(dissenting)-
I am unable to concur in the opinion of the Court.
I believe the majority opinion applies the facts in a manner which reaches an end not justified either by general corporation law or taxing statutes. A corporation is not a fiction but a creature of the law and “its ownership in a nonconductor that makes it impossible to attribute an interest in its property to its members. Donnell v. Herring-Hall-Marvin Safe Co., 208 U.S. 267, 273, 28 S.Ct. 288, 52 L.Ed. 481.” Klein v. Board of Supervisors, 282 U.S. 19, 24, 51 S.Ct. 15, 16, 75 L.Ed. 140, 73 A.L.R. 679.
All of the stockholders collectively of the Union Oil & Gas Company had the legal right to sell their stock to the Swiss Company without the consent of the corporation and such sale did not pass title to the corporate assets. It is a fair presumption from the evidence in the case that the Union would not sell its assets because it would be required to pay a tax on the profit and it is also fair to presume the Swiss was willing to take this chance.
It is stated in the majority opinion:
“For reasons with which we are not here concerned, the Union Company had refused to sell its properties, but on July 29, 1934, Combs, President of Swiss, and Thraves, a stockholder, acting for Swiss, secured an option to purchase all of the Union stock for Five Million Dollars, of which a first payment of $1,500,000 was to be made upon its exercise.”
I am unable to understand why we are not concerned with the sale of the Union properties and, if it refused to sell them, how it can be contended that they were acquired by a purchase of all of its outstanding stock. Ordinarily the transfer of all corporate assets requires corporate action which is regulated by statute. The Indiana regulations are found in Bums’ Annotated Indiana Statutes, Watson’s Revision, Vol. 4, Chap. 24, § 4822 et seq.
There is no showing in the record that the sale which the majority opinion finds was made had either statutory or corporate approval. The rule of practicability applies not only to the interpretation of taxing statutes but also to their administration. The reason for the rule is that the tax falls on ordinary business transactions conducted in the ordinary business way and the records of such transactions from which the taxing authorities obtain information are kept in the ordinary business way.
So far as the record shows, no sale of the Union assets appeared on its books and in my opinion there is no applicable taxing statute requiring it to pay a tax on income realized by its stockholders from the sale of its entire capital stock.
•The income taxing statutes provide that gain or loss arises from the acquisition and subsequent disposition of property either for cash or by exchange. It is realized when, as the result of a transaction between the owner and another person, the property is converted into essentially different property.
*594The majority opinion • ignores the fact that we are dealing with three separate taxable entities, (1) the stockholders of the Union Oil & Gas Company, (2) the corporation and (3) the Swiss Oil & Gas Company.
Section 201 (c) of the Revenue Act of 1926, 44 Stat. 10, provides that ‘'amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock,” and “the gain or loss to the distributee resulting from such exchange shall be determined under section 202, but shall be recognized only to the extent provided in section 203.”
None of the exceptions contained in section 203 applies. The general rule of section 203(a) is that the entire amount of the gain determined under section 202 shall be recognized. That gain is the excess of the amount realized from the exchange of the stock over its cost. The amount realized is the fair market value of the property received. Sec. 202 (a) and (c).
If the Union sold its assets under the theory stated in the majority opinion, it owed a tax on the gain realized from the sale and its stockholders- at the date of its dissolution owed a tax under Sec. 201(c), supra. The facts, without dispute, show that the Swiss was the sole stockholder at the date of dissolution and .under the plain language of the Statute, is taxable.
The majority opinion relieves the Swiss of liability as a stockholder at the date of dissolution on the theory that its purpose was to acquire the assets of the Union, not its stock. It seems to me that the object of the Swiss was to work a dissolution of the Union and, as an incident thereto, acquire its assets and when it caused a dissolution of the Union it exchanged its shares of stock for the physical assets of the Union, essentially different property.
Prairie Oil & Gas Co. v. Motter, 10 Cir., 66 F.2d 309, is unlike this case. There, the stockholders and the corporation jointly contracted with the Prairie to sell the corporate assets and a direct transfer was made by the corporation. There was no such agreement between the Swiss and Union and no direct conveyance of assets. The only question the Court had before it in the Prairie Oil & Gas Company Case was whether the transaction was a reorganization within Sec. 204(a) (7) of the Revenue Act of 1926, 26 U.S.C.A. § 935 (a) (7), now 26 U.S.C.A. § 113.
Tulsa Tribune Co. v. Commissioner of Internal Revenue, 10 Cir., 58 F.2d 937, involved the value of capital stock for tax purposes under the Revenue Act of 1918, § 326, 40 Stat. 1092. The organizers of the corporation acquired the assets of another corporation for a fixed sum and transferred them after purchase to the appellant and sought to revalue them for the purpose of determining its invested capital. The court ruled that the purchasers of the assets were the promoters or agents of the corporation. This case is not helpful to a decision here.
In Ahles Realty Corporation v. Com’r of Internal Revenue, 2 Cir., 71 F.2d 150, the taxpayer acquired all of the capital stock and assets of another corporation in exchange for its capital stock and debentures. After the transfer the old corporation was dissolved and the taxpayer subsequently sold some of the real estate it had acquired and sought to revalue it for the purpose of determining its gain. The court decided the property was acquired in a reorganization under the provisions of Sec. 203 (h) (1) of the Revenue Act of 1926, 26 U.S. C.A. § 934 (h) (1), now 26 U.S.C.A. § 112, and its basis of gain yvas the cost of the property to the old corporation.
The difference between the cited case and the one at bar is stated in the opinion of the court as follows [page 151]:
“The real estate was not acquired by the petitioner in liquidation proceedings, but in connection with a reorganization.”
In the case of Helvering v. Securities Savings Bank, 4 Cir., 72 F.2d 874, the Bank acquired from the stockholders of another bank, their stock at $140 per share and immediately put in charge of the Bank its own officers and directors and simultaneously therewith entered into a contract with the Bank to acquire all of its assets for cash. It then declared to itself a liquidating dividend less than the cost of the stock. In computing net income it claimed as a deduction the difference between the cost of the bank stock and the dividends. The court held that the Bank had acquired intangibles in the form of good will not shown on the books of the old bank and further that the sale of the assets of the Bank was not a free and voluntary sale because made by its own officers who fixed the sale price. This case has only a superficial application to the one here.
The case of Burnet v. Riggs National Bank, 4 Cir., 57 F.2d 980, is very similar to *595the one in controversy. There the Riggs Bank, at the solicitation of the Comptroller of the Currency in January 1922, purchased all of the capital stock of the Hamilton Savings Bank and in June of the same year surrendered all of the stock of the purchased Bank in exchange for its assets, and liquidated the old bank at a loss.
The sole question in the case was whether the corporation had sustained a deductible loss under the Revenue Act of 1921, 42 Stat. 227. The Court said [page 983j:
“Had respondent made a profit on the transaction as shown at the time of liquidation it would unquestionably have had to pay a tax on that profit, and it must follow that it should be allowed to deduct the loss in making up its tax return. There can be no better time to calculate a profit or a loss than as of the date of liquidation.
“The separate corporate entities of the Savings Bank and the Riggs National Bank are not to be entirely ignored in considering this question, even though tile entire stock of the one was owned by the other and they were affiliated.”
The ultimate purpose of the Swiss to acquire the assets of the Union cannot alter the fact that it actually acquired the stock and held title to it for nearly a year under an agreement preventing liquidation. It did not acquire title to the Union assets by the contract with its stockholders, but by liquidation after it had acquired title to the stock.
The Government must measure its ex-actions by the acts in fact done and a taxpayer discharges his obligation to the Government by basing his tax on profit in fact realized.
The theory of separate corporate entity is a basic one and recognized by all internal revenue statutes. A separate tax is irhposed on corporations and their distributions to stockholders are taxed in only a limited way. Specifically enumerated corporations are exempt from tax and distributions of corporate assets in liquidation are a distinct type of income.
It is only in unusual cases that corporate form may be disregarded in determining tax liability. Burnet v. Commonwealth Improvement Company, 287 U.S. 415, 420, 53 S.Ct. 198, 199, 77 L.Ed. 399. The circumstances in this case are not so unusual as to justify an exception. Dalton v. Bowers, 287 U.S. 404, 410, 53 S.Ct. 205, 206, 77 L.Ed. 389.
I am of the opinion from the facts in this case and the reasonable inferences and deductions therefrom, that the Union Oil & Gas Company deliberately refused to sell its assets because of the resulting tax burden and that the Swiss just as deliberately purchased the stock of the Union with the intent to dissolve it and thus acquire its assets and by so doing, assumed the tax burden falling on it at the time of dissolution.
There is no showing in this record that the Union Oil & Gas Company reported any profit or paid any taxes growing out of the transfer of its assets to the Swiss Oil Corporation. It is fair to assume that so far as this case is concerned there has been an entire escape from tax liability on the profits realized in the exchange of assets between the Union and the Swiss except that paid by Union stockholders on the sale of their stock.
I am of the opinion that the $1,750,000 cash received by Swiss from Pynchon & Company with which to purchase the stock of the Union should not be added to the cost of the Union stock in determining profit on liquidation. This transaction was simply the borrowing by Swiss from Pynchon of the money with which to purchase the stock. The orders of the Board should be affirmed.