Kamborian v. Commissioner

Jacob S. Kamborian and Elizabeth Kamborian, et al., 1 Petitioners v. Commissioner of Internal Revenue, Respondent Kamborian v. Commissioner Docket Nos. 5832-69, 5833-69, 5834-69, 5835-69 United States Tax Court 56 T.C. 847; 1971 U.S. Tax Ct. LEXIS 94; July 27, 1971, Filed *94 Decisions will be entered under Rule 50. 1. Four stockholders of International transferred their stock in Campex to International in return for International's common stock. At the same time a fifth International stockholder purchased additional shares of theretofore unissued International stock for cash. Held, in the circumstances of this case, that only the transferors of the Campex stock may be considered as transferors of property for purposes of sec. 351, I.R.C. 1954; that the fifth stockholder may not be so considered; that the control requirement imposed by secs. 351(a) and 368(c), I.R.C. 1954, as interpreted by regs. sec. 1.351-1 (a)(1) (ii), has consequently not been satisfied; and that therefore all gain realized on the exchange must be recognized. 2. Held, petitioners Jacob and Elizabeth Kamborian have failed to establish that they are entitled to a deduction for a short-term capital loss in 1966. Secs. 166(d)(1)(B) and 165(f) and (g), I.R.C. 1954. James D. St. Clair, for the petitioners. Robert B. Dugan, for the respondent. Raum, Judge. RAUM *847 The Commissioner determined deficiencies in petitioners' income tax as follows: *848 Calendar Petitioner year Deficiency Jacob S. and Elizabeth Kamborian, docket No. 5832-69 [1965] $ 79,174.28 [1966] 20,031.79 Jacob S., Jr. and Nancy M. Kamborian, docket No. 5833-69 [1965] 5,997.84 Gene E. and Lisbeth K. Godley, docket No. 5834-69 [1965] 5,540.54 Michael M. Becka, docket No. 5835-69 [1965] 5,382.98 The *95 cases relate to petitioners' transfer of certain securities to International Shoe Machine Corp. in exchange for its common stock. Specifically in question is whether gain realized by petitioners as a result of that transaction qualifies for nonrecognition under section 351, I.R.C. 1954; if it does not so qualify, a further question is raised as to the amount of such gain, and the answer depends upon the fair market value of the International Shoe Machine Corp. stock received by petitioners in the exchange. Also in issue in docket No. 5832-69 is whether petitioners Jacob S. and Elizabeth Kamborian are entitled to a deduction for a short-term capital loss in the amount of $ 50,000 in 1966. FINDINGS OF FACT The parties have stipulated certain facts which are incorporated herein by this reference. Petitioners Jacob S. and Elizabeth Kamborian were husband and wife at the time of the trial herein. They filed joint Federal income tax returns for the calendar years 1965 and 1966 with the district director of internal revenue at Boston, Mass., and resided in West Newton, Mass., at the time their petition herein was filed. Petitioners Jacob S., Jr., and Nancy M. Kamborian filed a joint Federal *96 income tax return for the calendar year 1965 with the district director of internal revenue at Boston, Mass., and resided in Duxbury, Mass., at the time their petition herein was filed. Petitioners Gene E. and Lisbeth K. Godley filed a joint Federal income tax return for the calendar year 1965 with the district director of internal revenue at Baltimore, Md., and resided in Washington, D.C., at the time their petition herein was filed. Petitioner Michael M. Becka filed an individual Federal income tax return for the calendar year 1965 with the district director of internal revenue at Boston, Mass., and resided in Watertown, Mass., at the time his petition herein was filed. 1. International Shoe Machine Corp. (International) was incorporated in Massachusetts in 1938 and at the time of the trial herein was engaged in the business of manufacturing and leasing shoe machinery *849 and the sale of related supplies. On April 1, 1964, International's articles of organization were amended to provide for a 20 for 1 split of its common stock into two classes of common stock: Class A, $ 1 par, voting stock, and class B, $ 1 par, nonvoting stock. Following an exchange of the preexisting stock for *97 the newly created common stock. International's authorized and issued stock was as follows as of April 1, 1964: Shares Class A Class B Authorized 100,000 900,000 Issued 37,200 334,800 At all times relevant herein, prior to July 10, 1969, International's stock was subject to the following restrictions: No share of the common stock of the Company hereafter issued shall be sold or transferred by the registered holder thereof until such holder shall have first offered such shares for sale to the Company at the book value of such shares as shown by the Company's statement of assets and liabilities at the end of the Company's fiscal year next preceding the date of such offer. Such book value shall be adjusted to reflect any changes in the capital stock of the Company subsequent to the end of such preceding fiscal year but shall not be adjusted for any other reason. If within sixty days after the date of such offer the Board of Directors shall elect to purchase any or all of such shares, the holder thereof shall thereupon forthwith transfer and assign to the Company the shares so purchased and the Company shall at the same time make payment of the purchase price thereof. If the Board of Directors*98 shall vote not to purchase any or all of such shares or shall fail to elect to make such purchase within said sixty days, the registered holder of such shares within ninety days after the date of such vote or after the expiration of said sixty days, as the case may be, may transfer such shares by sale or otherwise. Said shares shall again become subject to the above restriction after the transfer by the holder thereof as above permitted or after the expiration of said ninety days if not transferred prior thereto. These restrictions shall not be deemed to restrict the transfer of shares to the executor, administrator, legatees or heirs of a deceased shareholder (including as legatee a testamentary trustee and any person entitled to the distribution of assets of a testamentary trust) but except as above provided all shares so transferred shall be subject in the hands of the transferee to the restrictions on transfer herein provided. Notwithstanding the foregoing, any shares of common stock, $ 1 par value, as to which the holders of two-thirds of the shares outstanding and entitled to vote thereon have authorized or ratified the waiving of any or all of the foregoing restrictions on *99 the transfer thereof, shall be transferable by the holder thereof from time to time free of the restrictions so waived. Such waiver and any transfer pursuant to any such waiver may be upon any terms and conditions specified by the shareholders in their authorization or ratification. On September 1, 1965, prior to the transaction here in question, International's capital stock was held as follows: *850 Shares of International Class A Class B Name common common Jacob Kamborian Revocable Trust 20,324 182,916 Jacob Kamborian, Jr 4,220 37,980 Lisbeth (Kamborian) Godley 3,620 32,580 Michael Becka [540] Elizabeth Kamborian Trust 5,000 45,000 Others 3,916 35,244 37,140 334,260 Jacob S. Kamborian (Jacob) founded International and served as its president at all times relevant herein. Jacob S. Kamborian, Jr., and Lisbeth Kamborian Godley are the children of Jacob and his wife, Elizabeth. Michael Becka (Becka) is not related to the members of the Kamborian family. At the time of the trial herein he had been employed by International or an affiliate since at least 1943 and had served as International's executive vice president and general manager since approximately 1960. As such he was responsible for the operations of *100 all International's departments and reported directly to Jacob, the president of the corporation. Jacob established the Jacob S. Kamborian Revocable Trust on April 13, 1965. Article I of the "Declaration of Trust" (which identified Jacob as "SETTLOR") set forth the trust's purposes: ARTICLE I. The SETTLOR has executed this Trust to arrange for the continued management of his equity interests in INTERNATIONAL SHOE MACHINE CORPORATION and its affiliated companies and to create a family protective fund which will provide for the maintenance and comfort of the SETTLOR during his life, and after his death for the benefit of his children and their issue, all in the manner hereafter provided. Under the trust instrument, Jacob as settlor retained the following powers over trust corpus and income: ARTICLE VI. A. During the SETTLOR'S life, except during any period of adjudicated incompetency, the SETTLOR shall have the full right, to be exercised from time to time by a writing or writings signed by him, to be effective when delivered to any trustee in office other than the SETTLOR and if for any reason there shall be no trustee in office other than the SETTLOR, to any beneficiary entitled to receive *101 income or principal under the terms of this trust: 1. To revoke this instrument entirely and to receive from the Trustees all of the trust property remaining after making payment or provision for payment of all expenses connected with the administration of this trust. 2. From time to time to alter or amend this instrument in any and every particular. 3. From time to time to change the identity or number, or both, of the Trustee or Trustees hereunder. *851 4. From time to time to withdraw from the operation of this Trust any part or all of the trust property. B. With respect to all policies of insurance at any time deposited hereunder by the SETTLOR and made subject to the terms of this Trust, he reserves full right and authority, to be exercised by him in the manner and during the periods hereinabove in Section A of this ARTICLE VI specified: 1. To sell, assign or hypothecate any or all of said policies. 2. To exercise any option or privilege granted by said policies including the right to change the beneficiaries of any policy. 3. To borrow any sum from the insurer or any individual, partnership, corporation or association. 4. To receive all payments, dividends, surrender values, benefits or privileges *102 of any kind which may accrue on account of said policies. 5. To freely inspect; and to withdraw from this instrument any or all of said policies. C. At all times during the life and legal competency of the SETTLOR, the Trustees shall distribute to him, or to his written order, whatever part or parts or all of the income and of the principal of the trust fund he shall direct in writing from time to time. On April 12, 1965, International's board of directors voted to waive the restrictions on the transfer of the corporation's class A and class B common stock to permit Jacob to transfer 20,324 shares of class A common stock and 182,916 shares of class B common stock to the trustees of the Jacob S. Kamborian Revocable Trust. Both at that time and as of September 1, 1965, the trustees of the revocable trust were Jacob, Becka, and Joseph E. Fiore. The Elizabeth Kamborian Trust (Elizabeth's trust) was established by Jacob in 1949. At about that time Jacob and Elizabeth experienced domestic difficulties; they separated for a time; and the trust was established on their reconciliation in order to provide financial security for Mrs. Kamborian. The initial trust corpus consisted of 2,500 shares *103 of International stock. The trust instrument, dated September 27, 1949, provided for the disposition of trust principal and income in part as follows: FIRST: To pay over the entire net income of the Trust Fund to my wife, Elizabeth Kamborian, so long as she shall live and upon her death to pay over the principal of this Fund discharged of any trust in equal shares to my son, Jacob L. Kamborian, and to my daughter, Lizbeth N. Kamborian, and to their issue taking by right of representation. If either of my said children shall have died leaving no issue then all of the Trust Fund shall be distributed to the surviving child or to his or her issue if he shall have died leaving issue then surviving. If both of my children shall have died leaving no issue then surviving the Trust Fund shall be distributed four-tenths to my nephew, Luther Kamborian, and to his issue taking by right of representation, three-tenths to the issue taking by right of representation of my step-daughter, Eunice Weisz, and three-tenths to the issue taking by right of representation of my stepdaughter, Venus Yardume. The share of any person or group of persons named in the previous sentence who shall have predeceased *104 my said wife shall be added *852 pro rata to the shares of the other persons or group of persons hereinabove named. If none of the persons named in this Article shall survive my said wife then the trust fund shall be distributed to those persons who would be my heirs-at-law if I had died intestate a resident of Massachusetts on the date of my wife's death. * * * * I direct that no part of the principal of the trust fund herein established nor of the income accruing thereon shall be assignable by the beneficiaries hereunder or payable by anticipation and that the interest of every such beneficiary hereunder shall be free from interference and attachment or control of creditors. The trust instrument granted the trustees the following powers: SECOND: In addition to any and all powers otherwise conferred on my said Trustees hereunder or by law and without in any way intending to limit the same said Trustees shall have the following powers to be exercised by them in their absolute and final discretion. (a) Power to sell any and all of the property constituting the trust fund whether real or personal at public auction or private sale without the necessity of applying to any court for leave so to *105 do and to execute and deliver all instruments of transfer which may legally be necessary or proper therefor no purchaser from said trustees to be bound to see to the application of the purchase money. (b) Power to invest and reinvest from time to time any money or property in such manner and at such time as may be deemed expedient and to purchase at any time or hold any securities or property of any kind even though the same be unproductive of income or be of a kind not usually considered suitable for trustees to select or hold in the absence of express authority and to purchase at any time or hold a larger proportion in any one investment than trustees should ordinarily purchase or hold including power to purchase or hold securities which excepting for the provisions of this paragraph would be considered unsuitable for two or more of the reasons above enumerated. (c) Power to sell or transfer any securities or property constituting the trust fund to any corporation partnership or association in exchange for all or any part of the stock bonds notes shares or certificates of beneficial interest of such corporation partnership or association and to become party to or under plans of reorganization *106 or consolidation of any one or more corporations or other enterprises in which the trust fund or any portion of it may be invested and to buy or sell and/or exercise rights of subscription to stock or other securities of any corporation partnership or association and power to do any one or more of these acts whether or not said trustees are or may be interested as officers stockholders partners or otherwise in any such corporation partnership or association. (d) Power to vote in person or by proxy upon any stock or shares for any purpose whatsoever including the purpose of electing any one or more of said trustees or of the beneficiaries herein named to any office or offices in any corporation partnership or association. (e) Power to enter into any and all contracts guarantees and obligations which in their opinion may be expedient and power to deal with the trust fund and to manage control and conduct the affairs of the trust as fully and as *853 freely as if said trustees were the absolute owners of the securities and property constituting said fund. The trustees were also expressly authorized to cooperate with the other stockholders of International in providing for its management and *107 continued operation: THIRD: In creating the trust herein provided for I expressly contemplate that my interest in the manufacturing enterprises with which I am associated will constitute the major portion of the trust property and that my Trustees may find it necessary in cooperation with other stockholders to provide for the management and continued operation of some or all of these enterprises. I expressly authorize my Trustees or any one or more of them to become officers of such enterprises to participate in their management and to receive from such enterprises compensation for their services as officers in addition to any compensation to which they may be entitled as trustees of this trust. I further contemplate that my son Jacob L. Kamborian may wish to become associated with some or all of said enterprises. It is my wish that my Trustees shall cooperate in giving him every opportunity to so associate himself as soon as they deem it appropriate for him to do so and to assume increasing responsibility and authority in the management of said enterprises as rapidly as he shows ability so to do. I further expressly authorize my trustees in their discretion to sell to my said son at *108 any time or from time to time any part or all of the securities representing the ownership of the trust in any of said enterprises and to accept in whole or in part payment therefor promissory notes or other obligations of my said son with or without security and upon such other terms and conditions as my trustees in their sole judgment shall deem appropriate. In addition, Jacob was authorized to appoint a successor trustee if any trustee should die or resign. As of September 1, 1965, Becka and Lisbeth K. Godley were the trustees. Jacob had appointed them as successor trustees in 1963 and 1964, respectively. At all times relevant herein, Becka served as the managing trustee; Mrs. Godley did not live in Boston during this period; and periodically Becka informed her of the trust's activities. As of September 1, 1965, the only assets of the trust were 5,000 shares of International's class A common stock and 45,000 shares of its class B common stock. As of September 1, 1965, International's board of directors consisted of Jacob, Jacob, Jr., Albert Kamborian (Jacob's brother), Becka, Paul Hirsch II, Harold V. Daniels, and Roy S. Flewelling. Campex Research & Trading Corp. (Campex), a Swiss *109 corporation with its principal place of business in Zug, Switzerland, was a patent holding and licensing company. It held primarily foreign shoe machine patents (i.e., patents not issued by the United States) and granted and administered licenses under them in a number of European countries and in Mexico. On September 1, 1965, and prior to the transaction here in question, the outstanding stock of Campex was held as follows: *854 Name Shares of Campex Jacob Kamborian Revocable Trust [39] Jacob Kamborian, Jr [4] Lisbeth (Kamborian) Godley [4] Michael Becka [3] On September 1, 1965, the board of directors of International authorized Jacob to enter into an agreement under which (a) the owners of all of the issued and outstanding shares of Campex would exchange their stock for common stock of International and (b) "certain stockholders" of International would purchase for cash additional shares of International's common stock. The vote of the board of directors declared in part as follows: VOTED: That this corporation approved and adopt the proposed agreement between this corporation, the owners of all of the issued and outstanding shares of Campex Research and Trading Corporation, a Swiss corporation, and *110 certain of this corporation's stockholders, a copy of which agreement was presented and read to the meeting and was ordered to be appended to the minutes of this meeting pursuant to which all of the issued and outstanding shares of Campex Research and Trading Corporation would be contributed by the owners thereof to this corporation and certain stockholders of this corporation would purchase for cash additional shares of this corporation's common stock; As part of the transaction it was contemplated that the Elizabeth Kamborian Trust would purchase additional shares of theretofore unissued International stock for about $ 5,000, so that the former owners of the Campex stock and the Elizabeth Kamborian Trust, when considered collectively and treated as transferors under section 351 (a), I.R.C. 1954, would own at least 80 percent of International's stock immediately after the transaction in an attempt to comply with the requirements of section 368 (c), I.R.C. 1954. If the Elizabeth Kamborian Trust were not taken into account, the International stock held by the former owners of Campex immediately after the transaction amounted to 77.3 percent of each class of outstanding stock of International *111 -- an amount that was insufficient to satisfy the requirements of section 368 (c). The agreement authorized by International's board of directors was executed on September 1, 1965, and provided in part as follows: AGREEMENT made this first day of September, 1965, by and between INTERNATIONAL SHOE MACHINE CORPORATION, a Massachusetts corporation, having an usual place of business in Boston, Suffolk County, Massachusetts, (hereinafter referred to as ISMC) and Jacob S. Kamborian, Michael M. Becka, Joseph Kazarosian and Joseph E. Fiore as they are Trustees of the Jacob S. Kamborian Revocable Stock Trust under a Declaration of Trust dated April 13, 1965 (hereinafter referred to as the Trustees) and Jacob S. Kamborian, Jr. of Duxbury, Plymouth County, Massachusetts (hereinafter referred to as Kamborian, Jr.) and Lisbeth M. Godley of Washington, District of Columbia (hereinafter referred to as Godley) and Michael M. Becka of Cambridge, Middlesex County, Massachusetts (hereinafter referred to as *855 Becka) and Lisbeth M. Godley and Michael M. Becka as Trustees under an Indenture of Trust established for the benefit of Elizabeth Kamborian dated September 27, 1949 (hereinafter referred to as the *112 Elizabeth Kamborian Trustees) WITNESSETH: * * * * Whereas the Trustees, Kamborian, Jr., Godley and Becka collectively are the owners of the entire and issued outstanding stock of Campex and are collectively the owners of approximately 75.6 percent of I.S.M.C.; and Whereas the Elizabeth Kamborian Trustees are the owners of approximately 13.4 percent of I.S.M.C.; and Whereas the Trustees, Kamborian, Jr., Godley and Becka desire to contribute their shares of Campex to I.S.M.C. in exchange for shares of the common stock of I.S.M.C.; and Whereas the Elizabeth Kamborian Trustees desire to purchase additional shares of the common stock of I.S.M.C.; and Whereas I.S.M.C. is willing to exchange shares of its common stock for the shares of Campex and is also willing to sell additional shares of I.S.M.C. to the Elizabeth Kamborian Trustees; Nowtherefor, in consideration of the mutual promises and convenants herein contained, and on either parties part to be performed, the parties hereto hereby agree as follows: 1. The Trustees, Kamborian, Jr., Godley and Becka agree to contribute the aggregate of fifty (50) shares of Campex owned by them to I.S.M.C., and I.S.M.C. agrees to accept the same and to issue *113 in exchange therefor shares of its common stock as hereinafter set forth. * * * It is further agreed that the value of said fifty (50) shares of Campex as of the date of this Agreement is Two Hundred Seventy-Four Thousand Four Hundred Fifty-Three ($ 274,453.00) Dollars or Five Thousand Four Hundred Eighty-Nine and 06/100 ($ 5,489.06) Dollars per share and further the value of the common stock of I.S.M.C. for purposes of this exchange twelve ($ 12.00) per share. Based upon the foregoing valuations, it is agreed that the contribution of the shares of Campex to I.S.M.C. and the exchange of I.S.M.C. shares will be made on the basis of 45.74 shares of Class A common Stock and 411.68 shares of Class B stock for each share of stock of Campex contributed hereunder. Using this ratio, I.S.M.C. hereby agrees to issue to the Trustees, Kamborian, Jr., Godley and Becka, the following number of shares of its common stock upon receipt by I.S.M.C. of said fifty (50) shares of Campex. No. of class A shares No. of class B shares to be exchanged to be exchanged Trustees 1,784 (1,783.86) 16,055 (16,055.52) Kamborian, Jr [183] (182.96) 1,647 (1,646.72) Godley [183] (182.96) 1,647 (1,646.72) Becka [137] (137.22) 1,235 (1,234.98) 2. Elizabeth *114 Kamborian Trustees simultaneously with the contributions of the shares of Campex as described in Paragraph 1 agree to purchase 42 shares of Class A stock of I.S.M.C. and 376 shares of the Class B stock of I.S.M.C., and I.S.M.C. agrees to sell the same to said Trustees at a purchase price of twelve ($ 12.00) dollars per share, i.e. for Five Thousand Sixteen ($ 5,016.00) dollars. 3. I.S.M.C., the Trustees, Kamborian, Jr., Godley and Becka hereby agree that *856 the contribution and exchange described in Paragraph 1 hereof shall be made simultaneously with the purchase by the Elizabeth Kamborian Trustees of the shares of I.S.M.C. as set forth in Paragraph 2 hereof. 4. It is contemplated that immediately after consummation of the exchanges and purchases specified herein that the individuals and Trustees who are a party to this agreement shall be the owners of at least eighty (80%) percent of the then issued and outstanding common stock of I.S.M.C. as reflected in the following table: Number and Percentage of I.S.M.C. Shares Owned Before Exchanges and Contributions Number of shares Percentage of shares Class A Class B Class A Class B Trustees 20,324 182,916 54.6 54.6 Kamborian, Jr 4,220 37,980 11.3 11.3 Godley 3,620 32,580 9.7 9.7 Becka [540] .16 .16 E. Kamborian Trustees 5,000 45,000 13.4 13.4 *115 Number and Pecentage of I.S.M.C. Shares Owned After Exchanges and Contributions Number of shares Percentage of shares Class A Class B Class A Class B Trustees 22,108 198,971 55.93 55.93 Kamborian, Jr 4,403 39,627 11.14 11.14 Godley 3,803 34,227 9.62 9.62 Becka [197] 1,775 .50 .50 E. Kamborian Trustees 5,042 45,376 12.76 12.76 International acquired Campex stock as part of its program of preparing for a public issue of its stock. On the advice of underwriters and other specialists, it was thought that ownership of foreign patents would enable International to display worldwide activities which would be of value in establishing the price of the public issue. If the contemplated public offering had been made, it would also have been necessary to remove existing restrictions on the sale of International's stock. As of September 1, 1965, no date had been set for the offering and at the time of the trial herein the public offering had not yet been made. As vice president and general manager of International, Becka participated from the beginning in the planning of the acquisition of the Campex stock. Moreover, during 1964 and 1965, Jacob was seriously ill for an extended period of time, underwent a number of operations, and *116 was hospitalized for a number of months. For approximately 9 months he was on his back and for a year thereafter he was "very *857 limited" in what he could do. During this period Becka was in charge of International's affairs, and it was at about this time that International acquired the Campex stock. During the course of planning for the transaction, International received legal advice with regard to qualifying the acquisition as a tax-free exchange, and the "variations of tax free exchange of stocks were discussed at some length." As trustee of Elizabeth's trust, Becka borrowed approximately $ 5,000 at an interest rate of 6 percent in order to finance the trust's purchase of the total of 418 shares of International stock on September 1, 1965. The corpus of the trust consisted exclusively of International stock, and Becka anticipated that the loan would be repaid out of dividends paid on the stock. In deciding to acquire additional International stock, Becka also anticipated that International would make a public offering which might enhance the value of the stock. Prior to the purchase of the International stock on behalf of the trust, Becka discussed his plans with both Jacob and *117 Elizabeth. Jacob, personally and as grantor of the Jacob S. Kamborian Revocable Trust, held a sufficient number of International shares to control the corporation and thus to determine whether it would issue additional shares. In his discussions with Elizabeth, Becka explained that because the $ 5,000 loan would have to be repaid out of dividends paid on the International stock held by the trust, her income from the trust would be diminished until the loan was repaid. Elizabeth told Becka to go ahead with the transaction. During 1964 and 1965 Jacob maintained a residence for himself, his wife, and her two daughters (by a previous marriage) in West Newton, Mass. Also, during this period International paid Elizabeth $ 1,000 per month. Such amounts were charged to Jacob's salary. During the years 1959 through 1964 International declared and paid dividends as follows: Year Date declared Date paid Amount per share 1959-63 None [1964] Feb. 14, 1964 Mar. 2, 1964 1 $ 0.30 Dec. 11, 1964 Mar. 11, 1965 .30 During the same period International's *118 annual gross income and earnings per share (based on 372,000 shares of common stock), its net worth, and its cash and securities were as follows. Comparable figures for the first 6 months of 1965 are also listed below. *858 Year Gross income Earnings Net worth Cash and per share securities [1959] $ 2,233,968.35 $ 0.60 $ 1,297,848.72 $ 154,948.98 [1960] 2,852,843.68 0.78 1,589,833.18 118,007.53 [1961] 3,577,079.71 1.09 1,993,768.89 963,380.14 [1962] 3,884,130.21 1.07 2,392,632.98 828,551.69 [1963] 4,534,032.10 1.76 3,055,648.14 1,354,249.93 [1964] 5,344,584.06 2.68 3,827,796.24 1,647,904.20 1/1/65-6/30/65 1 2,547,545.00 1 0.88 3,777,460.00 502,092.00 On December 31, 1964, the book value of International stock was $ 10.29 per share. On September 1, 1965, the fair market value of International's class A common stock was $ 13 per share and the fair market value of its class B common stock was $ 12.50 per share. On their respective Federal income tax returns for 1965, petitioners reported no gain or loss stemming from the exchange of their Campex stock for International stock. In his deficiency notices to petitioners, the Commissioner determined that they realized long-term capital gains *119 as follows (computed on the basis of a fair market value of $ 16.20 for each share of International stock): Petitioners Gains Jacob S. and Elizabeth Kamborian, docket No. 5832-69 $ 279,963.80 Jacob S. Jr., and Nancy M. Kamborian, docket No. 5833-69 28,720.00 Gene E. and Lisbeth K. Godley, docket No. 5884-69 28,720.00 Michael M. Becka, docket No. 5835-69 21,531.90 2. After Jacob, Jr., graduated from college Jacob encouraged him to enter the electronics industry. Sometime prior to 1966 Jacob, Jr., brought to his father's attention a device which had been invented by a third party and which would permit an otherwise unequipped television set to receive ultra-high-frequency television signals. Jacob, Jr., demonstrated the device for his father and on a number of occasions discussed with him the profitability of producing and selling it. Jacob eventually asked his son how much money he would need in connection with the prospective venture. Although Jacob, Jr., originally sought $ 100,000, he and his father agreed on $ 50,000, and Jacob wrote a check, payable to Jacob, Jr., in the amount of $ 50,000. At that time it was Jacob's understanding that the $ 50,000 was to be invested in or loaned *120 to United States Machinery Corp. (U.S.M.C.), a corporation formed or to be formed for the purpose of producing the television device. However, Jacob never received written evidence of an equity interest or indebtedness from either U.S.M.C. or Jacob, Jr. Jacob contemplated that his son would oversee U.S.M.C.'s affairs, *859 and subsequently Jacob, Jr., kept his father generally informed of the progress of the corporation. Jacob did not meet the inventor of the television device until long after he had advanced the $ 50,000. Jacob did not file a Federal gift tax return in connection with the transfer of funds to Jacob, Jr. On other occasions Jacob had given his son money to invest on his behalf. The record does not disclose whether Jacob received written evidence of such investments. On at least one other occasion Jacob had made a loan directly to his son (to finance construction of a house) and had received in return a note secured by a mortgage. In 1966 U.S.M.C. became insolvent and was unable to pay any of its debts. On their joint Federal income tax return for 1966 Jacob and Elizabeth claimed a deduction for a $ 50,000 short-term capital loss as follows: "Bad debt -- United States*121 Machine Corporation $ 50,000." In the Commissioner's notice of deficiency against them, he determined that the deduction must be "disallowed because it has not been established that a debtor-creditor relationship with United States Machine Corporation was intended by the transfer." OPINION 1. Exchange of Campex stock for International stock. -- Petitioners contend that the gain they realized on their transfer of Campex stock to International in return for International's common stock qualifies for nonrecognition under section 351(a), I.R.C. 1954. 2*122 That section provides for nonrecognition of gain or loss on the transfer of property to a corporation in exchange for the corporation's stock or securities -- if immediately after the exchange the transferor or transferors are "in control" of the corporation. Section 351(a) makes reference to section 368(c), I.R.C. 1954, for the definition of "control"; SEC. 368. DEFINITIONS RELATING TO CORPORATE REORGANIZATIONS. (c) Control. -- For purposes of part I (other than section 304), part II, and this part, the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. *860 Immediately after the exchange here in issue the stock of International was held as follows: Shares of -- Class A Class B Percent of (voting (nonvoting total of common) common) 3*123 each class Jacob S. Kamborian Revocable Trust 22,108 198,971 56.01 Jacob S. Kamborian, Jr 4,403 39,627 11.16 Lisbeth (Kamborian) Godley 3,803 34,227 9.64 Michael Becka [197] 1,775 0.50 Elizabeth Kamborian Trust 5,042 45,376 12.77 Others 3,916 35,244 9.92 Total 39,469 355,220 Petitioners contend that the transferors of property for purposes of section 351(a) were the five named stockholders listed above and that their percentage stockholdings after the transfer satisfy the 80-percent control requirement imposed by sections 351(a) and 368(c). The Commissioner's position is that only the first four stockholders listed above -- i.e., the former owners of Campex -- may be considered as transferors of property here, that the fifth (the Elizabeth Kamborian Trust) may not be taken into account in this connection, and that since there would thus be a failure to satisfy the control requirement, all gain realized on the exchange must be recognized. In particular, he urges that International stock issued to the Elizabeth Kamborian Trust in return for $ 5,016 does not qualify as stock issued for property within the meaning of section 351(a) and that consequently the persons making qualified transfers of property to International in return for its stock held only 77.3 percent of its stock after the exchange. The Commissioner relies on regulations *124 section 1.351-1(a)(1)(ii): Sec. 1.351-1 Transfer to corporation controlled by transferor. (a)(1) Section 351(a) provides, in general, for the nonrecognition of gain or loss upon the transfer by one or more persons of property to a corporation solely in exchange for stock or securities in such corporation, if immediately after the exchange, such person or persons are in control of the corporation to which the property was transferred. As used in section 351, the phrase "one or more persons" includes individuals, trusts, estates, partnerships, associations, companies, or corporations (see section 7701(a)(1)). To be in control of the transferee corporation, such person or persons must own immediately after the transfer stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of such corporation (see section 368(c)). In determining control under this section, the fact that any corporate transferor distributes part or all of the stock which it receives in the exchange to its shareholders *861 shall not be taken into account. The phrase "immediately after *125 the exchange" does not necessarily require simultaneous exchanges by two or more persons, but comprehends a situation where the rights of the parties have been previously defined and the execution of the agreement proceeds with an expedition consistent with orderly procedure. For purposes of this section -- * * * * (ii) Stock or securities issued for property which is of relatively small value in comparison to the value of the stock and securities already owned (or to be received for services) by the person who transferred such property, shall not be treated as having been issued in return for property if the primary purpose of the transfer is to qualify under this section the exchanges of property by other persons transferring property. For the purpose of section 351, stock rights or stock warrants are not included in the term "stock or securities." [Emphasis supplied.] The Commissioner contends that since the Elizabeth Kamborian Trust purchased only 42 shares of class A common and 376 shares of class B common, the securities issued were "of relatively small value" in relation to the 5,000 shares of class A common and 45,000 shares of class B common which it already held and that the *126 primary purpose of the transfer was to qualify the exchange of Campex stock by the other stockholders for nonrecognition treatment under section 351(a). Petitioners attack the Commissioner's position on a variety of grounds. They urge (a) that regulations section 1.351-1(a)(1)(ii) is invalid; (b) that even if valid it is inapplicable to the transaction in issue; and (c) that even if the regulation is valid and applicable, the Commissioner's determination of the fair market value of the International stock received by petitioners is erroneous. (a) Validity of the regulation. -- Initially we note the well-settled principle that "Treasury regulations must be sustained unless unreasonable and plainly inconsistent with the revenue statutes and that they constitute contemporaneous constructions by those charged with administration of these statutes which should not be overruled except for weighty reasons." Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501; see also Bingler v. Johnson, 394 U.S. 741, 749-750; Colgate Co. v. United States, 320 U.S. 422, 426; Fawcus Machine Co. v. United States, 282 U.S. 375, 378; Brewster v. Gage, 280 U.S. 327, 336; Textile Mills Corp. v. Commissioner, 314 U.S. 326, 336-339; *127 Boske v. Comingore, 177 U.S. 459, 470; Regal, Inc., 53 T.C. 261, 263-264, affirmed per curiam 435 F. 2d 922 (C.A. 2); William F. Sanford, 50 T.C. 823, 832, affirmed 412 F. 2d 201 (C.A. 2), certiorari denied 396 U.S. 841; cf. United States v. Correll, 389 U.S. 299, 307. In arguing that regulations section 1.351-1(a)(1)(ii) is invalid, petitioners point first to the "proportionate interest" test which was *862 included in section 112(b)(5), the predecessor of section 351, under the 1939 Code: SEC. 112. RECOGNITION OF GAIN OR LOSS. (b) Exchanges Solely in Kind. -- * * * * (5) Transfer to corporation controlled by transferor. -- No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporation; but in the case of an exchange by two or more persons this paragraph shall apply only if the amount of the stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange. Where the transferee assumes a liability of a transferor, or where the property of *128 a transferor is transferred subject to a liability, then for the purpose only of determining whether the amount of stock or securities received by each of the transferors is in the proportion required by this paragraph, the amount of such liability (if under subsection (k) it is not to be considered as "other property or money") shall be considered as stock or securities received by such transferor. [Emphasis supplied.] The "proportionate interest" test was eliminated when section 351 was enacted in 1954. The committee reports reflect congressional dissatisfaction with the uncertainty which had developed in applying the test (H. Rept. No. 1337, 83d Cong., 2d Sess., pp. A116-A117 (1954)): The basic change from present law made by your committee in section 351 is the elimination of the so-called "proportionate interest" test. This requirement, which appears in section 112(b)(5) of the 1939 Code, permits nonrecognition of gain and loss only if the stock and securities received by each transferor are "substantially in proportion" to the interest of such transferor in the property prior to the exchange. This requirement, which, if unsatisfied, serves to vitiate the tax-free nature of the *129 entire transaction, caused considerable uncertainty in its application. In eliminating the proportionate interest test your committee intends that no gain or loss will be recognized to a transferor transferring property to a corporation under section 351 irrespective of any disproportion of the amount of stock or securities received by him as a result of the transfer. Thus, if M and N each owning property having a value of $ 100 transfers such property to a newly formed corporation X, and M receives all of the stock, such transaction would not be subject to tax under section 351. To the extent, however, that the existing disproportion between the value of the property transferred and the amount of stock or securities received by each of the transferors results in an event taxable under other provisions of this code, your committee intends that such distribution will be taxed in accordance with its true nature. For example, if individuals A and B, father and son, organize a corporation with 100 shares of common stock and A transfers property worth $ 80 in exchange for 20 shares of stock, while B transfers property worth $ 20 to the corporation in exchange for 80 shares of stock, *130 no gain or loss will be recognized under section 351. If, however, it is determined that in fact A has made a gift to B, it is your committee's intention that such gift would be subject to tax under the provisions of section 2501 and following. Similarly, if in *863 the preceding example, B had rendered services to A and the disproportion in the amount of stock received constituted, in effect, the payment of compensation by A to B, it is your committee's intention that such compensation will be appropriately taxed. B will be taxable upon the fair market value of the 60 shares of stock received in excess of that received in exchange for his property as an amount received as compensation for services rendered, and A will realize gain or loss upon the difference between the basis of the 60 shares of stock in his hands and its fair market value. See also id. at 39; S. Rept. No. 1622, 83d Cong., 2d Sess., pp. 50, 264 (1954). Petitioners assert that section 1.351-1(a)(1)(ii) incorporates a proportionate-interest test and that it therefore exceeds the scope of section 351. We disagree. Despite superficial similarities to the "proportionate interest" test, section 1.351-1(a)(1)(ii) is a *131 very different provision. The "proportionate interest" test was apparently designed to limit the applicability of section 112(b)(5) of the 1939 Code to transactions which did not result in substantial shifts in equity or property interests among the transferor-stockholders. On the other hand, the current regulation appears to be calculated to exclude from the scope of section 351 transactions which would ordinarily fail to meet the 80-percent requirement but which attempt to satisfy it by appending a token exchange of property for stock by one or more persons with stockholdings sufficient to place all of the transferors "in control" of the corporation. We think that the objective of the regulation is considerably narrower than that of the "proportionate interest" test. The effect of the regulation is also more limited than that of the "proportionate interest" test. Transactions not satisfying the "proportionate interest" test were completely disqualified from nonrecognition treatment under section 112(b)(5) of the 1939 Code. The regulation, on the other hand, disqualifies only particular exchanges by particular stockholders from the scope of section 351 of the 1954 Code; if the remaining *132 transferors can satisfy the 80-percent requirement and otherwise qualify under the statute, the regulation does not prevent them from obtaining nonrecognition treatment. The uncertainty created by the "proportionate interest" test resulted largely from judicial development of two different tests of proportionality under the statue, and from confusion with regard to application of the tests. Compare Bodell v. Commissioner, 154 F.2d 407 (C.A. 1) ("relative value" test), affirming a Memorandum Opinion of this Court, and United Carbon Co. v. Commissioner, 90 F.2d 43 (C.A. 4) ("relative value" test), reversing 32 B.T.A. 1000, with Mather & Co. v. Commissioner, 171 F.2d 864 (C.A. 3) ("control test"), certiorari denied 337 U.S. 907. See also Turner Construction Co. v. United States, 364 F.2d 525, 537-538 (C.A. 2); Uinta Livestock Corp. v. United States, 355 F.2d 761, 768-769 (C.A. 10); George M. Holstein III, 23 T.C. 923. *864 Cf. Hoffman, "The Substantial Proportionment Requirement of Section 112(b)(5)," 5 Tax L.Rev. 235. Section 1.351-1(a)(1)(ii), however, provides a clear statement of the comparison to be made; a similar state of uncertainty therefore need not arise. We conclude that congressional *133 elimination of the "proportionate interest" test in 1954 provides no basis for holding the regulation invalid. 4*134 Petitioners also contend that the regulation's reference to "property which is relatively small value in comparison to the value of stock or securities already owned" and its reliance upon the taxpayer's motive find support nowhere in the language of section 351 and that the regulation is for that reason invalid as beyond the scope of the statute. Again, we must disagree. By disqualifying certain token exchanges, the regulation is reasonably designed to exclude from the scope of section 351 transactions which comply with its requirements in form but not in substance. Far from being unreasonable or inconsistent with the statute, the regulation promotes its purpose by helping to ensure substantial compliance with the control requirement before the nonrecognition provisions become operative. In this light the absence of direct support for the regulation in the language of the statute is of minimal significance. 5*135 Cf. Fabian Tebon, Jr., 55 T.C. 410, 412-416. We conclude that the regulation is valid. (b) Applicability of the regulation. -- Petitioners contend that even if it is valid, the regulation is inapplicable to the transaction here in issue. They argue first that even if Elizabeth's trust had not purchased shares of International stock, the control requirement would have *865 been satisfied, that therefore the purchase was not necessary to meet the control requirement, and that consequently the regulation is by its own terms inapplicable. Petitioners reach this conclusion by asserting that the shares held by Becka*136 and Lisbeth Godley as trustees of Elizabeth's trust should be attributed to them as individuals 6 and added to the shares they held personally in nonfiduciary capacities. On the basis of this premise, petitioners conclude that the 80-percent-control requirement would have been satisfied even if Elizabeth's trust had not participated in the September 1, 1965, transaction. 7*137 Petitioners' argument is ingenious but unacceptable, for it falters on petitioners' premise that the trust's shares may be attributed to the individual trustees. While legal title to the shares may have been in the names of the trustees, they had no beneficial interest in such shares. The distinction is not one of form but of plain economic reality. 8 In these circumstances we think the trustees' interests in the trust's shares were far too remote to justify attributing the shares to them for purposes of section 351. 9 Petitioners also contend that the primary purpose for the trust's *138 acquisition of International's stock was not to qualify the other stockholders' exchanges under section 351 and that for this reason the regulation is inapplicable. We note at the outset that the regulation does not make it entirely clear whose purpose is to be taken into account. However, both parties have assumed that the purpose of the transferor of property is critical. The language of the regulation (which *866 appears to distinguish between a "transfer" of property and the issuance of stock) supports their assumption, and we shall therefore proceed on this basis. Although Elizabeth's trust was technically the transferor herein, the parties have also assumed that Becka's purpose is critical in this respect -- apparently on the ground that as the managing trustee he was primarily responsible for the decision to make the purchase of International stock. We shall proceed on the basis of this assumption as well. The question of Becka's primary purpose is one of fact, cf. Malat v. Riddell, 383 U.S. 569, and after a review of all the evidence we conclude that his primary purpose was to qualify the other stockholders' exchanges under section 351. We note in particular that at about the *139 time of the transaction, Jacob was ill and Becka was in charge of International's affairs, that in planning the acquisition Becka participated in lengthy discussions with regard to planning the transaction as a tax-free exchange, and that both the vote of International's board of directors and the agreement of September 1, 1965, treated the purchase by Elizabeth's trust and the exchange of Campex stock by the other stockholders as component parts of an integrated transaction avowedly designed to meet the 80-percent-control requirement and thereby qualify for nonrecognition treatment under section 351. At the trial herein, Becka testified that if the trust had not participated in the transaction, the issue of International stock to the other major stockholders would have diluted the trust's percentage interest in International and that he authorized the purchase of International stock in order to minimize such dilution. In particular he testified that the total percentage stock interest held by the trust and the two Kamborian children exceeded 33 1/3 percent and that preservation of that interest protected Mrs. Kamborian against the making of certain corporate decisions (requiring a *140 two-thirds majority) without her consent. 10 We do not give his testimony very much weight, however. The record does not establish whether or why the children were regarded as allies of Mrs. Kamborian rather than as allies of her husband. Moreover, the trust's participation in the transaction left them with an aggregate stock interest of 33.57 percent -- only 0.08 of 1 percent more than they would have held if the trust had not purchased any additional shares. Becka also testified that he authorized the purchase of the stock because it was a "good investment." While he may well have taken this into account in making his decision, the record leaves us convinced that the purchase was made primarily to qualify the exchanges by the *867 other stockholders (one of whom was Becka himself) 11*141 under section 351. We conclude that section 1.351-1(a)(1)(ii) is applicable. (c) Fair market value of the International stock. -- The Commissioner determined that the fair market value of the International stock received by petitioners was $ 16.20 per share. His determination did not distinguish between shares of class A (voting) and class B (nonvoting) stock. In their petitions herein, the taxpayers claimed that the fair market value of the stock did not exceed $ 12 per share. We have found as a fact that as of September 1, 1965, the fair market value of International's class A stock was $ 13 per share and that the fair market value of its class B stock was $ 12.50 per share. At the trial herein, the Commissioner presented an expert witness who testified that the fair market value of the class A stock *142 was $ 15.50 per share and that the fair market value of the class B stock was $ 15 per share. Petitioners also presented an expert witness; he testified that the fair market value of the stock was $ 11.50 per share and made no distinction for these purposes between the two classes of stock. The discrepancy between the conclusions of the witnesses stems largely from their differing treatment of the restrictions on the transfer of the International stock. The restrictions were set forth in detail in our findings and required in general that no share of International's common stock could be transferred until the holder had first offered the share for sale to the corporation at the share's book value as of the end of the corporation's most recent fiscal year. The restrictions could be waived by a vote of two-thirds of the stockholders. As of December 31, 1964, the book value of International's stock was $ 10.29. In making his valuaton, the Commissioner's witness gave no weight to the restrictions on the ground that they could be waived by a vote of two-thirds of the stockholders. On the other hand, petitioners' witness took the restrictions into account but gave no weight to the ability *143 of the stockholders to waive them, and little or no weight to the possibility that International would eliminate the restrictions in making a *868 public issue of its common stock. We think that in determining the fair market value of International's stock, all of the foregoing considerations must be taken into account. Clearly, the requirement that a stockholder must first offer stock for sale to International at its book value would limit what a purchaser would pay for the stock in the first place. 12*144 But it is also true that the possibility that the stockholders might waive or eliminate the restrictions would tend to mitigate the effect of that requirement. See Estate of Pearl Gibbons Reynolds, 55 T.C. 172, 188-195, and cases cited therein. On the basis of all the evidence of record, we have made a finding that as of September 1, 1965, the fair market value of the class A stock was $ 13 per share and the fair market value of the class B stock was $ 12.50 per share. 2. Short-term capital loss. -- Petitioners Jacob and Elizabeth Kamborian contend that Jacob gave $ 50,000 to his son, Jacob, Jr., to lend to or invest in U.S.M.C., that Jacob, Jr., served as a conduit in this respect and made the loan or investment on his father's behalf, and that the loan or investment became worthless in 1966. The parties are in agreement that it makes no difference for purposes of computing Jacob and Elizabeth's tax whether the advance was in the nature of a loan or a capital investment. 13 Moreover, they have stipulated that in 1966 U.S.M.C. became insolvent and unable to pay any of its debts. The Commissioner's position is simply that petitioners have failed to prove the existence of a debt or equity relationship running between U.S.M.C. and Jacob. In particular, he urges that petitioners have failed to establish the nature of the understanding between Jacob and his son at the time the advance was made and have also failed to establish *869 Jacob, Jr.'s disposition of the funds advanced to him. We agree *145 with the Commissioner. The arrangement between Jacob and his son was oral, and the record leaves us with great doubt as to what that arrangement was. It is quite probable on the record that Jacob merely made a loan to his son, and that Jacob himself made no investment either as a creditor or as a *146 stockholder in U.S.M.C. Jacob was the only witness to testify with regard to this issue. Jacob, Jr., who could have given us a more complete picture of the nature of the understanding between father and son and who was probably better informed than anyone else with regard to what was done with the $ 50,000, was not called as a witness. Moreover, the books and records of U.S.M.C., which might have cast some light on whether it received the funds and whether Jacob (rather than his son) was treated therein as having made the advance, were not produced. The burden of proof is upon petitioners and we cannot assume that the missing evidence would have been favorable to them. See Jean V. Kresser, 54 T.C. 1621, 1630; Samuel Pollack, 47 T.C. 92, 108, affirmed 392 F. 2d 409 (C.A. 5); cf. Wichita Terminal Elevator Co., 6 T.C. 1158, 1165, affirmed 162 F. 2d 513 (C.A. 10). On this state of the record we hold that petitioners have failed to establish that they are entitled to the deduction. For aught we know the substance of the transaction was merely a loan between father and son with the understanding that the son would invest the funds in U.S.M.C. on his own behalf -- without establishing *147 any creditor or stockholder relationship between Jacob and U.S.M.C. 14 Decisions will be entered under Rule 50. Footnotes 1. Cases of the following petitioners are consolidated herewith: Jacob S. Kamborian, Jr., and Nancy M. Kamborian, docket No. 5833-69; Gene E. Godley and Lisbeth K. Godley, docket No. 5834-69; and Michael M. Becka, docket No. 5835-69.↩ 1. Amount per share is based on the 372,000 shares issued and outstanding after the April 1964 amendment to International's articles of organization. See p. 849 supra↩. 1. These figures reflect earnings for only a 6-month period.↩ 2. SEC. 351. TRANSFER TO CORPORATION CONTROLLED BY TRANSFEROR. (a) General Rule. -- No gain or loss shall be recognized if property is transferred to a corporation (including, in the case of transfers made on or before June 30, 1967, an investment company) by one or more persons solely in exchange for stock or securities in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)↩) of the corporation. For purposes of this section, stock or securities issued for services shall not be considered as issued in return for property. 3. The percentages listed below differ slightly from those appearing in our Findings of Fact at p. 856 which were taken from the authorized agreement of Sept. 1, 1965, as stipulated by the parties. 4. It is not without significance that regs. sec. 1.351-1(b)(1) expressly takes into account elimination of the "proportionate interest" test: Sec. 1.351-1 Transfer to corporation controlled by transferor. (b)(1) Where property is transferred to a corporation by two or more persons in exchange for stock or securities, as described in paragraph (a) of this section it is not required that the stock and securities received by each be substantially in proportion to his interest in the property immediately prior to the transfer. However, where the stock and securities received are received in disproportion to such interest, the entire transaction will be given tax effect in accordance with its true nature, and in appropriate cases the transaction may be treated as if the stock and securities had first been received in proportion and then some of such stock and securities had been used to make gifts (section 2501 and following), to pay compensation (section 61(a)(1)), or to satisfy obligations of the transferor of any kind. The regulation scrupulously adheres to the language of the 1954 committee reports. See pp. 862-863 supra↩. As a companion provision to regs. sec. 1.351-1(a)(1)(ii), it provides additional support for our conclusion. 5. Petitioners rely upon Gus Russell, Inc., 36 T.C. 965, 969, and Pocatello Coca-Cola Bottling Co. v. United States, 139 F. Supp. 912, 915 (E.D. Idaho), for the proposition that the intention of the parties has no bearing on the applicability of sec. 351. See also George A. Nye, 50 T.C. 203, 209; Miller Bros. Electric, Inc., 49 T.C. 446, 451. Although there are statements to this effect in each of the foregoing opinions, they were made in the context of transactions which were of the sort contemplated by sec. 351↩ and which did not involve a token exchange of property for stock by one or more stockholders. The statements were not made in reference to regs. sec. 1.351-1(a)(1)(ii), and we think they have little relevance here. 6. As authority for their position petitioners cite only 1 Scott, Law of Trusts 6 (3d ed. 1967) for the proposition that a trustee of property is the "owner" thereof.↩ 7. A table in petitioners' brief summarizes their argument: Shares of Shares of Percentage of class A class B each class Lisbeth (Kamborian) Godley n1and Michael Becka 9,000 81,002 22.83 Jacob S. Kamborian Revocable Trust 22,108 198,971 56.07 90.0 Jacob S. Kamborian, Jr 4,403 39,627 11.17 Others 3,116 35,244 9.93 39,427 354,844 100.00 1 The figures reflect the actual amount held by Godley and Becka individually after the September 1 transaction, plus the amount of shares held by the Elizabeth Kamborian Trust prior to the transaction. 8. Cf. Portland Oil Co. v. Commissioner, 109 F. 2d 479, 488 (C.A. 1), certiorari denied 310 U.S. 650, where the court said: "It is the purpose of * * * [sec. 351↩] to save the taxpayer from an immediate recognition of a gain, or to intermit the claim of a loss, in certain transactions where gain or loss may have accrued in a constitutional sense, but where in a popular and economic sense there has been a mere change in the form of ownership and the taxpayer has not really 'cashed in' on the theoretical gain, or closed out a losing venture. * * *" 9. We need not decide whether the trust's shares may be attributed to its beneficiaries. Compare Commissioner v. National Bellas Hess, Inc., 220 F. 2d 415, 420 (C.A. 8), affirming 20 T.C. 636, 646; Griswold Co., 33 B.T.A. 537, 542-544, and Ridgewood Cemetery Co., 26 B.T.A. 626, 629-630, with sec. 7701(a), I.R.C. 1954, regs. sec. 1.351-1(a), and Maximov v. United States, 373 U.S. 49, 51-53↩. 10. See Mass. Gen. Laws, ch. 156B, secs. 71, 75, and 78↩ (1970). 11. The following excerpt from Becka's testimony reflects the ambiguity created by his multiple roles as stockholder, officer, and director of International, participant in the exchange with International, and trustee of Elizabeth's trust: Q. And where did you say you obtained the money to purchase [the shares on behalf of Elizabeth's trust]?A. I borrowed it from the National Shawmut Bank.Q. And did you -- what security did you give for that borrowing?A. No. No particular security, just the --.Q. They loaned you $ 5000 on your signature --A. Yes. Q. -- as trustee? A. Yes. They were also acting for some other banking transaction for us and all --Q. Who do you mean by "us"? A. By the various businesses in which International was involved.↩ 12. Both experts agreed that the stock's book value of $ 10.29 per share as of Dec. 31, 1964, did not establish an absolute limit on the fair market value of the shares. Since the restrictions provided for annual recomputation of book value, a prospective purchaser would certainly take into account any anticipated increases in book value in determining what he would pay for the stock. 13. Cf. sec. 166(d)(1)(B), I.R.C. 1954: SEC. 166. BAD DEBTS. (d) Nonbusiness Debts. -- (1) General rule. -- In the case of a taxpayer other than a corporation -- * * * * (B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months. Sec. 165(f), (g)(1), I.R.C. 1954: SEC. 165. LOSSES. (f) Capital Losses. -- Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212. (g) Worthless Securities. -- (1) General rule. -- If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.↩ 14. Cf. Francesco Gaglione, 28 T.C.M. 1024↩, 1030, P-H. Memo. 69-1109, 69-1116.