Souther v. Commissioner

CHESTER A. SOUTHER AND MRS. CHESTER A. SOUTHER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. JOHN BROOK JACKSON AND ALICE F. JACKSON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. RICHARD H. GRANT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Souther v. Commissioner Docket Nos. 80485, 91700, 91701. United States Board of Tax Appeals 39 B.T.A. 197; 1939 BTA LEXIS 1055; January 25, 1939, Promulgated *1055 1. In 1930 the properties of Managers, a corporation, consisted of common stock in Motors Securities, a second corporation, common stock in General Motors Corporation, notes receivable, and cash. Motors Securities, whose properties consisted principally of common stock in General Motors Corporation, authorized a new issue of stock known as class A stock. The new stock had voting rights and back of it on the books of the company was a class A asset account containing an equal number of shares of common stock in General Motors Corporation, with respect to which there was set up a special surplus account which was to be credited with all income from the said General Motors Corporation common stock and from which all dividends on the class A stock were to be paid. Class A stock was redeemable at the option of the corporation or, with certain restrictions, at the option of the holders thereof, either in cash or in common stock in General Motors Corporation, share for share. Upon redemption the class A stock was to be retired and canceled and the capital stock of Motors Securities was to be reduced accordingly. On December 29, 1930, pursuant to a plan theretofore adopted. Managers*1056 transferred to Motors Securities for class A stock all of its Motors Securities and General Motors Corporation common stock, retaining its cash and notes receivable to cover liabilities. Pursuant to the plan Managers was dissolved and the class A stock was distributed to its stockholders. Held, that the distribution of the class A stock to the stockholders of Managers was pursuant to a plan of reorganization within the purview of section 112(b)(3) and (i) of the Revenue Act of 1928, and the class A stock of Motors Securities in the hands of Managers' stockholders took the same basis as the stock of Managers. Sec. 113(a)(6). 2. Surrender in 1934 and 1935 of shares of Motors Securities class A stock for hsares of General Motors Corporation common stock constituted distributions in partial liquidation of Motors Securities within the meaning of section 115(i) of the Revenue Act of 1934 and in accordance with the provisions of section 115(c) of that act 100 percent of the gain therefrom is to be taken into account in computing taxable net income. 3. The Revenue Act of 1934 became law on May 10, 1934, and by its terms section 115(c) became effective as of January 1, 1934. *1057 Held, that section 115(c) is not violative of petitioners' rights under the Fifth Amendment to the Constitution because retroactive. Joseph B. Coolidge, Esq., and Prewitt Semmes Esq., for the petitioners. Chester A. Gwinn, Esq., for the respondent. TURNER *198 These proceedings were consolidated for hearing and involve deficiencies in income tax as follows: Docket No. Year Deficiency 80485 [1932] $6,758.01 91700 [1934] 22,015.05 91701 [1934] 155,048.91 Do [1935] 122,738.30 The questions raised are (1) whether the exchange by petitioners in 1930 of stock in the Managers Securities Co. for class A stock in the General Motors Securities Co. was in pursuance of a plan of reorganization *199 so that the class A stock disposed of in the taxable years took the basis of the Managers Securities Co. stock for the purpose of determining gain or loss; (2) whether the petitioners, having joined with respondent for a number of years in treating the 1930 transaction as a reorganization, may now claim that it was not a reorganization in order to give the class A stock a stepped-up basis; (3) whether the surrender by*1058 petitioner Jackson in 1934 and by petitioner Grant in 1934 and 1935 of certain shares of the class A stock in the General Motors Securities Co. for common stock in the General Motors Corporation was in partial liquidation of the General Motors Securities Co. within the meaning of section 115(c) of the Revenue Act of 1934; and (4) whether section 115(c) of the Revenue Act of 1934 is violative of petitioners' rights under the Fifth Amendment to the Constitution because by the terms of the act it applies to exchanges in liquidation or in partial liquidation occuring during 1934 but prior to May 10, 1934, the date of its enactment. FINDINGS OF FACT. The joint individual income tax return for 1932 of Chester A. Souther and Mrs. Chester A. Souther was filed on March 14, 1933, with the collector of internal revenue for the collection district of Michigan. John Brook Jackson and Alice F. Jackson filed their joint individual income tax return for 1934 with the collector of internal revenue for the collection district of Michigan. Richard H. Grant filed his income tax return for 1934 with the collector of internal revenue for the collection district of Michigan and his return for 1935*1059 with the collector of internal revenue for the first collection district of Ohio. The officers of the General Motors Corporation, hereinafter referred to as General Motors, pursuant to the approval of its directors and stockholders and with a view to enabling the executives responsible for its success to become more largely interested in its welfare through the acquisition of a substantial interest in its common stock, caused the Managers Securities Co., a corporation hereinafter referred to as Managers, to be organized under the laws of Delaware on November 26, 1923. The immediate purposes for which Managers was organized were to enter into a contract with General Motors providing for the distribution to Managers of a certain percentage of the net earnings of General Motors, to acquire either directly or indirectly and deal in General Motors stock, and to distribute the profits from the contract and stock to its stockholders, all of whom were to be officers or employees of General Motors. The purposes of organization and the powers of Managers as provided in its certificate *200 of incorporation were broad and general and there were few, if any, limitations, either expressed*1060 or implied, on its powers to engage in business. Managers had an authorized capital stock of $33,800,000 divided into 288,000 shares of nonvoting 7 percent cumulative preferred stock of a par value of $100 each, 40,000 shares of full voting class A stock of a par value of $100 each, and 40,000 shares of full voting class B stock of a par value of $25 each. General Motors purchased the entire issues of class A and class B stock for $5,000,000 cash, or $4,000,000 for the class A stock and $1,000,000 for the class B stock. In furtherance of the objects for which it was formed Managers, on November 27, 1923, entered into a contract with General Motors known as the "Five Over Seven" contract, wherein General Motors agreed to pay to Managers, on or before April 1 of each year, beginning with April 1, 1924, and ending with April 1, 1931, 5 percent of the net earnings of General Motors for the preceding calendar year after deducting from said net earnings 7 percent on the capital employed during such year. A minimum annual payment of $2,000,000 was to be made and, in the event the above 5 percent should be less than $2,000,000 in any year, the difference between the amount paid and*1061 the amount due was to be treated as an unsecured loan. General Motors sold to about 80 of its officers and employees, including petitioners Chester A. Souther, john Brook Jackson, and Richard H. Grant, portions of the class A and class B stock which it had purchased in Managers. The stock was sold subject to an irrevocable option in General Motors to repurchase all or any portion of the stock at any time between January 1 to May 15, in any year up to and including May 15, 1930. The stock sold was to be endorsed in blank and placed in escrow during the existence of the option and if the option should not be exercised on or before May 15, 1930, the right to repurchase should expire and the certificates delivered to the owners on May 16, 1930. With its preferred stock of a par value of $28,800,000 and $4,950,000 of the cash it had received from the sale of its class A and class B stock, Managers purchased 30 percent or 148,509 shares of the outstanding common stock of the General Motors Securities Co., a Delaware corporation hereinafter referred to as Motors Securities, all of whose capital stock was owned by E. I. du Pont de Nemours & Co. The sole assets of Motors Securities*1062 consisted of 7,500,000 shares of General Motors common stock. Prior to 1930 the only class of stock that Motors Securities had outstanding was common stock. *201 The number of shares of General motors common stock owned by Motors Securities and the equivalent number of shares of the said stock proratable to the 148,509 shares, or 30 percent of the stock of Motors Securities owned by Managers, fluctuated during the period from November 27, 1923, to December 29, 1930, as follows: General Motors stock owned by Motors Securities Equivalent of General Motors stock proratable to 148,509 shares of Motors Securities stock owned by Managers Shares Shares 1923 - Nov. 27 7,500,000 2,250,000 1924 - Exchange of 4 shares for 1 1,875,000 562,500 1926 - 50% stock dividend 937,500 281,250 1926 - After 50% stock dividend 2,812,500 843,750 1927 - Exchange of 1 share for 2 5,625,000 1,687,500 1929 - Exchange of 1 share for 2 1/2 14,062,500 4,218,750 Under date of April 25, 1927, General Motors and Managers entered into a contract supplemental to the contract of November 27, 1923, eliminating the provision requiring General Motors to pay*1063 to Managers a minimum annual payment of $2,000,000. It was recited that the bonds of Managers had been canceled and its preferred stock had been retired. In 1930 and as of December 31, 1929, the said contract of November 27, 1923, was terminated. To determine the future course of Managers a questionnaire was submitted to the 74 stockholders owning the total of 40,000 shares of its class B stock then outstanding. Fifty stockholders, representing 20,900 shares, expressed themselves as being in favor of expanding Managers into an investment trust with the idea of raising additional capital through the sale of preferred stock so as to permit a diversification of its investments. Twelve stockholders, representing 3,380 shares of the class B stock, expressed a desire to continue the company as it was, provided it should be possible to perfect an arrangement whereby the holders of Managers stock might be enabled to effect a conversion of their stock into General Motors common stock as and when they might desire. Eleven stockholders, representing 8,680 shares, did not respond, while General Motors, representing 7,040 shares, apparently took no position. Eleven individuals indicated*1064 apossible desire to liquidate a part of their holdings representing 1,637 shares. In view of that situation and in recognition of the fact that the formal liquidation of Managers and the distribution of its assets to its stockholders would result in substantial income tax liability on the stockholders, a way was sought whereby such stockholders as wished to liquidate their holdings and receive General Motors common stock therefor *202 might do so and at the same time permit those who wished to retain the interests represented by their stock in Managers to do so. Several letters were sent to the stockholders of Managers by its officers during 1930 with respect to different plans which were being considered. On November 24, 1930, John Thomas Smith, general counsel for General Motors and Managers, submitted to the Commissioner of Internal Revenue a proposed plan of "reorganization" of Managers and Motors Securities and requested a ruling as to the taxability of the various parties to the plan. The steps in the proposed plan were as follows: 1. As the first step in the reorganization, it is proposed that the General Motros Securities Company will classify its stock into*1065 two classes, to be designated as Class X and Class Y Stock. The fundamental difference between the two classes will be that each share of Class Y Stock will have as an asset behind it, one share of General Motors Stock; and on liquidation, retirement, or redemption, will be limited to its interest therein. 2. As the second stip, it is proposed that General Motors Securities Company will acquire all of the assets of the Managers Securities Company in exchange for, say, the Class Y Stock of General Motors Securities Company. 3. It is further proposed that the stock of General Motors Securities Company so acquired will be distributed to the stockholders of Managers Securities Company, and the Managers Securities Company liquidated. 4. General Motors Securities Company will offer to retire the whole or any part of its Class Y Stock by issuing in exchange therefor a corresponding amount of General Motors Common Stock represented thereby. On November 28, 1930, the respondent made reply to the inquiry and stated in part as follows: Under the reorganization plan in question the General Motors Securities Company stock will comprise two classes, designated as Class*1066 X and Class Y stock. The fundamental difference between these two classes will be that each share of Class Y stock will have as an asset behind it one share of General Motors Corporation stock; and upon liquidation, retirement or redemption will be limited to its interest therein. The General Motors Securities Company will then acquire all of the assets of the Managers Securities Company in exchange for the Class Y stock of the General Motors Securities Company. The stock of General Motors Securities Company so acquired by the Managers Securities Company will then be distributed to the stockholders of Managers Securities Company which will be liquidated. It is further stated that the General Motors Securities Company will subsequently offer to retire the whole or any part of its Class Y stock by issuing in exchange therefor a corresponding amount of General Motors Corporation common stock represented thereby. Upon consideration of the particular information furnished it is held that the transactions involving the reclassification of the stock of General Motors Securities Company, the acquisition by the Managers Securities Company (in exchange for its assets) of the Class Y stock*1067 of General Motors Securities Company, and the distribution to the stockholders of the Managers Securities Company of the General Motors Securities Company stock so acquired fall within the scope of Section 112(b)(3), (4), and (i) of the Revenue Act of 1928, concerning exchanges in connection with corporate reorganizations. You are advised generally, *203 therefore, that in the transactions up to and including the distribution by the Managers Securities Company of the General Motors Securities Company stock to its stockholders, no gain or loss will be recognized for income tax purposes; nor will General Motors Securities Company realize any gain or loss upon distribution of its assets in kind in partial or complete liquidation of its stock. The exchange by the former stockholders of the Managers Securities Company of the General Motors Securities Company stock for common stock of the General Motors Corporation will, of course, result in a gain or loss for income tax purposes, measured by the difference between the basis of the General Motors Securities Company stock in the hands of the former stockholders of the Managers Securities Company and the fair market value of the*1068 General Motors Corporation common stock as of the date of the exchange. The plan as sumitted to the Commissioner was submitted to the stockholders of Managers on December 13, 1930. On December 24, 1930, Alfred P. Sloan, president of the corporation, advised th stockholders by telegram that, in working out the final details of the "reorganization" agreement so as to give the required security to Motors Securities, it had been necessary to agree that not to exceed 80 percent of the new class A stock, to be issued by Motors Securities, could be converted into General Motors common stock prior to January 1, 1934, the remaining 20 percent to be convertible at any time thereafter, but that Motors Securities should have the right to waive this restrictive provision. The plan as amended was approved at a special meeting of Managers stockholders on December 29, 1930. Later, on the same day, the stockholders at a special meeting adopted a resolution for the dissolution of Managers. Also on December 29, 1930, Motors Securities, in pursuance of its agreement to the plan, amended its articles of incorporation to provide for the issue of 4,509,060 shares of class A stock with a par value*1069 of $1 per share with the right of 1/100 of a vote. For the sole benefit of the class A stock a special asset account was set up, to which 4,509,060 shares of General Motors common stock were allocated. A class A surplus account was created, to which was to be credited all income and profits received in connection with the General Motors Common stock in the class A asset account. Dividends on class A stock were to be paid exclusively from class A surplus. Motors Securities, by action of its board of directors, might at any time redeem the whole or any part of its class A stock, either in cash at a rate per share equal to the closing bid price for General Motors common stock on the New York Stock Exchange on the day preceding the day of redemption, or in General Motors common stock at the rate of one share for each share of class A stock redeemed. It was also provided that Motors Securities should on 90 days' notice in writing from the holders of its class A stock redeem up to 80 percent of the said stock for cash or General Motors common stock at *204 the rates outlined. The remaining 20 percent could be surrendered on the same basis at any time after January 1, 1934. *1070 Shares of class A stock so redeemed were not to be reissued, but were to be retired and the capital of Motors Securities decreased accordingly. The 4,509,060 shares of calss A stock thus authorized, back of which stood the class A asset account containing the same number of shares of General Motors common stock, corresponded exactly with the total number of shares of General Motors common stock owned by Managers directly, and the shares of General Motors common stock proratable to the 148,509 shares of Motors Securities common stock owned by Managers just prior to the exchange under the "reorganization" agreement. On December 29, 1930, and prior to the said exchange each share of Motors Securities common stock would have liquidated for 28.4 plus shares of General Motors common stock. At the time of the exchange under the "reorganization" agreement the properties of Managers consisted of cash, notes of the General Motors Acceptance Corporation, 148,509 shares of common stock in Motors Securities, and 290,310 shares of General Motors common stock. The 148,509 shares of common stock in Motors Securities would have liquidated for 4,218,750 shares of General Motors common stock. Managers*1071 had retired all of its preferred stock and 30,000 shares of its class A stock, leaving outstanding 10,000 shares of its class A stock and 40,000 shares of class B stock. The cash and notes sere sufficient to pay its Federal income tax, which constituted its only liability. On December 29, 1930, Managers transferred its 290,310 shares of General Motors common stock to Motors Securities and received therefor 290,310 shares of Motors Securities class A stock. At the same time and as a part of the same plan it turned over to Motors Securities the certificates representing its holdings of 148,509 shares of Motors Securities common stock (which simultaneously were retired and the outstanding common stock in Motors Securities reduced accordingly) and received therefor per share 28.4 plus shares of class A stock in Motors Securities, or a total of 4,218,750 shares. Managers was then the owner of the entire authorized issue of 4,509,060 shares of Motors Securities class A stock. The stockholders of Managers thereupon and pursuant to the plan turned in their Managers class A and class B stock for the 4,509,060 shares of Motor Securities class A stock, and Managers was dissolved. It surrendered*1072 its charter as a corporation on December 29, 1930, the date on which dissolution was voted, but continued in existence for liquidation purposes until December 23, 1935. The following is a comparative statement of assets, liabilities, and capital of Managers on December 1, 1930, and on December 29, 1930, *205 prior to distribution of Motors Securities class A stock to Managers stockholders and after dissolution: December 29, 1930 December 1, 1930 Prior to distribution of Motors Securities class A stock to Managers stockholders After dissolution ASSETS Cash $238,033.45 $248,584.04 $248,584.04 Notes of General Motors Acceptance Corporation 1,046,683.23 873,240.93 873,240.93 Intestments: General Motors Securities Co. common stock, 148,509 shares 33,750,000.00 General Motors Corporation common stock 290,310 shares 12,562,222.12 General Motors Securities Co. class A stock, 4,509,060 shares 46,312,222.12 Total 47,596,938.80 47,434,047.09 1,121,824.97 LIABILITIES AND CAPITAL Federal income taxes 1,401,252.37 930,830.69 930,830.69 Class A stock (10,000 shares, par value $100 each) and class A surplus 22,946,291.35 22,721,113.97 Class B Stock (40,000 shares, par value $25 each) and class B surplus 23,249,395.08 23,782,102.43 Board of directors as trustees in dissolution (balance remaining on final liquidation to be paid to class B stockholders 190,994.28 Total 47,596,938.80 47,434,047.09 1,121,824.97 *1073 The following is a comparative statement of assets, liabilities, and capital of Motors Securities on December 1, 1930, December 28, 1930, and December 29, 1930, after the exchange. December 1, 1930 December 28, 1930, before exchange December 29, 1930, after exchange ASSETS Cash $25,732.49 $28,489.23 $28,489.23 Investment stocks: General Motors common stock 79,413,020.42 (14,062,500 shs) 79,413,020.42 (9,843,750 shs) 55,589,114.29 Class A asset account (4,509,060 shs) 36,386,128.25 Total 79,438,752.91 79,441,509.65 92,003,731.77 LIABILITIES AND CAPITAL Capital stock - common (par value $100) 49,503,000.00 (495,030 shs) 49,503,000.00 (346,521 shs) 34,652,100.00 Class A capital stock (4,509,060 shs) 4,509,060.00 Paid-in surplus 29,910,020.42 29,910,020.42 20,937,014.29 Paid-in class A surplus 31,877,068.25 Earned surplus 25,732.49 28,489.23 19,942.46 Earned class A surplus 8,546.77 Total 79,438,752.91 79,441,509.65 92,003,731.77 As the result of the foregoing distribution in dissolution of Managers and pursuant to the plan the petitioners received on*1074 December 29, 1930, shares of Motors Securities class A stock as follows: Chester *206 A. Souther, 19,228 shares; John Brook Jackson, 13,527 shares; and Richard H. Grant, 80,567 shares. The fair market value of the stock when thus received by them on December 29, 1930, was $34.25 per share. Petitioners Chester A. Sourther, John Brook Jackson, and Richard H. Grant did not return as income in their respective Federal income tax returns for 1930 any amount as profit realized by them on the conversion of their stock in Managers into class A stock in Motors Securities, nor did the Commissioner, after examination, increase their respective incomes as returned for that year by any amount with respect to any profit derived by them in that year as a result of the transaction. In 1932 Chester A. Sourther surrendered Motors Securities class A shares, received in the exchange in 1930, for a like number of shares of General Motors common stock as follows: January 12, 1932, 3,000 shares; June 10, 1932, 4,000 shares; and December 22, 1932, 1,382 shares, or a total of 8,382 shares. On the receipt of these shares of Genearl Motors common stock, he reported in his income tax return for*1075 1932, as capital gain, the sum of $119,387.65, being the difference between $2,180, representing cost at 26.0037 cents per share of the Motors Securities class A stock surrendered, and $121,567.65 reported as the fair market value of the General Motors common stock received. The said cost basis, computed at 26.0037 cents per share, substantially reflects the correct aliquot cost to petitioner Souther of the Managers stock exchanged in 1930 for the 8,382 shares of Motors Securities class A stock surrendered in 1932. The total amount to capital gain reported by Souther in his return for 1932 amounted to $120,277.59, against which losses in the amount of $108,984.02 were taken as a deduction. Included in the deduction was a loss of $45,323.60 claimed as the loss on the sale of 3,400 shares of General Motors common stock which Souther had acquired upon surrender of Motors Securities class A stock in the manner previously stated. Of the 3,400 shares of General Motors common stock sold in 1932, 1,500 shares were sold prior to the enactment of the Revenue Act of 1932 at a loss of $29,470.90. In determining the deficiency against Chester A. Souther and Mrs. Chester A. Sourther, the*1076 respondent disallowed the total loss of $46,337.35 claimed by petitioners on their return as the loss sustained on the sale of the said 3,400 shares of General Motors common stock. The loss so disallowed included the loss of $29,470.90 sustained in 1932 prior to the enactment of the Revenue Act of 1932. On January 15, 1935, Chester A. Sourther executed and on January 19, 1935, filed with the Commissioner a consent fixing the period *207 of limitation upon assessment of income and profits tax for the year 1932, wherein it was agreed that such tax might be assessed at any time on or before June 30, 1935, except that if a notice of a deficiency in tax should be sent to the taxpayer on or before that date, then the time for making assessment as aforesaid should be extended beyond said date by the number of days the Commissioner is prohibited from making an assessment and for sixty days thereafter. The consent was signed by the Commissioner on January 22, 1935. The deficiency notice addressed to Chester A. Sourther and Mrs. Chester A. Souther was mailed on March 19, 1935. On March 20, 1934, John Brook Jackson surrendered to Motors Securities 2,027 shares of Motors Securities*1077 class A stock acquired in 1930, as stated above, and received therefor a like number of shares of General Motors common stock. On this transaction he computed a profit of $72,477.17, representing the difference between $73,605.44, reported as the amount realized, and $1,128.27 as the cost basis of the Motors Securities class A stock exchanged for the said 2,027 shares of General Motors common stock, or a cost basis per share of 55.662 cents. The cost basis so used substantially reflects the aliquot cost of stock in Managers exchanged in 1930 for the 2,027 shares of Motors Securities class A stock. In the joint return filed by John Brook Jackson and Alice F. Jackson for 1934, 40 percent of the profit of $72,477.17, or $28,990.87, was reported as capital gain. Against that a deduction was claimed in the amount of $12,875.08 representing losses sustained by Alice F. Jackson. In determining the deficiency against John Brook Jackson and Alice F. Jackson, respondent determined that the surrender to Motors Securities of the 2,027 shares of Motors Securities class A stock for a like number of shares of Genarl Motors common stock constituted a distribution in partial liquidation by Motors*1078 Securities; that the cost basis for the class A stock in Motors Securities so surrenderd was 55.662 cents pre share; that a profit of $72,477.17 was realized; and that the entire amount thereof constituted income taxable under the provisions of section 115(c) of the Revenue Act of 1934. Except to the extent of $2,000, respondent disallowed the deduction claimed on account of losses sustained by Alice F. Jackson. Richard H. grant in 1932 surrendered to Motors Securities 26,147 shares of class A stock in that corporation for a like number of shares of General Motors common stock. By reason thereof he reported in his income tax return for 1932 capital gain in the amount of $543,348.23, using as the cost basis for the Motors Securities class A shares so surrendered an aliquot portion of the cost to him of the shares of Managers stock whcih he had exchanged for the said class A shares in 1930. *208 In the same manner Grant acquired from Motors Securities 5,000 shares of General Motors common stock on January 25, 1934, 5,000 shares on February 6, 1934, and 8,570 shares during 1935. On his return for 1934 he reported a profit on the acquisition of the 10,000 shares of General*1079 Motors common stock, using a total of $4,654.52 or 46.5452 cents per share as the cost basis for the Motors Securities class A stock exchanged therefor. The cost basis so used by Grant in making his 1934 return substantially reflects the correct aliquot portion of the cost to him of the stock in Managers which he exchanged for shares of Motors Securities class A stock in 1930. In his determination of the deficiency herein respondent used as the cost basis for the Motors Securities class A stock 33.959 cents per share and further included, under section 115 of the Revenue Act of 1934, the entire amount of the gain computed on such basis. On his return for 1935 Grant reported a profit on the 8,570 shares of General Motors common stock acquired in that year, as previously described, using $3,239.82, or approximately 38.3 cents per share, as the cost basis of the 8,570 shares of Motors Securities class A stock exchanged therefor. In his determination of the deficiency respondent used approximately 62.4 cents per share as the cost basis for the said 8,570 shares of Motors Securities class A stock and further included, under section 115 of the Revenue Act of 1934, the entire amount*1080 of the gain computed on such basis. The Revenue Act of 1934 was introduced as a bill in the House of Representatives on February 9, 1934. It passed the House on February 21, 1934, and passed the Senate on April 13, 1934. It was signed by the President on May 10, 1934. OPINION. TURNER: The major issue herein, common to all three proceedings, is whether the Motors Securities class A stock acquired by the petitioners on December 29, 1930, upon surrender of their Managers stock in liquidation was acquired pursuant to a plan of reorganization within the meaning of section 112 of the Revenue Act of 1928 so that the basis to the petitioners for determining gain or loss upon its subsequent disposition was the same as the basis of the stock in Managers exchanged therefor. Sec. 113(a)(6), Revenue Acts of 1932 and 1934. Prior to the transaction on December 29, 1930, counsel for Managers submitted to the Commissioner of Internal Revenue a proposed plan whereby Managers would transfer to Motors Securities all of its assets, receiving therefor all of a special class of stock to be authorized by Motors Securities, which said stock would be distributed *209 to the stockholders*1081 of Managers and Managers would thereupon be dissolved. It was further proposed that Motors Securities should offer to retire the whole or any part of the special issue of stock by exchanging therefor a corresponding amount of the common stock of General Motors. A ruling was requested as to whether or not the execution of the proposed plan would result in a reorganization within the meaning of the income tax statute. Under date of November 28, 1930, the ruling of the Bureau of Internal Revenue was transmitted to counsel for Managers, holding that the proposed transaction would "fall within the scope of section 112(b)(3), (4) and (i) of the Revenue Act of 1928, concerning exchanges in connection with corporate reorganizations" and that no gain or loss would be recognized for income tax purposes. It was further stated, however, that any subsequent exchange, by the former stockholders of Managers, of the Motors Securities stock so acquired for General Motors common stock would result in gain or loss for income tax purposes, measured by the difference between the basis of the General Motors Securities Co. stock in the hands of the former stockholders of the Managers Securities Co. and*1082 the fair market value of the General Motors Corporation common stock as of the date of the exchange. The plan as proposed and ruled upon, subject to minor changes not here important, was carried out on December 29, 1930, and the petitioners in exchange for their stock in Managers received Motors Securities class A stock as follows: Grant, 80,567 shares; Jackson, 13,527 shares; and Souther, 19,228 shares. In one or more of the taxable years under consideration each petitioner surrendered to Motors Securities shares of its class A stock, acquired as indicated above, and received shares of General Motors common stock. In making their returns the petitioners treated the exchange between Managers and Motors Securities on December 29, 1930, as a reorganization, in accordance with the ruling of the Bureau of Internal Revenue, and for the taxable years herein used an aliquot portion of the cost of Managers stock as the basis for determining the gain realized upon the surrender of the said class A stock for General Motors common stock. The petitioners now claim that the treatment of the transaction of December 29, 1930, as a statutory reorganization resulted from a mutual mistake of law*1083 and that for the purpose of determining the basis to petitioners for the class A stock acquired in that reansaction the ruling and subsequent treatment of the transaction as a reorganization should not be disregarded. They contend that the distribution of the Motors Securities class A stock to them as stockholders of Managers was not pursuant to a plan of reorganization but was in liquidation of Managers, nothing more, the gain from which was recognizable when the distribution was made *210 in 1930, and that the basis of the Motors Securities class A stock in their hands was $34.25 per share, its fair market value when distributed, and not the cost to them of their stock in Managers. The respondent, on the other hand, contends that the exchange between Managers and Motors Securities on December 29, 1930, was a statutory reorganization and that the said class A stock, having been distributed pursuant to the plan of reorganization, took the same basis for gain or loss purposes as the Managers stock surrendered therefor. He further claims and has pleaded in his answers that, since petitioners in past years have joined with him in treating the exchange of December 29, 1930, as*1084 having been made pursuant to a plan of reorganization, they may not now change their position and claim that it was otherwise for the purpose of procuring a stepped-up basis for their Motors Securities class A stock. With respect to the issue above stated it is stipulated that, if the Motors Securities class A stock received by the petitioners in 1930 was acquired pursuant to a plan of reorganization, the basis for determining the gain realized upon the exchange of the class A stock for General Motors common stock is as follows: Richard H. Grant, 46.545 cents per share; John Brook Jackson, 55.662 cents per share; and Chester A. Souther, approximately 26 cents per share, the exact amount being that used by him in making his return and by the respondent in determining the deficiency against him. It is also stipulated that if the petitioners are entitled to a stepped-up basis, as contended by them, the basis for the Motors Securities class A stock is $34.25 per share, its fair market value at the time of distribution on December 29, 1930, and further that if Jackson and Grant are entitled to use the basis of $34.25 there are no deficiencies in their income tax for the years in controversy. *1085 Under section 113(a)(6) of the Revenue Act of 1928 the basis for determining the gain or loss from the exchange of property is the same as that of the property exchanged if the property acquired "was acquired upon an exchange described in section 112(b) to (e)." To the same effect and in substantially the same language are the corresponding sections of the Revenue Acts of 1932 and 1934. Section 112(b)(3) of the Revenue Act of 1928 provides that "No gain or loss shall be recognized if stock or securities of a corporation, a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization." Certainly there can be no question that the exchange by the petitioners on December 29, 1930, of their Managers stock for Motors Securities class A stock was pursuant to a plan which was regarded, and up to the time of these proceedings had been treated, as a plan of *211 reorganization within the meaning of section 112(i)(1) of the above act, which reads as follows: SEC. 112. RECOGNITION OF GAIN OR LOSS. * * * (i) Definition of reorganization. - As*1086 used in this section and sections 113 and 115 - (1) The term "reorganization" means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation), or (B) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred, or (C) a recapitalization, or (D) a mere change in identity, form, or place of organization, however effected. Our first question then is whether the plan under which the transaction of December 29, 1930, between Managers and Motors Securities was executed was a reorganization within the meaning of the statute. Both the petitioners and the respondent direct their arguments exclusively to the applicability of the definition contained in clause (A). The petitioners claim that the transaction did not "genuinely partake of the nature of a merger or consolidation" as the terms merger*1087 and consolidation, appearing in clause (A) above, were construed by the Supreme Court in Pinellas Ice & Cold Storage Co. v. Commissioner,287 U.S. 462, and Helvering v. Minnesota Tea Co.,296 U.S. 378, and further that Motors Securities did not acquire substantially all of the assets of Managers. Finally the petitioners contend that the transaction served no business purpose whatever, tax avoidance being the sole concern of the parties, and for that reason the transaction may not under Gregory v. Helvering,293 U.S. 465, be treated as a reorganization within the meaning of the statute. After quoting from Helvering v. Minnesota Tea Co., supra, to the effect that the "seller" must acquire an interest in the affairs of the "purchasing company" more definite than the interest incident to the ownership of its short term purchase money notes and that the interest so acquired must represent a substantial part of the value of the thing transferred, it is argued that Managers acquired "no interest in the affairs of Motors Securities." The reasoning seems to be that the "interest" of Managers was the*1088 same before and after the exchange and therefore it acquired no "interest" in Motor Securities by reason of the exchange of the 290,310 shares of General Motors common stock and 148,509 shares of Motors Securities common stock for 4,509,060 shares of Motors Securities class A stock. In considering the effect of the exchange petitioners say they are ignoring the 290,310 shares of General Motors common stock for the reason that they amounted *212 to less than 6 percent of Managers assets transferred to Motors Securities and could in no wise affect the principles involved. Although the petitioners make no contention that the 148,509 shares of Motors Securities common stock and the 290,310 shares of General Motors common stock did not constitute substantially all of the assets of Managers, and even though, according to stipulation, the said shares were in fact transferred to Motors Securities on December 29, 1930, in exchange for 4,509,060 shares of Motors Securities class A stock, petitioners claim, citing Arctic Ice Machine Co.,23 B.T.A. 1223, that Motors Securities did not acquire substantially all of Managers assets but "merely took with one hand certain*1089 stock certificates and with the other handed back certain certificates the exact equivalent of those delivered to it", which at best was a reclassification by Motors Securities of its 148,509 shares of common stock. The petitioners' argument on each and every point seems to spring from the fact that the major portion of assets transferred to Motors Securities for its class A stock was likewise the stock of Motors Securities, even though the stock so transferred was common stock as distinguished from the class A stock acquired and the rights of Managers as a stockholder of Motors Securities was changed thereby. The essence of the argument seems to be that no corporation the principal asset of which was the stock of another corporation can merge with the latter corporation, and further, that the latter corporation can not be said to have acquired substantially all of the assets of the former corporation within the meaning of clause (A) above if it issues in exchange its own stock, even though the stock so issued is of a different class and the rights of the holders are materially changed. In *1090 H. B. Leary, Sr.,34 B.T.A. 1206, involving a transaction substantially similar to the transaction in the instant case, the respondent advanced the same arguments as those advanced here by the petitioners. In that case it was decided to eliminate a corporation the sole function of which was the holding of a majority of the common stock of another corporation. The stock so held, which was not par value voting stock, and some cash were transferred to the second corporation for $5 par value common stock, with added voting rights, and bonds of the latter. The new stock and bonds so acquired were distributed to the stockholders of the holding corporation and the holding corporation was dissolved. We held that the transaction was a reorganization within the meaning of clause (A) above, and upon review we were affirmed by the United States Circuit Court of Appeals for the Fourth Circuit, 93 Fed.(2d) 826. The court said: The New York company undoubtedly acquired substantially all the properties of the Maryland corporation and immediately reissued its own stock in exchange therefor. The interest of the stockholders of the Maryland corporation in the business*1091 owned by the New York company and the Maryland corporation, the *213 holding company, remained, with but slight change, in the property owned by the New York company after the plan was carried out. It seems clear that such a situation results, in its legal effect, in a reorganization within not only the letter but the spirit of the taxing statute and brings the transaction within that class which Congress plainly intended not to tax until the stockholder finally disposed of his stock and his profit was definitely ascertainable. There was no change in the taxpayer's position with respect to the ownership of the property but merely a change in the form of the stock certificates held by him. There was, in substance, a merger of the two companies. "A merger ordinarily is an absorption by one corporation of the properties and franchises of another whose stock it has acquired. The merger corporation ceases to exist, and the merging corporation alone survives." Cortland Specialty Company et al. v. Commissioner of Internal Revenue,60 F.(2d) 937. It would be hard to more accurately describe what happened in the instant case. * * * *1092 The continuity of interest frequently held by the courts to be necessary in a reorganization ( Cortland Specialty Company v. Commissioner, supra; C. H. Mead Coal Co. v. Commissioner, supra), was present here. The Taxpayer held practically the same interest in the property after the plan was carried out that he held before. In Helvering v. Schoellkopf, 100 Fed.(2d) 415, affirming the opinion of the Board reported at 35 B.T.A. 855, the United States Circuit Court of Appeals for the Second Circuit considered the same transaction that was involved in H. B. Leary, Sr., supra. The court, contrary to the conclusion reached by the Board and the United States Circuit Court of Appeals for the Fourth Circuit, took the position that the New York corporation, when it acquired its own shares of no par value common stock in exchange for its $5 par value common stock with added voting rights, did not acquire substantially all of the properties of the Maryland corporation within the meaning of clause (A) of the statutory definition of a reorganization, stating as a reason for the conclusion reached that the shares*1093 of stock so acquired "are merely extinguished" and "cannot properly be regarded as property acquired", and further, that the two issues of stock were so much alike as to be substantially the same so that the New York corporation was in effect under contract to return the shares to the Maryland corporation and therefore "did not acquire them." The court did hold, however, that the transaction was a reorganization, under clause (B) of the definition above, and that the liquidation of the Maryland corporation, the holding corporation, was pursuant to the plan of reorganization and its stockholders did not realize taxable gain thereby. To the same effect is Commissioner v. Kolb, 100 Fed.(2d) 920, decided by the United States Circuit Court of Appeals for the Ninth Circuit. In the instant case the difference in the rights under the Motors Securities common stock and the Motors Securities class A stock was more definite and pronounced than the difference between the *214 two issues of common stock in H. B. Leary, Sr., supra, and *1094 Helvering v. Schoellkopf, supra. As we read the opinion of the court in the latter case, however, the added difference between the two issues of stock in the instant case would not be sufficient, in the opinion of that court, to bring the exchange on December 29, 1930, between Managers and Motors Securities within the provisions of clause (A) of the definition of reorganization. Since the decision in Helvering v. Schoellkopf, supra, was rendered we have carefully reconsidered the applicability of clause (A) to transactions such as we have before us and with due deference to the views of the court expressed in its opinion therein, we adhere to the ruling in H. B. Leary, Sr., supra, in which we were affirmed, as stated above, by the United States Circuit Court of Appeals for the Fourth Circuit, and hold that the exchange on December 29, 1930, between Managers and Motors Securities falls within the scope of clause (A) of the statutory definition. Regardless, however, of the applicability of clause (A) to the exchange between Managers and Motors Securities, we are of the opinion that clause (C) of the statutory definition, which*1095 defines the term "reorganization" as a recapitalization is applicable and the exchange was a reorganization thereunder. In Mead Coal Co. v. Commissioner, 72 Fed.(2d) 22, the court said: "It will thus be seen that the general purpose of all these reorganizations provisions was the same, not merely to remove the impediment to corporate readjustments, but also to prevent the recognition of purely fictitious gains or losses in the administraction of the income tax law." As the petitioners suggest in their brief, the exchange of the Motors Securities common stock for class A stock at the best resulted in a reclassification of Motors Securities stock. Managers did not by that exchange actually liquidate its holdings but, as the court further suggested in Mead Coal Co. v. Commissioner, supra, continued "to be a participant in the enterprise without actual realization of profit." Such a reclassification must, in our opinion, be regarded as "a recapitalization" and therefore a reorganization under clause (C). *1096 Kistler v. Burnet, 58 Fed.(2d) 687; H. E. Muchnic, Administrator,29 B.T.A. 163; Walter F. Haass,29 B.T.A. 900; H. Y. McCord,31 B.T.A. 342; and Lelia S. Kirby,35 B.T.A. 578. The remaining contention of the petitioners with respect to the transaction of December 29, 1930, is that it served no business purpose, tax avoidance being the sole concern of the parties, and even though it was a reorganization in form it was not, under Gregory v. Helvering,293 U.S. 465, a reorganization within the meaning and intent of the statute. If the rule laid down in Gregory v. Helvering is to be strictly applied, numerous distinctions between that case and the instant case *215 immediately suggest themselves, but in our opinion, the distinction here need not be drawn on a restricted or narrow basis. It is true that avoidance of tax was a major concern of the parties in interest, but, as the Supreme Court pointed out, tax avoidance "will not alter the result or make unlawful what the statute allows." The claim that tax avoidance was the sole or only purpose served is, in our*1097 opinion, definitely refuted by the facts of record. It is to be noted at the outset that, while Managers when it was organized was endowed with broad and general powers customary in the organization of modern corporations, it was in fact organized for the single purpose of acquiring and holding directly or indirectly stock of General Motors and of distributing the profits therefrom to its stockholders, who were to be selected by the General Motors Corporation from among its officials. By this plan General Motors hoped to arouse added interest in its affairs in the executives who had been responsible for its success and through their ownership of stock in Managers to insure continued successful management in the future. To furnish the means for acquiring the General Motors stock to be owned and held by Managers directly or indirectly, General Motors entered into a contract with Managers whereby it agreed to pay to the latter a percentage of its earnings over a period of approximately seven years. For approximately the same period General Motors, through an irrevocable option to repurchase the stock in Managers allotted to and acquired by its officials, retained the power to limit*1098 participation in the plan to the officials selected by it. Pursuant to the plan Managers immediately after its organization paid cash and its entire issue of preferred stock for 30 percent of the common stock of Motors Securities, a second holding company, the sole assets of which consisted of General Motors common stock. By April 1927 all of the preferred stock used in the purchase of the Motors Securities stock had been retired and on December 31, 1929, the agreement by General Motors to pay over a part of its earnings to Managers was terminated. There being no further direct participation in the earnings of General Motors and Managers being almost wholly dependent for profit on the General Motors common stock held and owned by Motors Securities, the continued existence of Managers separate and apart from Motors Securities was to an obvious extent no longer essential or expedient, unless it should be decided that its activities should be enlarged and extended. A questionnaire was accordingly submitted by Managers to its stockholders in its efforts to determine the course to be followed. Of the 74 stockholders owning the 40,000 shares of class B stock outstanding, 50, representing*1099 a majority of the stock, expressed a desire to expand the activities of Managers into an investment trust; 12 desired to continue the *216 company as it was; others expressed no preference; and 11 indicated a possible desire to liquidate their holdings so that they might acquire and own directly their ratable portion of General Motors common stock. After careful study, the suggestion that Managers be extended into an investment trust was abandoned. Under those circumstances the continued existence of Managers served no useful business purpose, but as it was then constituted its dissolution would force upon some stockholders an undesired liquidation and at the same time would not enable those who might desire to liquidate to acquire and own directly their ratable portions of General Motors common stock. It is thus apparent that the plan devised and executed was prompted not only by a motive of tax avoidance, but for the purpose of providing a means whereby those stockholders who preferred to maintain their investments in a holding company might do so, while others might liquidate and acquire the direct ownership of General Motors common stock if they so desired. In this*1100 connection it is noted that more than two million of the class A shares were still outstanding on December 31, 1935. Certainly on these facts it can not be said, as it was in Gregory v. Helvering, supra, that "the whole undertaking * * * was in fact an elaborate and devious form of conveyance masquerading as a corporate reorganization and nothing else." To again utilize the thought expressed by the court in Mead Coal Co. v. Commissioner, supra, the stockholders of Managers did "not actually liquidate" their holdings upon the exchange of their Managers stock for Motors Securities class A stock, but continued "to be a participant in the enterprise without actual realization of profit." Under the circumstances here the liquidation actually occurred when in subsequent years the petitioners surrendered their Motors Securities class A stock for General Motors common stock and withdrew from the enterprises of the respective holding companies. It is, of course, true that the organization and maintenance of a pure holding company do not ordinarily serve a business purpose comparable to the purposes of commercial, industrial, trading, or financial*1101 organizations and similarly a difference in business purpose exists in the reorganization of a holding company. But where the purposes which prompt the organization of a holding company in the first instance are inherent in the reorganization of such company and the plan followed is within the wording of the statute, there is, in our opinion, no basis or ground for applying the doctrine of Gregory v. Helvering, supra, to such a reorganization and to hold, as the petitioners here contend, that it was solely a device to avoid tax. To so conclude would be to imply that a holding company has no standing under the income tax statutes separate and apart from its stockholders. *217 In our opinion the statute applicable here is not susceptible of any such construction. Having determined that the exchange between Managers and Motors Securities on December 29, 1930, was a reorganization within the meaning of the income tax act and the exchange by the petitioners of their stock in Managers for Motors Securities class A stock was pursuant to the plan of reorganization, it becomes unnecessary to consider the issue raised by the respondent in his answers to the*1102 effect that the petitioners, having joined with him in treating the transaction of December 29, 1930, as a reorganization, may not now change their position and claim that it was otherwise for the purpose of procuring a stepped-up basis for their Motors Securities class A stock. The respondent is accordingly sustained in his determination that the basis of the Motors Securities class A stock in the hands of the petitioner was the cost to them of their stock in Managers exchanged therefor. Petitioners Jackson and Grant contend in the alternative that the gain realized by them in 1934 and 1935 upon the surrender of Motors Securities class A stock for General Motors common stock is to be recognized only to the extent prescribed by section 117 of the Revenue Act of 1934 1 and is not to be recognized in full under the provisions of section 115(c) 2 as gain resulting from a distribution in partial liquidation of Motors Securities. The parties have stipulated that if petitioner Jackson is entitled to the benefit of the capital gains provisions of section 117, supra, there is no deficiency in his income tax for that year and if the petitioner Grant is entitled to such benefits for*1103 *218 1934 and 1935, there is no deficiency in his income tax for 1935 and no deficiency for 1934 except that resulting from the disallowance of a deduction as interest paid in the amount of $2,581.94. *1104 The contention of the petitioners that the General Motors common stock acquired upon surrender to Motors Securities of shares of its class A stock was not acquired as a distribution by Motors Securities in partial liquidation within the meaning of section 115(c), supra, seems to rest upon the fact that under the terms of issue the holders of Motors Securities class A stock had the right on 90 days' notice and during the period prior to January 1, 1934, to surrender up to 80 percent of their holdings of the class A stock and receive therefor an equal number of shares of General Motors common stock from Motors Securities class A asset account, and had the further right at any time after January 1, 1934, to similarly surrender the remaining 20 percent of their class A stock for General Motors common stock. The petitioners argue that such distributions of General Motors common stock for the said class A stock were in satisfaction of contractual obligations and not distributions in partial liquidation of Motors Securities. Section 115(i) of the Revenue Act of 1934 defines a partial liquidation as follows: (i) DEFINITION OF PARTIAL LIQUIDATION. As used in this section the term*1105 "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. We are unable to find any merit in the petitioners' contentions. They attempt to draw a comparison between the retirement of corporate bonds at maturity and the distribution here of General Motors common stock upon surrender of class A stock. The fundamental distinction between the rights of the holder of a bond and that of a stockholder, even though the stock held might be preferred or of a special class, is too well known to require discussion. The relationship is contractual in both cases, but in the case of a bond there is an obligation to pay in any event. In the case of a shareholder there is no such obligation and so long as the stockholder relationship exists the investment of the individual stockholder is subject to the hazards of the business and his rights, even though they may be preferred with respect to the rights of the holders of another class of stock, are secondary in so far as the rights of creditors are concerned. *1106 It is true that the holders of the class A stock could, as between them and the corporation, on 90 days' notice surrender the class A stock and demand an equal number of shares of General Motors common stock, but the presence of that option made them none the less stockholders *219 up to the time the option was actually exercised. The presence of an option on the part of a corporation to retire preferred or special issues of stock is a very common thing, but the presence of such an option does not change the relationship between the corporation and the owners of the special issue of stock from a relation of corporation and stockholders to that of debtor and creditor. We see no basis whatever for any conclusion that the situation is any different where according to the terms of the issue the stockholders likewise have the option of surrendering the said stock in exchange for a pro rata share of the corporate assets. According to the statute, "amounts distributed in partial liquidation" means amounts distributed 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*1107 or a portion of its stock." Here the distribution of General Motors common stock by Motors Securities in redemption and cancellation of its class A stock falls so obviously within the definition that further or extended discussion is, in our opinion, needless. On this point the respondent is sustained and the gain realized upon the acquisition of General Motors common stock through the surrender to Motors Securities of its class A stock is to be recognized in full in accordance with the provisions of section 115(c), supra. Grant and Jackson in their petitions allege that the application of the provisions of section 115(c) of the Revenue Act of 1934 to gains realized through the acquisition of General Motors common stock upon the surrender of Motors Securities class A stock during the year 1934, but prior to May 10, 1934, when the Revenue Act of 1934 was signed by the President, was in violation of their rights under the Fifth Amendment to the Constitution. On brief the petitioners make no point and cite no authorities to support their claim of error so alleged. In any event, however, there is no merit in the claim. *1108 By the terms of the act, section 115(c) became effective as of January 1, 1934. The respondent was merely applying the terms of the act as enacted by Congress and it is well established that an income tax statute is not unconstitutional merely because it is retroactive. Brushaber v. Union Pacific Railroad Co.,240 U.S. 1; Phipps v. Bowers, 49 Fed.(2d) 996; certiorari denied, 284 U.S. 641; Edgar Stanton et al., Executors,34 B.T.A. 451; affd., 98 Fed.(2d) 739. A similar argument is made on brief with respect to the application of section 23(r) of the Revenue Act of 1932 to losses sustained by petitioner Sourther on the sale of General Motors common stock in 1932 but prior to the date of enactment of the Revenue Act of 1932. No such claim was made by Souther in his petition but, as we have pointed out with reference to a comparable claim with respect to *220 the provisions of the Revenue Act of 1934, there is no merit in the contention. In the case of Chester A. Souther the petition contains some further allegations of error, the full purport of which is not entirely clear, and, inasmuch*1109 as no explanation or argument was offered in connection therewith, they will be regarded as abandoned. Reviewed by the Board. Decision will be entered under Rule 50. Footnotes 1. SEC. 117. CAPITAL GAINS AND LOSSES. (a) GENERAL RULE. - In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income: 100 per centum if the capital asset has been held for not more than 1 year; 80 per centum if the capital asset has been held for more than 1 year but not for more than 2 years; 60 per centum if the capital asset has been held for more than 2 years but not for more than 5 years; 40 per centum if the capital asset has been held for more than 5 years but not for more than 10 years; 30 per centum if the capital asset has been held for more than 10 years. * * * (c) DETERMINATION OF PERIOD FOR WHICH HELD. - For the purpose of subsection (a) - (1) In determining the period for which the taxpayer has held property received on an exchange there shall be included the period for which he held the property exchanged, if under the provisions of section 113, the property received has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as the property exchanged. ↩ 2. SEC. 115. DISTRIBUTIONS BY CORPORATIONS. * * * (c) DISTRIBUTIONS IN LIQUIDATION. - Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. * * * Despite the provisions of section 117(a), 100 per centum of the gain so recognized shall be taken into account in computing net income. * * * ↩