This is a petition to review a decision of the Board of Tax Appeals.
The'facts are as follows: The Western Oxygen Company, a corporation, held a special stockholders’ meeting of March 6, 1929, and ratified a contract previously entered into with the Air Reduction Company, a corporation. For convenience we herein drop the word “Company” from the names of the two corporations. The Board found as a fact that this contract “contemplated the acquisition by the latter [Air Reduction] of the assets of the former [Western Oxygen] in exchange for shares of capital stock of the latter, and the assumption by the latter of the liabilities of the former and the distribution to the stockholders of the Oxygen Company of the shares of stock thus to be acquired by it in the Air Reduction Company.”
Although the contract is not before us, the Commissioner concedes in his brief that the dissolution of Western Oxygen was a part of the plan, quoting: “Upon receipt of the Air Reduction Company stock the Oxygen Company took steps to dissolve in accordance with its agreement(Italics mine.)
This contract was consummated, the Oxygen assets were transferred, and 16,000 shares of Air Reduction were transferred to Oxygen Company.
On the day the contract was ratified the president of Western Oxygen informed a special directors’ meeting of his company that a holder of preferred stock' of the company refused to accept Air Reduction stock in exchange for his stock.
Resolutions were thereupon adopted calling all of the preferred stock at $105 per share, plus dividends, and authorizing the sale of a sufficient quantity of Air Reduction stock to pay therefor.
At the same time Western Oxygen authorized the transfer of 342 shares of Air Reduction stock, received or to be received in the exchange, to A. H. Peir, its president, “as a commission for consummating the contract whereby the Air Reduction Company was to acquire the assets of the Oxygen Company and as a reward for his activities in connection with the Oxygen Company and in appreciation for his loyalty to it.”
In order to raise the money with which to retire the preferred stock and to put itself into a condition for dissolution, Western, *644Oxygen sold 1,811 shares of Air Reduction stock during 1929 for $184,922.61. This sum was wholly used for this purpose. It also transferred the 342 shares of Air Reduction stock to Peir, and the 14,189 shares of Air Reduction stock remaining were distributed pro rata to Westen Oxygen common stockholders.
In the same year (1929) Western Oxygen paid $1,500 to an attorney “for handling the local affairs of the Company, dissolving it and handling the redistribution of its stock in Air Reduction Company to the stockholders of the Oxygen Company.”
For 1929 Western Oxygen reported in its tax return a net loss of $42,318.79. It apparently reported no profit from sale of Air Reduction stock made to pay .the preferred stockholders, and took deductions for the $1,500 attorney fee and $36,765, the value of the stock transferred to Peir. Western Oxygen was dissolved during the year 1929.
The Commissioner determined that the Western Oxygen had realized a taxable profit of $150,204.22 upon the sale of the Air Reduction stock and added it to the Western Oxygen Company’s gross income, disallowed the deductions for attorney’s fees and “commissions,” and determined a deficiency of $14,976.55. A deficiency notice to that effect was issued October 11, 1930, to Western Oxygen.
At that date Western Oxygen had distributed all of its assets, and the deficiency remaining unpaid, on April 4, 1931, the-Commissioner issued a deficiency notice to Air Reduction wherein he proposed under section 311 of the Act of 1928, 26 U.S.C.A. § 311 and note, a deficiency in tax in the amount of $14,976.55 against that company as transferee. Air Reduction did not petition the Board to redetermine the deficiency and the deficiency, having been assessed, was paid by Air Reduction in March, 1932, under protest and with a claim for refund which was based upon the ground that it was a purchaser for value of Western Oxygen Company’s assets and, therefore, not liable as transferee.
At the time of issuing the transferee deficiency notice against Air Reduction, the Commissioner issued like notices against petitioner and others. These others (whose proceedings before the Board were consolidated with those of Peir) are in the same situation as Peir so far as the problems of this review are concerned and have stipulated to submit their cases with Peir’s case and upon the’ same briefs and argument and to abide the final decision in this case.
As petitioner has done in his brief, we shall first consider whether or not the payment under protest of the tax by Air Reduction discharges the transferee liability of petitioner, if there is in fact such a liability. We think it does not. The payment was a conditional one and does not act as a discharge until the conditions are resolved against the taxpayer. No question of liability of Air Reduction for payment of the tax is before this court. It may, or may not, be legally liable, but until it has paid the tax and such payment is final and unconditional, the tax remains unpaid in so far as the rights of the others who may be liable are concerned.
We agree with the Board’s statement in its opinion that: “The Commissioner can not, by voluntarily refunding to the Air Reduction Co., release it and fix the liability upon the others; nor can he by withholding refund to the Air Reduction establish its final liability and discharge the others.” The payment has been made subject, however, to the legal liability of the payor. If after the proper legal test has been made the payor’s liability has been established, the payment will lose its conditional status and become absolute. Should such test determine that the payor was without liability, the situation will be exactly as though the payment had not been made. As was said in U. S. v. Board of Commissioners of Comanche County, Okl.D.C., 6 F.Supp. 401, 403: “Where taxes are paid under protest, the collecting authority can only hold them in trust.”
We agree with the Board in holding that the tax has not been so paid as to bar the Commissioner from proceeding against petitioner for its collection.
Next is challenged the Commissioner’s determination that the sale of Air Reduction stock for funds with which to pay off the preferred stockholders could be considered in arriving at a taxable income of Western Oxygen.
In the consideration of this question it should first be understood that respondent concedes that no gain or loss was recognized to Western Oxygen upon the exchange of all its assets for 16,000 shares of Air Reduction stock. Section 112(b) (4) of the Revenue Act of 1928, 26 U.S.C.A. § 112(b) (4) and note. But respondent does not admit that the sale by Western Oxygen of a *645portion of the shares of Air Reduction so received in order to carry out the dissolution was a nontaxable transaction.
Petitioner’s contention, while not altogether clear, seems to be that since the “plan of reorganization” contemplated distribution of the Air Reduction shares pro rata to the Western Oxygen shareholders and dissolution of that company (which distribution would be a nontaxable transaction), and since it became necessary to sell shares of Air Reduction in order to buy up the preferred shares of Western Oxygen and thus effectuate the “planned” dissolution, that consequently the sale of stock (ordinarily a taxable transaction) should be treated as merely an incident to the reorganization and part of the “plan” thereof and so non-taxable. At times petitioner bases his argument on the provisions of section 112(d) of the Revenue Act of 1928, 26 U.S.C.A. § 112(d) and note, and at other times on those of section 112 (b) (3) of the same act, 26 U.S.C.A. § 112 (b) (3) and note.
Pertinent provisions of section 112, 26 U.S.C.A. § 112 and note are as follows:
“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 — * * *
“(3) Stock for stock on reorganization. No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
“(4) Same — Gain of corporation. No gain or loss shall be recognized if a corporation a party to a reorganization exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization. * * *
“(c) Gain form exchanges not solely in kind—
“(1) If an exchange would be within the provisions of subsections (b)(1), (2), (3), or (S) of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such -other property. * * *
“(d) Same — Gain of corporation. If an exchange would be within the provisions of subsection (b) (4) of this section if it were not for the fact that the property received in exchange consists not only of stock or securities permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then—
“(1) If the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but
“(2) If the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other'property so received, which is not so distributed.”
An examination of the foregoing provisions reveals that on no theory can the stock sale in question be so brought within them as to be considered nontaxable. The sale transaction does not fall within section 112 (b) (3), 26 U.S.C.A. § 112 (b) (3) and note for preferred stock was exchanged for money and not for slock in so far as the deal between Western Oxygen and its preferred stockholders is concerned. And “property” other than stock was exchanged by Western Oxygen for the stock of Air Reduction.
Nor is it any aid to petitioner to invoke the provisions of section 112 (d), 26 U.S.C. A. § 112 (d) and note, for that subsection by its terms is dependent upon section 112 (b) (4), 26 U.S.C.A. § 112 (b) (4) and note, and when construed with it makes the distribution by a corporation of the receipts of an exchange nontaxable only when a corporation has exchanged property for stock, plus other property or money. Here Western Oxygen exchanged property only for stock — having received the stock, it then proceeded to translate a portion of it into money and distribute the remaining stock and the money thus gained to its shareholders. No provision of the section provides that the sale of a portion of the stock received tax free by a corporation under section 112 (b) (4) is a nontaxable transaction because the proceeds on a sale thereof are distributed to its stockholders — the distribution *646of money pursuant to a plan of reorganization is tax free only when the money (together with stock) thus distributed has been received from another corporate party to the reorganization.
It is evident that if we were to hold that the translation of a portion of the stock received by Western Oxygen into money and the distribution of the money and the remaining stock to its shareholders was the same in legal effect as if Western Oxygen had distributed stock and money received by it from Air Reduction, the result would be that, although there had been a transformation of stock into money, neither of the corporations involved could be held to have made a stock sale subject to scrutiny for gain or loss, whereas if the stock sale had been consummated by the transferor prior to the transfer the gain or loss resulting to it on such sale would, so far as appears from the record, have been'required to be reflected in its income.1
It thus appears that though in other connections the practical effect of a transaction such as that in question may not be different than where money is paid to the transferee and then distributed by it, that in the purview of the taxing act the variance from the prescribed course, if disregarded, makes possible non-taxable transmutations of stock into cash which transmutations if otherwise accomplished would be taxable. It would not, we think, be argued that if the parties had incorporated in their plan a provision that Air Reduction was to sell a given amount of its stock and then transfer the proceeds of such sale, together with other shares, to Western Oxygen in exchange for the assets of the latter company, that Air Reduction could not be taxed on the gain on such sale because the sale was made in accordance with an agreed plan of reorganization. The fact that the sale here in question has occurred at the opposite end of the exchange does not make petitioner’s position any more tenable than would be that of Air Reduction if it sought to escape tax in the supposed case. -
Western Oxygen had a duty under the reorganization agreement, yet unperformed. The manner of its accomplishment was no concern of Air Reduction. The original plan of distributing Air Reduction stock pro rata for its own and thus making dissolution possible failed and it adopted the plan of selling part of the Air Reduction stock and using the proceeds to buy in a class of its shares. It seems to us that this sale made by' Oxygen Company in order to comply fully with its agreement, though made to carry out the reorganization, was not a nontaxable phase of that reorganization in contemplation of the pertinent section of the Revenue Act, but was rather separate and distinct from the other steps taken under the agreement and by section 112 made tax free, 26 U.S.C.A. § 112 and note. Cf. Helvering v. Tex-Penn. Oil Co., 300 U.S. 481, 483, 491, 495, 497, 57 S.Ct. 569, 570, 573, 575, 576, 81 L.Ed. 755; U. S. v. Galveston-Houston Electric Co., 1 Cir., 1936, 84 F.2d 516, certiorari denied, 299 U.S. 590, 57 S.Ct. 117, 81 L.Ed. 435; Bruce v. Helvering, 1935, 64 App.D.C. 192, 76 F.2d 442.
We next consider whether the Board of Tax Appeals erred in holding that Western Oxygen was' not entitled to take as a deduction in the determination of its net taxable income for the year 1929, the sum of $1,500 paid to its attorney, and also the sum of $36,765 paid to its president, A. H. Peir. The deductions were-claimed under section 23(a) of the Revenue Act of 1928, 26 U.S.C. *647A. § 23(a) and note which reads as follows:
“In computing net income there shall be allowed as deductions:
“(a) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered.”
The Board of Tax Appeals having made a finding as to the nature of the services for which these payments were made, and having determined against their deductibility, our function is limited to deciding whether the correct rule of law was applied to the facts found; and whether there was substantial evidence before the Board to support the findings made. Helvering v. Ward, 8 Cir., 1935, 79 F.2d 381, 383. Since In the present case none of the evidence before the Board is in the record here, there is no basis for determining that a finding of fact by the Board was not supported by substantial evidence and the finding must be accepted. Helvering v. Ward, supra, 8 Cir., 79 F.2d 381, at page 383. We think that the decision properly applied the law to the facts found. As said in Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212: “Unless we can say from facts within our knowledge that these are ordinary and necessary expenses according to the ways of conduct and the forms of speech prevailing in the business world, the tax must be confirmed. But nothing told us by this record or within the sphere of our judicial notice permits us to give that extension to what is ordinary and necessary.” (Italics added.) In consequence the presumption in favor of the ruling of the Commissioner prevails. Buck v. Commissioner, 9 Cir., 1936, 83 F.2d 786, and cases cited.
Art. 22 (a)-16, Reg. 94,86 provides as follows:
“Whether the acquisition or disposition by a corporation of shares of its own capital stock gives rise to taxable gain or deductible loss depends upon the real nature of the transaction, which is to be ascertained from all its facts and circumstances. The receipt by a corporation of the subscription price of shares of its capital stock upon their original issuance gives rise to neither taxable gain nor deductible loss, whether the subscription or issue price be in excess of, or less than, the par or stated value of such stock.
“But if a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed in tbe same manner as tbougb tbe corporation were dealing in tbe shares of another. So also if tbe corporation receives its own stock as consideration upon tbe sale of property by it, or in satisfaction of indebtedness to it, tbe gain or loss resulting is to be computed in tbe same manner as tbougb the payment bad been made in any other property. Any gain derived from such transactions is subject to tax, and any loss sustained is allowable as a deduction where permitted by tbe provisions of tbe Act.”
It does not appear whether tbe capital stock of Air Reduction given in exchange for Western Oxygen’s assets bad previously been issued.