*571 In December 1932 the petitioners each owned 25 shares of corporation A, which constituted all of the issued stock of that corporation. On December 28, 1932, they organized corporations B and C, to which they each transferred, one to corporation B and one to corporation C, 22 of their shares of corporation A's stock in exchange for all of the shares of corporations B and C. On the following day corporation A distributed all of its assets, consisting of stocks, bonds, and cash, to its stockholders pro rata and was dissolved. Held, that the petitioners are each entitled to deduct from gross income the excess of the cost of the three shares of corporation A over the amount received in liquidation.
*29 These proceedings, which were consolidated for hearing, are for the redetermination of deficiencies as follows:
| Petitioner | Docket No. | Year | Deficiency |
| Charles W. Nudelman | 79126 | 1932 | $531.39 |
| Luciano Conti | 79793 | 1932 | 511.56 |
The only question in issue is whether the petitioners are entitled to deductions of alleged losses*572 resulting from the liquidation of a corporation of which they were the only stockholders.
FINDINGS OF FACT.
In 1932 each of the petitioners held 25 shares of the Nudcon Holding Corporation, which constituted all of its issued shares. In December 1932 the petitioners decided upon the liquidation of the Nudcon Holding Corporation. It was their original intention merely to liquidate the corporation and distribute the assets in kind. After realizing, however, that the liquidation would result in a loss due to the depreciated market value of the securities owned by the Nudcon Holding Corporation, which for tax purposes would be greatly in excess of their net incomes from other sources for that year, they decided on a plan which would have the effect of postponing the taking of a greater portion of such loss to subsequent years.
The plan was carried out in the following manner: On December 28, 1932, two new corporations were organized, one called the Familnud Corporation and the other the Lucianna Corporation. On the same day petitioner Nudelman transferred to the Familnud Corporation, in exchange for all of its shares of stock, 22 of his 25 shares of the Nudcon Holding Corporation, *573 and petitioner Conti transferred to the Lucianna Corporation, in exchange for all of its stock, 22 of his 25 shares of the Nudcon Holding Corporation. On the following day, December 29, 1932, the Nudcon Holding Corporation distributed all of its assets to its shareholders of record pro rata and was dissolved.
*30 The transactions which took place on December 28 did not concern the Nudcon Holding Corporation and were separate and distinct from those which took place on December 29, which effected the liquidation of the Nudcon Holding Corporation.
The cost to the petitioners of each share of stock of the Nudcon Holding Corporation held by them on December 28, 1932, was $3,047.14, and the total cost to each petitioner of his three shares of Nudcon Holding Corporation owned on December 29, 1932, was $9,141.42. Upon the liquidation of the Nudcon Holding Corporation each petitioner, on December 29, 1932, received stocks and bonds which, at their fair market value, plus the cash received, totaled $2,258.32. In their income tax returns for 1932 each of the petitioners deducted from gross income $6,883.10 representing the loss sustained by him upon his three shares in the liquidation*574 of the Nudcon Holding Corporation. The respondent has disallowed the deduction of the loss in the determination of the deficiencies "for the reason that the transaction constituted an exchange under section 112(e) of the Revenue Act of 1932, from which no loss may be recognized."
OPINION.
SMITH: In these proceedings the petitioners contend that they are entitled to deduct from their gross incomes of 1932 under section 115(c) of the Revenue Act of 1932, losses sustained by them upon the liquidation of the Nudcon Holding Corporation. Section 115(c) provides in material part as follows:
(c) DISTRIBUTIONS IN LIQUIDATION. - Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. * * *
The respondent, on the other hand, contends that the loss may not be deducted by reason of the provisions of section 112(e) *575 of the Revenue Act of 1932.
The portion of section 112 upon which the respondent relies provides as follows:
SEC. 112. RECOGNITION OF GAIN OR LOSS.
(a) GENERAL RULE. - Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.
(b) EXCHANGES SOLELY IN KIND. -
* * *
(5) TRANSFER TO CORPORATION CONTROLLED BY TRANSFEROR. - No gain or loss shall be recognized if property is transferred to a corporation by one or more *31 persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporation; but in the case of an exchange by two or more persons this paragraph shall apply only if the amount of the stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange.
* * *
(e) LOSS FROM EXCHANGES NOT SOLELY IN KIND. - If an exchange would be within the provisions of subsection (b)(1) to (5), inclusive, of this section if it were not for the fact that the property received in exchange consists not only*576 of property permitted by such paragraph to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
The position of the respondent is stated in his deficiency notice to Nudelman as follows:
It appears that what actually happened was that at one and the same time you surrendered all your holdings in the Nudcon Company, or 25 shares, and received in exchange all of the stock of the Familnud Corporation and cash and property having an admitted value of $2,258.32. Both events took place simultaneously as part of one plan. The method by which the exchange was accomplished or the form of the transaction is immaterial. The substance must determine the taxable status and as to that there can be no question.
Although there is no question but that the steps taken by the petitioners in effecting the dissolution of the Nudcon Holding Corporation had the effect of postponing the deduction of losses on their shares of stock in the Nudcon Holding Corporation, represented by the 22 shares turned over by petitioner Nudelman to the Familnud Corporation and by petitioner Conti to the Lucianna Corporation, *577 to a future year, we are of the opinion that the steps taken may not be ignored. Thus in the case of (affd., ), certain assets were sold to a corporation and a check for the purchase price was issued by the corporation to the seller. The check was then endorsed and turned back to the corporation as a subscription for its stock. The entire procedure had been planned beforehand. The taxpayers there contended that no sale was contemplated but that the assets were intended to be turned in for the stock and that substance rather than form should govern. The Board held that: What is actually done fixes the tax liability and not what might have been done, even though the same result in the end might have been reached in another way or by another process." To the same effect see ; ; ; affd., *578 ; ; ; certiorari denied, . Whether a contract as made and *32 carried out consists of one or more transactions is a question of fact to be determined from the evidence. We have found as a fact that the transactions which took place on December 28 were separate and distinct from those which took place on December 29.
The contention of the respondent, that the petitioners exchange their shares of stock in the Nudcon Holding Corporation for all of the shares of stock of the two newly created corporations, and stocks, bonds, and cash of a value to each petitioner of $2,258.32, is not borne out by the evidence. Nudelman, on December 28, 1932, exchanged 22 shares of his Nudcon stock for all of the shares of stock of the Familnud Corporation, and Conti, on the same date, exchanged 22 shares of Nudcon stock for all of the shares of stock of the Lucianna Corporation. Any gains or losses resulting from such exchanges*579 are not to be recognized for income tax purposes under section 112(b) of the statute above quoted. These exchanges were independent of those which took place on December 29. The Nudcon Holding Corporation was not a party to them. After the exchanges of December 28, each of the petitioners owned three shares and each of the newly created corporations owned 22 shares of the Nudcon Holding Corporation. On December 29 the Nudcon Holding Corporation distributed to its stockholders all of its assets pro rata and was immediately dissolved. The cost basis of the three shares of Nudcon Holding Corporation owned by each of the petitioners on December 29, was $9,141.42. Upon the liquidation of Nudcon each of the petitioners received the equivalent of $2,258.32. The transaction falls under section 115(c), above quoted. Each of the petitioners sustained a deductible loss of $6,883.10.
Reviewed by the Board.
Judgment will be entered under Rule 50.