Rosenbloom Fin. Corp. v. Commissioner

ROSENBLOOM FINANCE CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Rosenbloom Fin. Corp. v. Commissioner Docket Nos. 35778, 40903. United States Board of Tax Appeals 24 B.T.A. 763; 1931 BTA LEXIS 1599; November 12, 1931, Promulgated *1599 1. Held, where the majority stockholder in a corporation transferred to it valuable property and received no stock, money, or other property in payment or as a consideration therefor, but where the corporation agreed as part of the consideration for such transfer, that it would set up the value of such property on its books as "paid-in surplus," such transfer was not a gift, and on sale of the property by the corporation, the basis for the computation of the profit, if any, is the fair market value of the property at the time it was acquired by the corporation. 2. DIVIDENDS. Where a corporation, of which petitioner was the sole stockholder, was not dissolved nor liquidated and there was no reduction of the capital stock, certain distributions of assets made to petitioner should be treated as an ordinary dividend and not as a liquidating dividend under the provisions of section 201, Revenue Act of 1924. W. W. Spalding, Esq., for the petitioner. J. D. Foley, Esq., and James C. Maddox, Esq., for the respondent. John C. Altman, as amicus curiae. BLACK *764 In these proceedings the petitioner seeks redetermination of deficiencies*1600 for 1924 of $27,494.59 and for 1925 of $3,792.20, in Docket No. 35778, and for 1926 of $6,426.37 in Docket No. 40903. The two cases were consolidated for hearing. All of the deficiencies for 1924 and 1925 are in dispute, but certain adjustments made by respondent in petitioner's income for 1926 are not contested. The deficiencies which are in dispute arise from the inclusion in income of $217,956.71 for 1924, $29,170.79 for 1925, and $38,726.50 for 1926, which respondent has found were profits realized by petitioner from the sale in those years of warehouse receipts representing distilled spirits in bond, which had been transferred to the petitioner by its principal stockholder without consideration. At the hearing the respondent was granted leave to file an amended answer, and in said amended answer he alleged that he had failed to include in the net income of petitioner for 1924 a certain liquidating dividend or distribution of assets of Joseph S. Finch & Company of the net value of $531,804.93, and prayed that said sum be included in petitioner's income for 1924, and that the deficiency for that year be increased accordingly. FINDINGS OF FACT. At the hearing petitioner*1601 and respondent filed an agreed stipulation of facts, the material parts of which we incorporate, as follows: The petitioner is a corporation organized September 11, 1923, under the laws of the State of Delaware, with an authorized capital stock of 5,000 shares of no par value, of which 2,000 shares were issued to Sol Rosenbloom (since deceased) for $4,000 in cash. The remaining 3,000 shares are unissued. On October 19, 1923, Sol Rosenbloom transferred 975 of his 2,000 shares to the Peoples Saving & Trust Company of Pittsburgh, Pa., in trust to pay the income therefrom to his wife, Celia Rosenbloom, and to his three children in equal shares, said trust to continue for the life of the wife and for twenty years thereafter. In March, 1916, Rosenbloom organized the corporation, Joseph S. Finch & Company, under the laws of the State of Pennsylvania, with *765 an authorized capital stock of 1,000 shares of the par value of $100 each. Said Rosenbloom transferred and assigned to said Joseph S. Finch & Company assets and cash of a total value of $100,000 and received in exchange therefor stock of Joseph S. Finch & Company of the par value of $100,000. At some time between and*1602 including the years 1916 and 1923, Rosenbloom gave $75,000 par value of this stock to his wife, Celia Rosenbloom, and $100 par value of this stock to one S. E. Neumark. On September 24, 1923, there were transferred to the Rosenbloom Finance Corporation by said Sol Rosenbloom, said Celia Rosenbloom, and said S. E. Neumark, the following amounts of par value of Joseph S. Finch & Company stock which had been acquired originally by said Sol Rosenbloom, as aforesaid: Sol Rosenbloom $24,900 Celia Rosenbloom 75,000 S. E. Neumark [100] Total 100,000 No stock, money, or other property was paid by Rosenbloom Finance Corporation to said Sol Rosenbloom, said Celia Rosenbloom, or said S. E. Neumark, or any of them, as consideration for the transfer by them to it of the stock of Joseph S. Finch & Company. On September 19, 1924, Rosenbloom Finance Corporation entered into a contract with Schenley Products Company to sell it the entire capital stock of the Joseph S. Finch Company, but certain assets of the Finch Company were to be distributed to petitioner prior to the transfer of the stock. On September 24, 1924, said contract was amended. This contract and amendment*1603 thereto were attached to the stipulation as Exhibits A and B. Synopsis of these exhibits will be hereinafter given. On September 23, 1924, the board of directors of Joseph S. Finch & Company adopted a resolution ratifying the contract which had been made with Schenley Products Company. This resolution was attached to the stipulation as Exhibit C, a synopsis of which will be hereinafter given. On September 24, 1924, the board of directors of the Rosenbloom Finance Corporation adopted a resolution ratifying and confirming the sale of the stock of Joseph S. Finch & Company to Schenley Products Company. A copy of this resolution was attached to the stipulation as Exhibit D, and a synopsis thereof is hereinafter given. On November 18, 1924, Price, Waterhouse & Company, a firm of accountants, acting for the Rosenbloom Finance Corporation, made a report of the assets and liabilities of Joseph S. Finch & Company as of September 19, 1924, wherein they showed the assets available *766 for distribution to the Rosenbloom Finance Corporation and the price to be paid by the Schenley Products Company to the Rosenbloom Finance Corporation for the capital stock of Joseph S. Finch*1604 & Company. A copy of said report was attached to said stipulation as Exhibit E, and a synopsis thereof is hereinafter given. The capital stock of Joseph S. Finch & Company has not been reduced from $100,000 par value and that amount of stock is still outstanding in the hands of the Schenley Products Company. Said Finch Company is still engaged in business. The fair market value on September 19, 1924, of the assets distributed by Joseph S. Finch & Company to Sol Buckstein, as trustee for the Rosenbloom Finance Corporation, was $620,845.48. The liabilities of Joseph S. Finch & Company which were assumed by Sol Buckstein as trustee for the Rosenbloom Finance Corporation on September 19, 1924, amounted to $89,040.55. The proceeds of sale of Joseph S. Finch & Company stock received by petitioner from the Schenley Products Company up to December 31, 1926, amounted to $34,136.28, such amount having been received on the dates and in the amounts as follows: September 25, 1924 $30,000.00 March 23, 1925 2,942.50 January 26, 1926 1,160.78 January 26, 1926 33.00 Up to December 31, 1926, distributions were received by petitioner from Sol Buckstein, trustee, from*1605 Joseph S. Finch & Company assets on the dates and in the amounts as follows: August 24, 1925 $10,000.00 February 16, 1926 120,000.00 July 22, 1926 27,000.00 Total 157,000.00 Petitioner on December 31, 1925, received direct, and not through "Sol Buckstein, trustee," the amount of $57,910, the proceeds of a sale of warehouse receipts, a part of the Joseph S. Finch & Company assets received by it. Sol Buckstein, trustee, had on hand on December 31, 1926, $4,282.59 cash, undistributed to petitioner, representing proceeds of the sales of Joseph S. Finch & Company assets. On October 18, 1923, Sol Rosenbloom transferred to petitioner warehouse receipts representing 2,838 barrels of distilled spirits in bond. These warehouse receipts had at the time of such transfer a fair market value of $269,494.97. They had cost Sol Rosenbloom $51,538.26, subsequent to March 1, 1913. A copy of the resolution of the directors of the petitioner company accepting such transfer of warehouse receipts was attached to the stipulation of facts as Exhibit F, and synopsis thereof will be hereinafter given. *767 The said warehouse receipts representing 2,838 barrels of distilled*1606 spirits in bond were sold by petitioner in 1924. In computing the taxable amount on this sale, petitioner used as its basis or capital value $269,494.97, the fair market value of the receipts when paid into it, as aforesaid. In auditing its 1924 return respondent used as the basis or capital value $51,538.26, the cost to the transferor, said Sol Rosenbloom, in computing the taxable element on such sale, thereby increasing the taxable income in the amount of $217,956.71. This last named amount ($217,956.71) is the additional income stated in the deficiency notice. On June 4, 1925, the said Sol Rosenbloom transferred to petitioner warehouse receipts representing 710 barrels of distilled spirits in bond. These warehouse receipts had at the time of such transfer a fair market value of $42,600. They had cost Sol Rosenbloom $13,429.21, subsequent to March 1, 1913. No stock, money, or other property was paid by petitioner to said stockholder as the consideration of either or both of such transfers of warehouse receipts to it. At the time there transfers were effected petitioner had outstanding 2,000 shares of its capital stock, being no par value shares, of which said Rosenbloom*1607 owned 1,025 shares. A copy of the resolution of the directors of petitioner company accepting such transfer of warehouse receipts, representing said 710 barrels of distilled spirits in bond, was attached to the stipulation of facts as Exhibit G. The terms of this resolution were substantially the same as Exhibit F, which is hereinafter given in these findings of fact. The said warehouse receipts representing 710 barrels of distilled spirits in bond were sold by petitioner in 1925. In computing the taxable amount on this sale, petitioner used as its basis or capital value $42,600, the fair market value of the receipts when paid into it, as aforesaid. In auditing its 1925 return respondent used, as the basis or capital value, $13,429.21, the cost to the transferor, in computing the taxable element on such sale, thereby increasing the taxable income in the amount of $29,170.79. This last named amount ($29,170.79) is the additional income stated in the deficiency letter. On June 4, 1925, Sol Rosenbloom transferred to petitioner warehouse receipts representing 546 barrels of distilled spirits in bond. On July 23, 1925, said Rosenbloom transferred to petitioner additional warehouse*1608 receipts representing 404 barrels of distilled spirits in bond. These warehouse receipts representing the aggregate of 950 barrels had, at the time of such transfers, a fair market value of $57,000. Such warehouse receipts, representing 950 barrels, cost Rosenbloom subsequent to March 1, 1913, $21,498.24, which amount was reduced by respondent's allowance of 15 per cent, or $3,224.74, in the year *768 1919 to write down the cost of such receipts to a market value of $18,273.50. No stock, money, or other property was paid by petitioner to said stockholder as the consideration for either or both of such transfers to it of warehouse receipts aggregating 950 barrels. Copy of said resolution of the directors of the petitioner company of July 23, 1925, accepting such transfer of warehouse receipts, was attached to the stipulation of facts as Exhibit I. The terms of this resolution are substantially the same as the terms of Exhibit F, which is hereinafter given in these findings of fact. Respondent's computation of profit on the sale in the years 1924, 1925 and 1926 by petitioner of the receipts for barrels of distilled spirits in bond, was as follows: [1924] Net income reported on amended return $21,495.42 Addition: 1. Profit on sale of whiskey 217,956.71 Adjusted net income 239,452.13 Explanation of Adjustment. 1. The profit on sale of whiskey donated to the corporation by Sol Rosenbloom has been computed as follows: Sale price (2838 barrels) $269,494.97 Cost to donor disclosed in protest dated July 21, 1927 51,538.26 Profit 217,956.71 [1925] Net income reported on return $47,235.28 Addition: 1. Profit on sale of whiskey 29,170.79 Adjusted net income 76,406.07 Explanation of Adjustment. 1. The profit on sale of whiskey donated to the corporation by Sol Rosenbloom has been computed as follows: Sale price (710 barrels) $42,600.00 Cost to donor disclosed in protest dated July 21, 1927 13,429.21 Profit 29,170.79 [1926] Sale price 950 barrels $61,750.00 Original cost to Sol Rosenbloom $21,498.24 Less 15% allowed by Bureau in 1919 to write down to market value 3,224.74 Net cost basis 18,273.50 Total profit 43,476.50 Profit reported on original return 4,750.00 Additional profit claimed by respondent 38,726.50 *1609 *769 The number of barrels so sold by petitioner during the taxable years here involved is, as stated in this stipulation, all of such barrels having been transferred to it under the several resolutions above referred to. The total barrelage stated in the resolutions does not always agree with the number of barrels sold, owing to these facts: (a) In some cases petitioner did not sell the same number of barrels as had previously been transferred to it as aforesaid, and (b) in other cases petitioner sold at one time barrels included in two or more transfers. In stating herein the number of barrels transferred to petitioner, all barrels not sold by petitioner during the taxable years have been disregarded. In addition to the foregoing written stipulation, it was agreed orally at the hearing that Rosenbloom was the majority stockholder of the petitioner through each of the taxable years, holding and owning 1,025 of the 2,000 shares outstanding in the petitioner. Synopsis of Exhibits Exhibit A is a copy of the contract by which petitioner sold the entire capital stock of Joseph S. Finch & Company to the Schenley Products Company. So far as material it was provided*1610 therein that at the time of the transfer of the stock the Finch Company should continue to own and possess certain accounts receivable for unpaid accrued storage on barrel, case, and concentrated whiskies; accounts receivable for amounts advanced by the Finch Company to other warehousemen in connection with the transportation and concentration of certain whiskies in the Finch warehouse; all supplies owned by the Finch Company for the bottling of whiskies; and a leasehold then occupied by the Finch Company covering certain property in Pittsburgh. It was further provided: "All other assets of every character whatsoever owned by the Finch Company at the time of the transfer of said shares of stock, as herein provided, shall be transferred to the party of the first part (petitioner) by dividend distribution, prior to the consummation of the sale of said shares of stock herein provided for." It was a part of the agreement that if the distribution impaired the capital stock the capital would be reduced accordingly. The petitioner agreed that it would pay all debts and liabilities of the Finch Company at the time of the transfer, including all taxes for the part of the year preceding*1611 the transfer. Exhibit B is an amendment to the contract of sale between the Rosenbloom Finance Corporation and Schenley Products Company, making certain changes in the method, time, and manner in the terms of payment and seems to be immaterial to the decision of any issue involved in this proceeding. *770 Exhibit C is a copy of the minutes of a special meeting of the board of directors of the Finch Company at which the contract of sale of the Finch Company stock by petitioner to Schenley Products Company was read to the board and the dividend provided for in said contract, which was to be declared and disbursed prior to the transfer of the stock to Schenley Products Company, was declared and ordered paid in accordance with the terms and conditions of the contract between petitioner and the Schenley Products Company. The resolution adopted at said meeting, among other things, declared: Resolved: That a dividend in property and assets, payable at once to the stockholder of this company, is hereby declared by the Board of Directors of this company. Said dividend will consist of all property and assets now owned by this company except the following: (a) Accounts*1612 receivable for unpaid accrued storage against distilled spirits now stored in the Pittsburgh warehouses of this company, viz., unpaid accrued storage on approximately 4,200 barrels of Finch whiskies computed at the rate of 6?? per barrel per month; unpaid accrued storage on approximately 700 barrels of concentrated whiskies computed at the rate of 15?? per barrel per month; unpaid accrued storage on approximately 5,300 cases of bottled whiskies at 5?? per case per month, exclusive, however, of any storage on any barrels of whiskey or other distilled spirits owned by S. Rosenbloom, Charles Rosenbloom, or this company. (b) Accounts receivable due this company for amounts advanced on concentrated whiskies to other warehousemen for storage, removal charges, taxes and other outlays made by this company in connection with the transportation and concentration of whiskies in the Pittsburgh warehouses of this company. (c) All supplies now owned by this company for the bottling of whiskies, such supplies consisting of boxes, quart and pint bottles, labels, and other bottling supplies. (d) Leasehold covering the property on the south side in Pittsburgh, Pennsylvania, now occupied by*1613 this company, which leasehold is held under the lease of July 27, 1905, from James G. Pontefract and another to Willis S. Johnston and another heretofore transferred to this company, which lease has been amended to expire on July 26, 1926. * * * RESOLVED: That the dividend hereby declared is made on condition that the recipient stockholder shall assume and agree to pay all accounts payable and other debts, obligations and liabilities of this company (other than its capital stock liability) accrued at the date of the payment of this dividend, also all taxes of every character for which this company is now liable including a pro rata portion of the liability for income taxes for the current year as provided in the contract of September 19, 1924, by the Rosenbloom Finance Corporation and the Schenley Products Company which has been read to the Board of Directors at this meeting. Thereupon the Rosenbloom Finance Corporation, by its president, accepted the dividend declared by the foregoing resolution upon the terms and conditions recited therein. Exhibit D is a copy of the minutes of a special meeting of the board of directors of petitioner at which the action of its officers*1614 *771 in making the sale of the Finch Company stock to Schenley Products Company was, by appropriate resolution, in all things approved. Exhibit E is a copy of the report of the accountants showing that the fair market value of the assets distributed by Finch & Company to petitioner was $620,845.48 and the liabilities assumed by petitioner in connection therewith amounted to $89,040.55, making the net value of such assets $531,804.93. This distribution resulted in an impairment of the capital stock of Finch & Company of $50,478.70 and the accountants fould that $49,521.30 was the amount to be paid by the Schenley Products Company for the capital stock of Finch & Company under the terms of the contract and amendment thereto described in Exhibits A and B. Exhibits F, G and I are copies of the minutes of special meetings of the board of directors of the petitioner at which Rosenbloom made transfers to petitioner of certain warehouse receipts for distilled spirits or whiskies and are incorporated herein by reference. Exhibit F, which is typical of the others and differs only as to the quantities transferred, is as follows: A special meeting of the Board of Directors of*1615 the Rosenbloom Finance Corporation was held on the 18th day of October, 1923, 2 P.M. at the offices of the Corporation in the Diamond Bank Building, Pittsburgh, Pennsylvania. There were present Messrs. Sol Rosenbloom, Sol Buckstein, and Charles J. Rosenbloom, constituting the entire Board of Directors. Mr. Charles J. Rosenbloom presented the following communication to the Board. OCTOBER 18, 1923. ROSENBLOOM FINANCE CORPORATION, Pittsburgh, Pennsylvania. DEAR SIRS: In consideration of my interest in your corporation, I offer to pay into your corporation a warehouse receipts representing thirty-one hundred and thirty-eight barrels of whiskey now on storage in the warehouses of the Frankfort Distillery, Inc., near Frankfort, Kentucky, of which forty-three barrels are Keller whiskeys and three thousand and ninety-five are Chicken Cock whiskeys. These whiskies were recently removed from the Chicken Cock and Keller warehouses in Harrison County, Kentucky, of the Kentucky Distilleries and Warehouse Company or its subsidiary. * * * (Here follows description of the barrels of whiskey by serial numbers) * * * The assignment and transfer to you of such warehouse receipt, *1616 representing thirty-one hundred and thirty-eight barrels, is to be made subject to a written option to purchase this warehouse receipt, given by me on May 23, 1923, to the Frankfort Distillery, Inc., which option I am exhibiting to you herewith and which will be transferred to you. This means that, if this offer be accepted, you will take absolutely, hereunder, the warehouse receipt in question but that the option to purchase same so given by me, will follow the receipt in your hands. If the option be exercised all amounts paid thereunder will inure to your exclusive benefit (if you accept the offer now made), because, upon your acceptance, the receipt will immediately become your property absolutely. *772 It is the intention of this offer that your acceptance thereof will vest in you all rights as owner of such receipt which I now possess. I also offer to pay into your corporation the following: Fifty Thousand Dollars in cash which I received under said option. The purposes for which this amount was received are specified in the said option and you are to assume all of the obligations of the option relating to this amount. Note for $50,000 dated May 23, 1923, of*1617 the Frankfort Distillery, Inc., payable to me, due January 15, 1924. This note is subject to the obligations of the option of the same date referred to above, which are to be assumed by you. If this offer be accepted the warehouse receipt representing said thirty-one hundred and thirty-eight barrels of whiskeys and the note and cash, mentioned above, shall constitute paid-in surplus of your corporation. Respectifully yours, /s/ SOL ROSENBLOOM. Sol Rosenbloom also exhibited to the meeting the warehouse receipt representing the 3,138 barrels of whiskeys and the option to purchase such receipt in favor of the Frankfort Distillery, Inc., referred to in his written offer. Upon motion duly seconded and carried it was RESOLVED, that the foregoing offer of Sol Rosenbloom respecting the payment into this corporation of the warehouse receipt representing 3,138 barrels of whiskeys, and also the note and cash referred to in the offer, all of which property is to be taken and held subject to the obligations expressed in said option, be and the same is hereby accepted according to its terms; and RESOLVED, that such properties shall be and the same are hereby declared to be paid-in*1618 surplus of this corporation; and BE IT FURTHER RESOLVED, that the Secretary-Treasurer of this corporation is hereby directed to make appropriate entries on its books of account to effectuate this resolution. Sol Rosenbloom then announced his approval of the foregoing resolution and thereupon consummated the transaction by delivering to the Secretary-Treasurer of this corporation the following, viz. - Warehouse receipt representing 3,138 barrels of Chicken Cock and Keller Whiskeys assigned and transferred to this corporation; Option of May 23, 1923, covering said 3,138 barrels given to the Frankfort Distillery, Inc., also assigned and transferred to this corporation; Note for $50,000 of the Frankfort Distillery, Inc., dated May 23, 1923, due January 15, 1924, payable to Sol Rosenbloom and endorsed to this corporation; Fifty thousand dollars in cash. There being no further business, on motion duly seconded and carried, the meeting adjourned. /s/ SOL BUCKSTEIN, Secretary. OPINION. BLACK: The two questions involved in this proceeding are questions of law. There is no dispute about the facts. These law questions are: (a) What is the proper basis to be used*1619 in determining the gain derived, if any, in each of the taxable years, from the sale of assets represented by warehouse receipts transferred to petitioner company by its majority stockholder without the payment therefor *773 of any stock, money, or other property, and set up on petitioner's books in accordance with the agreement of transfer, as paid in surplus? (b) Did the distribution of assets made to petitioner in 1924 by Joseph S. Finch & Company (a corporation of which it owned all the capital stock) constitute a liquidating dividend and thereby become, under the Revenue Act of 1924, payment in exchange for the stock of said corporation and a taxable transaction? We will first discuss (a). The basis for determining the gain, if any, of the sale by petitioner of the barrels of whiskey covered by the warehouse receipts is provided in sections 204 of the Revenue Acts of 1924 and 1926, which are identical and the part of the section which it is necessary for us to construe is stated in footnote. 1 *1620 Congress made no attempt to define the word "gift" as used in section 204(a)(2), and therefore we must construe it in accordance with its usual and ordinary meaning. Webster's New International Dictionary defines the word "gift" to mean: "anything given, anything voluntarily transferred by one person to another without consideration. A present." Can it be said that the transactions with reference to these warehouse receipts for whiskey set out in our findings of fact evidence a present of the whiskey from Rosenbloom to the corporation? We do not thus construe the transactions. A condition of the transfer as outlined by Rosenbloom in his letter to the corporation was: "The warehouse receipts and the notes and cash shall constitute paid-in surplus of the corporation." And the corporation in accepting said transfer, among other things, resolved: "That such properties shall be and the same are hereby declared to be paid-in surplus of this corporation. And be it further resolved that the secretary-treasurer of this corporation is hereby directed to make appropriate entries on its books to effectuate this resolution." We do not think it can be said that a stockholder of a corporation*1621 who makes a payment to the paid-in surplus of a corporation is making a gift to the corporation. In such a transaction the relation of donor and donee does not exist. If all the stockholders of petitioner had made a ratable contribution to paid-in surplus, we do not delieve it would be contended that their payments for that purpose *774 amounted to gifts. Does the fact that Rosenbloom alone made this transfer of property under an agreement with the corporation that it would be treated as paid-in surplus change the character of the transaction from what it would otherwise be if all stockholders had made ratable contributions? We do not think so. It is true that where a majority stockholder in a corporation makes a payment to the paid-in surplus of the corporation under circumstances such as we have in the instant case, he only benefits in part from the increased surplus and other stockholders who make no ratable payments benefit in proportion to their stock, the same as he does, but that does not materially change the character of the transaction. The fact remains that the majority stockholder does benefit from it. By reason of his ownership of stock in the corporation, *1622 the value of his stock is increased and the earnings on his stock will presumably be increased by reason of the enlarged surplus of the corporation. It is these benefits, direct and indirect, which flow to the stockholder who makes such a transfer of property, which we think takes the transaction out of the gift classification. Twenty-eight Corpus Juris, p. 620, defines the meaning of the word "gift" as follows: A gift has been defined as a voluntary transfer of property by one to another, without any consideration or compensation therefor. The term is also used to designate that which is given; anything given which is voluntarily transferred by one person to another without compensation. A gift is a gratuity, and not only does not require a consideration, but there can be none; if there is a consideration for the transaction it is not a gift. A gift is dependent upon no agreement, but upon the voluntary act of the donor only. What each party agreed to do in respect to these transactions is set out in detail in our findings of fact, and we hold that such facts do not evidence a gift within the meaning of section 204(a)(2) of the Revenue Acts of 1924 and 1926, and hence*1623 we hold that respondent erred in determining the gain realized by the corporation in the sale of those assets, by using as a basis of cost to the corporation, the basis of cost of such assets to Sol Rosenbloom. Since we have held that section 204(a)(2) is not applicable to the transactions now under discussion, we must determine the basis of cost without reference to that particular part of the statute. We hold that the proper basis for computing the gain or loss on the sale of the whiskey represented by these warehouse receipts is the fair market value of such property at the time it was acquired by petitioner. Cf. ; . We come now to question (b). We must be guided in the decision of this question by section 201 of the Revenue Act of 1924. *775 Respondent concedes, as indeed he must, that there was no complete liquidation of the Finch Company. It is still in existence, is active in business, with the same number of outstanding shares of stock as at the time of its organization. Respondent contends, however, that there was a partial liquidation of Finch & *1624 Company when in 1924 it transferred to petitioner assets of the net value of $531,804.93. Respondent contends that this was not only a distribution of all the earned surplus of the corporation, but $50,478.70 of the capital of the corporation, and therefore this makes the distribution a partial liquidation of the corporation within the meaning of the taxing act. Respondent cites in support of his contention , and . We think these cases would be in point to support respondent's contention if the language of the Revenue Act of 1924 were the same as the revenue act which was under consideration in the two cases above cited, to wit, the Revenue Act of 1918, but the language is not the same. There is a section 201(g) of the Revenue Act of 1924 which is not found in the Revenue Act of 1918. It reads: (g) As used in this section the term "amounts distributed in partial liquidation" means a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock. *1625 It seems clear that in the present case there was no cancellation or redemption of any part of the Finch Company's stock; there was no series of distributions in complete or partial cancellation or redemption of all or a portion of the stock. Only by disregarding the plain language of the definition contained in section 201(g) could we reach the conclusion that there was a distribution in partial liquidation of the Finch Company in 1924. We said in : Liquidation is not a technical status which can be assumed or discarded at will by a corporation by the adoption of a resolution by its stockholders, but an existing condition brought about by affirmative action, the normal and necessary result of which is the winding up of the corporate business. Adhering to the words of the statute contained in section 201(g) of the Revenue Act of 1924, we hold that the distribution of assets to petitioner by the Finch Company in 1924 was not a distribution in partial liquidation of the Finch Company within the meaning of the statute. Accordingly, respondent's motion to increase the deficiency as asked for in his amended answer, is denied. *1626 Reviewed by the Board. Decision will be entered under Rule 50. MARQUETTE and STERNHAGEN dissent. Footnotes 1. SEC. 204. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that - * * * (2) If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift. If the facts necessary to determine such basis are unknown to the donee, the Commissioner shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Commissioner finds it impossible to obtain such facts, the basis shall be the fair market value of such property as found by the Commissioner as of the date or approximate date at which, according to the best information that the Commissioner is able to obtain, such property was acquired by such donor or last preceding owner. ↩