Estate of Benjamin v. Commissioner

Estate of Isadore Benjamin and Florry D. Benjamin, et al., 1 Petitioners, v. Commissioner of Internal Revenue, Respondent Estate of Benjamin v. Commissioner Docket Nos. 58150, 58151, 58152, 58153 United States Tax Court 28 T.C. 101; 1957 U.S. Tax Ct. LEXIS 214; April 22, 1957, Filed *214 Decisions will be entered under Rule 50. Certain amounts withdrawn from a corporation by three of its stockholders held on the facts to be loans and not dividends. Cyrus A. Neuman, Esq., for the petitioners. Henry C. Stockell, Jr., Esq., and Roger L. Davis, Esq., for the respondent. Harron, Judge. HARRON *101 The Commissioner determined deficiencies in income tax for the taxable year 1949, as follows: Docket Petitioners Deficiencies No. 58150 Estate of Isadore Benjamin, et al $ 22,547.20 58151 Laurence S. Levenson, et al 2,383.34 58152 Samuel C. Levenson, et al 17,121.26 58153 Jacob Sher, et al 20,876.83 The primary question is whether advances of East Flagler corporation on April 13, 1949, aggregating $ 152,000, to three of its stockholders who held most of the stock, constituted loans or, in part, taxable dividends. Other adjustments are not contested. *102 FINDINGS OF FACT. All of the petitioners were residents of Miami, Florida, during the taxable year, and they filed their respective income tax returns for 1949 with the collector of internal revenue for the district*215 of Florida. The issues relate to Isadore Benjamin, Samuel Levenson, and Jacob Sher, and also Laurence Levenson, a son of Samuel Levenson. They are, therefore, sometimes referred to hereinafter as the petitioners. Their wives are involved only because joint returns were filed. Benjamin, Sher, and Samuel Levenson (hereinafter referred to as Levenson) were boyhood friends in Louisville, Kentucky, and they have been closely associated in business ventures throughout their adult years. They moved to Miami in 1924, where they invested in real estate. They suffered severe losses in the real estate depression in Miami in 1925 and 1926. Benjamin, Sher, and Levenson organized West Flagler Amusement Company, Inc. (hereinafter referred to as West Flagler), in 1930 under the laws of Florida. Petitioners were the controlling stockholders, officers, and directors of West Flagler. Sher owned about 30 per cent of the stock of West Flagler, Samuel and Laurence Levenson owned about 30 per cent of the stock, Benjamin owned 18 or 20 per cent, and the rest of the stock was owned by 4 or 5 minority stockholders. Sher was president of West Flagler during the years 1930 to 1950. West Flagler, since*216 its organization, has owned and operated a dog racetrack in Miami which is known as West Flagler Kennel Club. 118 East Flagler Building Company (hereinafter referred to as East Flagler), a Florida corporation, was organized in 1933. In 1947, there were outstanding 4,305 shares of common stock of East Flagler, all of which were owned by a bank in Atlanta, Georgia. The assets of East Flagler consisted of two pieces of improved real estate which comprised a rectangular strip of land extending through one city block in the downtown business section of Miami. Two buildings are located on this strip of land. One is a 10- or 12-floor office building, the Langford Building; the other is a store building, 118 East Flagler Building. The rear of each building is contiguous, one with the other; the front of each building faces upon the street running along each end of the rectangular strip of land. All of the income of East Flagler was derived from rents received from the tenants of the two buildings. All of the 118 East Flagler Building was leased to one tenant which operated a store known as the Three Sisters. Most of the rents received from the Langford Building were fixed by leases. *217 On November 12, 1947, Benjamin, Levenson, and Sher purchased allof the capital stock of East Flagler at a total cost of $ 608,000. For all of the shares of stock, one certificate was issued in the names, "Jacob Sher, Samuel C. Levenson, and Isadore D. Benjamin." Benjamin, *103 Levenson, and Sher each acquired an undivided one-third interest in all of the capital stock of East Flagler on the date of the purchase. As of November 12, 1947, there was a first mortgage on the improved real estate owned by East Flagler, the unpaid balance of which amounted to $ 277,000. As of November 12, 1947, East Flagler refinanced the first mortgage with the New England Mutual Life Insurance Company, increasing the first mortgage to $ 600,000. East Flagler thereby obtained cash in the amount of $ 323,000. The purchase price of all of the stock of East Flagler, $ 608,000, was financed in the following way: Benjamin, Levenson, and Sher furnished from their own funds, cash in the total amount of $ 85,000; they personally borrowed $ 200,000 from the First National Bank of Miami; they obtained from East Flagler its check, payable to Benjamin, Levenson, and Sher, in the amount of $ 323,000. For*218 the loan of $ 200,000 by the First National Bank of Miami, Benjamin, Levenson, and Sher (B. L. and S.) gave their note bearing interest of 4 or 4 1/2 per cent, and pledged their East Flagler stock as collateral. For the advance of $ 323,000 by East Flagler, B. L. and S. executed a joint note bearing 4 per cent interest, and due 1 year later, on November 13, 1948, to East Flagler. The advance by East Flagler of $ 323,000 to B. L. and S. was authorized by a resolution adopted at a meeting on November 12, 1947, of all of the directors and stockholders of East Flagler, namely, Benjamin, Levenson, Sher, Laurence Levenson, and S. P. Robineau, their attorney. The minutes of that meeting recite that B. L. and S. had made application to East Flagler for a loan in the amount of $ 323,000 and that a resolution was adopted authorizing the loan, as follows: Be It Resolved, that the President and the Assistant Secretary-Treasurer of the corporation be and they are hereby authorized and directed to issue to the said I. BENJAMIN, JACOB SHER and SAM'L C. LEVENSON a check of the corporation in the sum of $ 323,000.00, upon the receipt by them from the said I. BENJAMIN, JACOB SHER and SAM'L C. *219 LEVENSON of a note in the usual form therefor, payable to the corporationon or before one year from the date thereof, with interest thereon at 4% per annum, payable semi-annually, and with interest at 8% after maturity. Entries were made on East Flagler's books to record the above advance of $ 323,000 to Benjamin, Levenson, and Sher as follows: An account, "Loans Receivable -- Stockholders" was debited in the amount of $ 323,000, and the account, "Cash," was credited in the same amount. All of the transactions involving the purchase of the stock of East Flagler were carried out with the advice and assistance of an attorney, S. P. Robineau. East Flagler was required to pay New England Mutual Life Insurance Company $ 2,500 per month, or $ 30,000 per year, to reduce the *104 principal amount of its first mortgage note, plus $ 2,000 per month, or $ 24,000 per year, for interest on the note. As of April 13, 1949, B. L. and S. had made payments on their indebtedness to the First National Bank of Miami aggregating $ 60,000 which reduced the debt from $ 200,000 to $ 140,000. At that time they decided to pay the entire balance of that loan plus accrued interest. In April 1949, *220 East Flagler did not have any large amount of cash. Its cash position is shownto have been very low by the balance sheet in its income tax return for the fiscal period December 1, 1948, to November 30, 1949. For example, it had no cash on December 31, 1948, and on November 30, 1949, it had cash in the amount of $ 2,841.83, only. On the other hand, West Flagler had accumulated a substantial amount of cash for the purpose of constructing additions to its facilities and a new grandstand, all of which was pursuant to an improvement project for which some architects' plans had been drawn and engineers had been consulted. However, B. L. and S. considered it inadvisable to borrow funds, personally, from West Flagler because that corporation carried on its dog racetrack business under a license from the State of Florida, there were minority stockholders, and, therefore, it was deemed to be better policy not to have a large, unsecured loan outstanding to the majority stockholders of West Flagler. Under all of the circumstances, it was agreed that West Flagler should advance funds to East Flagler which would then be made available to B. L. and S. for the purpose of their payment of their*221 indebtedness to the First National Bank of Miami. On April 11, 1949, West Flaglerissued a check payable to East Flagler in the amount of $ 175,000, in return for which East Flagler gave to West Flagler its promissory note, dated April 11, 1949, for $ 175,000, plus 6 per cent interest, which was stated to be due 2 years thereafter, on April 11, 1951. The note was executed by Benjamin, as president, and Levenson, as secretary, of East Flagler. Also, on April 11, 1949, East Flagler executed a mortgage deed to West Flagler, which constituted a second mortgage on all of the real property of East Flagler, as security for its note. A short time thereafter, B. L. and S. executed a written guaranty which recited that whereas West Flagler held the promissory note of East Flagler for a loan of $ 175,000 to East Flagler, which note was payable 2 years from the date of the note, B. L. and S. covenanted and agreed with West Flagler, its successors, and assigns to guarantee full and prompt payment of the note in the amount of $ 175,000, plus interest thereon, and of any and all renewals of the note, with interest thereon, until the note, plus interest, shall have been fully paid and discharged. *222 On April 13, 1949, East Flagler advanced the total sum of $ 152,000 to B. L. andS. in the following way: A check of East Flagler for $ 140,000, dated April 13, 1949, was issued to B. L. and S., jointly, and *105 three additional checks of East Flagler, for $ 4,000 each, dated April 13, 1949, were issued to Benjamin, Levenson, and Sher, individually. Entries were made on East Flagler's books to record the advance of $ 152,000 to B. L. and S., as follows: The account, "Loans Receivable -- Stockholders," was debited with the respective amounts of each of East Flagler's checks, and the account, "Cash," was credited with the amount of each check. East Flagler's advances totaling $ 152,000 to B. L. and S. were not formally authorized by its directors or stockholders. On April 14, 1949, B. L. and S. paid the First National Bank of Miami the balance due on their indebtedness to that bank, $ 140,000, plus accrued interest, out of the total sum of $ 152,000 which they had received from East Flagler. At the time East Flagler advanced $ 152,000 to B. L. and S., no payments had been made by them on their note to East Flagler for $ 323,000, dated November 13, 1947. That note became*223 due on November 13, 1948. No interest was paid on that note by B. L. and S. On May 11, 1949, B. L. and S. executed a joint, promissory, demand note, dated May 11, 1949, in the amount of $ 475,000, payable to East Flagler, and bearing 2 per cent interest. The amount of the note, $ 475,000, represented the face amount of their note, dated November 13, 1947, namely, $ 323,000, plus the sum of $ 152,000 advanced to them by East Flagler on April 13, 1949. Upon execution of the note of May 11, 1949, for $ 475,000, the note of November 13, 1947, for $ 323,000, was canceled. In the balance sheets which are part of the corporation income tax returns filed by East Flagler, Form 1120, for each of the taxable years from December 1, 1946, to February 10, 1950, East Flagler carried as an asset, under "Notes and accounts receivable," the advances to B. L. and S. of $ 323,000 and $ 152,000. East Flagler derived all of its income from rents received from the tenants in its two buildings. It reported net income before tax, or loss, in its income tax returns for the fiscal periods as set forth below: Net income Taxable period ended before tax Nov. 30, 1947 $ 23,072.97 Nov. 30, 1948 28,077.53 Nov. 30, 1949 14,298.31 Feb. 10, 1950 (4,307.50) Total $ 61,141.31 *224 East Flagler's first mortgage note called for annual payments of $ 30,000 on principal, and $ 24,000 on interest, or payments aggregating $ 54,000. East Flagler did not declare and pay any dividends to its stockholders during fiscal periods ending in 1947, 1948, 1949, and 1950. *106 It did not have available cash for the payment of dividends, although it had a nominal amount of cash as is set forth hereinafter. During the above periods, East Flagler did not have any liquid assets. The assets, liabilities, and net worth of East Flagler as of November 30, 1947, 1948, and 1949, and February 10, 1950, were as follows: Nov. 30, 1947 Nov. 30, 1948 Nov. 30, 1949 Feb. 10, 1950 Assets: Cash 1 ($ 10,133.32) 1 ($ 634.52) $ 2,841.83 Due from stockholders 323,000.00 319,000.00 475,000.00 $ 475,000.00 Buildings (less depreciation reserve) 218,950.83 225,574.49 223,655.25 221,985.84 Land 129,888.51 129,888.51 129,888.51 129,888.51 Other assets 20,907.38 17,210.66 14,347.21 4,925.84 Total assets $ 682,613.40 $ 691,039.14 $ 845,732.80 $ 831,800.19 Liabilities: Withholding tax $ 189.56 $ 271.05 $ 347.70 Mortgage payable 600,000.00 580,000.00 726,500.00 $ 722,000.00 Capital and surplus: Capital stock 4,305.00 4,305.00 4,305.00 4,305.00 Earned surplus 78,118.84 106,463.09 114,580.10 105,495.19 Total $ 682,613.40 $ 691,039.14 $ 845,732.80 $ 831,800.19 *225 The amounts shown as "earned surplus" in the above schedule do not represent accumulated cash surplus. At all times, East Flagler's cash position was limited to cash available for payment of current operating expenses and the carrying charges of its first mortgage. At the end of each of the fiscal periods ended November 30, 1947, 1948, and 1949, and February 10, 1950, East Flagler's cash on hand amounted to $ 4,866.68, $ 634.52, $ 2,841.83, and zero. At a special meeting of the directors and stockholders of East Flagler held on January 26, 1950, a resolution was adopted authorizing the dissolution and liquidation of East Flagler. The liquidation of East Flagler was considered in conjunction with recommendations of the corporation's attorney, S. P. Robineau, and its accountant, Sidney Lefcourt. A certificate of dissolution was issued by the secretary of state of Florida on February 8, 1950. The liquidation of East Flagler was first recommended and considered a few weeks before January 26, 1950, and not before. Lefcourt advised the directors and stockholders of East Flagler that a sale of either of the two properties owned by East Flagler would be facilitated*226 ifthey were not both owned by a single corporation. This advice was given because East Flagler had received inquiries about the possible sale of one or the other of the two properties. At the time of the dissolution and liquidation of East Flagler, it had not made any payments to West Flagler on its note to West Flagler for $ 175,000, dated April 11, 1949, or of interest on that note. East Flagler's note was not due until April 11, 1951, which was subsequent to the dissolution of East Flagler. At the time of the dissolution of East Flagler, B. L. and S. had not *107 made any payments of principal or interest on their demand note to East Flagler, dated May 11, 1949, in the amount of $ 475,000. In the liquidation of East Flagler, the loans receivable from stockholders, owing by B. L. and S., in the respective amounts of $ 323,000 and $ 152,000, were treated as corporate assets received by the stockholders in the liquidation, and they reported capital gains, accordingly, in their respective income tax returns for 1950. The entire account, "Loans Receivable -- Stockholders," on the books of East Flagler showed a balance as of February 10, 1950, in the amount of $ 478,884.42. *227 LaurenceS. Levenson entered into an agreement with his father, Samuel C. Levenson, on November 13, 1947, under which he became the owner of one-quarter of Samuel C. Levenson's one-third interest in East Flagler. That is to say, Laurence became the owner of a one-twelfth interest in East Flagler. Laurence reported one-quarter of one-third of the capital gain upon the liquidation of East Flagler in his income tax return for 1950. He reported in his return for 1950 that he received one-quarter of one-third of the net assets of East Flagler, upon its dissolution. After dissolution of East Flagler, B. L. and S. operated the buildings formerly owned by East Flagler under a partnership known as Langford Building Properties, hereinafter referred to as Langford partnership. Langford partnership was formed on February 10, 1950, and existed until July 27, 1950. B. L. and S. each had a one-third equal interest in the partnership. A partnership return, Form 1065, was filed for Langford partnership for the period February 10, 1950, to July 27, 1950. The balance sheet of Langford partnership on its first day of existence on February 10, 1950, showed the following: Assets: Buildings $ 550,000.00 Land 350,000.00 Other assets 100.00 Total assets $ 900,100.00 Liabilities: 1st mortgage payable $ 532,500.00 2d mortgage payable 175,000.00 Notes payable -- Annie Jacobstein 10,000.00 Loans payable -- West Flagler 4,500.00 Federal income taxes payable 2,391.45 Total liabilities $ 724,391.45 Partner's interest: Benjamin, Levenson, and Sher 1 175,708.55 $ 900,100.00 *228 *108 Two new corporations were organized on July 3, 1950, under the names of East Flagler 118, Inc., and Langford Office Building, Inc. They are referred to hereinafter, respectively, as 118, Inc., and Langford, Inc. On July 27, 1950, 118, Inc., became the owner of 118 East Flagler Building (the Three Sisters store building), and Langford, Inc., became the owner of the Langford Office Building. The stock of each of the two new corporations was owned one-third by Benjamin, one-third by Sher, three-fourths of one-third by Levenson, and one-fourth of one-third by Laurence Levenson. The net income from the two buildings while they were owned by Langford partnership amounted to $ 12,324.81. The combined net income from the two properties while they were separately owned by Langford, Inc., and 118, Inc., for the period July 3, 1950, to October 31, 1950, amounted to $ 10,634.29. On August 21, 1950, Langford, Inc., and 118, Inc., refinanced the first mortgage on the two properties, increasing that mortgage by $ 75,000, thereby obtaining cash in the amount of $ 75,000. That amount was paid to West Flagler on the second mortgage which it held on the two*229 propertiesso that the second mortgage and West Flagler's loan of April 11, 1949, were reduced from $ 175,000 to $ 100,000. On August 29, 1950, a new second mortgage in the amount of $ 100,000 was executed by Langford, Inc., and it was given to West Flagler. The new second mortgage was recorded on October 12, 1950. This mortgage encumbered only the property held by Langford, Inc. Also, Langford, Inc., gave West Flagler a promissory note in the amount of $ 100,000, which was secured by the new second mortgage. The note was to become due 2 years after its date, i. e., on August 29, 1952. On August 29, 1950, B. L. and S. executed a new written guaranty that Langford, Inc., would pay $ 100,000 to West Flagler. On April 29, 1952, B. L. and S. donated $ 120,000 in cash to the capital of Langford, Inc. Langford, Inc., paid $ 124,625 to West Flagler on April 30, 1952. On the books of West Flagler such payment is shown as $ 100,000 payment on the second mortgage, and $ 24,625 in interest. West Flagler executed a satisfaction of the second mortgage in the amount of $ 100,000 on April 30, 1952. The satisfaction was recorded on May 9, 1952. Laurence Levenson did not receive any part*230 of the $ 152,000advanced by East Flagler to B. L. and S. on April 13, 1949. In April 1949, when West Flagler advanced $ 175,000 to East Flagler, B. L. and S. knew that East Flagler would not be able to accumulate in 2 years, or more, sufficient surplus profit from its earnings to repay *109 that amount to West Flagler, and that the sum of $ 175,000 would have to be repaid to West Flagler at such time as it was able to proceed with the construction of a new grandstand and other improvements of West Flagler's facilities. Although it was contemplated, in April 1949, that West Flagler would go ahead with its planned building program 2 years later, that project was not undertaken in 1951 because of shortages in steel and other building materials caused by the Korean war, so that West Flagler's need for repayment of the loan to East Flagler did not materialize in 1951. When B. L. and S. received $ 152,000 from East Flagler in April 1949, they intended to make repayment in full to East Flagler. In 1949, B. L. and S. each had substantial resources, income, and credit for unsecured loans from banks. In 1949, the net worth of Sher was around $ 200,000 and the net worth of Benjamin*231 and his wife was around $ 500,000. B. L. and S. each received a salary from West Flagler of from $ 35,000 to $ 40,000 a year and also substantial dividends. B. L. and S. each was in such financial position in 1949 and thereafter, as to be able to repay his share of the $ 152,000 advanced by East Flagler. East Flagler loaned $ 152,000 to B. L. and S. on April 13, 1949. B. L. and S. intended to repay the entire amounts which were received from East Flagler on April 13, 1949, jointly and individually. The stipulated facts are found as stipulated. The stipulation is incorporated herein by reference. OPINION. Respondent determined that East Flagler did not loan $ 152,000 to B. L. and S. on April 13, 1949; that on that date East Flagler had accumulated earnings and profits in the amount of $ 114,580.09, that figure being the amount shown on East Flagler's balance sheet as "earned surplus" on November 30, 1949; and that the advance of $ 152,000 represented a distribution of dividends to the extent of $ 114,580.09, and a return of capital to the extent of $ 37,419.91. He apportioned these amounts to East Flagler's four stockholders as follows: Petitioner Dividend Return of Total amount income capital received Benjamin $ 38,193.37 $ 12,473.30 $ 50,666.67 Sher 38,193.37 12,473.30 50,666.67 Levenson 28,645.02 9,354.98 38,000.00 Laurence 9,548.34 3,118.33 12,666.67 *232 In his amended answer respondent makes an alternative contention that if no part of the alleged corporate distribution was received by Laurence, then Levenson received a distribution of $ 50,666.67, of *110 which $ 38,193.37 represented dividends and $ 12,473.30 represented return of capital. Respondent contends that his determinations are required by section 115 (a) and (b), 1939 Code. Petitioners contend that the withdrawal of April 13, 1949, was a loan. In the alternative, petitioners argue that if the withdrawal of April 13, 1949, constituted a distribution of corporate earnings and profits, then, for the same reasons, the withdrawal of $ 323,000 on November 13, 1947, also constituted a distribution of earnings and profits, and such distribution reduced East Flagler's earnings and profits available for distribution as dividends in 1949, by the amount of its accumulated earnings and profits as of November 30, 1947. The question to be decided is whether East Flagler's advance of $ 152,000 on April 13, 1949, to B. L. and S. was a loan, or a distribution out of earnings and profits taxable as a dividend, in part, and a return of capital. *233 The question is one of fact. ,certiorari denied , rehearing denied . The ultimate finding disposes of the question in petitioners' favor. When East Flagler was acquired by means of purchasing its outstanding stock, its assets consisted of two pieces of real estate on which two rental buildings stood, plus some cash on hand. These were nonliquid assets and East Flagler's sole source of income. The three original stockholders, B. L. and S., did not contribute any cash to East Flagler for working capital so that the two rental properties had to carry themselves; that is to say, the current receipts from rents were the source of funds for operating the two buildings and for paying the amortization and interest charges of the first mortgage in the amount of $ 600,000. From the time B. L. and S. purchased the stock of East Flagler on November 12, 1947, through the fiscal year of East Flagler ended on November 30, 1949, practically all of East Flagler's net earnings and such cash as it possessed on November 12, 1947, were absorbed by payments of first mortgage principal, and*234 interest, and taxes, and its remaining earnings, if any, were nominal. The source of the first withdrawal from East Flagler by B. L. and S. on November 13, 1947, in the amount of $ 323,000, was a loan from New England Mutual Life Insurance Company given in a refinancing of the first mortgage, and such withdrawal was used by B. L. and S. to acquire East Flagler's stock. The Commissioner did not regard this withdrawal in 1947 as a taxable dividend and in these proceedings he is willing for the Court to find as a fact that B. L. and S. "intended the withdrawal to be a loan to be repaid." The source of the second withdrawal from East Flagler by B. L. and S. on April 13, 1949, in the amount of $ 152,000, was a loan of $ 175,000 by West Flagler to East Flagler which was made on April *111 11, 1949, for which East Flagler gave its note, due in 2 years and bearing interest, secured by a second mortgage on East Flagler's properties. At the time of West Flagler's loan to East Flagler, B. L. and S. were certain that East Flagler's net earnings after taxes and payments of first mortgage principal and interest would not be sufficient in 2 years, or more, to repay the loan of West Flagler; *235 and they knew, equally well, when they withdrew $ 152,000 of the $ 175,000from East Flagler that they would have to repay this advance if East Flagler were to repay its indebtedness to West Flagler. Evidence supporting the conclusion that the advance of $ 152,000 in April 1949 was a loan of East Flagler is found in the joint note of B. L. and S. for $ 475,000, the sum of the two advances of East Flagler, and the carrying of both advances on East Flagler's books as loans receivable. See . B. L. and S. paid Langford, Inc., East Flagler's successor, $ 120,000, in 1952, which was paid over to West Flagler. This fact cannot be ignored. Furthermore, B. L. and S. had substantial assets of their own in 1949 from which each could make repayment of his share of the advances so that the testimony that each intended the withdrawals to be loans at the time they were made cannot be passed over lightly. Such testimony as to intent is corroborated by the giving of a note, by East Flagler's records on its books of the transaction, and by subsequent events. *236 ; ; . Upon consideration of all of the evidence and circumstances, we are unable to conclude that the withdrawal from East Flagler in 1949 of $ 152,000 was carried out in such manner and at such time as to be essentially equivalent to distribution of taxable dividends. East Flagler did not have in 1949 a cash fund from which to make an advance of $ 152,000 to B. L. and S., whereas West Flagler had such fund. There were persuasive reasons against a loan of such amount directly by West Flagler to B. L. and S., which, we are satisfied, led to channeling the available cash through East Flagler. In so doing, the two properties of East Flagler were encumbered by a second mortgage which was given to West Flagler to secure East Flagler's note, and when the Langford partnership took over East Flagler's assets it carried the mortgage as a liability which eventually was discharged by Langford, Inc., upon payment to that corporation of $ 120,000 by B. L. and S. All of these arrangements were facilitated by the control which B. L. and S. exercised*237 over West Flagler and East Flagler and its successors, but even though that was true, it does not necessarily follow that the 1949 withdrawals from EastFlagler were not loans. The record establishes that B. L. and S. regarded the loan by West Flagler to East Flagler, followed by their withdrawal of $ 152,000 from East Flagler, as a single transaction, which they considered as a loan *112 to them, and which they intended to repay when West Flagler should require return of the funds. Their guarantee of repayment to West Flagler of the amount loaned to East Flagler supports the view that B. L. and S. regarded the whole arrangement as a single transaction. It is recognized that East Flagler was dissolved before B. L. and S. made any payment of principal or interest on account of the 1949 withdrawal. The dissolution of East Flagler served a business purpose, namely, to facilitate separate sales of the two properties owned by that corporation. This aspect of subsequent events does not affect our conclusion. At the time the withdrawals from East Flagler took place in 1949, there was not any plan or contemplation of dissolving and liquidating East Flagler; and at the time the withdrawals*238 were made, it was intended that they were loans. . Respondent has treated the 1947 withdrawal from East Flagler as a loan. We are unable to find any reasonable basis for his treating the 1949 withdrawals differently. Cf. ; . Both were substantially similar in all respects, and had the same objective, namely, the purchase of stock. Each loan was evidenced by a negotiable promissory note jointly executed by B. L. and S. Furthermore, when the second loan was executed, the first note was canceled and the second note was made in the amount of the two loans, so that both loans were evidenced by the same note. It is held, under all of the circumstances, that the withdrawal of $ 152,000 from East Flagler on April 13, 1949, by B. L. and S. was a loan, and did not constitute a distribution of corporate earnings and profits taxable as dividends under section 115 (a) and (b) of the 1939 Code. A Rule 50 computation is necessary because of some uncontested adjustments. Decisions will be entered under Rule 50. Footnotes 1. Consolidated herewith are the following: Docket No. 58151, Laurence S. Levenson and Annamae Levenson; Docket No. 58152, Samuel C. Levenson and Estate of Hattie S. Levenson; Docket No. 58153, Jacob Sher and Mary Sher.↩ 1. Deficit.↩ 1. One-third each.↩