(dissenting).
In my judgment, the decision of the Tax Court, which the majority upholds, is not supported by substantial evidence adduced at the trial. Accordingly, I cannot concur therein.
The basic premise of the Tax Court’s decision resides in the following excerpt thereof:
“Wildwood Corporation was created to perform the function of serving as a conduit for the transfer of an inventory of whiskey warehouse receipts from the partnership to the two purchasers, Distillers Distributing Corporation [Sea-grams] and the West Shore Wine and Liquor Company.”
In substance, this means that the corporation was created in furtherance of a plan to sell the whiskey to these two companies.
The date found by the Tax Court as that upon which the first mention of any possible sale occurred was July 1, 1947. It was on that date that Fred Metzger solicited a list of inventory from the Willett Brokerage Company.
The undisputed testimony of the Willetts, corroborated by their counsel, was that counsel was instructed in June 19471 to proceed with the incorporation of Wildwood.
That simple fact, I believe, is destructive of the Tax Court’s decision and requires a reversal thereof.2 I cannot accept as correct a decision that the incorporation was a direct result of the proposed sale to Seagrams, when the Tax Court found as a fact that the first time any possible sale to that company was discussed was subsequent to the date on which counsel was instructed to proceed with the incorporation. In order that the sale have fostered the corporation it must have preceded it in point of time. It did not. Therefore, simple logic dictates the conclusion that the corporation was not the child of the sale.
This Court, in United States v. Cummins Distilleries Corp., 1947, 166 F.2d 17 decided that the proceeds of the sale of whiskey warehouse receipts assigned to the shareholders of a corporation in the process of liquidation were taxable to the shareholders as capital gains, and not to the corporation. The evidence showed that the corporation had' not carried on definitive negotiations for the sale prior to the decision to liquidate, although prior thereto it had considered such a sale at an indefinite future date. The first time any negotiations between the Willetts and Seagrams were carried on in this case was August 19, 1947, approximately three weeks after incorporation and about two months after the final decision to incorporate was reached.
Petitioners’ position is strengthened by the fact that the secondary evidence *591supports the conclusion that Wildwood was incorporated with the objective of continuing as a functioning concern.
Thompson Willett and John Willett both testified that counsel had advised the Willetts that incorporation was advisable in 1947 only if they were intending to continue in business. Counsel was of the opinion that, in the event of a sale, capital gains treatment could be obtained on the sale of the several undivided partnership interests. That this was in fact his opinion, and that the advise was given, was testified to by attorney Bernard H. Barnett, one of Willetts’ counsel in 1947.3
Here it may be noted that at the outset of the brokerage venture the Willetts preferred the use of the corporate entity, but were advised against it by counsel at that time. Counsel was of the opinion that a partnership was preferable until such time as the excess profits tax was repealed. In late 1946, when it appeared that this would come about, counsel was instructed not to proceed with incorporation because at that time a sale of the partnership business was being contemplated. I am unable to square the fact that incorporation was originally forestalled because a sale was pending with a finding that the ultimate incorporation was had solely to implement a sale.
I also find it quite difficult to consider the expenditure of the time and money incident to incorporation to be a part of a sham in order to obtain capital gains treatment on a sale when competent counsel had given a reasonably substantiated opinion that the same treatment could be obtained for the sale of partnership interests. In the absence of strong affirmative evidence in support thereof, a finding that a business reorganization, which involved the incurring of expense, was made in order to secure a tax advantage which the parties were already possessed of is untenable.
The activities of the Willetts around the time of incorporation were consistent with an intention to continue in business. At that time Willett Distillery Company had no whiskey suitable for bottling or sale. In early August 1947 Lambert and Thompson Willett went to Chicago to contact a retail dealers organization with regard to acting as an outlet for Wild-wood Corporation. Construction of a bottling plant had been undertaken by the distillery company and three thousand cases of glass bottles, subject to deterioration, were purchased by it. The construction of the bottling plant and the purchase of the bottles by the distillery were for the purpose of bottling the bulk whiskey in the hands of Wildwood. Transfer of basic permits, insurance, applications for labels, etc., all necessary for a functioning business, were made by Wildwood. If a decision had already been reached to sell all the saleable whiskey then in the hands of the partnership, all this becomes mere “window dressing” for the sham. I cannot conceive of it as such.4
The agreement between the partnership and the corporation for the transfer of assets in exchange for shares of stock was entered into on July 31, 1947 *592and provided that the exchange shall be completed as of the first moment of business on August 1, 1947. While it is true that only 58% of the partnership’s assets were transferred to the corporation, they represented 99% of the whiskey (both warehouse receipts and bottled goods) held by it. About $10,000 in operating capital was put into the corporation. There was no evidence that this was insufficient capitalization for that type of business. The bulk of the assets retained by the partnership were cash and notes receivable. In order to function as a whiskey brokerage a firm requires substantial amounts of whiskey, and that is what the partnership transferred to the corporation. The fact that they retained a large amount of liquid assets is not, to my point of view, of any great significance.
The circumstances surrounding the sale itself do not accord with a finding that the corporation was created in aid thereof.
As previously pointed out, Metzger was furnished a copy of the Willetts’ inventory on July 1, 1947. However, even at that time, he was told that if the whiskey was to be sold the partners would consider selling their interests in the partnership in preference to selling the whiskey warehouse reciepts in order to obtain capital gains treatment for the profits realized. In writing to Sea-grams on July 7, 1947 Metzger stated “a partnership, the Willett Brokerage Company, wants to sell the partnership with all the whiskey it owns.” This is a further manifestation of the Willetts’ basic intention — either to sell their proprietary interests in their business or continue as a going concern. The form in which the sale of the proprietary interests was consummated, carrying out their initial intent, whether as a sale of stock or undivided partnership interests, is secondary to the intent of the parties in making the sale. After obtaining the list of inventory Metzger transmitted the same to J. E. Friel of Seagrams, but received no response thereto. He testified that he, at that time, considered his efforts as unsuccessful and went on vacation. No interest was evidenced by Mr. Friel in making a purchase until August 4, 1947.
At about that date Metzger contacted Lambert and Thompson Willett, who-were then in Chicago on the business trip previously mentioned, and told them that someone who had read of the incorporation of Wildwood wanted to know if it might be bought. The Willetts said they were willing to discuss the matter and on August 19, 1947 met Metzger in New York City. It was not until then that Metzger revealed that the other party to the proposed transaction was Seagrams. As heretofore pointed' out, by that time the corporation was an existing legal entity carrying on its business.
At that meeting a tentative agreement was reached. But that agreement was not consummated then, and the entire-deal almost collapsed over a question as. to whether certain taxes were to be included in the sale price. When a compromise figure was agreed upon the deal was presented to the entire Willett family for approval. Several of the group were opposed to the sale and had to be persuaded by the others to agree to it.
The Tax Court held that the corporation was formed specifically in conjunction with the Seagrams sale. The articles of incorporation were filed on July SO, 1947 pursuant to the instructions-given in June. Not until August 4th did Seagrams, who appears to have been the moving party to the transaction, notify Metzger of its interest in making a purchase. Not until August 19th did the Willetts know they would be negotiating with Seagrams. Not until the last minute was an agreeable sale price reached, and it was not ratified without some difficulty. Had the corporation-been formed in contemplation of a specific sale is it not reasonable that the sellers would have had some idea to whom they were selling and at what price, long before they did?
*593It is my opinion that the Tax Court could not properly draw the conclusions which it did from the evidence and its decision is clearly erroneous.
In United States v. U. S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746, the Court held:
“A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court * * * is left with the definite and firm conviction that a mistake has been committed.”
I would reverse the decision of the Tax Court.
. B. H. Barnett, counsel, testified that to the best of his recollection the instructions were given early in the month, although no exact date was established.
. In my judgment, the Tax Court’s decision must fall under either the “clearly erroneous” test or the rule that the Court of Appeals is free to draw its own conclusions from undisputed facts. Under either test the judgment cannot stand.
. The Court states that there was some conflict on this question in 1947. The conflict was between the Commissioner, supported by one ruling of the Court of Claims, City Bank Farmers Trust Co. v. U. S., 47 F.Supp. 98, 97 Ct.Cl 296, and the United States Courts of Appeals in solid opposition, C.I.R. v. Shapiro, 6 Cir., 1942, 125 F.2d 532; Thornley v. C.I.R., 3 Cir., 1945, 147 F.2d 416; McClellan v. C.I.R., 2 Cir., 1941, 117 F.2d 988; Stilgenbaur v. U. S., 9 Cir., 1940, 115 F.2d 283. In light of the fact that this Court had held the sale of a partnership interest to be the sale of a capital asset in Oomm’r. v. Shapiro, supra, counsel can be said to have been on reasonably firm ground in so advising the Willetts as to the law in this Circuit. The Commissioner of Internal Revenue has since adopted this viewpoint. G.C.M. 26379, C.B. 1950-1, page 58.
. The corporation did, in fact, during its short life make a sale of 60 barrels of whiskey in a transaction totally unrelated to the Seagram’s sale.