McAbee v. Commissioner

Philip W. McAbee, Petitioner, et al., 1 v. Commissioner of Internal Revenue, Respondent McAbee v. Commissioner Docket Nos. 3772, 3773, 3774, 3731, 3145 United States Tax Court 5 T.C. 1130; 1945 U.S. Tax Ct. LEXIS 34; November 28, 1945, Promulgated *34 Decision will be entered under Rule 50. 1. The president of corporation H, assisted by its secretary, carried on preliminary negotiations for a transfer of its assets to corporation O in exchange for cash and stock of O. Shortly before the reorganization was carried out he transmitted letters to the stockholders of H requesting that their certificates of stock be endorsed in blank and turned over to him so that he might be placed in a position to act with authority and finality in connection with the proposed reorganization. Therein it was stated that in the event the transaction should be consummated each stockholder would ultimately receive four shares of O stock for each share of H stock; that the president expected to give up a contract with H company and disable himself from engaging in the business conducted by it for a period of years; and that as consideration for so doing and as a compensation for negotiating the transfer of the assets of H he expected to make "a substantial personal profit." At about the same time he obligated himself to share the contemplated profit with the secretary of H. The stockholders acceded to the president's request. Four shares of O for*35 each share of H were ultimately turned over to the stockholders and 3,250 additional shares of O and some cash were received by the president and divided with the secretary. Held that no sale of the stock of H to its officers had been made prior to the reorganization and that the cash and shares of stock received by them constituted taxable income. 2. Under the plan of reorganization the stockholders of H, in 1933, received one share of the stock of O for each share of H and certificates of beneficial interest under which they were to receive two shares of O for each share of H in 1934 and one share of O for each share of H in 1937. Certificates representing the shares of H were surrendered in 1933 and the shares to be delivered in later years were held in escrow pending complete liquidation of the liabilities of H. Held that the stockholders of H were the equitable owners of the stock at the time the reorganization occurred; that no gain or loss was to be recognized upon the exchange; that the exchange was completed in 1933; and that the stockholders were not in receipt of taxable income in 1937 when delivery of the O stock was made and the certificates of beneficial interest*36 were surrendered. 3. Inventors of a process for the treatment of glass containers, prior to the reorganization of H in 1933, granted an exclusive right to the invention and any improvements thereafter made and authorized the Commissioner of Patents to issue letters patent to H. The agreement was binding upon the successors and assigns of H and, upon the reorganization of H, O succeeded to H's rights under the contract. The contract obligated H and its successors and assigns to make payments of from 5 to 15 cents per gross, depending on the weight of the manufactured articles. After the reorganization O continued to make the payments specified under the contract for a period of approximately 4 years. In 1937 O and the inventors entered into another contract under which, for a total consideration of $ 50,000, the payments specified in the original contract were terminated. Held that the amount paid under the last mentioned contract is ordinary income and not gain derived from the sale of a capital asset. William H. Thompson, Esq., Perry E. O'Neal, Esq., Patrick J. Smith, Esq., M. A. Roney, Esq., and M. G. Leatherman, Esq., and Troy G. Thurston, C. P. A., and George S. Olive, C. P. A., for the petitioners. Lester M. Ponder, Esq., for the respondent. Mellott, Judge. MELLOTT *1131 These cases 1 involve deficiencies in income tax as follows: Petitioner Docket Calendar Deficiency No. year Philip W. McAbee [1935] $ 7,038.51 [1937] 170,315.52 Mintie Carroll H. McAbee [1937] 6,201.31 Trustees of estate of Daniel C. Hemingray [1937] 27,738.92 Minot K. Holmes [1937] 948.66 Willard P. Zimmerman [1935] 1,347.14 [1937] 42,238.87 *38 *1132 Most of the issues are common to two or more of the submitted cases. They were tried successively and may be decided together. The issues all stem from the acquisition in 1933 by Owens-Illinois Glass Co. (hereinafter Owens) of the assets of Hemingray Glass Co. (hereinafter Hemingray) for 17,827 shares of Owens stock and approximately $ 85,000 cash. The principal issue in the case of Philip W. McAbee (hereinafter McAbee) and the first issue in*39 the case of Willard P. Zimmerman (hereinafter Zimmerman) is whether they were in receipt of income in 1935 and 1937 when they received, collectively, cash and securities aggregating $ 555,245 under the circumstances hereinafter shown. This issue is largely dependent upon whether McAbee, in April or May of 1933, had purchased the Hemingray stock from all of its stockholders (except Zimmerman) or whether he had acted as agent or trustee for them in negotiating an exchange of Hemingray's assets for stock of Owens and cash. The second issue in Zimmerman's case, which is common to and the sole issue in the cases of Mrs. McAbee (Mintie Carroll H. McAbee, wife of McAbee), Holmes, and the trustees, presents the basic question whether the stock of Owens, received by the several petitioners in 1937 under the circumstances shown in our findings, constituted taxable income to them in that year. The third issue in the Zimmerman case -- no similar issue arises in any of the other four -- is whether the amount received by him in 1937, under contracts pertaining to a process for the treatment of glass, constituted royalty income taxable 100 percent, or capital gain subject to the provisions of*40 section 117 of the applicable revenue act. In the interest of clarity the several petitioners will be referred to in the findings by name. All references, however, to stockholders of Hemingray include the several petitioners unless otherwise specified. Most of the basic facts have been stipulated and by this reference are accordingly found. Others shown in our findings are based upon evidence adduced at the trials. FINDINGS OF FACT. Separate returns of income for all of the years directly or indirectly in question, on a cash basis, were filed by the several petitioners with the collector of internal revenue for the district of Indiana at Indianapolis. Hemingray was a Kentucky corporation, engaged principally in the manufacture of pressed glass articles (insulators, etc.), with its office and manufacturing plant at Muncie, Indiana. Owens is an Ohio corporation which on December 31, 1932, had 977,137 and on December 31, 1933, 1,200,000 shares of $ 25 par value common stock outstanding. On April 1, 1933, Hemingray had issued and outstanding 2,500 shares of common stock, owned by 16 individuals or groups. McAbee *1133 was its president, Zimmerman was its secretary-treasurer, *41 and they, together with A. Clifford Shinkle, were its directors. The stock was owned and had cost bases as follows: Stockholders Shares owned Basis McAbee [81] $ 13,600.00 Mrs. McAbee [202] 30,300.00 Zimmerman [121] 18,950.00 Holmes [50] 8,085.30 The trustees [513] 103,402.26 Others 1,533 (Not shown) Total 2,500 In April 1933 Hemingray was in serious financial difficulty. It lacked working capital and owed approximately $ 250,000. There had been a substantial shrinkage in the volume of its business, especially glass insulators for telephones and telegraph and low voltage power distribution, which were the principal items of manufacture, and there was no prospect of getting additional working capital from the stockholders. McAbee fully understood the situation. He had talked with some of the stockholders about it and had frequently discussed it with Zimmerman. Hemingray had an unbroken family ownership and operation of more than 80 years and its officers were anxious, if possible, to have it consolidated with some larger and stronger corporation so that they might retire from its operation without embarrassment or apology. To that end negotiations with some*42 corporations took place as early as 1930, but no affirmative action was taken. Negotiations also took place between Owens and Hemingray prior to April 1933. They were conducted on the part of Owens by its president, William E. Lewis, and Ben F. Haselton and by petitioner and Zimmerman on the part of Hemingray. During the same period the question of disposing of, or merging, Hemingray was discussed by McAbee and Zimmerman with the other stockholders of Hemingray. A plan was ultimately formulated under which Owens was to acquire the assets of Hemingray in exchange for Owens common stock, and on April 8, 1933, McAbee signed and mailed to each stockholder of Hemingray a letter reading as follows: Dear : The negotiations concerning which you have been informed, looking toward the sale of your company, are rapidly approaching consummation. As you can well understand, the very substantial changes that have occurred in the quick position of your company since these negotiations were started more than a year and a half ago, have resulted in a material modification of the purchase price from that originally discussed. The present position of the company is such that if it is to*43 continue its own business, it will be necessary to raise a large amount of cash working capital which will involve substantially a refinancing of the company. A sale upon any reasonable grounds would seem to be a desirable alternative. *1134 In view of the complexity of the negotiations and of the purchaser's requirements of certain stockholders and director action and to facilitate the prompt completion of these negotiations, it is desirable that I be placed in a position to act with authority and finality. To that end I ask that you send me immediately all of the certificates of stock of the Hemingray Glass Company standing in your name and endorsed in blank which I will cause to be transferred to myself. If, for any reason, the deal is not completed, these stock certificates will be reissued in your name and without expense to you and promptly returned to you. This is, of course, to be done with the understanding that a delivery of these certificates to me constitutes full authority to me to complete this transaction and take all steps necessary to do so. In the event the transaction is consummated, you are ultimately to receive for each share of Hemingray stock now held*44 by you four shares of the common stock of the Owens-Illinois Company which closed on yesterday's market at $ 42.00 per share and which at present is paying dividends at the rate of $ 2.00 per share per annum. Upon the consummation of the deal, you will receive an interim certificate evidencing your right to receive this stock and you will receive delivery of three shares for each share you own in your company, shortly after January 1, 1934, the remaining share to be delivered to you in 1937. This remaining share is to be deposited with the Toledo Trust Company in order to protect the Owens-Illinois Company against any breach of the agreements of the Hemingray Glass Company. In the meantime you will be entitled to receive your share of all dividends declared, subject to a small charge to be borne proportionately by all of the stockholders of your company for maintaining the corporate organization of the company until the contract is completely consummated. You must clearly understand that in this case, as in former proposed sales, I am to give up and surrender a contract now existing between myself and the Hemingray Glass Company still running for a term of years and disable myself*45 from reengaging in the glass business for a period of five years; and that as a consideration for this surrender and this disability and as compensation for negotiating this sale, I expect to make a substantial personal profit out of the sale. This compensation, however, will not operate to reduce the number of shares of stock which you are to receive, as above indicated in this letter. The negotiations have proceeded to such a point that it is essential that prompt action be taken on this request. On or prior to April 19, 1933, all of the Hemingray stock certificates outstanding had been surrendered to McAbee, with the exception of the certificate owned by Zimmerman. All of the certificates surrendered (except a certificate for 202 shares standing in the name of Mrs. McAbee) had been assigned in blank, and were reissued to McAbee on April 20, 1933. McAbee purchased Indiana intangibles stamps in the amount of $ 542 and attached them to the new certificates. The records of Hemingray as of April 20, 1933, show that its shares were then held of record as follows: McAbee 2,177 shares Mrs. McAbee 202 shares Zimmerman 121 shares Total 2,500 shares *1135 On April*46 20, 1933, McAbee and Zimmerman entered into the following agreement: Agreement, made and entered into this 20th day of April, 1933, by and between Philip W. McAbee of Muncie, Indiana, Party of the First Part, and Willard P. Zimmerman, of Muncie, Indiana, Party of the Second Part, Witnesseth: That Whereas, the parties hereto, being executive officers and stockholders of the Hemingray Glass Company, appreciate the advisability, under existing business conditions, of effecting, if possible, a consolidation or merger with or sale to another concern or concerns engaged in the same or a similar line of business, and Whereas, the parties hereto, during the past two or three years have carried on various negotiations for the consolidation, merger or sale of said Company and with such purpose in view, the Party of the First Part has secured the consent thereto of the holders of all the outstanding stock of the Company, which consent contemplates that the Party of the First Part shall, if possible, make a profit for himself in case such negotiations should prove successful, and Whereas, it was, during all of said time, the understanding between the parties hereto that the Party of the Second*47 Part, in consideration of his assistance and cooperation, should participate in the profits, if any, which might accrue to the Party of the First Part as the result of the successful conclusion of any such negotiations, now Therefore, the parties hereto, each in consideration of the covenants and agreements of the other, hereinafter set out, and in confirmation of their prior understanding, agree: 1. That negotiations looking forward to a favorable consolidation, merger or sale of the Hemingray Glass Company shall be continued and that such negotiations shall be conducted by and in the name of the Party of the First Part. 2. That Party of the Second Part shall cooperate and assist in every way possible the consummation of any consolidation, merger or sale which may be arranged by the Party of the First Part and cancel and surrender all agreements existing between him and the Hemingray Glass Company on request of Party of the First Part. 3. That in the event the Party of the First Part is able to conclude a consolidation, merger or sale, then the net profits, if any, whether in property or cash, accruing to the Party of the First Part in accordance with the agreement of the stockholders, *48 shall be divided, eighty per cent (80%) to the Party of the First Part, and twenty per cent (20%) to the Party of the Second Part. The ownership in said proportion shall be effective if and when such profits accrue. On or about April 25, 1933, an agreement was entered into between Owens and Hemingray under the terms of which Hemingray agreed to transfer to Owens, as of the close of business on March 31, 1933, substantially all of its property and assets, free and clear of all indebtedness and liabilities existing at that date, for a consideration of 17,827 shares of Owens common stock and an amount of cash to be determined as provided in the agreement. (The cash amounted to approximately $ 85,000.) The cash was to be used and was used by Hemingray entirely for the discharge of its liabilities. The liabilities remaining after exhausting the cash were to be paid from funds realized from *1136 the sale of shares of the Owens stock received by Hemingray in exchange for its property and assets. The agreement provided that from March 31, 1933, to the date of the transfer of the assets, Hemingray should be deemed to have been carrying on the business on behalf of Owens and that Owens, *49 on the closing date, would deliver to Hemingray a check for an amount equal to all dividends declared or paid between March 31, 1933, and the closing date on Owens common stock received by Hemingray in the exchange, as if issued and outstanding at all times during that period. In order to assure performance by Hemingray as provided therein the agreement specified that Hemingray should "immediately upon delivery to it, deliver to the Toledo Trust Company, of Toledo, Ohio, certificates for Two Hundred Fifty Thousand Dollars ($ 250,000) par value of the shares of Owens Company delivered hereunder, to be held by said Trust Company until December 31, 1936, and then delivered to Hemingray Company; provided, that if * * * at the closing date * * * the owners of all outstanding shares of Hemingray" had consented in writing to the sale of its assets, $ 125,000 par value of the stock deposited in escrow would be delivered to Hemingray, but not prior to December 31, 1933. It was further provided that "All dividends, interest, or other income payable on the shares of stock or other collateral security deposited with the Toledo Trust Company" by Hemingray should be paid promptly and regularly*50 to Hemingray or its assigns. The agreement of April 25, 1933, was approved by the directors and stockholders of record (McAbee, Zimmerman, and Mrs. McAbee on behalf of Hemingray) of both corporations on or prior to May 2, 1933. Pursuant to the agreement of April 25, 1933, Hemingray transferred substantially all of its assets to Owens and Owens transferred 17,827 shares of its common capital stock and approximately $ 85,000 cash to Hemingray. The cash included the May 15, 1933, dividend on the 17,827 shares of Owens common stock, aggregating $ 8,913.50. On or about June 7, 1933, certificates for the 17,827 shares of stock of Owens were received by Hemingray and were handled as follows: Shares Delivered to McAbee [81] Delivered to W. P. Zimmerman [121] Delivered to Mrs. McAbee [202] Delivered to the trustees of the estate of Daniel C. Hemingray, deceased [513] Delivered to Holmes [50] Delivered to other stockholders of Hemingray 1,533 Delivered to Ned Arden Flood, Broker as commission 2,200 Taken in the name of Hemingray 13,127 Total 17,827 *1137 Ten thousand shares of the 13,127 taken in the name of Hemingray were deposited in escrow with the Toledo Trust Co. *51 in accordance with the agreement dated April 25, 1933, and 2,377 of the remaining 3,127 shares were sold during 1933 and 1934 in order to obtain funds for payment of the creditors of Hemingray who had not been paid from the cash received by Hemingray on June 7, 1933. Certificates for the remaining 750 shares and certificates for the 10,000 shares of Owens common stock held in escrow under the agreement with the Toledo Trust Co. were ultimately distributed as follows: Other Petitioner Zimmerman Mrs. Holmes Trustees certificate McAbee holders Shares Shares Shares Shares Shares Shares Jan. 8, 1934 [100] 1,026 3,066 Feb. 12, 1934 [50] May 31, 1935 [100] Jan. 8, 1937 [121] Jan. 9, 1937 2,000 [513] 1,533 Total 2,843 1,013 [150] 1,539 4,599 On June 7, 1933, each of the former stockholders of Hemingray -- all except Zimmerman had endorsed their certificates in blank and turned them over to McAbee -- received, in addition to the certificate for Owens stock which had been delivered to him by Hemingray on that date (see second preceding paragraph) a "Certificate of Beneficial Ownership" *52 representing his share of Owens stock held in escrow by the Toledo Trust Co. The certificates were in the following form the blanks being filled in. This is to certify that is entitled to receive shares of the common capital stock of the Owens-Illinois Glass Company in exchange for shares of the common stock of the Hemingray Glass Company sold by him to the undersigned. Certificates for said shares of stock are to be delivered to the said as follows: 1. For shares contemporaneously with the delivery of this certificate. 2. Of shares which have been deposited with the Toledo Trust Company in order to protect the Owens-Illinois Glass Company against any breach of the agreement of sale by said Hemingray Glass Company to said Owens-Illinois Glass Company, shares will be delivered shortly after January 1, 1934 upon presentation of this certificate for proper endorsement and shares shortly after January 1, 1937 upon the surrender of this certificate, all, however, subject to the terms of said deposit agreement. In the meantime, said is entitled to receive all dividends declared and paid by the Owens-Illinois Glass Company*53 on the stock so deposited belonging to him, which will be paid to said promptly upon receipt by the undersigned, subject to a small charge to be borne proportionately by all of the former stockholders of the Hemingray Glass Company for maintaining the corporate organization of that company until its contract with the Owens-Illinois Glass Company is finally concluded. *1138 This certificate is assignable, but until the undersigned has been notified in writing of such assignment by the person to which this certificate was originally issued he shall be entitled to pay to the original owner thereof all dividends due with respect to the shares of stock represented by this certificate and to deliver to the original owner hereof all shares of stock called for by such certificate without any liability whatever to any assignee. Dated at Covington, Kentucky, this seventh of June, 1933. [Signed] Philip W. McAbee On January 8, 1934, deliveries of escrowed certificates for Owens stock were made to the holders of "Certificates of Beneficial Interest" in the ratio of two shares of Owens common for one share of Hemingray and a new "Certificate of Beneficial Interest" was given to each*54 stockholder, representing his share of Owens stock remaining in escrow. Certificates for such shares were delivered to the holders of "Certificates of Beneficial Interest" on January 8, 1937, upon the termination of the escrow agreement. During the escrow period Hemingray paid over to the holders of certificates of beneficial interest sums equal to the cash dividends paid by Owens on the shares of Owens stock held in escrow and also certain stock rights issued by Owens in 1936. All other cash distributions were paid directly to McAbee, who paid over to Zimmerman the sums due him under the agreement of April 20, 1933. The cash distributions by Hemingray were paid to McAbee, Zimmerman, and all who owned Hemingray stock prior to April 20, 1933, as follows: McAbee Zimmerman Others June 3, 1933 $ 526.50 $ 786.50 $ 14,937.00 [1933] * 799.40 Feb. 13, 1934 263.25 393.25 7,468.50 Feb. 13, 1934 8,170.00 2,042.50 May 31, 1935 324.00 484.00 9,192.00 May 31, 1935 8,800.00 2,200.00 July 2, 1936 486.00 726.00 13,788.00 July 2, 1936 15,000.00 3,750.00 *55 Mrs. McAbee, Holmes, and the trustees received their respective portions of the cash referred to in the preceding paragraph. Deliveries of the stock referred to in an earlier finding and payments of the dividends to those who had owned Hemingray shares prior to April 20, 1933, were made at the direction of McAbee. Pursuant to the plan for the transfer of the assets and business of Hemingray to Owens in exchange for Owens common stock, McAbee, Zimmerman, and Mrs. McAbee, as stockholders of record of Hemingray, at a special meeting on July 28, 1933, authorized the distribution to its stockholders of all of its assets not needed for the payment of liabilities and the dissolution of the corporation as soon as its contract *1139 with Owens would permit. The corporation was continued in existence for the purpose of carrying out and satisfying the escrow agreement and for no other purpose. It was inactive, transacted no business, and was dissolved on or about May 9, 1938. On January 1, 1934, Mrs. McAbee endorsed the certificate for 202 shares of Hemingray stock which she had previously turned over to McAbee. In June 1933 Owens took over the actual operation of the Hemingray plant*56 and all the former employees of Hemingray became its employees. Prior to April 19, 1933, Holmes and another stockholder each had his Hemingray stock posted at a bank as collateral security for a loan. Each withdrew his stock certificate for the purpose of turning it over to McAbee and later posted with the bank, as security for his loan, the certificate of beneficial interest which had been given to him on surrender of his stock to McAbee. At a special meeting of the board of directors of Hemingray held April 26, 1933, A. Clifford Shinkle, who had assigned and delivered his stock to McAbee, was declared inelligible to remain a director, and Mrs. McAbee was elected as a director to fill the unexpired term until the next annual meeting of the stockholders. The fair market value per share of Owens common stock on the respective dates was as follows: Date Value Apr. 19, 1933 $ 47.5625 Apr. 25, 1933 48.75 May 2, 1933 56.875 June 3, 1933 74.1875 Jan. 8, 1934 $ 78.75 Feb. 13, 1934 90.95 May 30, 1935 95.25 Jan. 8, 1937 151.75 The fair market value of the stock rights of Owens common stock in 1936 was $ 2.50 per right. In determining the deficiencies in McAbee's*57 income tax respondent added to his net income as "commissions" $ 46,900 in 1935 and $ 303,500 in 1937. He also increased McAbee's dividend income for 1937 by $ 500. The last mentioned adjustment is not in issue. The "commissions" for 1935 consisted of the cash ($ 8,800) received on May 31, 1935, plus the fair market value ($ 95.25 per share) of the 400 shares of Owens stock received on the same date. The "commissions" for 1937 consisted of the fair market value ($ 151.75 per share) of the 2,000 shares of Owens stock received on January 9 of that year. In determining the deficiencies in Zimmerman's income tax the respondent made a similar adjustment, adding to his net income the cash ($ 2,200) and the fair market value of 100 shares of Owens stock ($ 9,525) received by him in 1935 and the fair market value of 500 shares of Owens stock ($ 75,875) received by him in 1937. *1140 In determining the deficiencies in the four cases other than McAbee's respondent held that each taxpayer had received taxable income within the purview of section 115 (c) of the Revenue Act of 1936 as a result of the receipt of Owens stock in January 1937 in the amount shown in the third column of the*58 schedule set out below. In the notices of deficiency served upon Mrs. McAbee, Holmes, and the trustees it was also stated "in the alternative" that the taxpayer had realized a taxable gain of not less than 30 percent (40 percent in Holmes' case) since the Owens stock received in that year had been received in exchange for Hemingray shares having a zero basis. The alternative determinations are indicated in column 4 of the schedule below. Col. III Col. I Col. II Income Col. IV Docket No. Taxpayer Added * Alternative [3772] Mrs. McAbee $ 30,653.50 $ 9,196.05 [3773] Trustees 77,847.75 23,354.33 [3731] Holmes 7,587.50 3,035.00 [3145] Zimmerman 16,514.12 None made On or about February 20, 1933, Zimmerman and Holmes, as "First Party" and Hemingray as "Second Party," entered into a contract which, exclusive of introductory, closing paragraph, and signature, provided as follows: The First Party Represents: 1. Be it known that we, Minot K. Holmes and Willard P. Zimmerman, both citizens of the United States, residing at Muncie, Indiana, have invented certain*59 new and useful improvements in Glass Containers and Manufacture and Treatment Thereof. This invention relates more particularly to the inner surfaces of glass containers, to render them more resistant to the deteriorating action of substances apt to be contained therein. 2. That they have filed an application in the patent office of the United States of America for letters patent covering said invention and process heretofore described and that they may make application for letters patent on said invention and process in foreign states, countries and territories other than the United States. 3. That they purpose to make improvements from time to time on said invention and process above described, and in that case they purpose to file applications and procure patents to be issued on said improvement in the United States of America and in foreign states, countries and territories outside the United States of America. 4. That they are desirous of conveying to the said second party all of their rights, titles and interest in and to said invention, or improvements made in said invention, and all applications for patents made by them, and all patents hereafter granted on said original device*60 or any and all improvements thereto. Therefore, the first party agrees: 1. That they have sold, assigned and transferred and by these presents do sell, assign and transfer unto the second party the full and exclusive rights *1141 to said invention as fully set forth and described in the specifications presented and executed by them on the twentieth day of February, 1933, preparatory to obtaining letters patent of the United States of America, therefore, and that they do hereby authorize and request the Commissioner of Patents of the United States to issue letters patent granted on said application to said second party as the assignee of their entire rights, titles and interests in and to the same, for the sole use and behoof of the second party, and its legal representatives. 2. That they have sold, assigned and transferred and by these presents do sell, assign and transfer unto second party, the full and exclusive right to any improvements heretofore or hereafter made by them in said invention as well as all of their rights, titles and interest in and to any application for letters patent made, or any patent granted on account of said invention or any improvement thereto, either*61 by the United States of America or by any foreign state, country or territory, and the Commissioner of Patents of the United States and the Commissioner of Patents or officer having charge of the issuance of patents in any foreign country, state or territory, hereby are authorized and requested to issue any letters patent hereafter granted on account of said original invention or any improvement thereto, to the second party as the assignee of the entire rights, titles and interests of the first party in and to any such letters patent for the sole use and behoof of the second party and its legal representatives. 3. That at the request of second party and at its expense, they will make application in proper manner and form, for patents on said invention or any improvements thereto in the United States of America or in any foreign country, state or territory designated by said second party and will at all times fully co-operate with the second party and perform any act required by him to be performed to procure letters patent to be issued on account of said original invention or any improvement thereto in the United States of America or any foreign state, country or territory. The *62 Second Party Represents: 1. That it is desirous of purchasing and procuring the title and interest of the first party in and to the invention hereinabove described as well as the right, title and interest of said first party in and to any and all improvements made by said first party in said device and invention and all applications for letters patent made and all letters patent issued on account of said invention or any improvement thereto by the United States of America or any foreign state, country or territory. 2. That it purposes to make use of such invention and improvements thereto in its business to the fullest extent determined by its business judgment to be practicable so that said contract shall result to the mutual benefit of both of the parties hereto. Therefore, the Second Party Agrees: 1. That it will pay to said first party for the right herein granted, the sums hereinafter designated and in the following manner to-wit: (a) One Dollar cash in hand at the time of the execution of this contract, the receipt whereof, hereby is acknowledged by the first party. (b) On all articles manufactured under this right granted as follows: Articles under ten ounces in weight 5 cents a gross, " from ten to twenty-five ounces in weight 10 cents a gross, " above twenty-five ounces in weight 15 cents a gross, *63 *1142 (c) That in case it shall license or permit any other person, firm or corporation, to use said patented device and invention, it will pay to said first party a royalty or license fee on all articles manufactured by this process, as follows: Articles under ten ounces in weight 5 cents a gross, " from ten to twenty-five ounces in weight 10 cents a gross, " above twenty-five ounces in weight 15 cents a gross. It is Mutually Agreed Between the Parties Hereto: 1. That all the terms and conditions of this assignment shall extend to and be binding upon the heirs, personal representatives and assigns of the first party and upon the successors and assigns of the second party. The contract and the patent rights referred to therein were assigned to and became the property of Owens under the reorganization contract of April 25, 1933. On April 5, 1937, Zimmerman and Holmes entered into a contract with Owens, which, exclusive of signatures, acknowledgements, etc., is as follows: AMENDED CONTRACT Whereas, Minot K. Holmes and Willard P. Zimmerman, of Delaware County, State of Indiana, and the Hemingray Glass Company, a corporation of Kentucky, entered into a *64 contract, dated the 20th day of February, 1933, relating to the treatment of surfaces of glass containers, which contract was assigned to Owens-Illinois Glass Company, a corporation of Ohio, and Whereas, it is the desire of said Holmes and Zimmerman and said Owens-Illinois Glass Company to amend the contract with reference to the amount and manner of paying royalties. Now, Therefore, it is Agreed between the parties as follows: 1. That in lieu of all of the royalties provided for in said contract, Owens-Illinois will pay to said Holmes and Zimmerman each a lump sum royalty of Six Thousand Two Hundred Fifty Dollars ($ 6,250.00) at the date of the signing of this amended contract, 2. That on the 1st day of March, 1938, the 1st day of March, 1939, and the 1st day of March, 1940, Owens-Illinois will pay to said Holmes and Zimmerman each further lump sum royalties of Six Thousand Two Hundred Fifty Dollars ($ 6,250.00), and 3. That on the completion of the payment of said royalties, as above provided, in the total amount of Twenty-five Thousand Dollars ($ 25,000.00) each to said Holmes and Zimmerman, no further royalties shall be due or payable under said contract or under this amended contract. *65 In 1937 Zimmerman received $ 6,250 under the contract, which he reported in his income tax return for that year as proceeds from the sale of royalty rights. Sixty percent of the amount ($ 3,750) was included in his gross income. Respondent determined that "the receipt of said sum * * * is not subject to the percentage limitations contained in section 117 of the revenue act of 1936." Accordingly, the difference between the amount received and the amount reported was added by respondent to his net income. *1143 OPINION. A partial summary of the facts will bring the issues into focus. McAbee, in 1933, acquired, in the manner shown in our findings, legal title to all of the shares of a corporation of which he was president (Hemingray), except those owned by its secretary-treasurer (Zimmerman), to the end that they and McAbee's wife might take the necessary steps to merge it with a larger company (Owens). The plan of reorganization -- which, according to the letter of McAbee to the stockholders of Hemingray dated April 8, 1933, had then proceeded to such a point that it was essential prompt action be taken -- contemplated that 17,827 shares of Owens stock, plus some cash, should*66 be given by Owens for Hemingray's assets, with the correlative obligation of Hemingray to pay all of its own debts. Fulfillment of the last mentioned obligation -- assured through the deposit of 10,000 of the Owens shares in escrow, but actually brought about through the sale of Owens stock transferred to Hemingray and not placed in escrow -- resulted in the ultimate receipt by McAbee and Zimmerman of cash in the amount of approximately $ 45,000 and a substantial block of Owens stock. The aggregate of the cash and fair market value of the stock received by McAbee in 1935 was $ 46,900 and in 1937, $ 303,500. The aggregate of the cash and fair market value of the stock received by Zimmerman in 1935 was $ 11,725 and in 1937, $ 75,875. These amounts were included by respondent in their respective gross incomes and the correctness of this action constitutes the first issue. The stockholders of Hemingray as of the date immediately preceding the transfer of the legal title to their stock to McAbee expected to receive and ultimately did receive 4 shares of Owens stock for each share of Hemingray stock owned on April 1, 1933. Stock of Owens on the basis of 1 share for 1 of Hemingray was*67 received by each in 1933, 2 for 1 in 1934, and 1 for 1 in 1937. The respondent has included in the gross income of each [except McAbee, who according to respondent's theory gained no tax advantage from the receipt of 81 shares of Owens in 1937 because the amount of gain was more than offset by allowable capital losses] the fair market value of the Owens stock received in 1937 as a liquidating dividend "from, or for the account of" Owens. The second issue in the Zimmerman case and the sole issue in the cases of Mrs. McAbee, Holmes, and the trustees questions the propriety of this adjustment as well as the alternative adjustment shown in our findings. The third issue in the Zimmerman case, no similar question being present in any of the others, 2 is whether the respondent erred in treating *1144 the amount received by him in 1937 from Owens ($ 6,250), under the contracts with reference to the process for the treatment of glass containers, as ordinary income instead of gain from the sale of a capital asset, subject to the percentage limitations of section 117 of the Revenue Act of 1936. The three issues will be discussed in the order stated. Unless otherwise indicated all references*68 in this opinion to petitioner or petitioners include only those who have raised the particular issue under discussion. Issue I. Were the amounts aggregating $ 555,245 properly included by the respondent in the gross incomes of McAbee and Zimmerman for the years 1935 and 1937 either under section 22 (a) of the Revenue Acts of 1934 and 1936 as compensation for services or as liquidating dividends on stock having a zero basis in their hands? Petitioners insist that the facts support neither view. They contend that, at the time of the transfer by Hemingray of substantially all of its assets to Owens in exchange for Owens stock, they were the owners of all of the Hemingray stock; that the transaction constituted a reorganization under section 112 (i) (1) (A) of the Revenue Act of 1932; that the Owens stock was received*69 in pursuance of the plan of reorganization; and that no gain is to be recognized to them under section 112 (g) of the applicable act. In the alternative, they contend that, if it be held gain was realized by them upon the receipt of Owens stock, then only 30 per centum thereof is to be taken into account in computing their net incomes because of the provisions of section 117 of the applicable revenue acts. They also contend that the portion of the cash received which represented dividends upon the Owens stock is taxable to them as dividends. The parties all recognize that the ownership of the Hemingray stock on the date the transaction between Hemingray and Owens occurred is crucial. We therefore approach the question as the parties have approached it and first determine the ownership of the stock. Petitioners contend that they owned all of the Hemingray shares in the proportions of 80 percentum by McAbee and 20 percentum by Zimmerman. They urge that "an actual sale" of the 2,298 shares had been made to them by the other shareholders. Upon brief Zimmerman characterizes the transaction evidenced by McAbee's letter to the stockholders as an offer by McAbee to purchase, on behalf*70 of himself and Zimmerman, the 2,298 shares of Hemingray, provided the pending deal with Owens was consummated, and to pay the owners, in that event, 4 shares of Owens for each share of Hemingray sold. This offer, he contends, "became a binding contract on May 2, 1933, when the final authorization and approval of the Hemingray and Owens-Illinois *1145 agreement of April 25, 1933, was granted or voted by the Hemingray shareholders." McAbee merely contends that the stockholders "sold their shares of stock * * * to * * * McAbee for the joint benefit of himself and Zimmerman on or about April 20, 1933." Both urge, however, that the question whether a sale was made is a question of the intent of the parties. They place substantial reliance upon oral evidence adduced at the trial tending to show that some of the stockholders considered they had sold their stock and upon the statements of McAbee and Zimmerman to the effect that they understood that they were the owners of it. Recognizing that McAbee's letter to the stockholders is the best evidence of the intent of the parties, they urge that, while the first four paragraphs may tend to support respondent's view that the relationship*71 contemplated was one of agency, the remainder of the letter, when considered in conjunction with the other things which were done, shows clearly that a sale of the stock was made. The letter from McAbee to the stockholders is shown in full in our findings and need not be set out at this juncture. Some of the circumstances relied upon by petitioners, in addition to the oral evidence, are the fact that the shares were delivered by unrestricted endorsement to McAbee and new certificates were issued, unqualified by any designation as agent; that Indiana intangible stamps were attached by McAbee; that Shinkle was replaced as a director on the ground that he was not a shareholder; that the shares were not retransferred to the stockholders; that the former stockholders of Hemingray never thereafter participated in shareholder meetings; that the certificates of beneficial interest referred to the transaction as a sale and were assignable; and that both petitioners treated the transaction as a purchase in their income tax returns. These circumstances have not been ignored by us; but in our judgment they are not sufficient to vary or change the written agreement. Nor is the agreement so *72 unintelligible or ambiguous as to require evidence aliunde to explain its meaning. A brief resume of the undisputed facts may not be inappropriate. Negotiations looking to the disposition of Hemingray or merging it with a larger corporation had been going on for approximately three years prior to April 1933. These negotiations had been conducted by McAbee as president of Hemingray and were known to Hemingray's stockholders. It was understood between McAbee and Zimmerman that McAbee was acting in behalf of both of them and that any profit made would be divided between them in the ratio of 80 percent for McAbee and 20 percent for Zimmerman. Sometime prior to April 1933 a plan was formulated under which Owens would acquire the assets of Hemingray in exchange for 17,827 shares of the Owens common stock and certain cash to be used in paying Hemingray's obligations. The remaining Hemingray obligations were to be paid from funds realized from the sale of a part of the Owens stock. *1146 In the letter of April 8, 1933, McAbee informed the stockholders of Hemingray that the negotiations were "rapidly approaching consummation," and the plan to distribute to them four shares of *73 Owens stock for each share of the Hemingray then owned by them was outlined. McAbee informed them that he expected to make "a substantial personal profit as compensation" for his services in negotiating the sale and the surrender of his contract with Hemingray, which had a term of years yet to run. He proposed that the Hemingray shareholders sign their certificates in blank and turn them over to him, thus clothing him with authority to close the deal. This proposal was set out in the letter as follows: In view of the complexity of the negotiations and of the purchaser's requirements of certain stockholder and director action and to facilitate the prompt completion of these negotiations, it is desirable that I be placed in a position to act with authority and finality. To that end I ask that you send me immediately all of the certificates of stock of the Hemingray Glass Company standing in your name and endorsed in blank which I will cause to be transferred to myself. If, for any reason the deal is not completed, these stock certificates will be reissued in your name and without expense to you and promptly returned to you. This is, of course, to be done with the understanding that*74 a delivery of these certificates to me constitutes full authority to me to complete this transaction and take all steps necessary to do so. Upon receipt of this letter the Hemingray stockholders endorsed their certificates in blank and turned them over to McAbee, who immediately caused an equal number of Hemingray shares to be issued to him. He thereafter held these shares as record owner and voted them in meetings of Hemingray's directors and stockholders. On the same date that the Hemingray shares were issued to McAbee he entered into a written contract with Zimmerman, who had assisted in the negotiations, for a division between them of the "profits" which might accrue to him "in accordance with the agreement of the stockholders." Obviously the proposal of McAbee and its acceptance by the stockholders constituted an agreement between them and must be considered as expressing their intention in the premises. Nowhere in this agreement or in the agreement between McAbee and Zimmerman do we find any suggestion of an intention on the part of the stockholders to sell their Hemingray stock to McAbee, or any intention on his part to purchase it. On the contrary, both agreements evidence*75 an intention that McAbee was to act as the agent of the Hemingray stockholders in negotiating the transaction between Owens and Hemingray and to get a substantial profit for his services. In his proposal to the stockholders McAbee made it clear that the purpose of the transfer of their certificates to him was to enable him "to act with authority and finality." All references to a sale were carefully avoided and it was specifically provided that "if for any reason the deal is not completed, these stock *1147 certificates will be reissued in your name without expense to you and promptly returned to you." It is immaterial that McAbee, subsequent to the surrender of the stock to him in accordance with his letter of April 8, 1933, may have referred to the transaction, in self-serving documents prepared by him, as a sale. He could not, unilaterally, change his agreement with the stockholders. Nor is the fact that he became the record owner of the stock determinative of his rights. He was the moving spirit behind the reorganization, aided and abetted by Zimmerman. They hoped to be able to carry it out in such a fashion that they would secure, as they did, 5.3 shares of Owens stock*76 for each share of Hemingray stock, after the payment of 2,200 shares to Flood as a commission and after the payment of Hemingray's obligations. Four of such shares were to be turned over to the stockholders "upon the consummation of the deal;" and as consideration to the officers for surrendering their contracts and disabling themselves from reengaging in the glass business for five years and "as compensation for negotiating" the sale of the Hemingray assets they were "to make a substantial personal profit out of the sale." The substantial personal profit consisted of 3,250 shares of Owens stock (over and above the number of shares received by them as stockholders), most of which was received during the two taxable years now before us. In our judgment the respondent committed no error in including in the gross incomes of petitioners the portion of the "personal profit" represented by the shares received by them in the taxable years. His characterization of the stock as "commissions" or compensation for services accords with our view. Whether such compensation was received from Hemingray or from its stockholders need not be determined. The conclusion we have reached rests in part*77 upon our interpretation of the contract between McAbee and the stockholders as merely one of agency. It is also supported by the contract of April 20, 1933, between McAbee and Zimmerman, in which they agreed (see paragraph 3) to divide "the net profits," the ownership thereof being "effective if and when such profits accrue." In any event it can not be found upon this record that a sale of Hemingray shares had been made to McAbee or to McAbee and Zimmerman in the year 1933. Cf. ; . Petitioners quote at length from , and argue that it supports the view that McAbee's agreement to return the stock if reorganization was not effected with Owens "does not establish that no sale was made to him." We accept the conclusion thus stated; but it furnishes no ground for overturning the Commissioner's determination. In the cited case there was no dispute that actual sales were made, subject to a condition that payment *1148 be made later, failing which the shares would be returned. *78 Our question, however, is whether any sale was ever made. We believe it should be answered in the negative and so hold. From what has been said it is obvious we are of the opinion petitioners were not the owners of all of the stock of Hemingray when Owens acquired substantially all of its assets. It follows that both of petitioners' major contentions fail; for the Owens stock was not acquired by them pursuant to a plan of reorganization nor as an exchange of capital assets within the purview of section 117. The treatment of the cash dividends received by petitioners upon the Owens stock should be consistent with the views heretofore expressed and with our decision under the second issue. So much of the cash received in 1935 -- none was received in 1937 -- as represented dividends upon the 81 and 121 shares owned by petitioners should, of course, be included in gross income as dividends. The additional amounts paid to petitioners on May 31, 1935 -- $ 8,800 to McAbee and $ 2,200 to Zimmerman -- are not shown to have been dividends but merely, in the language of the stipulations, "cash distributions" or "amounts in cash," paid to them by Hemingray. No error in respondent's treatment*79 of these amounts has theretofore been shown. Issue II. The question presented under this issue is whether Zimmerman, Mrs. McAbee, Holmes, and the trustees of the estate of Daniel C. Hemingray, deceased, are required to include in their gross incomes for 1937 the fair market value of the Owens stock received by them in that year in the ratio of 1 share of Owens stock for 1 share of Hemingray stock owned by them and standing in their name prior to April 1933. Respondent has included the various amounts on the theory that they were liquidating dividends from, or on account of, Hemingray Glass Co. No part of the value of the Owens stock in question, distributed to petitioners from escrow, was reported by them in their 1937 income tax returns. They contend that they sold their shares in Hemingray to McAbee on or about April 20, 1933; that the transaction was an exchange on which gain or loss was realized under the Revenue Act of 1932; and that the Owens stock delivered to them in 1937 was constructively received by them in a prior year and can not in any event be considered as liquidating dividends from Hemingray. In the alternative they contend that, if it is held that gain was realized*80 from the receipt by them of Owens stock in 1937, then only 30 percent thereof is taxable under section 117 of the applicable revenue acts. Respondent argues that petitioners realized taxable income in the year 1937 as a result of the receipt by them in that year, as liquidating *1149 dividends from or for the account of Hemingray Glass Co., of shares of Owens stock, which, on account of distributions to them in prior years to the extent of the cost thereof, had a zero basis. He agrees that the acquisition by Owens of all the assets of Hemingray for a consideration consisting of 17,827 shares of its common stock and approximately $ 85,000 in cash constituted a reorganization within the definition contained in section 112 (i) (1) (A) of the Revenue Act of 1932; but, since the statutory definition of reorganization was changed with the Revenue Act of 1934, he contends that under the new definition, where control does not remain in the transferor but is in the stockholder, the consideration must consist solely of voting stock; that since the transaction was not a reorganization under the 1934 or 1936 Acts, the distributions to petitioners in 1937 must be considered distributions*81 in liquidation; and that they are not tax-free distributions in connection with a reorganization. He insists, therefore, that petitioners received liquidating dividends in 1937 of Owens stock in proportion to their ownership of Hemingray stock (1 share of Owens for 1 share of Hemingray) and cash representing dividends on the Owens stock, and that the Owens stock received had a zero basis beginning with the year 1935. 3 *82 Briefly reviewing the facts and consistent with the view heretofore expressed under issue I -- that the stockholders remained the equitable owners of the Hemingray shares after they were turned over to McAbee -- there was distributed to each, in 1933, at the direction of McAbee, president of Hemingray, one share of Owens stock for each share of Hemingray stock and a "certificate of beneficial interest" for each shareholder's remaining shares of Owens, which had been deposited in escrow to guarantee performance by Hemingray of its agreement with Owens. Thereafter the holders of the "certificates of beneficial interest" received the dividends on the stock held in escrow. The "certificates of beneficial interest" were accepted by banks as security for loans and the holders were always considered to be entitled to the stock, subject only to the escrow agreement. All the benefits of the Owens stock allocated to them accrued to the Hemingray stockholders in 1933. Pursuant to the plan of reorganization, the stockholders of record of Hemingray in July 1933 authorized the distribution of all the assets of Hemingray not needed for the payment of its liabilities and ratified all the steps*83 theretofore taken by *1150 the officers and directors in carrying out and effecting the plan of reorganization. In our opinion the Hemingray stockholders acquired equitable title to the Owens stock in 1933 when it was placed in escrow for their benefit. Thereafter the stock was held merely as security for the performance by Hemingray of its agreement to pay its obligations. . The Owens stock was therefore distributed to the Hemingray stockholders in 1933 according to the plan of reorganization and no gain or loss was to be recognized because of the provisions of section 112 of the Revenue Act of 1932. The release of the stock from escrow in 1937 and the delivery of it to petitioners was not, in our opinion, a transaction in which gain or loss is to be recognized. Cf. . See also . , and , relied upon by respondent, are*84 distinguishable on their facts. In both cases the stock there dealt with was not issued until the year following the resolution authorizing its distribution. The question whether the dividends paid on the Owens stock held in escrow and turned over to petitioners during 1937 are taxable to them as dividends or as ordinary income is disposed of by what we have held regarding stock ownership. We hold that they are taxable as dividends. Cf. , affirmed on this issue . Issue III. This issue raises the question whether the $ 6,250 received by Zimmerman in 1937 in connection with the contracts shown in our findings involving the patented process for the treatment of glass containers is income taxable 100 percent, or capital gain, taxable under section 117 of the Revenue Act of 1936. Respondent has treated the amount received during the taxable year as ordinary income not subject to the percentage limitation contained in section 117. He contends that the amended contract of April 5, 1937, which was entered into with Owens, was either a commutation, *85 on a lump sum basis, of future royalties to be received under the original contract with Hemingray dated February 20, 1933, or a commutation, on a lump sum basis, of the remaining selling price. His primary contention is based on his determination that the contract of February 20, 1933, was for the payment of royalties to petitioner and Holmes for the use of their invention. Petitioner contends that only 60 percent of the amount received in 1937 is to be taken into account in computing his net income because it resulted from "the sale or exchange" of a capital asset, held for *1151 more than two years but not for more than five years. (Sec. 117 (a), Revenue Act of 1936.) His argument proceeds as follows: The inventors, on February 20, 1933, entered into a contract for the sale of their invention and patent. The purchaser transferred its rights to Owens under the reorganization contract of April 25, 1933; but between that date and the date the agreement of April 5, 1937, was made, no discussions were had with Owens with reference to the payments. Therefore no novation of the contract had occurred notwithstanding the fact that Owens made the payments required by the contract*86 of February 20, 1933. In this situation petitioner, by entering into the second contract on April 5, 1937, "received an asset -- contractual rights against Owens -- in consideration of which he gave up rights against Hemingray." The rights given up and the rights acquired were of a different character. Therefore there was an exchange of property. The property given up in the exchange -- the right to receive the stipulated payment -- had been held for more than two years but less than five years. Therefore the cited section is applicable. The argument is ingenious but in our judgment unsound. Under the contract of February 20, 1933, petitioner and Holmes "sold, assigned and transferred" all of their right, title and interest in the invention and authorized and requested the Commissioner of Patents to issue any letters patent granted on the pending applications to Hemingray "as the assignee of their entire rights, titles and interests in and to the same, for the sole use and behoof" of Hemingray and its legal representatives, together with the full and exclusive right to any improvements "heretofore or hereafter made by them." The consideration to be paid therefor was to be computed*87 on all articles manufactured under the patents, either by Hemingray or its licensees, at from 5 cents to 15 cents per gross, depending on the weight of the articles. Upon execution of the contract the title to the patent rights passed to Hemingray, with the power to assign them or to grant licenses under them. Clearly this was a sale and not a licensing agreement. See , affirming , and cf. . The sale contract was binding upon Owens as the successor and assignee of Hemingray. Thus it was obligated to make the payments, regardless of any novation, and did so for more than four years. During the year 1937 the parties to the contract merely agreed, as we interpret the so-called amended contract, to commute the specified sale price through the payment by Owens of lump payments aggregating $ 50,000. The amount, however, was consideration for the property sold. Petitioner does not contend that the property -- i. e., the exclusive right to the invention and any improvements thereon -- had been held for more than two*88 years but less than five years at the *1152 time the sale was made in 1933. In our opinion, therefore, the Commissioner properly treated the amount presently in issue as part of the sale price of property other than a capital asset. Decision will be entered under Rule 50. Footnotes 1. Mintie Carroll H. McAbee (3772) and A. Clifford Shinkle, Jr., and Philip W. McAbee, Surviving Trustees of the Estate of Daniel C. Hemingray, Dec'd. (3773), were consolidated with Philip W. McAbee (3774) for trial. In Minot K. Holmes (3731) it was stipulated that decision should be governed by decision in Docket No. 3773. In Willard P. Zimmerman (3145) a separate trial was had. It was stipulated that the testimony of Philip W. McAbee, Minot K. Holmes, Carl Smith, and Willard P. Zimmerman in the consolidated cases should be considered in the last mentioned case.↩ 1. Mintie Carroll H. McAbee (3772) and A. Clifford Shinkle, Jr., and Philip W. McAbee, Surviving Trustees of the Estate of Daniel C. Hemingray, Dec'd. (3773), were consolidated with Philip W. McAbee (3774) for trial. In Minot K. Holmes (3731) it was stipulated that decision should be governed by decision in Docket No. 3773. In Willard P. Zimmerman (3145) a separate trial was had. It was stipulated that the testimony of Philip W. McAbee, Minot K. Holmes, Carl Smith, and Willard P. Zimmerman in the consolidated cases should be considered in the last mentioned case.↩ *. This figure does not appear in the record in McAbee's case but is shown in the stipulation in Zimmerman's case.↩ *. Number of Owens shares received in January 1937 times fair market value ($ 151.75), less amount reported↩ 2. It appears that Holmes received the same amount from Owens in 1937 in connection with the contracts shown in our findings; but no issue between him and the respondent is raised by the pleadings in his case.↩ 3. In computing the basis of the 81 shares owned by McAbee prior to April 1933, the respondent reduced the original basis by the cash dividend of June 3, 1933, in the amount of $ 526.50 and the adjusted basis of the 81 shares of Owens stock distributed on that date in the amount of $ 2,769.63, leaving a basis for the 81 shares of $ 10,303.87. In 1934 McAbee received cash in the amount of $ 263.25 and 162 shares of Owens stock having a value of $ 78.75 per share, or a total of $ 12,757.50, an amount $ 2,716.88 in excess of the adjusted basis, thus giving the 81 shares a zero basis beginning with the year 1935. This same principle was applied to the "other" shareholders of Hemingray.↩