampden in voluntary liquidation, and appointing a liquidating agent therefor, said meeting to be held at the office of the Bank, Thirty-sixth*2105 Street and Roland Avenue, Baltimore, Maryland, on Tuesday the 20th day of October 1925 at 3 o'clock.
On October 10, 1925, the Bank of Hampden executed an agreement with the Baltimore Trust Company as directed by its board of directors at the foregoing meeting, the pertinent paragraphs of which are:
I. The Bank hereby agrees to sell, convey, transfer and assign to the Trust Company as of the 24th day of October, 1925, all of its property and assets of every kind and description, whether herein enumerated or not, including its banking house at the corner of Thirty-sixth Street and Roland Avenue, Baltimore, Maryland, with all the furniture and equipment therein, and also the entire business and good will of the Bank, subject to the debts and liabilities of the Bank, at and for the sum of Two Hundred Thousand ($200,000.00) Dollars, to be paid to the Bank or its agent upon the transfer of said assets; and the Bank agrees to continue its present business in the ordinary course until said transfer, with only such changes in its assets and business as may occur in the ordinary course of business so that its business, property and assets will be transferred to the Trust Company as nearly*2106 in their present condition as possible; it being understood that the Trust Company intends to continue said business as a branch of its business.
*600 II. The Trust Company agrees to purchase the property and assets of the Bank as above described or referred to, and to make payment therefor at the time and in the manner above provided, and it also agrees as part of said purchase price to assume all of the debts and liabilities of the Bank.
III. It is understood that this agreement is subject to the approval of the stockholders of the Bank and to the approval of the Bank Commissioner of the State of Maryland.On October 20, 1925, the special meeting of the stockholders of the Bank of Hampden, called to consider this matter, was held. The call for this special meeting of stockholders was signed by John W. Backer, secretary of the board of directors, and among other things said:
The business proposed to be transacted at said meeting is: to consider the sale of the entire assets and good will of this Bank to the Baltimore Trust Company, in accordance with the terms of an agreement dated October 9, 1925; and thereafter to consider placing this Bank in voluntary liquidation*2107 under the provisions of the laws of Maryland and the appointment of a liquidating agent therefor. * * *
At this special stockholders' meeting, held October 20, 1925, formal approval of the foregoing agreement was voted in the following resolution:
RESOLVED that the Agreement between the Bank of Hampden and The Baltimore Trust Company, covering the sale of the business and assets of said Bank of Hampden to The Baltimore Trust Company, heretofore approved by the Board of Directors of the Bank of Hampden, be and the same is hereby approved by the stockholders of the Bank of Hampden, and the proper officers of this Bank are hereby authorized and directed to carry the same into effect, and to transfer all of the said property, assets and business to The Baltimore Trust Company as of the 26th day of October, 1925, or at such other time as may be agreed upon by the said officers with the said Baltimore Trust Company. Payment for said property, assets and business to be made by the Baltimore Trust Company to the Liquidating Agent of the Bank of Hampden, and the proper officers of this Bank are hereby authorized and directed to execute all agreements, assignments, transfers or conveyances*2108 which may be necessary or proper to make such transfer effective, and carry out the intention thereof, including a deed to the banking house occupied by the Bank of Hampden, and all other real or leasehold property owned by the Bank.
On October 24, 1925, the two banks entered into an agreement in regard to the transaction, the pertinent parts of which read as follows:
WHEREAS an agreement has heretofore been entered into under date of October 9, 1925, between the said Bank and the said Trust Company, covering the sale of the business and assets of the Bank to the Trust Company, which said agreement has been approved by more than two-thirds of the stockholders and the Board of Directors of each institution, and
WHEREAS under the terms of said agreement the Trust Company agreed to purchase all the property and assets, of every kind and description of the Bank at the price of Two Hundred Thousand Dollars ($200,000.00).
* * *
WHEREAS *601 in pursuance of said agreement the Bank has agreed to turn over to the Trust Company all of its assets and the Trust Company has agreed to assume all liabilities of the Bank and to pay the liquidating agent the sum of $200,000 or to*2109 pay in lieu of a proportionate part of said sum the full liquidating value of any share to any stockholder who may demand the same.
* * *
I.The Bank hereby sells, conveys, transfers and assigns to the Trust Company the banking house located at Thirty-sixth Street and Roland Avenue, Baltimore, Maryland, together with all its contents, fixtures and furniture, and the banking business now conducted as a going concern by the said Bank, and the good will of said banking business and all books, book accounts, checks, deposits, notes, moneys, currency, specie, bullion, bank books, stocks, bonds, securities, promissory notes, drafts, certificates of deposit, Clearing House certificates, legal tender and choses in action, and all other assets, of whatever kind, and wherever situate, whether real, personal or mixed, belonging to the said Bank.
II.The said Trust Company, upon the execution and delivery hereof, hereby accepts the property mentioned and described in the foregoing paragraph, and assumes all the liabilities and collections, debts and duties incurred by, or by the operation of law appertaining to the Bank, and agrees to indemnify and hold harmless the said Bank, its*2110 officers and directors, as in any action or demand which may be brought or exhibited against the said Bank, and further agrees to care for and protect the interest of its depositors, and to pay out money to depositors according to the terms of their respective deposits with the Bank.
III.The Bank, its Directors and Officers, agree to take all necessary steps to complete the liquidation of the Bank, at the cost and expense of the Trust Company.
IV.The Bank agrees to execute and deliver to the Trust Company a good and sufficient deed of all its right, title and estate in the property located at Thirty-sixth Street and Roland Avenue, with all the improvements thereon.
V.The Trust Company agrees to pay to the Liquidating Agent of the Bank the sum of Two Hundred Thousand Dollars ($200,000.00) in trust, to be distributed to the stockholders of the Bank, and the Trust Company further agrees to pay to any stockholder of the Bank, who may demand it, the full liquidating value of his stock, upon which payment a proportionate part of the purchase price shall be repaid by the Liquidating Agent to the Trust Company.
A deed to the real property was executed and delivered*2111 October 26, 1925. The Bank of Hampden ceased business on Saturday, October 24, 1925, and the banking house was opened Monday, October 26, 1925, as the "Hampden Office of the Baltimore Trust Company."
*602 Upon the execution of this transfer the Baltimore Trust Company opened account at the Hampden office of the Baltimore Trust Company in respect of the transaction as follows:
| October 24, 1925 | |
| In re purchase Bk. of Hampden Suspense: | |
| 5,000 shares at $40 - Pd. to Liquidating Agent | $200,000.00 |
| Banking House | 96,700.00 |
| Other real estate | 4,350.00 |
| Furniture & Fixtures | 3,600.00 |
| Investments & Accr. Int | 456,673.93 |
| 761,323.93 | |
| Suspense | |
| Capital | $50,000.00 |
| Surplus | 50,000.00 |
| Undivided profits | 25,548.94 |
| To Exchange Lid | |
| Banking House, 36th & Roland Ave | 96,700.00 |
| Other real estate | 4,360.00 |
| Furn. & Fixtures | 3,600.00 |
| To Investments & Accrd. Int. Main | 479,320.65 |
| To Undivided profits | 51,804.34 |
| 761,323.93 |
An account was also opened in the name of Robert P. Simpson, liquidating agent, and there was deposited therein the sum of $200,000, as required. This sum was paid to the stockholders of the Bank of Hampden as they delivered the respective*2112 shares of stock owned by them, endorsed in blank, each stockholder receiving $40 for each share of stock so delivered. The payments for the stock were made by checks all of which were signed "Robert P. Simpson, Liquidating Agent of the Bank of Hampden."
A petition in dissolution of the Bank of Hampden was executed and sworn to November 30, 1925, by Robert P. Simpson, Milton C. Davis, L. L. Chambers, Charles H. Benson and John W. Backer, each of whom was a director of the Bank of Hampden, and is now a party to this consolidated proceeding, besides being signed and sworn to by six other directors who are not parties herein. With the petition for dissolution and made part thereof is the following certificate:
It is hereby certified that the liquidation of the Bank of Hampden, as authorized by the stockholders of said Bank at a meeting held on the 20th day of October, 1925, has been completed; and that the said Bank of Hampden has no assets, no liabilities, no outstanding contractural obligations and no outstanding capital stock.
The Bank Commissioner for the State of Maryland issued a certificate of dissolution on December 16, 1925.
The petitioners were record owners of the*2113 shares of capital stock set opposite their names, which shares they turned over as aforesaid and received cash therefor in the following amounts:
| Shares | Cash received | |
| Edwin W. and Grace B. Adams | 177 | $7,080.00 |
| T. Edward Hambleton | 100 | 4,000.00 |
| L. L. Chambers | 168 | 6,720.00 |
| Albert H. Carrill | 95 | 3,800.00 |
| John W. Backer | 100 | 4,000.00 |
| Charles H. Benson | 163 | $6,520.00 |
| Robert P. Simpson | 376 | 15,040.00 |
| John T. Hill | 100 | 4,000.00 |
| William M. Maloy | 26 | 1,040.00 |
| Milton C. Davis | 120 | 4,800.00 |
| George M. Brady | 85 | 3,400.00 |
*603 The partnership of Maloy andBrady owned 350 shares, for which they received $14,000 in liquidation. The partnership of Maloy and Brady was composed of William M. Maloy and George M. Brady, who each owned one-half interest in the above-mentioned stock, and each received one-half of the $14,000 received in liquidation by Maloy and Brady.
The Commissioner of Internal Revenue audited the corporation returns of the Bank of Hampden for the calendar year 1925 and held that the foregoing transaction was a sale of its assets by the corporation and not a sale of all the capital stock by the shareholders and added to the taxable*2114 net income of the corporation, as a profit from the transaction, the sum of $74,451.06, which resulted in a deficiency against the corporation of $10,261.49. This deficiency has been duly assessed and remains unpaid. The corporation having been dissolved, the Commissioner mailed notices to each of the petitioners under section 280 of the Revenue Act of 1926, and from which notices each petitioner has appealed.
OPINION.
BLACK: The main point of controversy in these proceedings arises over whether the transaction by which the Baltimore Trust Company acquired the assets and going business of the bank of Hampden was a sale of stock by the stockholders of the bank to the Baltimore Trust Company or whether it was a sale of the assets of the bank by the Bank of Hampden, as a corporation, to the Baltimore Trust Company and a subsequent liquidation and dissolution of the bank by paying out all the money received for its assets to its stockholders in consideration of their surrendering to a liquidating agent for the Bank of Hampden their stock for cancellation. The respondent has determined that the latter state of facts represents the true nature of the transaction and that the transferor*2115 corporation made a profit of $74,451.06 in the transaction, and has computed the deficiency accordingly and asserted liabilities against petitioners as transferees.
The facts leading up to the sale as well as those connected with its consummation and the subsequent liquidation of the Bank of Hampden have been fully stated in our findings of fact and need not be repeated in this opinion. As we interpret the evidence it appears to us that the Bank of Hampden sold its assets to the Baltimore Trust Company. The resolutions of the stockholders of the bank are all to this effect, as well as the actual documents of conveyance. The corporation simultaneously with the sale of assets passed resolutions of liquidation which were carried out before the end of the year by its own officers. While it is true that the original offers *604 were made on the basis of a purchase of the shares of stock at $40 per share, as soon as there was an apparent acceptance of the offer the transaction was then placed in the hands of the attorney for the Baltimore Trust Company and from that time on every entry in the minutes of the Bank of Hampden is to the effect that the assets were being sold. The*2116 agreed price was an amount which would result in a liquidating dividend of $40 per share. We do not consider it important that this price was paid through a liquidating agent instead of to the corporation direct. The Bank of Hampden ceased to function as an actual business enterprise on Saturday, October 24, 1925. On Monday, October 26, 1925, the Banking business which it had formerly conducted was opened as the "Hampden Office of the Baltimore Trust Company." Its former president, then vice president in charge of the Hampden office of the Baltimore Trust Company, received the $200,000 as liquidating agent of the Bank of Hampden and proceeded to liquidate the only assets of the corporation by means of checks on the institution, to which all its assets had been sold. Dissolution as required by statute was performed by the former directors of the Bank of Hampden. So far as we can see from the evidence there was never any transfer or delivery of stock of any kind to the Baltimore Trust Company and no stock was ever issued to it.
The contention that the delivery of stock to the liquidating agent of the Bank of Hampden for cancellation, because he happened to have his office at*2117 what had then become the Hampden branch of the Baltimore Trust Company, was a delivery of the stock to the Baltimore Trust Company under a contract of purchase, we think can not reasonably be maintained. In , and , we had proceedings before us where it was contended that the sale of assets to the purchasing corporation was made by the stockholders of the corporation about to be liquidated, and dissolved, and not by the corporation itself. In each of these cases we held that the sale of assets was made by the corporation, subsequently liquidated and dissolved, and we approved the determination of the Commissioner in fixing the deficiency against the selling corporation and in holding the stockholders who had received liquidating dividends liable for the amount of the tax to the extent of the liquidating dividends which they had received.
While the facts in , and , are not identical with the facts in the instant case, we think there is no difference of substance in them and on the authority*2118 of those cases we affirm the determination of the Commissioner in the instant case. Even if, upon the sale of the capital assets by the Bank of Hampden to the Baltimore Trust Company, *605 the shares of stock had been surrendered by the stockholders of the Bank of Hampden to the Baltimore Trust Company, we do not think the nature of the transaction as evidenced by the documents of sale would have been changed from one of sale by the corporation of its assets to one of sale of stock by the stockholders. The documents introduced in evidence show a sale by the Bank of Hampden of all its assets to the Baltimore Trust Company and its subsequent liquidation in accordance with the laws of the State of Maryland.
As to the transferee liability of petitioners, we further cite ; ; ; ; and . Also *2119 , and .
In his amended answer the respondent has increased the liability of the petitioners, George M. Brady and William M. Maloy, as transferees, over that which was asserted in the deficiency letters, on account of the partnership of Maloy and Brady having received $14,000 in liquidation of 350 shares. We have found that Maloy and Brady each owned a one-half interest in the 350 shares held by the partnership, and each received one-half of the $14,000 received in liquidation by Maloy and Brady. This makes them transferees under the authorities which we have cited above.
Accordingly, as to petitioners George M. Brady and William M. Maloy, judgment will be entered under Rule 50. As to the remaining petitioners, judgment will be entered for the respondent.
Footnotes
1. Other parties petitioning whose proceedings have been consolidated herewith for hearing and decision are: Milton C. Davis; William M. Maloy; John T. Hill; Estate of Edwin W. Adams; Robert P. Simpson; Charles H. Benson; John W. Backer; Albert H. Carrill; L. L. Chambers; T. Edward Hambleton. ↩