*1195 In late 1932 and early 1933 the major stockholder of Motor Works proposed a merger or consolidation of that corporation with a partnership and a corporation engaged in related businesses. That plan was opposed by a group of stockholders and, upon failure of the majority to work out a satisfactory plan, the stockholders, by resolution adopted on March 6, 1933, dissolved Motor Works and directed that the assets be sold and that distribution be made to the stockholders. Efforts at sale were unsuccessful and the business was thereafter operated by the directors as trustees in much the same manner as before dissolution. In April 1934 execution was issued on a portion of the assets to satisfy a judgment held by the major stockholder for the redemption of 88 shares of preferred stock and at the sale held on May 16, 1934, the judgment holder purchased the assets so sold. At or shortly thereafter a plan was completed and agreed to for the organization of a new corporation and the acquisition by it, in exchange for its stock, of the assets of the dissolved corporation, including the assets sold at the sheriff's sale. Over 80 percent of those who had held stock in the dissolved corporation*1196 became stockholders in the new corporation and for the assets covered by the sheriff's sale the major stockholder received only a number of shares equal to the shares redeemed, plus additional shares purporting to cover his costs with respect to the said suit and sale. Held, that the assets were not acquired by the new corporation from Motor Works in a reorganization within the meaning of section 112(g)(1) of the Revenue Act of 1934 and the assets sold by the sheriff and thereafter transferred to the new corporation for stock did not retain in the hands of the new corporation the same basis as when the property of Motor Works.
*1289 The respondent determined deficiencies in income tax for the fiscal year ended June 30, 1934, against Charles D. Ammon and Emah B. Ammon, husband and wife, and John F. Ammon in the respective amounts of $94,890.98 and $40,158.76, and against The Cushman Motor Works for the fiscal years ended July 31, 1935 and 1936, in the amounts of $3,875.03 and $7,403.31. He also determined*1197 a deficiency in excess profits tax against The Cushman Motor Works for the fiscal year ended July 31, 1936, in the amount of $1,191.87. Prior to the hearing in these proceedings John F. Ammon died and the administrator of his estate was substituted as the proper party. Charles D. Ammon and John F. Ammon were stockholders in "The Cushman Motor Works" and in its predecessor corporation, Cushman Motor Works, and the parties have stipulated that if it be determined that there was no reorganization of Cushman Motor Works, the predecessor, within the meaning of the income tax statute, or that the purchase by Charles D. Ammon of certain assets formerly belonging to it was not a step in the reorganization, if a reorganization did occur, there is a deficiency against the estate of John F. Ammon in the amount of $483.52 and a deficiency against Charles D. Ammon and Emah B. Ammon, husband and wife, in the amount of $577.11, but in the event it be held that there was a reorganization of Cushman Motor Works within the meaning of the statute and the said purchases by Charles D. Ammon were a part thereof, decisions of no deficiency are to be entered in the proceedings just mentioned. The deficiency*1198 determined against The Cushman Motor Works resulted from inventory adjustments and the disallowance of defreciation *1290 claimed on certain assets. The question involved in that case is whether or not the said assets were acquired by The Cushman Motor Works from the predecessor corporation pursuant to a plan of reorganization so that the assets in the hands of the petitioner corporation retained the basis which applied when they were owned by the predecessor corporation.
FINDINGS OF FACT.
Petitioners Charles D. Ammon and Emah B. Ammon are husband and wife and reside in Lincoln, Nebraska. John F. Ammon died subsequent to the filing of the petition, and Charles D. Ammon, special administrator of his estate, has been substituted as petitioner in his case. The Cushman Motor Works is a Nebraska corporation, with its principal place of business in Lincoln, Nebraska. All of the income tax returns of the parties herein were filed with the collector o internal revenue for the district of Nebraska.
The Cushman Motor Works, sometimes hereinafter referred to as Cushman, was organized August 21, 1934, and upon organization acquired the business and assets which had formerly*1199 been owned and operated by Cushman Motor Works, also a Nebraska corporation and referred to sometimes hereinafter as Motor Works. Motor Works was organized in 1913 and was engaged in the business of manufacturing and selling internal combustion engines, power lawn mowers, and other machines. Its authorized capital stock of $1,500,000 was divided into 15,000 shares of a par value of $100 each, of which 10,000 shares were common and 5,000 shares were preferred, all being voting shares. At all times material to the decision of the issues herein its outstanding stock consisted of 5,454 common shares and 2,933 preferred shares. During the early years of its existence Motor Works had prospered, but after 1921 it began losing money and by October 31, 1930, it had, according to its balance sheet, an accumulated deficit of $307,132.36. According to the balance sheet of October 31, 1931, the deficit had increased by that date to $352,995.10.
The Easy Manufacturing Co. was a partnership composed of Charles D. Ammon and John F. Ammon and was engaged in the business of manufacturing farm implements. Its plant was situated in Lincoln, Nebraska, across the street from that of Motor Works. *1200 In 1930 Charles D. Ammon, acting for the partnership, began buying Motor Works stock and by the end of 1932 had acquired sufficient stock to gain control of the corporation.
Ammon was familiar with the history of Motor Works and felt that if its financial difficulties could be solved it could, under proper *1291 management, be operated profitably. At or shortly after his first purchases of stock in Motor Works he discussed with its manager the thought of merging Motor Works with the Easy Manufacturing Co. The lines manufactured by the two organizations could, in his opinion, be handled by one organization at great savings, thereby bringing greater profits. Later, in 1932, he expanded his ideas to include the McGrew Machine Co., which was a corporation engaged principally in the manufacture of sheet metal products. Its plant was located in the vicinity of those of Motor Works and the Easy Manufacturing Co. It was owned or controlled by E. E. McGrew.
On December 7, 1932, at which time Ammon, directly or through the Easy Manufacturing Co. and with his associates, owned or controlled a majority of the stock of Motor Works, a letter was mailed by Ammon to the stockholders*1201 of Motor Works proposing a merger of Motor Works, the McGrew Machine Co., and the Easy Manufacturing Co. into one corporation. His plan was to issue stock of a new corporation for the assets of the three plants and to sell additional stock at $15 per share to acquire needed cash. His proposal to the stockholders of Motor Works was that Motor Works preferred stock might be exchanged for stock of the new corporation share for share, or might be turned in for $10 cash per share. A third proposal was to allow Motor Works preferred stockholders to receive two shares of stock of the new corporation for one share of Motor Works preferred and $10 in cash. No suggestion was made whereby the holders of the common stock of Motor Works should receive any interest in the new corporation.
At the annual meeting of the stockholders of Motor Works on January 9, 1933, the minority stockholders raised objection to the plan proposed by Ammon, contending that the assets of the company could be sold at a price or prices that would result in a more substantial realization for the stockholders, and a resolution was adopted instructing Fred D. Stone to negotiate with persons desirous of purchasing "the*1202 complete assets and business of the company" and directing him to report the results of such negotiations to the board of directors prior to February 11, 1933. Ammon was named chairman of a committee to make further investigation concerning the possibility of "bringing about a consolidation or merger * * * with some other corporation or corporations." He was directed to report at the adjourned meeting of the stockholders to be held on February 13 following. The opposition to this plan proposed by Ammon centered largely in the officers and directors of the corporation and Ammon caused the election of a new board of directors, all of the directors so elected, except one, being from among his associates.
*1292 At the adjourned meeting of the stockholders on February 13, it was reported that Stone had been unable to obtain any definite proposition for the purchase of "the complete assets and business of the company." Ammon reported that his committee had entertained the possibility of a merger of Motor Works with the Easy Manufacturing Co. and McGrew Machine Co. "but they did not get any place as they had different ideas on various things and no definite basis of figures accumulated. *1203 " He reiterated that "the proposal for merger that he had in mind was fair to all."
The preferred stock of Motor Works was 7 percent cumulative preferred and the articles of incorporation provided that a sinking fund for the retirement of the preferred stock should be created out of the net earnings of the corporation that remained after deducting any accrued dividends. Up to 3 percent of the preferred stock might be retired each year on demand of the holders thereof to the extent that the sinking fund so accumulated would permit. In earlier years Motor Works had accrued such a sinking fund in the amount of $17,010, and under date of August 1, 1931, Ammon had made written demand on Motor Works to redeem preferred stock owned by him in accordance with the redemption provisions thereof. Motor Works had refused the request on the ground that it was not legally so obligated and had claimed further that it was not financially able to do so. On September 7, 1932, Ammon had renewed his demand, asking that Motor Works redeem 88 shares of the preferred stock standing in his name, 88 shares being according to his information 3 percent of the preferred stock of Motor Works outstanding. Motor*1204 Works did not comply with his request and he instituted suit against the corporation for the redemption of 88 shares of preferred stock at par plus accrued dividends thereon. He had advised McGrew that his purpose in bringing the suit was to facilitate the merger or consolidation. On February 25, 1933, judgment was entered in favor of Ammon on the said suit and against Motor Works for the principal amount of $15,884. Shortly thereafter certain stockholders took steps to have the judgment set aside, which was done on May 16, 1933.
At some time after the stockholders' meeting on January 9, 1933, or the meeting of February 13, 1933, the exact date not being shown, McGrew decided to withdraw the McGrew Machine Co. from any plan of merger or consolidation with Motor Works, the reason being that Motor Works and its stockholders were involved in litigation and conditions were therefore too unsettled.
On February 25, 1933, notice of a special meeting was sent to the stockholders of Motor Works. Attention was called to the fact that *1293 the corporation owed notes, accounts, judgments payable, and taxes amounting to almost sixty-seven thousand dollars. The notice contained*1205 the following with respect to the date and purpose of the meeting:
Something must be done at once. Therefore, you are notified that a Special Meeting of the stockholders of the Cushman Motor Works will be held on the 6th day of March at 3:30 P.M. for the purpose of either:
Reorganizing and raising, among the stockholders at least $65,000 or dissolving and liquidating the Corporation.
At the meeting held on March 6, 1933, action was taken as disclosed by the following resolution:
WHEREAS the Cushman Motor Works has lost money during most of the past twelve years, and
WHEREAS the Company has practically no working capital, and,
WHEREAS there are no funds now available to meet the current liabilities,
THEREFORE, BE IT RESOLVED by these stockholders here assembled that the corporation be dissolved; that the directors be instructed to sell the assets of the corporation of whatsoever nature, wind up the affairs of the corporation and distribute the remaining assets to the stockholders as provide by the articles of incorporation and the by-laws, and as provided by the laws of the State of Nebraska.
Be it further resolved that the officers of the Company file with the Secretary*1206 of State a report of said dissolution as required by law.
Be it further resolved that a majority of the directors be authorized to execute any contract, bill of sale, deed, assignment or other instrument in connection with this dissolution or the transfer and sale of the assets of this corporation.
At a directors' meeting held later in March, the directors adopted a resolution for the liquidation of the corporate assets, which reads in part as follows:
I move that we comply with the instructions of the stockholders of the company and proceed at once to dissolve the corporation and liquidate the assets, and proceed as follows:
1st. Believing that the assets are of the most value as a going concern and that the greatest sum can be realized by a sale of the corporate assets while the corporation is a going concern, the sale shall be made of the complete assets of the company including real estate, equipment, machinery, jigs, patents, patterns, trade marks, good will, merchandise both finished and unfinished in warehouse and on consignment, materials and assets of every kind.
2nd. These assets shall be sold together, to the highest and best bidder, the board reserving the*1207 right to reject any and all bids.
3rd. The sale shall be made at public auction by an auctioneer employed by the president to conduct said sale.
4th. Before such auction, the terms and conditions of the sale shall be plainly read and stated.
5th. The secretary shall make a record of each and every bid and the name of the bidder.
* * *
8th. *1294 The sale shall be advertised by the president in the two leading newspapers of Lincoln, Nebraska, for a period of at least three weeks and notice shall be sent by mail to all creditors and stockholders of the corporation at their last known address.
9th. Notice of said sale shall be sent to all known prospective purchasers with whom negotiations for the sale of said property have been conducted during the past two years.
10th. The sale shall be held on the premises of the Company on April 10th, at 10 A.M. 1933.
11th. The sale shall be for cash or its equivalent in value, to the company.
12th. The president shall employ R. S. Mockett to prepare and file with proper authorities the report and notice of dissolution.
The sale was advertised for April 10, 1933, as prescribed by the directors. There being*1208 only one bidder present, however, the sale was adjourned to April 12, 1933. On that later date there were no new bidders and the sale was deferred to May 15, 1933. On May 12, 1933, the directors adopted a resolution to the effect that, since no interest had been shown in the assets of the plant as a whole, the management was authorized to negotiate with prospective buyers for the sale of any part of the business or the real estate of the corporation and that the sale be adjourned to July 25, 1933. During the interval Ammon had negotiated with the Dempster Mill Manufacturing Co. for the sale of some of the assets and in June recommended to the directors that the sale be postponed in an attempt to develop the interest of that company further. The negotiations were unsuccessful and, there being no interested buyers on July 25, 1933, the efforts to sell at auction were abandoned.
In the meantime, on June 15, 1933, a minority group of stockholders had filed a suit for the purpose of putting the property and affairs of Motor Works in receivership. This suit was pending until February 1934, when it was dismissed. On December 21, 1933, during the pendency of the receivership proceedings*1209 and apparently in response to an inquiry, Ammon wrote one of the stockholders of Motor Works advising him of the suit and stating that, while there were no grounds for the suit, he could not tell what the final outcome would be. He said in part: "Now, what the final outcome will be, I can't tell you. I think something will finally work out. Anybody who wants to go along might have a better chance than to take their money, but I made you the proposition that I would pay you $1.00 for the common and $10.00 for the preferred, and you can take the money or you can take the equivalent in stock of any new company we get worked out. That proposition still stands, and you can exercise either one of them at any time you want until something is finally done - if it ever does get done."
At some date not disclosed Ammon personally purchased from the First National Bank, the principal creditor of Motor Works, *1295 notes of that company approximating $30,000, paying therefor the face amount plus accrued interest. He also purchased from other creditors accounts payable of approximately $12,000 to $14,000, paying therefor 75 cents on the dollar. He agreed with the creditors from whom*1210 the accounts payable were purchased that if the assets and business of Motor Works should be liquidated they should receive an additional 25 cents on each dollar of such accounts, but if the business should continue as a going concern and should remain a customer of such creditors, nothing further was to be paid to them.
On August 1, 1933, shortly after the efforts to sell the Motor Works assets at auction had been abandoned, Ammon again obtained judgment in his stock redemption suit, which judgment was ultimately affirmed by the Supreme Court of Nebraska on March 30, 1935. On April 19, 1934, execution issued on the said judgment, and on May 16, 1934, a portion of the Motor Works assets was sold by the sheriff in satisfaction thereof. Shortly prior to the sale Ammon had talked with several of the stockholders and directors of the dissolved corporation and had told them that the assets bid in by him at the sale would be held available for any reorganization of the business that might be worked out. At the sale Ammon purchased personal property in the amount of $15,524.55 and made arrangements to have several individuals bid in small portions of the assets for his benefit. Their*1211 purchases amounted to $670.50 and the cash therefor was furnished by Ammon. Four other individuals purchased for their own benefit a few items aggregating in price $53,60, bringing the total proceeds from the bidding to $16,248.65. Ammon applied his judgment in satisfaction of the purchases made by him, and the sheriff, after satisfying costs, returned to Ammon as payment on his judgment the amount of cash remaining. The assets sold at the sale consisted of tangible personal property and included machinery, equipment, merchandise, benches, dies, jigs, foundry equipment, supplies, and office furniture. No part of the buildings or real estate was involved in the sale.
About the date of the sale or within a few weeks thereafter Ammon circulated among some, if not all, of the Motor Works stockholders a paper whereunder those who signed agreed to organize a new corporation with an authorized capital stock of $100,000, divided into 10,000 shares of a par value of $10 each. The paper stated that it was the desire of the signers to continue the business of manufacturing and selling gasoline engines and the further desire that the new corporation "acquire the assets and/or stock of*1212 manufacturing or selling organizations, including the Cushman Motor Works and the Cushman Corporation." The agreement further stated that the signers desired to exchange or convert their Motor *1296 Works stock for stock in the new corporation and that a fair and equitable rate of exchange was one share of stock of the new corporation for one share of Motor Works preferred stock, or twenty shares of Motor Works common stock for one share of stock in the new corporation. The Cushman Corporation referred to was organized on June 5, 1934.
On June 6, 1934, a notice was sent to Motor Works stockholders that a meeting would be held on June 15, 1934, at which meeting "plans for organization of a company to continue the business" would be presented. At the meeting held on June 15, the secretary reported that on May 16 and 17 all of the personal property of the Cushman Motor Works had been sold at a sheriff's sale to satisfy the execution issued on Ammon's judgment. Ammon stated that the judgment had been taken by him for reorganization purposes only and not for his personal benefit. He then outlined his plan and after considerable discussion it was approved by a vote of 5,817*1213 shares to 151. The plan adopted did not involve either the Easy Manufacturing Co. or the McGrew Manufacturing Co.
Thereafter, on August 21, 1934, the new corporation, The Cushman Motor Works, one of the petitioners herein, was organized and on August 22, 1934, a contract designating The Cushman Motor Works as party of the first part, The Cushman Corporation as party of the second part, and "Cushman Motor Works, a dissolved corporation" as party of the third part, was executed with Charles D. Ammon signing as president of party of the first part and president of party of the second part and W. L. Cooper, M. R. Sherwood, Pearl DeLes Dernier, and E. E. McGrew, signing as trustees, for the party of the third part. The agreement provided in part as follows:
WHEREAS, the stockholders of Cushman Motor Works, on or about March 6th, 1933, by a vote of more than a two-thirds majority, dissolved said corporation and directed that the assets of said corporation be liquidated, and
WHEREAS, the trustees of the third party, who were the directors and managers of the affairs of said corporation at the time of its dissolution have upon several occasions attempted to sell and dispose of the*1214 assets of said corporation at public and private sale and have not heretofore received any satisfactory offer for said assets, and
WHEREAS, the stockholders of the third party, at a meeting held June 15th, 1934, approved the reorganization according to the within contract, and
WHEREAS, The Cushman Corporation, party of the second part, acquired for reorganization purposes and for the benefit of the preferred stockholders of the third party, certain assets,
THEREFORE, the party of the third part agrees to transfer to the party of the first part all the assets of the party of the third part, including all its property, both real and personal, accounts, notes, cash, etc., and all ot its intangible property, rights, good will and interests; including specifically, but not limited to the following:
(a) Real estate known as Lots 13 to 17 inclusive; and lots 31 to 41 inclusive; and the West 65 feet of Lot 3 and the West 65 feet of the North 26 feet of Lot *1297 4, all of Clark & McFarland's Addition to the City of Lincoln, Lancaster County, Nebraska; and Irregular Tract, Lot 31, in the Northwest quarter of Section 24, Township 10, Range 6, Lincoln, Lancaster County, Nebraska; *1215 and the Northwest quarter of Section 13, Township one, East, Rural Municipality of Rockwood, Manitoba, Canada.
(b) All the personal property owned by the party of the Third part, including machinery, equipment, jigs, dies, patterns, merchandise, finished and unfinished, wherever located, including but not limited to that in Lincoln, Nebraska; Minneapolis, Minnesota; Portland, Oregon; Stockton, California; Winnipeg, Canada; Kansas City, Missouri; Exeter, Nebraska, and other places, either in warehouse or consigned.
(c) All accounts, notes, contracts, bills of exchange or other evidences of indebtedness, including bank deposits.
(d) The good will, patents, trademarks and every other asset of every kind whatsoever, with the exception of a right of action against former officers or directors of the third party.
* * *
The party of the first part agrees to assume and discharge the debts now owed by the party of the third part, including taxes, said indebtedness amounting to $8,846.46 and consisting of the following:
* * *
and it is specifically agreed that the party of the first part is not and shall not become liable for any future claims or indebtedness growing out of*1216 suits not now filed or from obligations not now a matter of intelligence or record to the first party.
The party of the first part agrees to issue and deliver to the pirty of the third part, or their order, as requested by the third party, not to exceed Two Thousand Nine Hundred and Thirty-Eight (2,938) shares of the common stock of the first party, said stock being of the par value of Ten Dollars ($10.00) per share, and shall be accepted and used by the party of the third part solely for the benefit and use of the preferred stockholders of said party.
For any of the preferred stock of the third party, surrendered to the first party before October 1, 1934, properly endorsed, the party of the first part agrees to deliver one share of their stock above named, for each share of preferred stock of the third party so surrendered.
The party of the first part further agrees to pay any of the stockholders of the third party, preferring to receive cash for their stock, who shall deliver to the first party, at any time, their certificates of preferred stock of the third party, properly endorsed, the sum of Seven Dollars and Fifty Cents ($7.50) for each share so surrendered.
The parth*1217 of the first part further agrees that any of the preferred stockholders of the third party accepting the common stock of the first party as above provided, shall have the right to purchase, before October 1, 1934, two additional shares of said first party, by paying for the same at the rate of Ten Dollars ($10.00) per share in cash or its equivalent in value to the party of the first part.
The party of the first part agrees further to repurchase any of their stock, which may be issued to preferred stockholders, of the third party, paying for the same in cash as follows: Stock surrendered before December 31, 1934, at the rate of $7.50 per share; Stock surrendered during the year of 1935 at the rate of $8.00 per share; Stock surrendered during the year of 1936 at the rate of $9.00 per share; Stock surrendered during the year of 1937 at the rate *1298 of $10.00 per share. The first party shall have no obligation to repurchase any stock after December 31, 1937.
The party of the second part agrees to turn over to the first party all of its merchandise, machinery, equipment and patterns of every kind and receive one hundred shares each of the par value of $10.00 of the capital*1218 stock of the first party, said shares being in payment for the expenses paid and services rendered by the party of the second part, necessary to this reorganization.
The assets purchased by Ammon at the sheriff's sale on May 16 were not removed from the Motor Works plant and he made no effort to take possession or to move them away. The former directors of Motor Works as trustees had operated the plant after the dissolution of that corporation on March 6, 1933, and, except for a shutdown on the day of the sheriff's sale, the plant had been operated continuously. Their operations continued after the sale as they had before. Subsequent to the creation of Cushman on August 21, 1934, and pursuant to the contract of August 22, 1934, the entire assets of the plant were transferred to the new corporation, which entered them on the books in the same amounts as they had been carried on the books of Motor Works.
The 2,938 shares of Cushman stock to be issued under the contract of August 22 for the use and benefit of parties who had held Motor Works preferred stock were issued direct to such parties. Parties who had owned common stock of Motor Works were given the opportunity to receive*1219 one share of Cushman stock for each 20 shares of Motor Works common stock owned by them. The 100 shares of Cushman stock which the Cushman Corporation was to receive under the contract of August 22, 1934, were issued directly to Charles D. Ammon or his order and covered the assets acquired by him at the sheriff's sale. The number of shares issued for such assets was fixed at 100 shares by treating 88 shares as replacing the 88 shares of Motor Works preferred stock which had been used by Ammon in his redemption suit against Motor Works and the remaining shares as covering the costs incurred by him in connection with such suit and the sale of the assets. Pursuant to the contract of August 22, over 80 percent of those who had held stock in Motor Works became stockholders in Cushman.
In addition to the shares received by him on the basis of his stock in Motor Works, Ammon applied the indebtedness held by him against Motor Works toward the purchase of additional Cushman stock at the actual cost to him of the Motor Works accounts so used.
In determining the deficiencies against Cushman, the basis of $16,146.76 used by the respondent for the assets sold to Ammon at the sheriff's*1220 sale was arrived at by giving effect to the said sale and using the same basis for Cushman as the assets would have had to *1299 Ammon by reason of his purchase thereof. The parties have stipulated that the value of the assets so purchased by Ammon on May 16, 1934, was $16,146.75.
OPINION.
TURNER: We are here concerned only with that portion of Motor Works property purchased by Ammon at the sheriff's sale on May 16, 1934, and thereafter transferred to Cushman under the contract of August 22, 1934, and our question is whether or not the said property was acquired by Cushman from Motor Works pursuant to a plan of reorganization as the term "reorganization" is defined in section 112(g)(1) of the Revenue Act of 1934. If so, the property in question retained the same basis in the hands of Cushman as it had in the hands of Motor Works. Sec. 113.
Counsel for petitioners have refused to rest their claim of reorganization on any specific definition of that term, but claim that the transaction or transactions fall within one or all of the provisions of section 112(g)(1)(B) to (E), inclusive. 1 They argue that either the stockholders of Motor Works exchanged their stock for*1221 the stock of Cushman under section 112(b)(3) of the act, 2 or that Motor Works exchanged its property, including the property purchased by Ammon at the sheriff's sale, solely for stock and securities of Cushman under section 112(b)(4). 3
*1222 The respondent, to the contrary, contends that the property in question was not acquired by Cushman from Motor Works pursuant to a plan of reorganization, but that Ammon acquired it by purchase at the sheriff's sale and that he or the Cushman Corporation transferred the property to Cushman upon its organization and that the *1300 basis for such property in the hands of Cushman is the price paid by Ammon therefor.
The facts show that Motor Works had been dissolved some 17 months before the organization of Cushman and the acquisition by it of the property with which we are concerned and the rule generally is that the dissolution of a corporation ends its existence for all purposes unless by statute the life of the corporation is extended for the purpose of winding up its affairs. See the discussions with respect to the existence of corporations in ; ; affd., ; and . Motor Works was a Nebraska corporation and we find nothing in the Nebraska statutes extending the life of a corporation beyond the*1223 date of its dissolution. The Nebraska statute provides that upon dissolution the directors or managers of the affairs of the corporation become trustees for the creditors and stockholders, and as such have authority to use the name of the corporation in winding up its affairs and to institute and defend suits necessary thereto, but there is no extension of corporate life. 4
*1224 It is claimed by the petitioners, however, that the dissolution of Motor Works was a part of a plan for its reorganization. A plan for the reorganization of Motor Works had been proposed by Ammon in December 1932, but had been opposed by a number of stockholders on the ground that the stockholders would realize more through the sale of the business as a going concern than through reorganization, and at the annual meeting on January 9, 1933, Fred D. Stone had been instructed to look for a buyer for "the complete assets and business" of the corporation. At the same meeting Ammon had been named chairman of a committee to consider further the idea of reorganization. At or prior to the adjourned meeting of the *1301 stockholders on February 13 following, Stone had reported that no buyer for the "complete business" had been found, and Ammon reported that no reorganization had been worked out. The plan as proposed had contemplated the consolidation or merger of Motor Works, the Easy Manufacturing Co., and the McGrew Machine Co., but, as the result of litigation and disputes within Motor Works, the McGrew Machine Co. withdrew from participation in any plan or plans of reorganization. *1225 By February 25, 1933, the situation was such that some action with respect to Motor Works was considered essential, and a special meeting of its stockholders was called for March 6, the declared purpose being that of either reorganizing and raising at least $65,000 in cash, or of dissolving and liquidating. At the meeting so called the action taken was that of dissolution and there is nothing in the resolution of dissolution indicating that the dissolution was pursuant or in any way related to an existing plan of reorganization or that the stockholders, in taking such action, had any thought of reorganizing. The directors were instructed to sell the assets, wind up the business, and make distribution to the stockholders. There was some testimony by Ammon to the effect that his attorneys had advised him that the merger could best be accomplished through the dissolution of Motor Works, but in that connection the record shows that the resolution of dissolution adopted at the stockholders' meeting of March 6, 1933, was prepared by Ammon's attorneys and the letter from them transmitting the resolution to Ammon stated that they favored the selling of the property under Ammon's judgment*1226 "rather than at dissolution sale." Nevertheless the stockholders voted dissolution.
There seems to be no question that Ammon at all times hoped for and preferred the continuation of the business of Motor Works in a new corporation rather than dissolution and liquidation. The facts show however that this preference of Ammon's remained a hope only and did not take definite shape or become a reality until long after Motor Works had ceased to exist and then only after efforts to sell the assets and business had failed, efforts in which Ammon himself had joined. It was not until these things had occurred, until judgment on Ammon's stock redemption suit had been reentered on August 1, 1933, the receivership proceedings had been dismissed in February of 1934, and the sheriff's sale had been held on May 16, 1934, that those who had been stockholders of Motor Works voted on June 15, 1934, to organize a new corporation to acquire the assets and business previously owned and operated by Motor Works. While the interests to be received by the former stockholders of Motor Works were substantially, if not exactly, the same as that which had originally been proposed by Ammon, the new corporation*1227 was different. His original proposition *1302 had contemplated the inclusion of the Easy Manufacturing Co. and the McGrew Machine Co. The new corporation as determined upon at June 15, 1934, included only the assets and business which had formerly belonged to Motor Works.
With respect to the applicability of the reorgainzation provisions of the revenue act, the situation here is very comparable to that dealt with in , and much that was said there is equally applicable here. When the plan which resulted in the organization of Cushman was finally agreed upon Motor Works had long since ceased to exist and it was not a party to any reorganization to which Cushman was or might have been a party. Accordingly Cushman did not acquire any assets from Motor Works under or pursuant to a plan of reorganization and the assets with which we are here concerned did not carry with them into the hands of Cushman the basis for gain or loss and depreciation which they had in the hands of Motor Works. Cf. *1228
In view of the conclusion reached above, it becomes unnecessary to consider whether Ammon's purchase of assets at the sheriff's sale should be treated as a purchase of assets at the sheriff's sale contends, or whether he was merely acting for all Motor Works stockholders, as petitioners contend. The respondent in his determination of deficiency against Cushman has used $16,146.76 as the basis for the assets in question. We are not advised as to their fair market value when Motor Works was dissolved and they came into the hands of the Motor Works directors as trustees for the stockholders and creditors and, except possibly for some in formation as to the amounts at which they were carried on the Motor Works books and later entered on the Cushman books, the only information we have as to value or cost is their selling price at the sheriff's sale and the stipulation of the parties that at the date of the sheriff's sale their fair market value was $16,146.76. There is nothing to show that the correct basis is different from that used by the respondent and his determination with respect thereto is accordingly sustained.
Having determined that there*1229 was no reorganization to which Motor Works was a party within the meaning of the statute, dificiencies will be entered in the cases of Charles D. Ammon and Emah B. Ammon, husband and wife, and the Estate of John F. Ammon in the amounts as stipulated by the parties at the hearing.
Decisions in Docket Nos. 96334 and 96335 will be entered in the amounts as stipulated. Decision in Docket No. 96336 will be entered under Rule 50.
Footnotes
1. SEC. 112. RECOGNITION OF GAIN OR LOSS.
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(g) DEFINITION OF REORGANIZATION. - As used in this section and section 113 -
(1) The term "reorganization" means * * * (B) the acquisition by one corporation in exchange solely for all or a part of its voting stock; of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of another corporation; or of substantially all the properties of another corporation; or (C) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred, or (D) a recapitalization, or (E) a mere change in identity, form, or place of organization, however effected. ↩
2. SEC. 112. RECOGNITION OF GAIN OR LOSS.
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(b) EXCHANGES SOLELY IN KIND. -
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(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. ↩
3. (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. ↩
4. 24-107. Same, Dissolved, Affairs How Settled. Upon the dissolution, by the expiration of the term of its charter, or otherwise, of any corporation now existing, or hereafter created, and unless other persons be appointed by the legislature, or by some court of competent authority, the directors or managers of the affairs of such corporations, acting last before the time of its dissolution, by whatever name they may be known in law, and the survivors of them, shall be the trustees of the creditors and stockholders of the corporation dissolved, and shall have full power to settle the affairs of the same, collect and to pay outstanding debts, and divide among the stockholders the moneys and property that shall remain, in proportion to the stock of each stockholder paid up, after the payment of debts and necessary expenses; and the persons so constituted trustees shall have authority to sue for and recover the debts and property of the dissolved corporation, by the name of the trustees of such corporation, describing it by its corporate name, and shall be jointly and severally responsible to the creditors and stockholders of such corporation, to the extent of its property and effects that shall come into their hands; and no suit against any such corporation shall abate in consequence of such dissolution, and said trustees may be made parties by scire facias;↩ and all liens of judgments and decrees of any courts of equity, existing at the time of such dissolution, either in favor of or against such corporation, shall continue in force in the same manner as if such dissolution had not taken place: * * *