Court Opinion

ID: 4592741
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:08:37.676179+00
Date Added: 2024-06-11T07:50:54.832416
License: Public Domain

JOHN B. ATKINS, JOSEPH FOSTER ATKINS, ALMA ATKINS, LUCILE ATKINS HAMILTON AND MIRIAM ATKINS DYKES, AS HEIRS OF THE ESTATE OF JOHN B. ATKINS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  ALMA FOSTER ATKINS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Atkins v. CommissionerDocket Nos. 3377, 15485.United States Board of Tax Appeals9 B.T.A. 140; 1927 BTA LEXIS 2648; November 18, 1927, Promulgated *2648  1.  Exchange of stock in a Louisiana corporation, a contract to receive royalties, and an interest in an oil lease for cash and bonds of a New York corporation held to have been separate exhanges and not a lump-sum transaction.  2.  As the aggregate par value of bonds received was less than that of the stock exchanged therefor, the transaction resulted in neither gain nor loss.  Section 202(b), Revenue Act of 1918.  3.  Exchange of contract to receive royalties and an interest in an oil lease for cash and bonds held to result in taxable gain.  4.  Deductions claimed for depreciation of equipment used in connection with an oil lease disallowed for lack of evidence to show the cost of such equipment separate from the cost of the lease.  5.  Deductions claimed for taxes alleged to have been paid, and for amount claimed to represent taxes paid at source disallowed for lack of evidence.  6.  Deduction claimed as loss on corporate stock disallowed for lack of evidence.  7.  Amounts received by petitioner from the Cedar Grove Construction Co. held to be a return of capital and not dividends.  8.  Claims made with respect to alleged net loss disallowed for lack of*2649  evidence.  Walter E. Barton, Esq., and J. D. Wilkinson, Esq., for the petitioners.  A. R. Marrs, Esq., for the respondent.  ARUNDELL*141  These are proceedings for the redetermination of deficiencies in income taxes as follows: 1919192019211922Docket No. 3377:Tax$82,617.37$1,492.10$6.29358.81Penalty34,664.19639.79Docket No. 15485 - tax1,263.58358.81In the Atkins Estate case, Docket No. 3377, only a part of the deficiencies asserted for the years 1919, 1920, and 1922 is in controversy.  all of the deficiency for 1921 is in dispute.  In the case of Mrs. Alma Foster Atkins, Docket No. 15485, only the deficiency for the year 1920 is in controversy.  At the hearing counsel for respondent abandoned the claim for the 50 per cent fraud penalty in view of the death of J. B. Atkins.  The principal issue in the Atkins Estate case is the amount of taxable income received by J. B. Atkins in 1919 through the exchange of a contract to receive royalties, an interest in an oil lease, and stock of a Louisiana corporation for bonds of a New York corporation.  The remaining issues relate to claims*2650  for depreciation, taxes paid, loss on stock, net loss, taxes paid at source, and whether certain amounts were liquidating dividends.  In the case of Mrs. Atkins the errors complained of are the same adjustments made by the respondent as in the Atkins Estate case in community income for the year 1920; namely, disallowance of claimed taxes paid, depreciation, taxes paid at source, loss on stock, and inclusion in income of an alleged liquidating dividend.  The deficiency proposed against Mrs. Atkins for 1922 is not in controversy.  On the stipulation of the parties the two cases are consolidated for hearing and decision as to the year 1920.  *142  FINDINGS OF FACT.  The petitioners in Docket No. 3377 are the sole heirs of John B. Atkins, who died on October 28, 1923.  The petitioner in Docket No. 15485 is the widow of said John B. Atkins.  The decedent, Atkins, was one of the organizers of the Caddo Oil & Refining Co. of Louisiana, Inc. (hereinafter called the Louisiana company), which was incorporated in December, 1916.  The authorized capital stock of the Louisiana comapny was $10,000,000, divided into 100,000 shares of the par value of $100 each.  Atkins transferred centain*2651  property to the company, for which he was to receive 8,328 shares of its stock.  All of the stock of the Louisiana company was issued to three trustees who issued trust receipts to those entitled to the stock.  The market value of the Louisiana company stock at the time it was received by Atkins in December, 1916, $20was per share.  Atkins and the Louisiana company each owned a one-half interest in what was known as the Noel lease.  Atkins' interest in the lease cost him $87,764.17, against which amount there has been taken and allowed as depreciation the sum of $12,935.22.  Atkins also owned a patented refining process known as the Christman process.  The contract right to use that process until April 3, 1921, on a royalty basis was taken over by the Louisiana company as a part of the property transferred to it by Atkins.  The Christman process cost Atkins nothing.  By the year 1919 the Louisiana company found itself in need of additional properties and additional funds.  At first it was intended to issue additional stock to procure the needed funds, but later it was decided to organize a new corporation.  On March 5, 1919, the holders of trustees' certificates (including*2652  Atkins), representing 54,751 shares of stock of the Louisiana company, authorized the trustees to sell their stock at a price of not less than $25 per share.  Negotiations were opened by one of the trustees, E. K. Smith, with E. W. Clark & Co., bankers of Philadelphia, and certain interests in New York with a view to securing the needed additional funds.  At that time Atkins was anxious to dispose of his stock in the Louisiana company.  The parties with whom Smith was dealing insisted that Atkins relinquish his right to receive royalties under the Christman process and that he turn in to the proposed new corporation his one-half interest in the Noel lease.  During the negotiations in the early part of April, 1919, there were frequent exchanges of telegrams between Smith and Atkins.  On April 8, 1918, Smith wired Atkins an outline of the proposition submitted, reading in part as follows: We to deliver [your] half Noel and right to process.  Wire amounts you will expect for these two to me care Clark, Philadelohia * * *.  Atkins' *143  reply, dated April 9, as far as material, was as follows: Wire eight received.  I will accept two hundred thousand in bonds for unexpired*2653  part of contract for use Christman which runs for two years from April third nineteen nineteen purchaser to assume lease obligations we have with J. S. Noel.  I would want in cash purchase price of J. S. Noel lease and cost of development to date in addition would want one hundred fifty thousand profit on J. S. Noel lease which I would take in bonds.  * * * On April 13 Smith sent Atkins the following telegram: Am working on report with Grass which will go through unless Clarks refuse to allow to go in Stop Grass customers have lined up with Clarks and they are bringing deal down to a trading basis Stop When Estabrook came out to Chicago he had our correspondence and I told him we would take fifteen for our stock Stop He said as you were going out per letter they might get you ten but would not consider mine as I had no excuse and must stay on Stop Estabrook had information from some of these posted people regarding process which they claim is known to them as Rosenbaum process and which they may use without cost and this information comes straight and dealers will not consider payment of any amount for process Stop Clarks Kendrick Estabrook will be here Monday twelve for conference*2654  with Grass people who are asking Clarks to participate in underwriting syndicate and I am to be used prominently if organization perfected Stop Knowing your desire to get entirely free and believing from lineup they are going ahead with trading leaving out your half Noel and process for adjustment with Clarks I suggest in your interest and mine as well in order no questions be raised in negotiations or afterwards that you agree take lump sum as follows eighty five thousand cash and one hundred thousand bonds for your half Noel one hundred thousand bonds for process one hundred twenty five thousand bonds for stock at fifteen total four hundred ten thousand dollars Stop This will give Clarks chance to make on your stock as they will put in at greater price with theirs in underwriting Stop They are bullish on property and are prepared to ge ahead in limited way and will have to go on with it account their interest and they will trade as best suits their interests I am anxious to trade and get the new money behind us as well as experienced men who know the game Stop Wire quick care Jos S Qualey twenty six thirty five Whitehall Building if you care to accept or reject so will know how to*2655  be guided no one knows of this plan and will do best I can in trading and if your half Noel looks better and you want to keep it no harm is done except telegram which charge cost expense.  Atkins wired to Smith his reply, dated April 14, reading in part: Wire thirteenth received.  * * * You may put in my interest in J. S. Noel lease on terms mentioned in your wire also my stock in company if you think best.  Will not accept less than two hundred thousand bonds for unexpired term of contract for use Christman process.  Rosenbaum patents amounts to nothing.  I hold Rosenbaum contract to use his patent on Caddo Company and hold Caddo Company's contract to pay me royalty to April third nineteen twenty-one.  I am sole owner of Christman patents and contract with Caddo is valid in every respect.  See Alrk [Clark?] and Company and wire me promptly if they accept my terms.  *144  On the same date, April 14, Smith wired Atkins in part as follows: * * * Believe Clarks will meet your wishes and they are figuring on better than thirty all told in bonds but no money for stockholders and will wait your answer Philadelphia before submitting your offer to them.  Trade by no means closed*2656  as Qualey is to go back with me for inspection of properties.  Wire rush message care Philadelphia office if I am to offer to them stock and process and Noel for Eighty-five thousand cash and four hundred twenty-five thousand bonds as in event they accept and put deal through they will be making on your stock while paying you profits on other interests.  * * * Atkins' reply, wired April 15, read in part: * * * You can offer my stock royalty and J. S. Noel lease on terms mentioned your wire fourteenth.  * * * Smith wired Atkins on the same date, April 15, as follows: Telegram today received.  Clarks accept proposition as outlined in your telegram it is understood of course that this trade is contingent upon the carrying through of deal we are now working on.  Under date of April 16, 1919, E. W. Clark & Co., Bankers, addressed a letter to the trustees who held the Louisiana company stock, which read in part: TO GEORGE W. KENDRICK, 3D, GEORGE L. ESTABROOK AND E. KIRBY SMITH, TRUSTEES OF SHARES OF CAPITAL STOCK OF CADDO OIL AND REFINING COMPANY OF LOUISIANA, INC., DEPOSITED UNDER TERMS OF AGREEMENT DATED JANUARY 11, 1917, BETWEEN YOU AND SUNDRY STOCKHOLDERS OF SAID COMPANY. *2657  GENTLEMEN: We hereby offer to purchase from you the entire capital stock of the Caddo Oil and Refining Company of Louisiana, Inc., held by you as Trustees, for the sum of Thirty-five dollars ( $35) per share, payable at face value, in First Consolidated Mortgage Ten-year Sinking Fund Six Per Cent.  Gold Bonds of a company to be formed.  Said bonds are to bear interest from January 1, 1920, payable semi-annually, and be free of any tax which the Company may be required to retain, and the Company will execute a tax refund agreement for Pennsylvania holders of said bonds.  * * * The bonds to be issued by the new Company will be secured by a mortgage which will be a first lien on the new refinery, also upon the aforesaid 10,000 acres of additional lands or leases, and will be a lien upon the property now owned by the present Company junior to its present first mortgage which secures the payment of $2,122,000 of bonds outstanding.  The present mortgage will be closed at that amount.  The total issue of new bonds will be $5,378,000, of which $1,000,000 will remain in the treasury of the new company for its corporate purposes.  The parties who will organize this new company for the*2658  purpose of taking over and operating these properties require us to furnish the aforesaid 10,000 acres of additional lands or leases, also to secure a release of the charge for royalty for use of the patents for refining oil and for obtaining gasoline now in use by the present company.  A letter bearing the same date was issued by the trustees reading in part: *145  TO THE HOLDERS OF CERTIFICATES ISSUED UNDER AGREEMENT DATED JANUARY 11, 1917, BETWEEN THE UNDERSIGNED AS TRUSTEES AND EDWARD KIPPAX AND SUCH OTHER HOLDERS OF SHARES OF CAPITAL STOCK OF CADDO OIL AND REFINING COMPANY OF LOUISIANA, INC., AS BECAME PARTIES TO SAID AGREEMENT BY DEPOSITING THEIR SHARES THEREUNDER.  We, the undersigned Trustees, have sold to E. W. Clark & Company all the capital stock of the Caddo Oil and Refining Company of Louisiana, Inc., deposited with us under the terms of the above-mentioned agreement, dated January 11, 1917, for the sum of $35 per share, payable at face value in First Consolidated Mortgage Ten-Year Sinking Fund Six Per Cent.  Gold Bonds bearing interest from January 1, 1920.  These bonds will be bonds of a new Company to be formed which will acquire all the property of the present*2659  Caddo Oil and Refining Company of Louisiana, Inc., and about 10,000 acres of additional oil and gas lands or leases and have in its treasury $2,500,000 in cash.  * * * You are requested to deposit your certificates issued by us, duly assigned in blank, with the Fidelity Trust Company, Philadelphia, Pa., at any time after April 25, 1919, and before May 5, 1919, and receive a receipt calling for the amount of bonds to which you are entitled.  A majority in interest of the certificate holders has approved the sale as required under the terms of the agreement under which the certificates were issued.  You need not affix any revenue stamps to the certificates, as arrangements have been made with purchasers by which they will furnish all necessary stamps.  On May 5, 1919, Atkins sent a wire to Smith offering to trade in his stock, the Noel lease, and Christman process on a basis different from that theretofore arranged.  Smith's reply of the same date was as follows: My honest opinion and in which I believe Judge Wilkinson will concur is for you not to make claim accordance your letter as you made trade full knowledge of trade made here and which you were urging to bring to conclusion. *2660  I also explained every detail to you immediately on my return and you approved of trade and I wrote Clarks to that effect.  In my telegram to you outling proposition all your stock and Mrs. Atkins' was included in sale at fifteen and from what have heard today they will insist on delivery.  Suggest you read one my wires to you and your replies which wire received hre and given to Clarks as your acceptance before they closed deal with purchasers.  Deal closed and papers now passing and your claim could only result in controversy with Clarks.  Will hold Judge here as this may develop into serious matter.  Answer.  On the next day, May 6, Atkins wired Smith as follows: Yours and Wilkinsons wires fifth received.  As deal has progressed so far rather than cause embarrassment will accept settlement as you and Calrks understood my wire April fifteenth which Clarks accepted by wire through you April fifteenth where I was to put in mine and wife's stock at fifteen cents on dollar to receive eighty-five thousand dollars in cash being part payment for my interest J. S. Noel lease and receive hundred thousand dollars bonds for balance due J. S. Noel lease and two hundred thousand dollars*2661  in bonds for unexpired portion or contract that I have with Caddo Company for use Christman process.  As to unsatisfactory test made on Rosenbaum process in Chicago I have nothing to say Christman process does all I claim for it.  You or *146  Wilkinson or both are authorized to close deal for me in accordance terms this wire.  I am making this concession to get deal disposed of promptly.  On May 5, 1919, the Fidelity Trust Co. issued a receipt showing the deposit by Atkins of trustees' certificates representing 7,960 shares of Louisiana company stock, of which 7,828 shares were his stock and the remaining 132 shares were owned by others.  A similar certificate of deposit was issued dated May 1, 1919, showing deposit by Mr. J. B. Atkins of certificates representing 500 shares of the Louisiana company stock.  On May 2, 1919, the Caddo Central Oil & Refining Corporation, (hereinafter called the New York company), was organized under the laws of the State of New York, with an authorized capital stock of $15,000,000 divided into 150,000 shares of common stock of the par value of $100 each.  By deed of May 6, 1919, all of the property of the Louisiana company was transferred to*2662  the New York company, subject to the mortgage theretofore given by the Louisiana company to secure its outstanding bonds of the face value of $2,122,000.  At a meeting of the borad of directors of the New York company on May 5, 1919, the following transpired: Report was thereupon made to the Board with respect to the negotiations by the company to acquire the remaining half interest in the "J. S. Noel 480 Acre oil lease," such remaining half interest to be acquired from Messrs. E. C. Clark & Co. and J. B. Atkins, Esq., and that for that purpose the sum of $85,000 in cash and $100,000 in bonds of the company were required.  The sum of $85,000 requisite for the purpose having already been appropriated, it was RESOLVED that the appropriation and payment thereof be and hereby are in all respects ratified, approved and confirmed: FURTHER RESOLVED that in lieu of issuing treasury bonds therefor, the company accept the offer of Messrs. E. C. Clark & Co. to purchase from them $100,000 face value of the company's mortgage bonds for the sum of $65,000, such bonds to be used in the closing of this transaction.  By two separate instruments dated May 10, 1919, Atkins assigned to the New*2663  York company his contract with the Louisiana company for the use of the Christman process and his one-half interest in the Noel lease.  The stated consideration in each instrument was $100 "* * * and other good and valuable consideration * * *." Under date of June 10, 1919, the Fidelity Trust Co. delivered bonds of the New York company of the face value of $278,500 against the 7,960 shares of Louisiana stock represented by trustees' receipt theretofore deposited by Atkins.  On the basis of $35 in bonds for each $100 of Louisiana company stock, the deposit of 7,960 shares called for bonds of the face value of $278,600.  The extra $100 due in bonds was purchased by E. W. Clark & Co. for $75.  On June 14, 1919, the Fidelity Trust Co. delivered bonds of the New York company of the face value of $17,500 against the 500 shares of Louisiana company stock represented by the trustees' receipt deposited by Mrs. J. B.  *147  Atkins.  In both cases the bonds were receipted for by E. W. Clark & Co. on the Fidelity Trust Co. books.  The books of the Fidelity Trust Co. show bonds issued, on the basis of $35 per share of Louisiana company stock, for a total of 99,772 shares of such stock*2664  out of the total of 100,000 shares originally issued.  The bonds issued by the New York company were 10-year, goldbearer bonds, registerable as to principal, payable January 1, 1930, and bearing interest at the rate of 6 per cent.  The bonds were secured by lien on the property taken over from the Louisiana company, which lien was junior to the mortgage given by the Louisiana company, and by a first mortgage on property to be acquired by the New York company.  The bonds of the New York company had a market value of 64.43 cents on the dollar in June, 1919.  The Louisiana company has not been dissolved but has done no business since 1919.  Its charter was retained so that it might engage in business as the sales agent for the New York company in the event that the State of Louisiana attempted to place a higher tax on sales by the New York company than would be imposed on a domestic corporation.  Atkins' books were kept on the cash receipts and disbursements and his returns for the years 1919 to 1922, inclusive, were made on that basis.  In his return for 1919 he reported as income the $85,000 cash received for his interest in the Noel lease and deducted therefrom the entire cost*2665  of the lease.  He reported no profit on the receipt of bonds of the New York company.  In computing the deficiency for the year 1919 the respondent added to income as the value of bonds received in that year, $65,000 profit on the sale of the Noel lease, $130,000 profit on the sale of the Christman process, and $124,920 as profit on the sale of 8,328 shares of the Louisiana company stock.  On June 28, 1917, Atkins invested the sum of $4,680 in an oil lease, and equipment thereof, known as the Atkins-Cooney lease.  On June 28, 1919, he invested the further sum of $4,504,29, making a total investment of $9,184,29.  For the years 1919 and 1920, respectively, he entered in his ledger account covering this investment and claimed as deductions in his income-tax returns, the amounts of $1,836.86 and $1,826.86 as depreciation.  Some depreciation was sustained on the equipment on the lease.  The respondent disallowed the deductions claimed.  In 1920 Atkins was the principal stockholder in the Commercial Oil Co.  Beginning with November, 1919, and up to January 28, 1920, he advanced to or for the company various sums aggregating $34,807.78.  *148  The company had acquired a number*2666  of oil leases, many of which expired before the end of 1920.  On December 3, 1920, a resolution was adopted dissolving the company any appointing a liquidator.  The then remaining leases were transferred to the liquidator who later obtained a small sum for some of them which he distributed in 1921 or 1922 to the former stockholders.  The amount so distributed was less than 10 per cent of the cost to the stockholders of their stock.  The respondent disallowed the deduction of $10,500 from 1920 income claimed as a loss on the Commercial Oil Co. stock.  Atkins was president of the Cedar Grove Construction Co., a Louisiana corporation organized in 1912.  Atkins and others transferred to that company 100 building lots out of a tract of about 900 acres in which he owned a one-third interest.  The lots were transferred at the price of $200 each, at which figure they were being sold to others.  The company erected 50 houses on the lots and sold them at cost, plus $200 representing the cost to it of each lot.  Sales were made on a monthly-payment plan and at the end of each year the company distributed to its stockholders the amount it had received from sales made.  The aggregate of the amounts*2667  so distributed has been less than the amounts invested by stockholders, and the company at present has only one house and lot, worth $1,000.  Atkins' maximum investment in the company was $20,070, which was later reduced to $15,620.  The company had no income, its entire receipts being derived from the sale of houses and lots at cost.  It was not operated with the idea of making any profit, but for the purpose of enhancing the value of the property in the vicinity which the stockholders owned.  Atkins received $4,788.31 from the company in 1920, which amount the respondent has included in income as dividends.  OPINION.  ARUNDELL: Whatever doubt may have existed as to the taxability of a profit made by the exchange of property for property under the circumstances herein has been removed by the decisions in the cases of ; ; ; ; and *2668 . The test seems to be whether the taxpayer received in exchange something different from what he theretofore had and there is no doubt that the bonds received by petitioner from the New York corporation were securities of a radically different character from shares of stock in the Louisiana corporation and from his ownership of the Christman process and a one-half interest in the Noel lease.  We have no difficulty in reaching the conclusion that a transaction such as took place here may give rise to taxable income. *149  But petitioners contend that the Marr and Cullinan cases, supra, have little application to the present case as they were decided under the earlier revenue acts, which contained no provision with reference to exchange of property for property or securities of one corporation for those of another organized to take over the old.  There might be some merit in the contention made if income under the 1918 Act were a idfferent thing from the income referred to in, and taxed by, the earlier Acts.  Such is not the case, at least in so far as section 202(b) is concerned.  *2669 ; 6 Am.Fed. Tax. Rep. 6681. In that case the court, after quoting the definition of income from , says: Gains arising out of dealings in property are not taxable unless they fall within the above definition of income.  This is true whether the statute under which the tax is levied is that of 1916 or 1926.  The explicit recognition of the principle that income is not realized unless it is received in a form which has an equivalence in cash, a realizable market value, found in the 1918 and subsequent statutes is not a restriction of the incidence of the income tax.  It is merely an express statement of a principle inherent in the nature of income as recognized in , in the statement that income must be "a gain, a profit, something of exchangeable value, proceeding from the property." Petitioners, however, raise the very fundamental question that in the case of one reporting on a cash receipts and disbursements basis promises to pay do not constitute income and as the bonds were mere promises to pay on the part*2670  of the New York corporation, decedent was in receipt of no taxable income until those promises were in fact fulfilled and cash payment was received.  So far as we have been able to ascertain, a promise to pay evidenced solely by an open account has never been regarded as income to one reporting on a cash basis by the Bureau of Internal Revenue.  Certainly this is true in the absence of any showing that the amount was immediately available to the taxpayer.  The Board has further held that income was not constructively received by the mailing of a check, , or the entry on the books of a corporation of the amount of salary due when in fact money was not available to make payment, . On the contrary, we have held notes to be income even though the taxpayer was on a cash basis.  . Petitioners place great reliance on the case of ; Federal Case No. 16228, in which it is held in part: In the absence of any special provision of law to the contrary, income must be taken to mean money and not the*2671  expectation of receiving it or the right to receive it at a future time.  *150  That decision has been cited in numerous cases.  See  (dissenting opinion); ; ; . It will be noted from the quotation taken from the Schillinger case that the court predicates its ruling on "the absence of any special provision of law." Section 202 of the Revenue Act of 1918 provides a method of taxing gains resulting from the exchange of property.  That provision makes no distinction between taxpayers on the cash basis and those on the accrual basis, but lays down the rule that: When property its exchanged for other property, the property received in exchange shall, for the purpose of determining gain or loss, be treated as the equivalent of cash to the amount of its fair market value, if any.  What then is the dividing line?  While no categorical answer is available and the facts in each case must be closely scrutinized, we believe that in*2672  the case of one reporting income on the receipts and disbursements basis only cash or its equivalent constitutes income.  Does a bond have a fair market value; has it a readily realizable market value?  If it has, we must presume a market for the security wherein its fair market value is obtainable.  A Government bond is, in its essential character, no different from any other bond, for it is merely the Government's promise to pay, but the market is so broad that Government bonds may be said to be equivalent to cash, for to the extent of their fair market value cash may be readily realized for them.  Bonds and shares of stock of many of the leading corporations of the country have a ready market whereby cash may be realized for them at any time.  On the contrary, shares of stock and other securities in closely held corporations frequently have no fair market value for they are unknown and there is in effect no market for them.  Article 1563 of Regulations 45, promulgated under the 1918 Act, giving effect to section 202, recognizes this principle.  It is there stated: Gain or loss arising from the acquisition and subsequent disposition of property, is realized when as the result of*2673  a transaction between the owner and another person the property is converted into cash or into property (a) that is essentially different from the property disposed of, and (b) that has a market value.  In other words, both (a) a change in substance and not merely in form, and (b) a change into the equivalent of cash, are required to complete or close a transaction from which income may be realized.  By way of illustration, if a man owning ten shares of listed stock exchanges his stock certificate for a voting trust certificate, no income is realized, because the conversion is merely in form; or if he exchanges his stock for stock in a small, closely held corporation, no income is realized if the new stock has no market value, although the conversion is more than formal; but if he exchanges his stock for a Liberty bond, income may be realized, because the conversion is into independent property having a market value.  *151  The difficulty is not in announcing the underlying theory, but in its application, and in determining whether a promise to pay is the equivalent of cash we must examine into all the facts and circumstances and if the promise to pay has a*2674  readily realizable market value, i.e., so that cash may be readily substituted for it, then it is, in the eyes of the law, cash income and returnable as such.  The evidence here establishes that the bonds received by petitioner in the New York corporation had a fair market value and that the fair market value was 64.43 cents on the dollar.  Petitioners argue in the alternative that the bonds received by Atkins were received as a result of a reorganization, and being of no greater par value than the property given in exchange, are not taxable under section 202(b) of the Revenue Act of 1918, which provides in part: * * * When in connection with the reorganization, merger, or consolidation of a corporation a person receives in place of stock or securities owned by him new stock or securities of no greater aggregate par or face value, no gain or loss shall be deemed to occur from the exchange, and the new stock or securities received shall be treated as taking the place of the stock, securities, or property exchanged.  The facts, briefly, are that the New York corporation was organized for the purpose of taking over the assets of the Louisiana company.  Atkins turned in his Louisiana*2675  company stock, his interest in the Noel lease, and his right to receive royalties under the Christman process, receiving therefor bonds of the New York company.  Clearly, his exchange of the Noel lease and Christman process for the New York company bonds does not come within section 202(b).  As to his exchange of stock for bonds, we think that transaction does come within the statutory provision.  . As the aggregate par value of the bonds received by Atkins was less than that of the stock exchanged therefor, the transaction, under section 202(b) resulted in neither taxable gain nor deductible loss.  In determining the deficiency for 1919 the Commissioner held that Atkins had realized a profit of $65,000 on the exchange of the Noel lease and a profit of $130,000 on the exchange of the Christman process for New York company bonds.  In so doing he found that the bonds had a fair market value of 65 cents on the dollar.  The petitioners contend that such segregation should not be made as the transfer of the stock and other properties of Atkins for cash and bonds was all one transaction; that bonds were issued on the basis of $35 per share*2676  of stock, making $291,480 face value of bonds issued to Atkins for his stock, and that the balance, $133,440, should be attributed to the Noel lease and Christman process.  The evidence does not support those contentions.  In the general letters addressed *152  to the stockholders the basis of exchange was outlined on the basis of $35 per share of stock, but the telegrams between Smith and Atkins show clearly that Atkins was to come in to the reorganization on a basis different from that of the others.  It is true that the books of the Fidelity Trust Co. show bonds issued to Atkins at the rate of $35 per share of stock, but we can not but believe that this was done merely for bookkeeping purposes.  An examination of the exchange of telegrams between Smith and Atkins as set forth in the findings of fact shows that from the beginning of the negotiations the interests who were financing the reorganization refused to give Atkins the same amount for his stock as was to be given other stockholders.  Throughout the negotiations Atkins offered his stock, the Noel lease, and the Christman process as separate items and they were so accepted by Clark & Co.  The bonds issued by the New York*2677  corporation had a market value of 64.43 cents on the dollar.  The market value of the $100,000 in bonds received by Atkins for his interest in the Noel lease was, therefore, $64,430, to which should be added the sum of $85,000 received in cash, and the depreciated cost of $74,828.95 should be deducted.  The $200,000 in bonds received for the Christman process had a market value of $128,860, all of which was taxable income as the process cost Atkins nothing.  In 1919 the investment of Atkins in the Atkins-Cooney lease amounted to $9,184.29.  For each of the years 1919 and 1920 he claimed as deductions for depreciation amounts approximating 20 per cent of the investment.  We are unable to determine from the evidence what portion of the investment represented the cost of either the lease or equipment, and we must, therefore, sustain the respondent's disallowance of the amounts claimed.  Error in respect of the disallowance of these items was alleged in each of the appeals and our holding applies to each.  In each of the petitioners complaint is made against the disallowance of $472.31 said to be taxes paid by Atkins.  In the Atkins Estate case claim is also made for a deduction of*2678  $4,126.23 said to be taxes paid in the year 1921.  There was testimony to the effect that some taxes were paid, but the evidence was so vague and unsatisfactory that we are unable to determine the amount actually paid in either year, and, accordingly, we can find no error in the respondent's disallowance of the amounts claimed.  No evidence was offered concerning the respondent's disallowance of $478 alleged in each of the petitions to represent taxes paid at the source on interest on bonds of the Caddo Central & Refining Co. of New York, and we are unable to make any finding in respect to such item.  A deduction in the amount of $10,500 is claimed for 1920 as representing Atkins' loss on stock in the Commercial Oil Co.  While that *153  company was dissolved and a liquidator appointed in 1920, it appears that the company at the close of the year had on hand some leases, the value of which is not shown by the record.  In the absence of such showing we are unable to find that a loss in the amount claimed, or any amount, was sustained.  The respondent included in Atkins' income for 1920 the sum of $4,788.31 as dividends received from the Cedar Grove Construction Co.  The*2679  evidence shows that the company had no earnings or profits in 1920 or any other year to distribute as dividends and the amount paid stockholders was a partial return of their capital investment.  The respondent, therefore, erred in holding that the amount of $4,788.31 represented dividends.  The remaining errors alleged are that for the year 1921 the Commissioner failed to find that Atkins sustained a net loss and declined to allow as a deduction from 1922 income such claimed net loss.  No evidence was offered on these allegations.  Reviewed by the Board.  Judgment will be entered on 15 days' notice, under Rule 50.