*879 Respondent's determination that the individual petitioners received taxable distributions in liquidation in 1929, under the Revenue Act of 1928, section 115(c), and that the corporate petitioner was the owner and operator of a certain business, and, therefore, the proper taxpayer of the income taxes arising upon the income of that business for the taxable period, for which the pending deficiency was determined against it, is sustained.
*415 These consolidated proceedings seek redetermination of deficiencies in income taxes as follows: In Docket Nos. 67675, 67676, and 67682 for the 1929 in the amounts of $7,320.42, $7,322.82, and $3,500.64, respectively, and in Docket No. 67677 for the fiscal year ended February 28, 1930, in the amount of $6,327.99.
The only question involved in Docket Nos. 67675, 67676, and 67682 is whether the petitioners therein each received in 1929 a liquidating dividend from the Angelo Ice Co. In Docket No. 67677 errors were assigned pertaining to the*880 correctness of the amount of the deficiency. However, it was stipulated by the parties that the deficiency of $6,327.99 is correct. The only controversy remaining between the parties in that proceeding is whether the agreed deficiency constitutes the tax liability of the Service Ice Co.
FINDINGS OF FACT.
The Angelo Ice Co. was incorporated under the laws of the State of Texas on March 1, 1926, for the purpose of manufacturing and *416 selling ice, with an authorized capital stock of $80,000 consisting of 800 shares of the par value of $100 each. Such shares of stock were issued to three brothers, W. F. Kennemer, M. D. Kennemer and H. C. Kennemer, petitioners herein, who were also the directors and officers of the company, as follows:
| Amount paid | Shares received | |
| W. F. Kennemer | $20,595.00 | 290 |
| M. D. Kennemer | 20,595.00 | 290 |
| H. C. Kennemer | 24,946.74 | 220 |
| Total | 800 |
The principal office of the company was situated in San Angelo, Tom Green County, Texas. It acquired certain lots located in San Angelo, Texas, from R. Wilbur Brown and wife by deed dated September 27, 1927, and certain lots from W. F. Kennemer and M. D. Kennemer by deed dated*881 March 2, 1926, together with the ice plant and all other improvements located thereon, as well as all delivery equipment, which constituted its ice plant. On March 15, 1928, it acquired two other pieces of property situated in Miles Addition to the city of San Angelo.
It was suggested by C. E. Kennemer, the eldest of four Kennemer brothers, who advised and guided his brothers, petitioners herein, in their business affairs and investments without receiving any financial compensation therefor, that the Angelo Ice Co. plant could be sold advantageously and that they invest the proceeds in several enterprises over a scattered territory, to which they agreed. Thereupon C. E. Kennemer negotiated a sale of the Angelo Ice Co. plant to the American Service Co. At a joint meeting of the stockholders and directors of the Angelo Ice Co. on November 27, 1928, a resolution was unanimously adopted accepting the offer of the American Service Co. of $250,000 for the purchase of the "physical properties and assets" of the Angelo Ice Co., including the lots located in San Angelo, Texas, conveyed to it by deed of September 27, 1927, and by deed of March 2, 1926, together with the ice plant and all*882 other improvements located thereon, as well as all delivery equipment and other properties belonging to the company, except its moneys, notes, accounts and choses in action, and authorizing its president and secretary, upon payment of the $250,000 to execute and deliver instruments of conveyance to the purchaser as may be proper and necessary to vest in the purchaser the title of the Angelo Ice Co. in such properties, "including all real estate and personal property now owned by the Corporation, except its monies, notes, accounts and choses in action, which are expressly reserved and do not pass through and by such sale."
*417 On January 12, 1929, the Angelo Ice Co. delivered to the purchaser proper and suitable conveyances covering the property sold, including a bill of sale dated December 29, 1928, conveying and transferring to the American Service Co. among other things therein described the following:
* * * the good will of said Angelo Ice Company and its business, and the right to the use of the name "Angelo Ice Company" either as a trade name or for the name of a corporation to be organized by the said American Service Company, its successors and assigns, it being*883 the intention of this instrument to convey to the Grantee herein named, its successors and assigns, all assets and properties of every character of the Angelo Ice Company, with the exception only of its bills and accounts receivable and its cash on hand and in the bank.
At the same time there was also delivered an agreement in writing executed in behalf of the Angelo Ice Co. under date of December 29, 1928, which, after referring to a contract of December 3, 1928, between the Angelo Ice Co. and American Service Co., provides as follows:
This is to evidence our agreement that upon the closing of the deal set out in said contract we will promptly cause the corporate name of Angelo Ice Company to be changed to some other name, sufficiently different not to be confused with the same so that the name of Angelo Ice Company may become available for such corporation, if any, as you, your assigns or nominees may choose to organize under the laws of the State of Texas, or of any other state, for the purpose of acquiring the assets or properties mentioned in said contract, or any of them, or otherwise.
The amount of $250,000 was received and accepted by the Angelo Ice Co. and deposited*884 by it on December 13, 1928, in its corporate account with the Central National Bank of San Angelo, Texas. The assets and liabilities specifically excepted from the sale were retained by the Angelo Ice Co.
On January 14, 1929, $240,000 of the $250,000 above referred to was transferred from San Angelo, Texas, to Dallas, Texas, and deposited in the Republic National Bank of Dallas in the name of "Kennemer Brother", subject to be withdrawn by check upon the joint signature of W. F. Kennemer and H. C. Kennemer, who were acting for M. D. Kennemer, also. M. D. Kennemer at that time and for some time thereafter was in ill health and rarely went to Dallas.
Under date of January 17, 1929, attorneys at San Angelo, representing the Angelo Ice Co. and the Kennemer brothers, in a letter addressed to the attorneys representing the American Service Co. at Dallas, stated in part as follows:
We are enclosing you herewith proper papers for changing the name of the Angelo Ice Company, except that the name of the new concern will have to be written in by you, and the Directors understand that.
We also enclose check for $50.00 to cover amendment to the charter in your favor and letter written*885 by us to the Secretary of State, enclosing the papers and asking that they be filed and approved as an amendment to the Charter.
We enclose this letter out of an abundance of precaution, thinking that you might prefer that we send in the papers as the attorneys for the Ice Company.
*418 The papers referred to in the above letter consisted of (1) a certificate under date of January 14, 1929, signed by Mr. D. Kennemer as secretary of the Angelo Ice Co., certifying that the resolution set forth therein changing the name of the Angelo Ice Co., of San Angelo, Texas, to (blank) of San Angelo, Texas, and instructing the board of directors to certify such fact to the secretary of state so that the charter of the corporation may be properly changed and amended so as to show the new name; and (2) a certificate under date of January 14, 1929, signed by M. D. Kennemer, Letha Kennemer, and Ruby Kennemer as the board of directors of the company, certifying that the name of the company had been changed from Angelo Ice Co., of San Angelo, Texas, to (blank) of San Angelo, Texas.
Prior to the sale of the plant of the Angelo Ice Co. and thereafter, C. E. Kennemer in behalf of his brothers*886 sought and negotiated for available ice plants. On January 11, 1929, he made an offer to the Crystal Ice Co. of Beaumont, Texas, of $65,000 for the purchase of an ice plant, located at Paris, Texas. This offer was accepted, and on January 14, 1929, the purchase price of $65,000 was paid out of the $240,000 deposit above referred to and title to such plant was taken in the name of W. F. Kennemer. On January 25, 1929, through negotiation by C. E. Kennemer, an ice manufacturing plant located in Dallas, Texas, owned by the Standard Ice Co. of Houston, Texas, was purchased for $65,000, of which $46,250 was paid in cash out of the $240,000 deposit. Title to such plant was taken in the name of W. F. Kennemer. On January 30, 1929, a lot in Corsicana, Texas, was purchased for $6,000, which was also paid out of the $240,000 deposit, title to such lot being taken in the name of H. C. Kennemer. Thereafter an ice plant was erected on such lot at a cost of $41,439.46, which was also paid out of the above $240,000 deposit.
On May 13, 1929, the Service Ice Co. of Dallas, Texas, one of the petitioners herein, was caused by legal counsel originally employed by C. E. Kennemer to be chartered*887 by the State of Texas for the purpose of manufacturing and selling ice to the public with an authorized capital of $200,000 divided into 2,000 shares of the par value of $100 each. Its capital stock was issued to the three Kennemer brothers in the same proportions respectively as they held in the Angelo Ice Co., except that the shares to which H. C. Kennemer was entitled were issued to C. E. Kennemer, Jr., for the benefit of H. C. Kennemer, and except that four qualifying shares were issued, two shares each to Howard Campbell and John W. Miller. Such shares were issued by the Service Ice Co. in exchange for the transfer to it of the properties which had been taken in the *419 name of W. F. Kennemer and H. C. Kennemer, together with the cash remaining of the $240,000 deposit and all the assets of the Angelo Ice Co. remaining after the payment of its liabilities. Proper conveyances transferring such properties to the Service Ice Co. were executed and delivered and recorded by the company in the deed records of the counties in which the properties were situated.
As a result of its failure to pay its franchise tax to the State of Texas, which was due and payable on May 1, 1929, the*888 Angelo Ice Co. on July 2, 1929, forfeited its right to do business. Except as heretofore stated, no formal action was taken by the stockholders or directors to dissolve the Angelo Ice Co. and its outstanding stock was not returned to the company for cancellation.
On February 28, 1929, at the close of its fiscal year, the Angelo Ice Co. made its Federal income tax return for the fiscal year ending February 28, 1929, showing a net income of $143,975.60, consisting of its operating profits and also the gain which the company realized on the sale of its ice plant to the American Service Co.
On February 4, 1930, an examining officer of the Bureau of Internal Revenue made an investigation of the income tax liability of the Angelo Ice Co. for the fiscal years ended February 28, 1928, and February 28, 1929. A copy of the examining officer's report dated February 4, 1930, was mailed February 26, 1930, to the Angelo Ice Co., receipt of which was acknowledged in a letter written upon the stationery of "Service Ice Company", Dallas, Texas, dated March 7, 1930, signed "W. F. Kennemer." This report contained among other things, the following statement:
* * * About 1/13/29 the assets of*889 this company were sold to American Service Co. and on date of 1/14/29 the funds of the company were transferred to the Republic National Bank, Dallas, Texas being $240,000.00, and placed in the name of "Kennemer Bros."
While no record of a formal liquidation has been found it appears that actual liquidation began on date of Jan. 14, 1929, since from that date these funds were disbursed for assets that were taken in the individual names of the Kennemer brothers.
The charter was not surrendered but was forfeited on date of 7/2/29, for nonpayment of franchise tax.
Thereafter an auditor in Dallas, Texas, who had audited the books of the Angelo Ice Co. at the suggestion of C. E. Kennemer and had prepared its return for the fiscal year ended February 28, 1929, was instructed to submit the examining officer's report of February 4, 1930, the income tax return of the company, and other data to legal counsel at Dallas, Texas. As a result, a special joint meeting of the stockholders and directors of both the Angelo Ice Co. and the Service Ice Co. was held on April 15, 1930, for the purpose of correcting "the unintentional error and mistake in transferring the assets of Angelo *420 *890 Ice Company to Kennemer Bros. and in turn, to Service Ice Company, a corporation, instead of perpetuating such assets in the name of Angelo Ice Company." At such meeting a resolution was adopted "in the nature of a correction of said mistake", providing, among other things, in substance that the Service Ice Co. be dissolved; that the Angelo Ice Co. be revived, its capitalization increased from $80,000 to $200,000 of the par vlaue of $100 per share, its name changed to Service Ice Co., and its place of business changed from San Angelo, Texas, to Dallas, Texas; and that the president and secretary be authorized to carry out the purposes of the resolution. Accordingly on April 26, 1930, there was caused to be issued by the Secretary of the State of Texas a certificate of dissolution of the Service Ice Co. of Dallas, Texas. On the same day an amendment to the charter of the Angelo Ice Co., changing its name to Service Ice Co., its place of business to Dallas, Texas, and increasing its capital stock to $200,000, was also filed with the Secretary of State of Texas, wherein it is stated that the charter of the Angelo Ice Co. had been revived by the State Department on April 14, 1930.
*891 On May 5, 1930, there was filed with the collector of internal revenue at Dallas, Texas, a return for the period, May 13, 1929, to April 16, 1930, by the company originally incorporated as the Service Ice Co. wherein it was stated that there had been no operations, that no business had been transacted, that no income had been received from any source, and that the company had failed to acquire title to its assets legally.
On the same date, May 5, 1930, an income tax return was filed by the company originally incorporated as the Angelo Ice Co. under the name of the Service Ice Co. for the fiscal year ended February 28, 1930, showing income of $53,091.01 and a tax liability thereon of $5,928.49. In such return there was reported not only the gross income received from the operations of the three ice plants located at Dallas, Corsicana, and Paris, respectively, but also the income derived from the use of the assets of such company remaining after the sale of the San Angelo ice plant. Upon an investigation the revenue agent changed the amount of the income to $58,962.32 and the amount of the tax liability to $6,327.99. However, in the revenue agent's report of August 4, 1931, it*892 was claimed that such income was not the income of the Angelo Ice Co. as reported but the income of the original Service Ice Co. It was therein stated that the Angelo Ice Co. was entitled to a refund. It was suggested under date of January 26, 1932, by the internal revenue agent in charge that the Angelo Ice Co. should file a claim for refund for the amount of $5,928.49 in order to protect its interests. Such claim for refund of the income tax in the amount of $5,928.49 was filed in behalf of the *421 Angelo Ice Co. with the collector of internal revenue on February 23, 1932.
The Kennemer brothers, petitioners herein, made no return as partners nor did they, as individuals, report any gain or loss from the operations during the period January 14 to May 13, 1929, during which period the money received from the American Service Co. and property purchased therewith remained in the name of Kennemer Brothers.
The respondent determined that each of the Kennemer brothers, petitioners herein, received a liquidating dividend of the Angelo Ice Co. as follows:
| Shares owned | Received | Cost | Profit realized | |
| W. F. Kennemer | 290 | $79,166.40 | $20,595.00 | $58,571.40 |
| M. D. Kennemer | 290 | 79,166.39 | 20,595.00 | 58,571.39 |
| H. C. Kennemer | 220 | 60,057.27 | 24,946.74 | 35,110.53 |
*893 OPINION.
LEECH: The first question is whether the Kennemer brothers received dividends in liquidation within the meaning of section 115(c) of the Revenue Act of 1928.
"Liquidation is a question of fact." ; . The adoption or failure to adopt a resolution of dissolution or liquidation is not controlling or determinative, nor the fact that the company was not formally dissolved but was later revived after forfeiture of its charter for failure to pay the franchise tax. ; affirmed in ; certiorari denied, . That the brothers continued to hold the stock of Angelo Ice Co. after the questioned receipt of its assets by petitioners does not contradict the fact of liquidation. . In , the Board stated:
We can not presume liquidation to be in process merely because a resolution of the stockholders authorized the directors*894 to take such action. Liquidation is not a technical status which can be assumed or discarded at will by a corporation by the adoption of a resolution by its stockholders, but an existing condition brought about by affirmative action, the normal and necessary result of which is the winding up of the corporate business.
In that proceeding the Board defined "liquidation" when applied to a company "as the operation of winding up of its affairs by realizing its assets, paying its debts and appropriating the amount of profit and loss."
It may be that the original intention was that the Angelo Ice Co. should sell its assets, change its name, and buy other properties. *422 There are many things in the record that indicate this intention. However, if that were so that intention was obviously abandoned. The corporation did not, in fact, do that. The fact controls the tax incidence here. ; ; .
There is no showing that the Angelo Ice Co. continued, after the sale of its ice plant in San Angelo, to operate as a corporation*895 or that it transacted any business except the payment of its debt. If it had been intended from the outset to continue that company in existence and if the Kennemer brothers held the proceeds of the sale and acquired the properties purchased in their own names for convenience and as trustees for the Angelo Ice Co., there was no necessity whatever for the organization of the Service Ice Co.
C. E. Kennemer, who negotiated the sale of the ice plant of the Angelo Ice Co. and the purchase of the three ice plants acquired with the proceeds from the sale of the San Angelo ice plant and whose advice and suggestions were followed throughout, testified in substance that, although the sale was made in November 1928, it was not closed until January 1929 because they wanted to close their business in an orderly way and they knew that if the public found out that they were getting out of business it would be hard for them to collect their accounts; that it was contemplated at all times to reinvest "all the money they had in the Angelo Ice Company into another company, after their debts had been paid"; that the American Service Co. bought the right to operate in the name of Angelo Ice Co.; that*896 it was stipulated that his brothers could not operate in Tom Green County under the name of the Angelo Ice Co.; that because of that reason, "when they brought that money to Dallas, they changed it from the Angelo Ice Company to Kennemer Brothers until such time as they could secure a charter with which to carry on"; and that they used all the assets of the Angelo Ice Co. remaining "after they paid their indebtedness they owed at that time they sold out" for the organization of the Service Ice Co. A consideration of this testimony, together with the transfer of the amount of $240,000 of the proceeds of the sale of the San Angelo Ice plant to Kennemer Brothers, the use thereof by them for the purchase of ice plants in other localities in their individual names, the payment of the debts of the Angelo Ice Co., the organization of a new corporation, the transfer to it of the properties purchased together with the funds remaining of the $240,000 deposit and other assets of the Angelo Ice Co. remaining after the payment of its debts, and the abandonment of the business franchise of the Angelo Ice Co., leads irresistibly to the conclusion that a liquidation of the business and affairs of*897 the Angelo Ice Co. was intended and carried out.
*423 Petitioners argue that they are relieved from the tax here by the Revenue Act of 1928, section 112(g). 1
The validity and actuality of the organization and existence of the Service Ice Co. can not be doubted on this record. .
To support petitioners' position, the contested distribution must have then been "in pursuance of" the plan of reorganization finally executed. *898 ; reversed, , but not on this point; .
Certainly, the transfer of the properties acquired and constructed with the $240,000 deposited in Kennemer Brothers' account in the Dallas bank and the conveyance of those properties by that company to the Angelo Ice Co. were indispensable links in the consummation of any statutory reorganization that actually did occur. Revenue Act of 1928, sec. 112(i). 2 But a joint resolution of the officers and directors of both these companies, adopted on the 15th day of April 1930, immediately after the revival of the charter of the Angelo Ice Co., states that the transfer of these assets to the Service Ice Co. was unintentional and a mistake. Then the Service Ice Co. in its return for the period in dispute, denies that it ever, rightfully owned these properties or operated them and asserts that such assets and business were, in fact, those of the Angelo Ice Co. And, immediately upon the "correction of the mistake" the Service Ice Co. was dissolved. Obviously, this record conclusively contradicts the existence, *899 at the time of the disputed distribution, of a plan for any such reorganization, statutory or otherwise, as may have been ultimately effected here.
The fact, decisive here, is that the Angelo Ice Co. was liquidated. It may be that a reorganization of some corporation followed. But *424 such reorganization, if it did occur, is not before us. The liquidation, upon*900 which, alone, the pending deficiency arose, was complete before such reorganization as may have been effected after the liquidation, was planned.
The next question to be considered is whether the agreed deficiency of $6,327.99 constitutes the tax liability of the Service Ice Co. During the fiscal year ended February 28, 1930, the Angelo Ice Co. forfeited its right to do business. Its former assets had been transferred to a new corporation, the Service Ice Co. The Angelo Ice Co. was then without assets and business, and, so far as the record discloses, it transacted no business after January 14, 1929, excepting the payment of its indebtedness. On the other hand, the Kennemer brothers had received, on January 14, 1929, and thereafter held the greater part of the assets of that company in their individual names. As soon as the Service Ice Co. was incorporated, all the assets were transferred by them to the latter company. The Angelo Ice Co. was passive and without assets, while the Service Ice Co. owned and held all the assets and was the active, operating company. It was not until April 1930, after the expiration of the fiscal year here involved, that the Angelo Ice Co. was*901 revived, and it was not until then that the Service Ice Co. was dissolved. We are not concerned with what was done after the close of the fiscal year ended February 28, 1930. The status of the companies during the fiscal year here involved is controlling. Since the assets and business were owned and operated by the Service Ice Co. during that fiscal year, it follows that the income therefrom is the income of the Service Ice Co. and that it, and not the revived Angelo Ice Co., is liable for the income taxes thereon.
Decision will be entered for the respondent.
Footnotes
1. SEC. 112. RECOGNITION OF GAIN OR LOSS.
* * *
(g) Distribution of stock on reorganization.↩ - If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized.
2. SEC. 112. RECOGNITION OF GAIN OR LOSS.
* * *
(i) Definition of reorganization. - As used in this section and sections 113 and 115 -
(1) The term "reorganization" means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation), or (B) 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 (C) a recapitalization, or (D) a mere change in identity, form, or place of organization, however effected. ↩