(concurring).
I concur in the result reached, but I cannot concur in the reason given therefor. I do not agree that a taxpayer may not avail himself of any legal method of handling a transaction that will reduce the amount of taxes to be paid on account of it. The Supreme Court has so held more than once. In Gregory v. Helvering, 293 U.S. 465, 469, 55 S.Ct. 266, 267, 79 L.Ed. 596, *13397 A.L.R. 1355, the Supreme Court said: “The legal right of a taxpayer to decrease the amount of what otherwise would be his taxés, or altogether avoid them, by means which the law permits, cannot be doubted.”
The court cites as authority for this statement United States v. Isham, 17 Wall. 496, 506, 21 L.Ed. 728; Superior Oil Co. v. Mississippi, 280 U.S. 390, 395, 396, 50 S. Ct. 169, 74 L.Ed. 504; and Jones v. Helvering, 63 App.D.C. 204, 71 F.2d 214, 217.
In the Isham case the Supreme Court said:
“* * * t0 tijjs objection there are two answers:
“1st. That if the device is carried out by the means ot legal forms, it is subject to no legal censure. To illustrate. The Stamp Act of 1862 imposed a duty of two cents upon a bank check, when drawn for an amount not less than twenty dollars. A careful individual, having the amount of twenty dollars to pay, pays the same by handing to his creditor two checks of ten dollars each. He thus draws checks in payment of his debt to the amount of twenty dollars, and yet pays no stamp duty. This practice and this system he pursues habitually and persistently. While his operations deprive the government of the duties it might reasonably expect to receive, it is not perceived that the practice is open to the charge of fraud. He resorts to devices to avoid the payment of duties, but they are not illegal. He has the legal right to split up his evidences of payment, and thus to avoid the tax. The device we are considering is of the same nature.”
Ladenburg, Thalmann & Company had the legal right to organize the Standard Utilities Corporation for the sole purpose of holding its stock in the Standard Power & Light Corporation, and then, when this partnership wanted to dispose of the stock, it had the legal right to cause this holding company to transfer the stock to it as a dividend in kind, and then the partnership had the right to sell it.
The partnership was not required to cause the corporation to make the sale because, perchance, this method of handling the transaction might result in more taxes to the Government. See Howell Turpentine Co. v. Commissioner, 5 Cir., 162 F.2d 319.
In its negotiations with the United States Electric Power Corporation for a sale to it of the stock of the Standard Light & Power Company, the partnership did not represent that it was acting for the Standard Utilities Corporation, in whose name the Standard Light & Power Corporation stock was held; the partnership was acting for itself, insofar as the United States Electric Power Corporation knew, at least. This was not the case in Commissioner v. Court Holding Co., 324 U.S. 331, 65 S.Ct. 707, 708, 89 L.Ed. 981, upon which the majority rely. There the corporation initiated the negotiations for the sale, and then, realizing that a sale by it would result in more taxes than if it declared a liquidating dividend, and if the stockholders receiving the divident carried out the sale, it decided that the latter method would be adopted.
In that case the Supreme Court did not hold that this method could not have been adopted in the beginning, and that the tax liability would not have been determined accordingly. It based its decision expressly on the finding of the Tax Court, that “despite the declaration of a ‘liquidating dividend’ followed by the transfers of legal title, the corporation had not abandoned the sales negotiations; that these were mere formalities designed ‘to make the transaction appear to be other than what it was’ in order to avoid tax liability.” (Italics ours.) It called attention to the fact that the Circuit Court of Appeals had held that “the corporation had ‘called off’ the sale,” but held that “there was evidence to support the findings of the Tax Court, and its findings must therefore be accepted by the courts,” citing cases. It said: “On the basis of these findings, the Tax Court was justified in attributing the gain from the sale to respondent corporation.”
We have not these facts in the case before us, and I do not think, therefore, the Court Holding case, supra, is controlling. Howell Turpentine Co. v. Commissioner, supra.
However, insofar as the tax payable by the partners is concerned — the sole question presented — I do not think it makes any *134difference who made the sale, whether the corporation or the partnership.
If the corporation made it, the partners are taxable on the cash they received as if the corporation had declared an ordinary cash dividend out of earnings and profits. The parties agree on this.
On the other hand, if the corporation distributed the stock as a dividend, the partners are taxable on the market value of the stock so received, if the distribution of the stock can be said to have been out of earnings or profits. Article 627 of Regulations 74 says:
“Dividends paid in securities or other property (other than its own stock) in which the earnings of a corporation have been invested, are income to the recipients to the amount of the market value of such property when receivable by the shareholders. * * * Where a corporation declares a dividend payable in stock of another corporation, setting aside the stock to be so distributed and notifying the shareholders of its action, the income arising to the recipients of such stock is its market value at the time the dividend becomes payable. * * *”
The validity of this regulation has not been questioned. See Commissioner v. Wakefield, 6 Cir., 139 F.2d 280; Commissioner v. F. J. Young Corp., 3 Cir., 103 F.2d 137.
The market value of the stock is established, prima facie at least, by the price for which it was sold immediately after* the dividend was paid. This is the amount the plaintiff included in his return as a dividend.
Whatever is the correct view of the transaction, therefore, the resulting tax liability of the partners is the same, provided the distribution of the stock was out of earnings and profits.
That this distribution was out of earnings and profits, I have no doubt. It is stipulated that on January 7, 1930, the date of the dividend, the earnings of the Standard Utilities Corporation were $4,361,963.25. The cost to the Standard Utilities Corporation of the 150,000 shares of stock declared as a dividend was not more than $3,010,000. This is so because this stock was acquired through an exchange of the notes of the Universal Utilities Corporation of $4,700,-000, held by the Standard Utilities Corporation, for $1,690,000, in cash and 150,000 shares of this stock. The stock, therefore, could not have cost the Standard Utilities Corporation more than $3,010,000. It is agreed that it had a fair market value when acquired by the Standard Utilities Corporation of $3,010,000.
If the corporation did not sell this stock, it must be carried on its books at its cost in determining earnings and profits of the Standard Utilities Corporation. Appreciation or depreciation in value is an unrealized gain or loss and, hence, cannot be taken into account. See Article 71 of Regulations 74. Gould et al. v. Commissioner, 21 B.T.A. 824; United States v. White Dental Mfg. Co., 274 U.S. 398, 401, 47 S.Ct. 598, 71 L.Ed. 1120. In arriving at the earnings of $4,361,963.25 the stock was in fact carried at $3,010,000. When it was distributed as a dividend, this asset was merely stricken from its balance sheet, reducing earnings to $1,351,963.25.
It results that after the distribution of the stock and the reduction of earnings by the cost of it, $3,010,000, there was still left profits of $1,351,963.25. It follows that the distribution could not have been out of capital because there were sufficient earnings out of which it could have been made.
If, on the other hand, we treat the sale as having been made by the corporation, then the corporation realized the appreciation in value of the stock, being the difference in the cost of the stock to it of $3,-010,000 and the sale price of $21,850,000, the figure the parties agree on, a gain of $18,840,000. This would have increased the corporation’s earnings from $4,361,963.-25 to $23,201,963.25. Then after the corporation had distributed the amount received of $21,850,000, it would have left earnings of $1,351,963.25.
So it is that in neither case can the distribution be said to have been out of capital, since in both cases the earnings were sufficient to take care of it.
It results that the taxpayer correctly returned the amount received for the stock as a dividend.
*135We have not before us the tax liability of the corporation and I do not think it is necessary to decide what it was.