Court Opinion

ID: 4599435
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:23:21.882755+00
Date Added: 2024-06-11T07:59:32.287556
License: Public Domain

A. W. MELLON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. 1Mellon v. CommissionerDocket No. 76499.United States Board of Tax Appeals36 B.T.A. 977; 1937 BTA LEXIS 628; December 7, 1937, Promulgated *628  1.  The sale by petitioner of stock of the Pittsburgh Coal Co. to the Union Trust Co. of Pittsburgh was a complete and valid sale, giving rise to a legal deduction.  2.  Respondent disallowed a deduction claimed on account of loss on sale of stock of the Western Public Service Corporation, on the ground that "the disposal of these stocks do not appear to be transactions on which losses may be recognized for income tax purposes." Petitioner in his petition affirmatively alleged that petitioner did not, within "thirty days before or after the date of such sales, enter into any contract or option to purchase or acquire any shares of the said stock of said corporation." The evidence shows that the stock was reacquired 37 days after the sale but does not establish when the contract to reacquire was entered into.  Held, the petitioner had the burden of proving no contract or option was entered into within thirty days of the sale.  The deduction is disallowed for failure of such proof.  3.  Sales of stock by petitioner to a corporation, all of the stock of which was owned by his daughter, were valid sales and, under the law as it existed in 1931, gave rise to legal deductions.  *629  4.  Petitioner did not file a false and fraudulent return with intention to evade taxes.  5.  Petitioner was not, in 1931, the owner of any bank stocks.  6.  In the summer of 1930 the Bethlehem Steel Corporation began negotiations with the McClintic-Marshall Corporation for the acquisition of approximately one-third of the assets of the latter.  After terms were generally agreed on the two corporations instructed their attorneys to draw the contracts so as to prevent, if possible, the recognition of gain to McClintic-Marshall or its stockholders.  Under the plan of procedure worked out McClintic-Marshall on January 15 transferred the assets omitted from the Bethlehem transaction to the Union Construction Co., a new corporation, for 4,990 of its total 5,000 shares of authorized stock, which stock was issued directly to the stockholders of the McClintic-Marshall Corporation.  On February 10, 1931, the McClintic-Marshall Corporation transferred to assets covered by its agreement with the Bethlehem Steel Corporation to three of the latter's subsidiary corporations for 240,000 shares of the common stock of the Bethlehem Steel Corporation and $8,200,000, face value, of its bonds, the*630  said stock and bonds being distributed directly to the stockholders of the McClintic-Marshall Corporation.  Held, that the Bethlehem Steel Corporation did not acquire substantially all of the assets of the McClintic-Marshall Corporation so as to constitute the transaction a reorganization within the meaning of section 112(i)(1)(A) of the Revenue Act of 1928; held, further, that the Bethlehem Steel Corporation was not a corporation a party to a reorganization and the gain to the petitioner on the distribution to him of the Bethlehem stock and bonds is to be recognized.  Groman v. Commissioner,302 U.S. 82">302 U.S. 82. 7.  Though the Union Construction Co.-Koppers Co. reorganization, the Union Construction Co.-Pitt Securities Corporation reorganization, and the Pitt Securities Corporation liquidation were parts in a single plan for the liquidation of Union, the successive distributions by Union to its stockholders of the stock of Koppers and Pitt were distributions within section 112(g) and the basis of petitioner's Union stock is to be apportioned among Koppers, Pitt, and Union in determining the gain to petitioner from the liquidation of Union.  Rudolph Boehringer,29 B.T.A. 8">29 B.T.A. 8,*631  and North American Utility Securities Corporation,36 B.T.A. 320">36 B.T.A. 320, followed.  8.  Certain payments by the Union Construction Co. and Pitt Securities Corporation for the account of petitioner held to be dividends.  9.  The fair market value of the stock of the McClintic-Marshall Construction Co. on March 1, 1913, determined to $300be per share.  10.  The A. W. Mellon Educational and Charitable Trust was, in 1931, a valid existing trust, organized and operated exclusively for educational and charitable purposes.  The transfer by petitioner to the trust of certain paintings in 1931 was a complete and valid gift.  Frank J. Hogan, Esq., William A. Seifert, Esq., Maynard Teall, Esq., Paul G. Rodewald, Esq., W. W. Booth, Esq., Nelson T. Hartson, Esq., Donald D. Shepard, Esq., and A. G. Wallerstedt, Esq., for the petitioner.  Robert H. Jackson, Esq., F. R. Shearer, Esq., David R. Shelton, Esq., and E. L. Updike, Esq., for the respondent.  VAN FOSSAN *978  The respondent determined a deficiency in petitioner's income tax for the calendar year 1931 in the amount of $1,319,080.90, together with a penalty of 50 percent under*632  section 293(b) of the Revenue Act of 1928.  Petitioner filed his petition with the Board asking redetermination of the deficiency, denying fraud, and claiming an overpayment in the amount $139,045.17.  By his answer, as amended, respondent asserted an increased deficiency in the amount of $2,059,507.49, plus a penalty of 50 percent, or a total deficiency in tax and penalty of $3,089,261.24.  The several issues involved in the case have been grouped as follows in the findings of fact, and, with the exception of the issue as to *979  the McClintic-Marshall-Bethlehem reorganization, will be considered in the opinion in the order indicated: I.  The stock sales and the charge of fraud.  II.  The ownership of the bank stocks.  III.  The McClintic-Marshall Corporation-Bethlehem Steel Corporation transaction.  IV.  The liquidation of Union Construction Co.  V.  The payments by Union Construction Co. and Pitt Securities Corporation for the account of petitioner.  VI.  The valuation of the stock of McClintic-Marshall Construction Co. VII.  The contributions issue.  FINDINGS OF FACT.  I. - The Stock Sales.Pittsburgh Coal Co. Stock. - On December 30, 1931, petitioner*633  was the owner of 123,622 shares of the common stock of the Pittsburgh Coal Co., all but 125 shares of which had been owned by him for more than two years prior to 1931.  Of the total of 123,622 shares of Pittsburgh Coal Co. stock, 76,822 shares which had been carried in the "Joint Account" of A. W. and R. B. Mellon were transferred to the personal account of petitioner on December 30, 1931, and showed a cost of $3,863,777.75.  The total cost to petitioner of the 123,622 shares was $6,177,847.75.  During the year 1931 petitioner had realized large capital gains.  Sometime in December of that year he discussed with H. M. Johnson, his financial secretary, the matter of his income tax return and which securities might best be sold to establish capital losses with the purpose of claiming such losses as deductions in his return.  Petitioner determined that the common stock of the Pittsburgh Coal Co. would be the most suitable for the purpose.  Petitioner accordingly approached H. G. McEldowney, president of the Union Trust Co. of Pittsburgh (hereinafter called the Union Trust Co.), and proposed a sale to the Union Trust Co. of the above mentioned block of common stock of the Pittsburgh*634  Coal Co.  McEldowney inquired the amount of the stock and the price.  Upon being informed of the number of shares and that the price was $500,000 for the block, McEldowney told petitioner to send the stock over and the Union Trust Co. would take it.  Petitioner thereupon directed Johnson to gather together the certificates representing his common stock holdings in the Pittsburgh Coal Co. and deliver them to the Union Trust Co.  On December 30, 1931, Johnson delivered certificates representing 123,622 shares of common stock of the Pittsburgh Coal Co. to the Union Trust Co. and received therefor the check of that company for $500,000.  *980  The Union Trust Co. issued a formal confirmation of the transaction, as follows: THE UNION TRUST COMPANY OF PITTSBURGH Pittsburgh, PennsylvaniaDate Ded. 30, 1931Purchased from A. W. Mellon, c/o H. M. Johnson, Mellon National Bank, No. P. 65234 Fifth Ave. and Smithfield Street, Pittsburgh, PennsylvaniaIN Account QuantityDescriptionPriceAmount123,622 sharesPITTSBURGH COAL COMPANY COMMON CAPITAL STOCK ( $100. PAR VALUE)4.0445875$500,000.00Settlement Date Dec. 30, 1931.MWe*635  are pleased to confirm purchase from you of the within described securities.  Payment will be made on above settlement date, to which time interest has been calculated.  Securities should be in our possession on that date, when interest thereon will cease.  Upon receipt of the Pittsburgh Coal Co. stock the Union Trust Co. had the shares transferred to the name of Acly Co., a partnership composed of certain officers of the Union Trust Co., which had been formed for the purpose of holding title to securities owned by the Union Trust Co. and to facilitate their transfer on disposition but which, in 1931, held title to securities representing the investment account, the trading account, the trust department, the loan department, and securities held for customers.  The officers of the Union Trust Co. had also formed a second partnership called Clay & Co., to hold title to securities held for customers.  At that time the Union Trust Co. had no Pittsburgh Coal Co. common stock among its investments and the name of that stock was not printed on its investment sheet forms.  It was, however, listed by typewriter on the investment lists issued during the period the stock was held by the Union*636  Trust Co.  In accordance with instructions previously received from petitioner, Johnson, after receipt of the check for $500,000 from the Union Trust Co., drew a check on petitioner's personal account payable to the Union Trust Co. for a similar amount and delivered that check on December 30, 1931, as a payment on petitioner's note for $1,000,000 held by that company.  Petitioner never reacquired any part of such stock and thereafter never owned any common stock of the Pittsburgh Coal Co.  *981  Toward the end of March or during the first part of April 1932, McEldowney issued instructions to Carl R. Korb, a vice president of the Union Trust Co., to dispose of the 123,622 shares of common stock of the Pittsburgh Coal Co., acquired as above indicated, if and when a fair return on the investment of the Union Trust Co. therein could be secured.  On or about the date of receiving this instruction, Korb approached Johnson, the petitioner's secretary, and inquired about a possible purchaser.  Johnson advised him that he knew of no one interested at that time.  Korb made no further inquiries and did not look elsewhere for a purchaser.  Later in the month of April, he made a similar*637  inquiry Of Johnson and Johnson asked Korb to quote a price.  Korb had a memorandum prepared which read as follows; Figured for April 25, 1932.  A. W. MELLON Dec. 30, 1931, 123,622 shares Pittsburgh Coal Company Common stock ( $100 par value) at 4.0445875$500,000.00Cost$500,000.00Interest - 118 days at 6%9,833.33Stock Transfer Stamps4,944.88Penna. Five Mill Tax2,500.00$517,278.21Average price figured on $517,278.21$4,18435399Upon being advised of the price, Johnson told Korb that the price was all right and that the stock would be purchased by the Coalesced Co.  Up to that time Korb was not advised as to the name of the party represented by Johnson in making the purchase.  At 2 p.m. on the same date a special meeting of the board of directors of the Coalesced Co. was held, at which the following resolution was adopted: RESOLVED: That the proper officers of the Company purchase from the Union Trust Company of Pittsburgh 123,622 shares of the common capital stock of the Pittsburgh Coal Company at $4.18435399 a share, for the account of the Coalesced Company; that in effecting the purchase of said stock they pay to the said, *638  the Union Trust Company of Pittsburgh $117,278.21 out of funds of the Corporation, and that they give the Union Trust Company the Company's note for $400,000; and that in connection with giving the note for the purchase of said stock that said officers give the necessary stock powers and that they arrange from time to time for the reduction of said not out of funds of the Corporation, and arrange for the renewal of the note.  The stock was paid for by check of the Coalesced Co. also dated April 25, 1932, in the amount of $517,278.21 drawn on funds provided as shown in the resolution.  As collateral for the $400,000 note, the *982  Coalesced Co. deposited the Pittsburgh Coal Co. common stock so acquired.  Within a few days, at the request of the Union Trust Co., it deposited as further collateral Republic of Poland bonds having $500,000 par value.  The Union Trust Co. issued a formal confirmation of sale to the Coalesced Co. as follows: THE UNION TRUST COMPANY OF PITTSBURGH Pittsburgh, Pennsylvania.  Date Apr. 25, 1932Sold to The Coalesced Company Box 1139, Pittsburgh, Pa.In Account No. S106917 QuantityDescriptionPriceAmount123,622 sharesPITTSBURGH COAL COMPANY COMMON STOCK ( $100 PAR VALUE)4 18435399 FLAT$517,278.21Settlement Date Apr. 25, 1932KORB*639  We are pleased to confirm sale to you of the within described securities.  Payment is due on the above settlement date, to which time interest has been calculated.  If unable to call on settlement date, please forward check and securities will be held for your convenience or shipped as desired.  If payment is delayed, interest to date of payment will be charged.  Kindly advise disposition of securities, if you have not already done so.  We appreciate this business and thank you for it.  At the time of the sale of the stock to the Coalesced Co. petitioner was in England.  He had no knowledge of the sale until his return to the United States in July 1932.  The Coalesced Co. was organized by petitioner on December 2, 1929, under the laws of Delaware.  Its authorized stock was of one class and consisted of 300,000 shares of no par value stock.  The petitioner was originally the sole stockholder, having received 94,460 shares of the said stock in exchange for securities and real estate as follows: Securities and other propertyCost or other basis to petitionerValue at which taken on books of Coalesced Co.1,500 shares Montreal Light, Heating & Power, Consolidated$2,500.00$171,000.004,940 shares of Shawinigan Water & Power Co171,201.96395,440.00102,904 shares of Aluminum, Ltd804,594.001,434,232.00Lots 5, 80, and 81, East Liberty, Pa99,085.00182,000.0030 shares Sparks Supply Co3,000.003,000.0031,386 shares U.S. Steel Corporation2,847,865.905,115,918.00*640 *983  On December 18, 1931, the Coalesced Co. was reorganized with authorized capital stock of 250,000 shares of $100 par value preferred stock and 250,000 shares of $1 par value common stock.  Two hundred thousand shares of preferred stock and 200,000 shares of the common stock were issued to the petitioner in exchange for the original stock of the Coalesced Co. and additional securities as follows: Securities and other propertyCost or other basis to petitionerValue at which taken on books of Coalesced Co.100,000 shares Aluminum Co. of America, preferred stock$3,783,961.20$6,500,000.0050,000 shares Aluminum Co. of America, preferred stock1,891,980.503,250,000.00450,000 shares Gulf Oil Corporation7,517,322.8012,150,000.00100,000 shares Carborundum Co1,038,094.006,500,000.002,500 shares Clay District Coal Co5,687,396.225,687,396.22550,000 shares Gulf Oil Corporation9,187,851.2014,850,000.00500,000 shares Koppers Co. common stock1,175,341.527,500,000.00$500,000 par value 7% Republic of Poland bonds452,500.00257,500.00Singer-Mashey Real estate, Pittsburgh331,307.05331,307.051,500 shares Wharton Coal Co1,660,382.481,660,382.48*641  The above securities were taken upon the books of Coalesced Co. at their fair market value, as determined by the officers of Coalesced Co.  On December 31, 1931, the balance sheet of the Coalesced Co. showed assets aggregating $61,978,686.  Of this amount $61,055,184.70 represented securities received from petitioner.  At various times prior to, during and subsequent to the taxable year petitioner made large gifts of securities and other property to his two children, Ailsa Mellon Bruce, wife of David K. E. Bruce, and Paul Mellon.  On December 25, 1931, the petitioner made a gift of all of the common stock of the Coalesced Co. to his children, Ailsa and Paul, giving to each 100,000 shares.  With the stock the petitioner sent the following letter to his daughter, Ailsa Mellon Bruce: DECEMBER 25th, 1931.  DEAR AILSA: In the past from time to time I have transferred to you and to Paul as gifts certain investments, chiefly in properties with the management or control of which I have in the past been long associated, and as you both with David are becoming interested and acquainted with these businesses and taking care of your and my interests to my satisfaction and gratification, *642  I am now at Christmas time transferring to you and to Paul each of you one hundred thousand (100,000) shares of the common capital stock of The Coalesced Company which company holds and owns stock and securities largely of the same companies in which you are already interested as you know from your acquaintance with the company and the information I have given you concerning it and the properties.  With best wishes to you and for a most enjoyable Christmas and with much love, Your affectionate father, *984  A letter of similar purport was written to Paul Mellon.  The petitioner has owned no common stock of the Coalesced Co. since December 25, 1931, but has continued to own the preferred stock.  The preferred stock is entitled to a 6 percent dividend per annum out of the net assets of the corporation in excess of its capital and out of its net profits, payable quarterly, and is subject to redemption at any quarterly dividend date at $105 per share plus accrued dividends.  The common stock has all voting rights unless dividends on the preferred remain unpaid for four quarterly dividend dates, whether or not successive, in which case voting powers vest exclusively in the*643  preferred.  No dividends can be paid on the common stock unless the dividends accrued on the preferred are paid and then only by making certain prescribed provisions for the redemption of preferred stock.  During the year 1932 the Coalesced Co. paid only one quarterly dividend on the preferred stock of $300,000, and that was paid in cash.  In 1933 it paid two quarterly dividends amounting to $600,000 in cash and gave demand notes for the balance of the accumulated dividends for 1932 and 1933.  Its earnings were not sufficient to pay the dividends in cash.  After the transfer of securities made at the time of reorganization, up to the close of the year 1933, the Coalesced Co. acquired additional securities which were taken upon its books at approximately $31,600,000.  Substantially all of these securities were acquired from Ailsa Mellon Bruce and Paul Mellon, after they had been received as gifts from the petitioner, or were securities which had been sold by the petitioner at a loss, either to the Union Trust Co. or through the brokerage firm of Moore, Leonard & Lynch.  In some instances the Coalesced Co. placed matched orders for the securities sold by petitioner through Moore, Leonard*644  & Lynch.  The officers of the Coalesced Co. from January 14, 1931, to May 29, 1933, were as follows: President - Henry A. Phillips, senior employee of the A. W. and R. B. Mellon Joint Account.  Vice president - Paul Mellon, son of petitioner.  Secretary and assistant treasurer - D. D. Shepard, petitioner's personal attorney.  Treasurer and assistant secretary - H. M. Johnson, petitioner's financial secretary.  On May 29, 1933, Ailsa Mellon Bruce resigned from the board of directors and her husband, David K. E. Bruce, was elected in her place.  At a special meeting of the board of directors on May 31, 1933, Paul Mellon was elected president and Bruce was elected vice president.  During the years 1931 and 1932 the Coalesced Co. paid no salaries to its officers.  The capital stock of the Pittsburgh Coal Co. was divided into two classes, 400,000 shares of common stock and 350,000 shares of 6 percent *985  cumulative preferred stock, both having a par value of $100 per share.  The preferred stock shares with the common in the earnings of the company after the payment of a 6 percent dividend on both classes of stock.  It also had equal voting rights with the common stock. *645  The stock of the company is listed on both the New York and Pittsburgh Stock Exchanges.  During the year 1930 the total sales of the common stock on the Exchanges amounted to 52,100 shares at prices ranging from a high of 78 1/2 per share in January to a low of 17 1/2 per share in December.  In 1931 similar sales amounted to 29,100 shares at prices ranging from a high of 28 1/2 in January to a low of 4 in December.  During the month of December 1931, a total of 2,900 shares were sold on the Exchanges, the highest price paid being 6 7/8.  On December 28, 100 shares sold at 4 1/4.  No sales occurred on December 29.  The bid and asked prices on that date were 4 and 4 1/4, respectively; on December 30, 200 shares at 4.  In April 1932, 500 shares were sold at prices ranging from a high of 4 3/4 to a low of 3 7/8.  On April 23, the last business date preceding that on which the Coalesced Co. acquired the stock from the Union Trust Co., 3 7/8 was the bid price and 4 was the asked price.  In May the Exchange prices ranged from a high of 6 to a low of 3, with 400 shares sold.  In June 700 shares were sold at prices ranging from 3 to 3 1/2.  At December 30, 1931, the Pittsburgh Coal Co. had*646  paid no dividends on its common stock for a number of years because of lack of earnings.  For the same reason the dividends on preferred stock had not been paid in full, and on the date mentioned the accrued but unpaid dividends on preferred stock had reached such a large aggregate per share that the common stock had no prospects as a dividend producer.  Its value was speculative.  The petitioner's block of 123,622 shares was the largest single block of Pittsburgh Coal Co. stock outstanding and its value lay largely in the strategic position of the holder for voting purposes.  On March 23, 1932, the petitioner gave 34,000 shares of preferred stock of the Pittsburgh Coal Co. to his son and daughter jointly.  They immediately contributed the said stock to the Coalesced Co.  The Union Trust Co. was originally formed as a companion company of the Fidelity Title & Trust Co. of Pittsburgh, the purpose being to create a second company which could legally indulge in business matters connected with the affairs of trusts and estates for which the Fidelity Title & Trust Co. was acting.  The petitioner became its first president.  Shortly thereafter, various investors in the Union Trust Co. *647  became dissatisfied with the earnings of the company, and the petitioner advocated the opening of banking offices and the entry of the company into a general banking business.  This course was *986  opposed by certain of the officers, and petitioner agreed to purchase the stock of all of those who had become dissatisfied.  As a result his stockholdings in the Union Trust Co. were substantially increased.  About 1898 James A. McKain, the president of the Union Trust Co., died and, at petitioner's insistence and over the protest of numerous officers and stockholders, H. C. McEldowney was named president, in which capacity he continued until his death in 1935.  At the time McEldowney was named president of the Union Trust Co. he was assistant cashier of the National Bank of Commerce in Pittsburgh.  During the years 1931 and 1932 R. B. Mellon, the petitioner's brother, was a vice president and director of the Union Trust Co. and was also a member of its executive committee.  Richard K. Mellon and W. L. Mellon, nephews of the petitioner, were members of the board of directors during the same period, and in 1932 petitioner's son, Paul Mellon, was also elected to membership.  A large*648  number of the remaining members of the board were, and had been, closely associated with petitioner in the operation and management of the various business corporations in which petitioner had his chief interests.  In 1869 petitioner's father, Thomas Mellon, established the banking house of T. Mellon & Sons.  Upon completion of his studies at the University of Pittsburgh, petitioner went immediately into the bank as an employee.  A few months later the father gave petitioner a one-fifth interest in the business of the bank.  Some time later Thomas Mellon wrote and signed the following letter: PITTSBURGH, January 5, 1882.Proposition to son Andrew for services past, and future.  He to have the entire net profits of the Bank from January 1, 1881, including my salary.  The books to be readjusted accordingly.  From 1st January instant.  He to have entire net profits of bank and pay me an annual salary of two thousand dollars as its attorney and fifteen hundred per annum rent for the banking room; and I to allow him forty-five hundred per annum for attending to my private affairs and estate, selling lots, collecting rents, a/c as done heretofore.  This arrangement to last*649  till superseded by another or annuled by either party.  After a few years petitioner made a gift to his brother, R. B. Mellon, of a half interest in the bank, the business being thereafter carried on as a partnership under the name of T. Mellon & Sons.  No writing evidencing the gift was executed.  In 1902 the Mellon National Bank was organized and acquired in exchange for its capital stock the private banking business of the partnership.  Petitioner and his brother, R. B. Mellon, immediately exchanged the stock so received for stock of the Union Trust Co.  The latter company has continued as the owner of 98 percent or more of the stock of the Mellon National Bank down to the present date.  Upon its organization the petitioner became the president of the *987 Mellon National Bank and continued to serve in that capacity until shortly before he became Secretary of the Treasury on March 4, 1921.  In December of 1932 petitioner had under discussion with Johnson the matter of his income tax return for that year, and Johnson presented a list of securities and recommended their sale.  Petitioner directled that they be sold.  On December 29, 1932, Johnson having first discussed*650  the matter with H. C. McEldowney, delivered the securities to Carl R. Korb, a vice president of the Union Trust Co.  Korb took the matter up with McEldowney and was told that he had agreed to purchase the securities at the market.  Korb accepted delivery of the certificates and issued formal confirmation of the purchases and delivered Union Trust Co. checks covering the purchase price.  In February 1933 Korb received instructions from McEldowney to dispose of the securities acquired from the petitioner in December.  The instructions were to sell at the market price.  Korb called Johnson and made inquiries about a purchaser.  Johnson asked that he quote him a price.  On receiving the quotations from Korb, Johnson objected to the price at which 40,000 shares of American Locomotive Co. common stock were quoted.  These shares had been price at $200,000 in the December transaction, but were quoted by Korb at $240,000.  Johnson agreed to pay $215,000, or 5-3/8 per share, instead of $6 per share, the price at which the shares were then quoted on the Exchange.  After consultation with McEldowney, Korb was instructed to accept Johnson's proposal.  As a result the entire block of securities*651  in question was sold to the Coalesced Co. under date of February 28, 1933, for a total sum of $318,859.63.  Part of the purchase price of the securities was paid by the Coalesced Co. out of funds then on hand, while the remainder was paid from the proceeds of a loan from the Union Trust Co. in the amount of $218,859.63.  The securities acquired were posted as collateral.  The prices received by the petitioner from the Union Trust Co. in December, the prices paid to the Union Trust Co. by the Coalesced Co. in February, and the amount at which the securities in question were taken by the Union Trust Co. as collateral for the Coalesced Co.'s loan, are shown as follows: Name of securityPrice paid to petitioner by Union Trust Co.Price paid to Union Trust Co. by Coalesced Co.Value as collateral to loan from Union Trust Co.40,000 shares of American Locomotive Co., common$200,000.00$215,000.00$240,000.005,500 shares Missouri Pacific R.R. Co., preferred19,937.5019,250.0016,500.006,500 shares United Porto Rican Sugar Co., preferred6,500.006,500.00No value.$208,000 par value United Porto Rican Sugar Co. gold notes10,400.008,320.004,160.00$219,000 par value Missouri Pacific R.R. Co. gold bonds1 16,698.751 13,687.5013,140.001,250 shares Aluminum Co. of America, preferred50,000.0052,187.5050,000.00*652 *988  The 1,250 shares of Aluminum Co. of America preferred stock represented 1,000 shares belonging to Paul Mellon and 250 shares belonging to his mother.  All of the securities included in the above transaction were listed securities except the Sugar Co. stocks.  At the time of the transaction with the Union Trust Co. on December 29, 1932, the United Porto Rican Sugar Co. gold notes were indefault.  In December of 1933, Johnson again conferred with petitioner in regard to the sale of certain securities then on hand.  The securities selected were $247,000 par value German Government external 7 percent bonds due in 1949; $33,000 par value Aluminum Limited 5 percent bonds due in 1948; $196,000 par value Interboro Rapid Transit 5 percent bonds due in 1966; $17,000 par value B & O. convertible 4 1/2 percent bonds due in 1960.  Johnson advised the petitioner that it had been agreed by the directors of the Coalesced Co. that that company could use the securities in question, and after some discussion it was agreed that the petitioner should sell the bonds in question through the brokerage firm of Moore, Leonard & Lynch and that a matched order*653  to buy the bonds should be placed with the same firm at the same price on behalf of the Coalesced Co.  Accordingly, on December 28, 1933, the bonds were sold through Moore, Leonard & Lynch for the petitioner and at the same time purchased through the same firm for the Coalesced Co.  The petitioner sustained a loss on the transaction in the amount of $63,533.23.  The bonds were delivered to the brokerage firm by Scott and Wynkoop, the former being an employee of petitioner and the latter an employee of Coalesced Co.  The same bonds were delivered by the brokers to Scott and Wynkoop for delivery to the Coalesced Co.  All of the securities acquired by the Coalesced Co. during the years 1931, 1932, and 1933 from the Union Trust Co. were securities which petitioner had sold to the Union Trust Co. at a loss, preliminary to the preparation of his income tax return for the year or years in which the transaction with the Union Trust Co. occurred, except the block of 1,250 shares of Aluminum Co. of America preferred stock, which had belonged to Paul Mellon and his mother and which had been included with the securities transferred by petitioner to the Union Trust Co. on December 29, 1932. *654  Over a period of years prior to the incorporation of the Mellon National Bank, and independent of the banking business, petitioner and his brother, R. B. Mellon, had invested jointly in real estate and in large amounts of securities.  The records of these investments were kept in a set of books referred to as the "Joint Account" and, prior to the incorporation of the bank, specifically designated as "A. W. Mellon & R. B. Mellon." After the incorporation of the bank the Joint Account was known as "T. Mellon & Sons" until March 1, *989  1918, when the following memorandum of agreement was entered into between petitioner and R. B. Mellon: WHEREAS, A. W. MELLON and R. B. MELLON have, for many years past, owned jointly certain real estate, stocks, bonds and other securities, and interests in real estate, the same being enumerated in the Schedule hereto annexed, and, for their own convenience in handling such investment, they have adopted and used the name of T. MELLON & SONS, under which name the properties have been carried; and WHEREAS, the understanding between the parties respecting their interests in said properties is evidenced only by the books of account, which have*655  been kept respecting the same, and they are desirous now by written agreement, of evidencing the arrangement under which said properties are owned, their respective interests therein, and also changing the name used to identify said accounts from T. Mellon & Sons to A. W. Mellon & R. B. Mellon, so as to avoid any significance of partnership liability, obligation or power.  NOW, THEREFORE, it is agreed between the parties as follows: (1) The moneys with which to acquire a part of the said properties having been advanced in unequal proportions by the respective parties, the understanding has been and is that, in the joint account, credit shall be given to each of the parties for their respective individual advancements of moneys to the purposes of the joint account, and interest shall be allowed thereon in accordance with the practice heretofore existing.  (2) Additional properties may be purchased and added to said joint account by the concurrence of both parties hereto, and in like manner further advancements for the purpose of making such purchases, or for the protection of any investment carried in said joint account may be made by either party hereto, and the same shall be*656  added to and treated in the same manner as advancements heretofore made.  (3) The properties so owned jointly and the income therefrom shall be liable for the re-payment to the parties respectively of all such advancements, together with interest; and also for the payment or performance of all obligations incurred by the parties hereto in connection with the properties so owned jointly.  For the purpose of securing such repayment and performance, all shares of stock and securities so owned jointly shall be kept separate and apart from the other securities and properties owned by the parties hereto, and shall be placed in the custody of such party or parties as may, from time to time, be mutually arranged by the parties hereto, and all shares of stock, securities and properties belonging to said joint account shall be deemed charged with a lien and pledged to secure the payment to the parties of their respective advancements (with interest) and the payment or performance of the other obligations mentioned.  (4) For the convenience of the parties the custody and handling all of said properties so owned shall be carried on in the names of the parties hereto, jointly, viz: A. W. Mellon*657  and R. B. Mellon.  (5) It is distinctly stipulated and agreed that the arrangement heretofore existing and now defined by this present agreement exists entirely for the convenience of the parties, shall not constitute a partnership, shall not be deemed to give to either party the powers of a partner nor authorize the carrying on of any trade or business, but the relation is limited strictly to the custody, protection and handling of the properties herein mentioned, owned jointly by the parties hereto, and their respective rights therein.  (6) Subject to the payment to the respective parties of their advancements (with interest) as above mentioned, the interest of the parties in the said properties *990  and the income and proceeds thereof is an undivided one-half interest to each of said parties.  WITNESS the due execution hereof this 1st day of March, 1918.  After the execution of the above agreement, petitioner and his brother continued as theretofore to invest equally in real estate and various securities.  At no time did they engage in business as dealers.  Title to real estate was carried in a single name for convenience while securities were carried in the name*658  of petitioner and his brother, separately, one-half in the name of each, or in the names of their nominees.  In making purchases or sales for the Joint Account the interest of each owner was indicated.  The bank account of the Joint Account was carried in both names.  Petitioner and his brother each gave the other a written plenary power of attorney and both names were used in executing necessary documents.  The certificates representing securities carried in the Joint Account were, so far as possible, equally divided, one-half to each, petitioner and R. B. Mellon, and placed in two separate pouches marked with the initials of the respective owner, the pouches both being kept in a safety deposit box held in the name of A. W. & R. B. Mellon.  When money was required it wa supplied one-half by each owner.  At the end of each year statements were prepared and furnished the owners showing all receipts and expenditures and the holdings of each owner in the Joint Account.  If either petitioner or his brother borrowed from the Joint Account, interest was charged on such loan.  During the taxable year the Joint Account was largely managed by R. B. Mellon through H. A. Phillips, an employee, *659  who acted under a power of attorney.  No partnership returns were ever filed as to the Joint Account, and petitioner and his brother, each in his individual return, reported half the income and claimed deductions of half the expenses and half the losses arising from the transactions carried in the Joint Account.  The relationship between A. W. Mellon and R. B. Mellon, evidenced by the Joint Account, was not a partnership.  In his tax return for 1931 petitioner deducted as a capital loss the sum of $5,672,189.95, and as an ordinary loss the sum of $5,766.30 on account of the above described sale of common stock of the Pittsburgh Coal Co.  Respondent disallowed the deductions, assigning as a reason that "the disposal of these stocks do not appear to be transactions on which losses may be recognized for income tax purposes." In his answer in this proceeding respondent charged that the above sale was fraudulent.  The sale by petitioner of 123,622 shares of the common stock of the Pittsburgh Coal Co. was a completed valid sale.  Western Public Service Corporation Stock. - In December 1928 petitioner and his brother, R. B. Mellon, by subscription each acquired *991 *660  7,500 shares of stock in the Western Public Service Corporation at $15 per share, or at a cost to petitioner of $112,500, a check for $225,000 on the Joint Account being given to cover the purchases of both.  In February 1929 petitioner and his brother each acquired from the Union Trust Co. 20,000 shares of Western Public Service Corporation at $22 per share, or at a cost to petitioner of $440,000.  On December 12, 1930, petitioner and his brother each acquired, by subscription, 4,500 additional shares at $15 per share, or at a cost to petitioner of $67,500.  Payment was made through the Joint Account in each instance and thereafter the securities were carried in such account, one-half in the name of each, the petitioner and his brother.  The total cost to petitioner of the 32,000 shares thus acquired was $620,000.  Thereafter petitioner and his brother each disposed of 5,000 shares out of those purchased in February 1929 to various of their employees at cost, leaving 27,000 shares owned by each on December 2, 1931.  On December 2, 1931, R. B. Mellon, acting for himself and his brother, petitioner here, sold the 54,000 shares of Western Public Service Corporation stock to the Union*661  Trust Co. for $4 per share, or a total of $216,000.  The transaction was arranged with H. C. McEldowney.  The delivery of the stock was made to S. S. Liggett, a vice president of the Union Trust Co.  The Trust Co. issued formal confirmation of the purchase.  The check for the purchase price was deposited in the Joint Account of A. W. and R. B. Mellon.  The Western Public Service Corporation common stock was listed on the Pittsburgh Stock Exchange and during 1931 the total sales amounted to 247,000 shares, ranging from a high of 14 1/2 to a low of 2 1/8 per share.  In December 54,595 shares were sold at prices ranging from 4 1/2 per share down to 2 7/8.  During the first four days of December, a total of 8,140 shares were sold at prices ranging from 4 3/8 per share to a low of 4.  In January 1932, 6,310 shares were sold at prices ranging from a high of 4 1/2 to a low of 3 1/4 per share.  In February, 4,727 shares were sold at prices ranging from a high of $5 per share to a low of $4.  On January 8, 1932, R. B. Mellon, acting for himself and his brother, purchased 54,000 shares of Western Public Service Corporation stock from the Union Trust Co., paying $4.075 per share, or $220,050*662  for the lot.  The check in payment was drawn on the Joint Account.  Thereafter the stock was placed in the Joint Account, being held 27,000 shares in the name of H. A. Phillips and 27,000 shares in the name of J. F. Sturgeon.  Phillips and Sturgeon were employees and nominees of petitioner and his brother, in whose names stocks were often held.  *992  As to 4,500 shares purchased December 12, 1930, at a cost of $67,500 and sold for $18,000, petitioner, in his return for 1931, claimed an ordinary loss of $49,500.  As to the remainder, 22,500 shares, having a cost to him of $442,500, he claimed a capital loss of $352,500.  Respondent disallowed the losses claimed, assigning the same reason as in the case of the stock of Pittsburgh Coal Co., "the disposal of these stocks do not appear to be transactions on which losses may be recognized for income tax purposes." In his answer in this proceeding respondent charged that the sale was fraudulent.  Both at the time of the sale to the Union Trust Co. and of the sale by the Union Trust Co., R. B. Mellon was a vice president of the Union Trust Co.  He was also a director and member of the executive committee of the Union Trust Co. *663  and, as such, was present at the meetings of each body when approval of the above transactions was voted.  In at least four or five other instances the Union Trust Co. bought securities and between thirty and ninety days thereafter sold them back to the person from whom it had purchased them.  This usually occurred in the months of December and January.  The above transaction involving Western Public Service Corporation stock is the only instance in the record in which R. B. Mellon, acting for petitioner, sold stock to the Union Trust Co. and, after the expiration of 30 days, purchased the same, or substantially identical, property.  R. B. Mellon had full authority to act on behalf of petitioner in the above transaction, but petitioner had no personal knowledge of the sale or purchase until 1933, when his 1931 tax return was being questioned.  The sale by R. B. Mellon, acting for petitioner and himself, of 54,000 shares of the stock of Western Public Service Corporation was a valid legal sale.  Sales to the Ascalot Co. - On December 1, 1931, petitioner owned 6,200 shares of American Locomotive Co. stock acquired by purchase in 1930 and 1931 at a cost of $230,292.50; 3,900*664  shares of Texas Gulf Sulphur Co. stock acquired by purchase in 1930 at a cost of $209,420; 1,900 shares of United Light & Power Co. preferred stock acquired by purchase, 1,400 shares on November 7, 1929, at a cost of $131,780, and 500 shares on November 14, 1930, at a cost of $49,100; and 2,500 shares of Westinghouse Electric & Manufacturing Co. stock acquired by purchase in May 1931 at a cost of $153,212.50.  The aggregate cost of all the above stock was $773,805.  *993  On December 1, 1931, petitioner sold the above shares of stock to the Ascalot Co. at the following prices: 6,200 shares American Locomotive$49,6003,900 shares Texas Gulf Sulphur100,400500 shares United Light & Power25,0001,400 shares United Light & Power70,0002,500 shares Westinghouse Electric & Mfg82,500Total328,500The prices at which the above stocks were sold were, in each instance, the fair market price of the stock on the date of sale.  The losses so sustained were claimed by petitioner as deductions in his 1931 tax return.  These deductions were disallowed by respondent and in his answer it is charged that the sales were fraudulent.  In his brief and on oral*665  argument respondent abandoned the charge of fraud as to these transactions with the Ascalot Co.  The Ascalot Co. was incorporated under the laws of Delaware on July 11, 1930, with an authorized issue of 2,000 shares of stock of an aggregate par value of $200,000.  On July 12, 1930, Ailsa Mellon Bruce, daughter of petitioner, exchanged securities having a face value of approximately $7,000,000 for all of the capital stock of the Ascalot Co.  At all times since organization Ailsa Mellon Bruce has been the sole stockholder in the Ascalot Co.  At various other times she contributed other securities to the company, substantially all of the securities so contributed having come into her possession as gifts from petitioner.  A relatively small number were acquired by purchase.  At the organization meeting the following were elected directors and officers: D. K. E. Bruce, president Paul Mellon, vice president Ailsa Mellon Bruce, treasurer H. M. Johnson, assistant treasurer D. D. Shepard, secretary On January 21, 1931, H. A. Phillips was elected assistant secretary.  The executive committee consisted of Bruce, Johnson, and Shepard.  Petitioner has never owned any stock, nor*666  been an officer or director, nor had any part in the direction or management of the Ascalot Co.  All of the earnings of the Ascalot Co. have been absorbed by its sole stockholder, Ailsa Mellon Bruce.  Petitioner entered into no contract or option with 30 days before or after the sale on December 1, 1931, to reacquire any of the above *994  mentioned stocks and never reacquired any interest in the American Locomotive, Texas Gulf Sulphur, or United Light & Power stocks.  On July 1, 1933, petitioner bought from the Ascalot Co. at the then market price, 2,500 shares of Westinghouse Electric & Manufacturing Co. stock, paying $118,125 therefor, this sale resulting in a profit of $35,725 to the Ascalot Co.  Petitioner still owns the Westinghouse stock then acquired.  The above sales by petitioner of stock of the American Locomotive Co., Texas Gulf Sulphur Co., United Light & Power Co., and Westinghouse Electric & Manufacturing Co. to the Ascalot Co. were valid and bona fide sales.  II. - The Ownership of the Bank Stocks.On March 4, 1921, petitioner became Secretary of the Treasury of the United States.  On or about January 25, 1921, petitioner was advised by counsel that, *667  as a prerequisite to accepting the above position, by virtue of which he would become, ex officio, chairman of the Federal Reserve Board, it would be necessary for him to divest himself of the ownership of all bank stocks.  At that time he was the owner of a large block of stock of the Union Trust Co. and lesser amounts of stock in other banks.  On February 7, 1921, petitioner purchased 82 shares of stock of the Union Trust Co. at a price of $2,750 per share.  These shares had formerly been owned by the estate of H. C. Frick.  At the same time petitioner's brother, R. B. Mellon, bought 185 shares of the same stock.  The two purchases brought petitioner's holdings in stock of the Union Trust Co. to 3,300 shares and those of R. B. Mellon to 1,000 shares.  On March 1, 1921, petitioner and his brother, R. B. Mellon, executed a contract of sale in the following form: AGREEMENT, Made this first day of March, A.D. 1921, between ANDREW W. MELLON, of the City of Pittsburgh, Pennsylvania, of the first part, and RICHARD B. MELLON, of the same City, of the second part: WITNESSETH: That the first party hereby sells to the second party for the consideration hereinafter set forth, the*668  following shares of stock in the several corporations enumerated, and for the prices per share set opposite to each block of stocks, as shown in an exhibit hereto attached initialed by the parties hereto.  The second party agrees to pay to the first party the several amounts set opposite each block of stock, aggregating the total sum of Ten million, five hundred twenty thousand, four hundred ninety five and no one-hundredths ($10,520,495.00) Dollars, in six months after demand for such payment by said first party, or his legal representatives, and to pay interest thereon at the rate of five and one-third per centum, annually, in quarterly installments.  As there are accruing upon said shares dividends maturing and payable at different dates, therefore, for expediency, it is agreed that the first party shall be paid the accruing dividend when paid by each of the said companies, and *995  interest upon the portion of the purchase price represented by said block of stock shall begin to run from the date of payment of said dividend.  Payments may be made by the second party on account of the principal debt at any time prior to the demand for payment as aforesaid.  The certificates*669  for said shares of stock shall be transferred upon the books of the companies to said second party, shall by him be endorsed in blank, in due form, and shall be deposited with the Union Trust Company of Pittsburgh, as custodian, to secure the payment of the consideration, under an authority, duly executed by both parties, reciting the trust under which said shares are held.  It is further agreed between the parties that in the event of the death or legal disability of the first party before payment of the consideration, the second party may relieve himself of the obligation of this agreement by returning the said shares of stock to the legal representatives of the first party and adjusting the unpaid interest and accruing dividends, and thereupon the obligation of the second party under this agreement shall be terminated, except for an adjustment of interest and dividends accruing.  It is further agreed between the parties hereto that in the event of the death or legal disability of the second party, his legal representatives may in like manner terminate this agreement by delivering the certificates of stock to the first party, or his legal representatives, and thereupon the obligation*670  of the second party shall be terminated, except for an adjustment of interest and dividends accruing.  It is further agreed between the parties hereto that in the event of the death or legal disability of the second party, the first party, or his legal representatives, shall have the option to terminate this agreement by re-taking the shares of stock hereinbefore set forth and delivering an acquittance to the second party's legal representatives of obligation for the purchase money aforesaid, due adjustment being made between interest unpaid and accruing dividends.  Witness: [Signed] A. W. MELLON [Signed] H. M. JOHNSON R. B. MELLON There was appended a list showing the number of shares, the price per share, the selling price of each stock, and the aggregate selling price of the entire list of stocks in 24 banks.  On the same date there was executed between petitioner, his brother, and the Union Trust Co. an agreement providing for the deposit of the stocks sold with the Union Trust Co. as custodian and agent of petitioner, the Union Trust Co. to hold the stock as pledge and security for the payment of the principal and interest provided in the agreement above referred*671  to.  The certificates were to be endorsed in blank.  The agreement provided for the sale of the security in event of default of payment of principal or interest and the accounting for the proceeds.  It also provided for the release of any part of the stock on written notice by petitioner and his brother.  The two above agreements were drawn by counsel for petitioner and R. B. Mellon and were prepared after a proposed plan of exchanging the bank stocks for other types of stocks was abandoned due to the difficulty of fixing the exchange value of the other stocks.  After the agreements were executed appropriate entries were made *996  in the books of the parties reflecting a sale and purchase.  In petitioner's books these entries were made in the "R. B. Mellon" account.  Entries were likewise made from time to time thereafter in R. B. Mellon's books to reflect interest paid to petitioner and dividends received by R. B. Mellon, and in petitioner's books to record interest received.  In his tax return for 1921 petitioner reported gains and losses arising from the sale of the bank stocks covered by the agreement of March 1, 1921, the net result being a loss of $23,805.83.  Upon*672  audit by the Bureau of Internal Revenue various changes were made, resulting in a net profit from the March 1, 1921, transaction of $206,325.  This adjustment, with others made in the 1921 return, resulted in an additional tax of $132,836.21, which was paid by petitioner.  On April 1, 1927, the dividend rate on stock of the Union Trust Co. was increased from 35 percent to 50 percent.  Shortly thereafter, without petitioner's knowledge, petitioner's financial secretary suggested to R. B. Mellon that the interest rate provided by the agreement for sale of the bank stocks should be increased.  R. B. Mellon agreed to the proposal and the interest rate was changed from 5 1/3 percent to 7 percent, effective July 1, 1927.  In the year 1929 the interest rate was increased from 7 percent to 8 percent, effective April 1, 1929.  At various times petitioner loaned R. B. Mellon money to make investments and for other business purposes.  The amounts of such loans were charged to the R. B. Mellon account in petitioner's books and subsequent repayments were there credited.  During the period from 1921 to 1930 R. B. Mellon used some of the money thus borrowed to purchase additional bank stocks. *673  The stocks so purchased were deposited with the trustee as collateral under the agreement of March 1, 1921.  Other amounts loaned were used to purchase additional stock upon the exercise of stock rights, such new stock being deposited as additional collateral.  New stock arising from stock dividends on the stock so held was likewise deposited.  Under date of June 20, 1930, petitioner, R. B. Mellon, Paul Mellon, and the Union Trust Co. executed an agreement by the terms of which R. B. Mellon sold, assigned, and transferred to Paul Mellon all his rights under the two agreements of March 1, 1921, and in and to all securities subject to such agreements.  Paul Mellon, on his part, assumed all the obligations and liabilities of R. B. Mellon under such agreements, including the obligation to pay the purchase price of $10,520,495, with interest thereon.  Petitioner consented to the assignment and transfer and acknowledged receipt of all interest due to date from R. B. Mellon.  The substitution of Paul Mellon for *997  R. B. Mellon in the indebtedness was made at the request of R. B. Mellon.  Appropriate book entries were made in petitioner's accounts to reflect the release of R. *674  B. Mellon from the obligation and the assumption thereof by Paul Mellon.  On the same day, June 20, 1930, Paul Mellon was charged and R. B. Mellon credited with two items, one of $253,000, a second of $17,900, on account of funds loaned by petitioner to R. B. Mellon, such funds having been used to acquire additional bank stocks and the loans being unpaid.  Under date of July 2, 1930, R. B. Mellon paid the sum of $351,346.46, which amount was entered on petitioner's books as "Interest - final payment." With the payment of this sum the amounts received by R. B. Mellon as dividends and the amounts paid to petitioner as interest were brought into exact balance.  The payment was made without the knowledge of petitioner and arose from the desire of R. B. Mellon not to profit by the 1921 transaction.  After June 20, 1930, Paul Mellon paid petitioner interest on the obligation at the rate of 7 percent.  All dividends paid during 1931 were paid to Paul Mellon and accounted for by him in his tax return.  All interest received by petitioner, in the taxable year and prior years, was returned by him for taxation.  No demand was ever made for payment of the principal sum nor was any payment on*675  account thereof made.  On March 23, 1932, petitioner, by an instrument in writing, forgave Paul Mellon all indebtedness owed by him to petitioner excepting the sum of $2,000,000 which was to be represented by 40 promissory notes.  The notes, bearing the above date, consisted of two series, the first of 20 notes of $45,000 each and the second of 20 notes for $55,000 each, all maturing quarterly.  Appropriate entries were made to reflect the forgiveness of the debt in the amount of $8,791,395 and the conversion of the remaining indebtedness into serial notes.  On March 25, 1932, Paul Mellon caused a corporation, named Smithfield Securities Corporation, to be organized under the laws of Delaware.  He transferred to this corporation all of the bank stocks owned by him, excepting 1,300 shares of the Union Trust Co., in consideration for 1,000 shares of stock of the Smithfield Securities Corporation.  A short time later, acting on petitioner's suggestion, Paul Mellon gave his sister, Ailsa Mellon Bruce, one-half of the 1,000 shares owned by him in the Smithfield Securities Corporation.  Thereafter Paul Mellon and his sister each exchanged the 500 shares of Smithfield for 10,000 shares*676  each of Coalesced common stock.  On May 10, 1932, petitioner transferred to his children, Paul and Ailsa, as a gift an account receivable of $1,250,000 owed to him by R. B. Mellon.  They immediately contributed the same to Smithfield.  *998  Petitioner has never been a stockholder, officer, or director in the Smithfield Securities Corporation.  On April 4, 1932, Paul Mellon paid petitioner $250,000, an amount sufficient to equalize the difference between the dividends received by him on the bank stocks and the interest paid to petitioner.  This payment was made voluntarily and without the personal knowledge of petitioner.  The payment was entered on petitioner's books as "Interest in full to 3/23/32" and reported by petitioner in his 1932 tax return.  On January 30, 1933, Paul Mellon filed a claim for refund of taxes paid for the taxable year 1931, in which he asserted that he had erroneously failed to claim deductions on account of the worthlessness of certain bank stocks owned by him in that year.  The claim was allowed in part and rejected in part.  A certificate of overassessment for $375 was issued and paid, with interest of $32.86.  The stock as to which the certificate*677  of overassessment was issued consisted of 12 1/2 shares of the Farmers & Merchants Bank of West Newton, Pennsylvania, acquired by Paul Mellon by the transaction of June 20, 1930.  By amendment of his answer respondent alleged in effect that in 1931 petitioner was the owner of the above bank stocks; that he received, actually or constructively, dividends in the amount of $804,466; that he did not report such sum as dividends but reported the sum of $755,397.64 thereof as interest received; that petitioner was entitled to a deduction which he did not claim on account of the worthlessness of the stock of the Farmers & Merchants Bank in the amount of $1,875; that accordingly he understated his income in the amount of $47,193.36.  During the taxable year 1931 petitioner was not the owner of the bank stocks listed in the contract of March 1, 1921.  III. - The McClintic-Marshall Corporation - Bethlehem Steel Corporation Transaction.The McClintic-Marshall Construction Co. was incorporated under the laws of Pennsylvania, on March 20, 1900, for the purpose of engaging in the business of fabricating and erecting structural steel, a business commonly referred to hereinafter as the*678  fabricating business.  Its incorporators were A. W. Mellon, R. B. Mellon, H. H. McClintic, and C. D. Marshall.  On March 1, 1913, the corporation had outstanding 30,600 shares of common stock and 3,791 shares of preferred stock, of which the petitioner owned 9,030 and 600 shares, respectively.  On December 8, 1921, a 100 percent dividend was declared on both the common and preferred stock, increasing the stock of the petitioner to 18,060 shares of common stock and 1,200 shares of preferred stock.  *999  On December 14, 1922, a dividend of 3,885 shares of preferred stock was declared on the outstanding common stock.  On the 18,060 shares of common stock then held by him, the petitioner received 1,147 shares of the preferred stock so distributed.  It is stipulated by the parties that, solely for the purpose of apportioning the basis of petitioner's 18,060 shares of common stock between those shares and the 1,147 shares of preferred stock on the date of distribution of the latter and wholly without prejudice to the right of either party to prove or contend otherwise in any other proceeding or for any other purpose in this proceeding, the 18,060 shares of common stock and the 1,147*679  shares of preferred stock had a fair market value of the same amount per share and that accordingly the correct amount of petitioner's basis prior to the distribution of the 1,147 shares of preferred stock for determining gain or loss upon the subsequent sale or other disposition of the shares of common stock is to be apportioned between the 1,147 shares of preferred stock and the 18,060 shares of common stock in the proportion of 5.97178 per centum and 94.02822 per centum, respectively.  For a number of years the McClintic-Marshall Construction Co., commonly referred to hereafter as the Construction Co., operated its business directly.  Later, however, its operations were carried on to a large degree through subsidiary companies which it had acquired or organized.  In the course of its operations it had accumulated substantial properties and assets not used directly in the fabricating business.  These assets included corporate stocks and bonds, accounts with various corporations, and cash.  Some of the securities had been acquired as compensation for work done under various construction contracts.  In the annual report of C. D. Marshall to the stockholders of the Construction*680  Co., under date of February 24, 1920, the following statement appears: "As a number of our investments do not have any direct bearing on the manufacturing operation of the McClintic-Marshall Construction Company, and the Riter-Conley Manufacturing Company, I recommend that the following investments be sold at actual cost to the McClintic-Marshall Corporation, to be organized as a holding company, and for the purpose of taking care of investments that it may be to our interest to acquire in the future." The stocks of five companies were listed at a cost or value totaling $5,667,104.  The McClintic-Marshall Corporation, hereinafter referred to as McClintic-Marshall, was organized under the laws of Delaware on December 24, 1926.  It issued its capital stock, both common and preferred, on December 29, 1926, to the respective holders of the common and preferred stock of the McClintic-Marshall Construction Co., share *1000  for share, the petitioner receiving for his stock in the Construction Co. 18,060 shares of common stock and 2,347 shares of preferred stock of McClintic-Marshall.  The preferred stock was 6 percent participating stock.  On December 21, 1928, at an adjourned meeting*681  of the stockholders, the certificate of incorporation was amended so as to provide for two issues of preferred stock.  The preferred stock then outstanding constituted the first issue and was subject to redemption at the option of the company at $100 per share, or book value if the book value exceeded that amount.  The second issue was 6 percent nonparticipating stock and was redeemable at the option of the company at $105 per share.  Shortly after the amendment of the certificate of incorporation the preferred stock outstanding, all first issue stock, was called for redemption at $323.21 per share, represented by the company to be the book value.  In the alternative the holders of preferred shares outstanding were given the privilege of exchanging their shares for preferred shares of the second issue, at the rate of 3.2321 new shares for each of the old shares.  All of the preferred stockholders accepted the offer and made the exchange, except the estate of George W. Corbett, owner of 500 shares.  Instead of surrendering the stock in accordance with the call, the estate instituted suit in a chancery court in Delaware alleging that the call price fixed by the board of directors did*682  not truly reflect book value, that if the assets were properly shown on the books the book value of the stock would be at least $1,250 per share, and praying that McClintic-Marshall be required to prepare and file a true and correct statement of assets and liabilities and that a decree be entered establishing the proper redemption price.  This suit was pending throughout the year 1930 and was not settled until July 22, 1931.  The petitioner exercised the option to exchange his preferred stock of the first issue for preferred stock of the second issue and received 7,585 shares of the latter.  In late December 1930 or in January 1931, he acquired by purchase from McClintic-Marshall 131 additional shares of the second issue, at a cost of $130 per share.  Upon its organization in 1926, McClintic-Marshall acquired from the Construction Co. the stock of its operating subsidiaries.  It also acquired all other assets of the Construction Co., including the securities and assets not directly used in the fabricating business, except such properties as were retained by the Construction Co. for direct operation.  At June 30, 1930, McClintic-Marshall owned the stock of sixteen companies, including*683  operating companies, to the extent of 100 percent.  Along in June or July of 1930, Eugene G. Grace, president of the Bethlehem Steel Corporation, hereinafter referred to as Bethlehem, suggested to C. D. Marshall, chairman of the board of directors of the *1001  McClintic-Marshall Corporation, the idea of the acquisition by Bethlehem of the fabricating business and the assets connected therewith of the McClintic-Marshall Corporation and its subsidiaries.  Bethlehem owned directly and indirectly the stocks of a large group of affiliated corporations, sixty or more in 1931, carrying on various businesses such as coal mining, iron mining, the manufacture, production, and fabricating of steel and steel products, transportation, and shipbuilding.  At that time the fabricating business of the Bethlehem group was third in size in the United States and it was the desire of Bethlehem to expand that business by the acquisition of the fabricating business and assets of McClintic-Marshall.  There was no suggestion or desire on the part of Grace for the acquisition of what may be termed as the investment or nonfabricating assets of McClintic-Marshall.  The discussions continued from time*684  to time during the summer of 1930 and as the result of a meeting held at Bethlehem, Pennsylvania, in August, Price, Waterhouse & Co. was instructed to make an examination of the books and accounts of McClintic-Marshall and its subsidiaries and to prepare a consolidated statement of the assets and liabilities of the group as at June 30, 1930, and a consolidated profit and loss statement for the three years ended December 31, 1929, and the six months ended June 30, 1930.  This examination and report was to be made for the purpose of supplying data from which a figure might be obtained at which Bethlehem would acquire and McClintic-Marshall would dispose of the fabricating business and assets.  The original report was submitted under date of September 13, 1930, and supplemental reports were made under dates of September 17 and 25 and October 6, 1930.  The examinations made and the reports submitted did not cover the assets and liabilities or the profits and losses of the subsidiary and affiliated companies in which Bethlehem was not interested.  Certain other assets, including investments in stocks and bonds, advances to subsidiary or affiliated companies, th income therefrom, and the*685  related items of expenses were also excluded from the examinations and reports.  Before the end of October 1930, it was understood in general terms that Bethlehem or nominees, subject to the drafting of the contracts and the working out of the details of the transaction, would acquire the fabricating business and the assets connected therewith of McClintic-Marshall and its subsidiary companies and would pay therefor 240,000 shares of Bethlehem common stock and $8,200,000, face value, of Bethlehem 4 1/2 percent serial gold bonds and would assume the liabilities properly allocable to the fabricating business of McClintic-Marshall and its subsidiaries and an outstanding $12,000,000 bond issue of the McClintic-Marshall Construction Co.  It was also agreed that McClintic-Marshall should have the dividends *1002  and interest on the Bethlehem stock and bonds from October 1, 1930.  After the general understanding was reached in October of 1930, the attorneys for the parties were instructed to prepare the necessary contracts.  They were further instructed to prepare the contracts in such a way, if possible, as to avoid any tax to McClintic-Marshall or its stockholders.  It was the*686  understanding that pending the drafting of the contracts there should be no changes in the business and assets of McClintic-Marshall except such changes as should take place in the ordinary course of business.  At some date prior to December 5, 1930, however, representatives of McClintic-Marshall stated to Bethlehem that it was advisable for "Pennsylvania tax reasons" to retain Pennsylvania real estate of substantial value and suggested that a parcel of real estate owned by the Kenilworth Land Co. in the city of Pittsburgh and known as the Water Street property was most suitable for that purpose.  It was proposed that this property be conveyed to McClintic-Marshall and cash in an amount equivalent to its value substituted among the assets Bethlehem was to receive.  The plan of procedure originally contemplated was that the McClintic-Marshall Corporation should transfer that portion of its assets which Bethlehem was to acquire to a new corporation in exchange for the capital stock of the new corporation and the new corporation would then transfer the assets so received to Bethlehem for the consideration which had been agreed upon, and immediately thereafter would distribute the Bethlehem*687  stock and bonds so received to its stockholders and be dissolved.  On the 27th day of October 1930, the Union Construction Co., sometimes referred to as Union, was organized under the laws of Delaware as the new corporation to be used in effecting the transfer of the fabricating business and assets, under the agreement with Bethlehem.  Its authorized capital stock was 50 shares, which had a par value of $100 per share.  At the time of organization McClintic-Marshall subscribed for 10 shares of stock for cash at par.  The attorneys proceeded with the drafting of the contracts in an effort to set forth what they understood to be the agreement of the parties.  Under the earlier drafts of the contracts it was provided that the assets of McClintic-Marshall in which Bethlehem was interested should be conveyed to the Union Construction Co. for 40 of its 50 authorized shares of capital stock, which 40 shares should be issued directly to the stockholders of McClintic-Marshall, and thereafter the Union Construction Co. should transfer the assets so received to Bethlehem or "nominees" for the consideration previously stated and should in turn distribute to its stockholders the Bethlehem stocks*688  and bonds acquired in that transfer.  In the case of certain *1003  of the subsidiary companies, seven in number, it was provided that the properties and assets, and not the stock, should be acquired.  It was also provided that all acts of the Union Construction Co. and the seven subsidiary companies, except as otherwise provided, relating to dissolution and liquidation should be subject to approval of counsel for Bethlehem.  In addition to the preparation of the contracts covering the transaction in general between Bethlehem and McClintic-Marshall, the attorneys proceeded with the preparation of forms of conveyance to be executed in respect of the real estate located in the various sections of the United States and standing in the name of McClintic-Marshall and seven of its subsidiary companies.  By December 20, 1930, the drafting of these deeds had been nearly completed.  On or about December 1, 1930, Price, Waterhouse & Co. was asked to extend its examination of the affairs of McClintic-Marshall for the purpose of making a certified balance sheet.  On previous occasions its investigations had covered only the assets included in the Bethlehem transaction and it had been*689  denied access to the records covering the investment assets, or "Omitted Assets," as they were usually referred to in the conferences and papers of the parties.  This further report was ordered at the instance of Bethlehem counsel for the purpose of furnishing information as to the "Omitted Assets" and the liabilities of McClintic-Marshall.  The report was submitted to the directors of McClintic-Marshall under date of January 5, 1931, and in addition to the balance sheet included a statement designated "Contingent or undetermined liabilities as at June 30, 1930," and listed ten items of possible liabilities.  At some time between December 18 and December 27, 1930, the plan for effecting the transfer of the fabricating business and assets was changed.  It was decided to transfer he nonfabricating assets or "Omitted Assets" to the Union Construction Co. and to transfer the fabricating business and assets direct from McClintic-Marshall to Bethlehem or "nominees." This change of plan was communicated by Smith, chief counsel for McClintic-Marshall, to Moore, chief counsel for Bethlehem, in a letter dated December 27, 1930.  On December 31, 1930, Moore wrote Smith expressing approval of*690  the change in the plan of procedure, and on the same date Smith wrote Moore suggesting a conference in Moore's office on January 6, for the purpose of getting all of the papers in final form.  At or about the same time Marshall instructed Patterson, secretary of McClintic-Marshall, to call in all of the preferred stock of that corporation from employees and to pay therefor $130 per share.  The stock so called covered all of the preferred stock outstanding except that held by the four common stockholders, A. W. Mellon, R. B. Mellon, *1004  C. D. Marshall, and H. H. McClintic, and excepting, of course, the 500 shares of first issue preferred then the subject matter of litigation with the Corbett estate.  Some of the preferred stock so called in from employees was issued to certain of the four common stockholders at the call price of $130 per share and thereafter the stock of the McClintic-Marshall Corporation, both common and preferred, was owned by the original organizers of the Contruction Co. in the following proportions: A. W. Mellon30 percentR. B. Mellon30 percentH. H. McClintic20 percentC. D. Marshall20 percentWith reference to seven of*691 the wholly owned subsidiaries of McClintic-Marshall, namely the McClintic-Marshall Construction Co., McClintic-Marshall Construction Co. of Illinois, McClintic-Marshall Construction Co. of New York, Inc., McClintic-Marshall Co. of California, McClintic-Marshall sTeel Supply Co., McClintic-Marshall Export Co., and McClintic-Marshall Co., it was understood that Bethlehem or "nominees" were to acquire the properties and assets, but not the shares of stock.  Accordingly, in further preparation for the transfer of its fabricating business and assets under the agreement with Bethlehem, McClintic-Marshall, under date of December 31, 1930, addressed a letter to each of the above named subsidiaries, advising each corporation that if it would declare a liquidating dividend consisting of its assets, McClintic-Marshall "would assume and pay or perform all * * * indebtedness, liabilities, obligations and contracts, including those incurred between the date of declaration of such dividend and the actual transfer of * * * assets pursuant to said dividend." The letters of December 31, 1930, to the above named subsidiaries suggesting the declaration of liquidating dividends were authorized at a special*692  meeting of the board of directors of the McClintic-Marshall Corporation held in the principal offices of that corporation in the Henry W. Oliver Building, Pittsburgh, Pennsylvania, at 3:30 p.m., on December 31, 1930.  C. D. Marshall, H. H. McClintic, E. J. Patterson, and E. A. Gibbs, a majority of the board of directors, were present.  At the same meeting resolutions were also adopted (1) authorizing the execution of proxies to vote the stock of the seven subsidiaries on resolutions declaring the liquidating dividends previously mentioned; (2) approving the purchase, in the name of the corporation, by its officers of 11,365 shares of its preferred stock at prices not in excess of $130 per share and the sale of 131 shares each to A. W. and R. B. Mellon, and one share to H. H. McClintic, and further declaring a dividend of 11,000 shares of the said preferred stock on *1005  the common stock of the corporation; (3) authorizing the execution of proxies to vote the stock of the Union Construction Co. at a meeting to be held for the purpose of increasing the capital stock of said company from 50 shares to 5,000 shares, and authorizing the board of directors to issue all or any part*693  of said stock, and (4) approving a proposal to transfer certain assets of McClintic-Marshall to the Union Construction Co. for 4,990 shares of the capital stock of said company.  With reference to the transfer of assets to the Union Construction Co., the minutes read in part as follows: The Chairman then presented to the meeting a plan of reorganization.  On motion, it was unanimously resolved that said plan of reorganization should be copied into the minutes of the meeting, a copy of which plan is as follows: PLAN OF REORGANIZATION.  McClintic-Marshall Corporation, being the owner of all of the outstanding capital stock of Union Construction Company, that is to say, ten (10) shares, will transfer to Union Construction Company certain assets in exchange for four thousand nine hundred ninety (4,990) shares of the capital stock of Union Construction Company, Union Construction Company assuming and agreeing to pay or satisfy and perform certain indebtedness, liabilities and obligations of McClintic-Marshall Corporation.  The said four thousand nine hundred ninety (4,990) shares of capital stock of Union Construction Company will be immediately distributed as a dividend to the common*694  stockholders of McClintic-Marshall Corporation, the corporation's surplus being in excess of the book value of the assets conveyed to Union Construction Company.  On motion, the following resolution was unanimously adopted: RESOLVED that the plan of reorganization read and ordered spread upon the minutes of this meeting be and the same is hereby approved and adopted.  Special meetings of the stockholders of the McClintic-Marshall Construction Co., McClintic-Marshall Steel Supply To., McClintic-Marshall Co., and McClintic-Marshall Export Co. were held in Pittsburgh during the interval from 4:30 p.m. to 5:50 p.m. on December 31, 1930.  C. D. Marshall, H. H. McClintic, E. J. Patterson, and E. A. Gibbs were present, with Patterson holding the proxy of McClintic-Marshall.  Resolutions were adopted declaring the liquidating dividends suggested in the letter authorized that day at the special meeting of the directors of McClintic-Marshall.  In each instance the stockholders' meeting was immediately followed by a special meeting of the board of directors.  The minutes indicate that in the case of the McClintic-Marshall Construction Co. of New York, Inc., the special stockholders' meeting*695  was held in Buffalo, New York, at 4:30 p.m., eastern standard time, with Welles V. Moot and S. Fay Carr as proxies for McClintic-Marshall.  The special meeting of the stockholders of the McClintic-Marshall Construction Co. of Illinois was held in Chicago, according to the minutes, at 4 p.m., central standard time.  The special meeting of the McClintic-Marshall Co.  *1006  of California was held in San Francisco at 3 p.m., Pacific standard time, with A. G. Kazebeer, A. B. Charlton, J. G. McClure, and E. F. Gohl present, and H. H. McClintic and the McClintic-Marshall Corporation present by proxies.  Special meetings of the directors of the McClintic-Marshall Construction Co. of New York, Inc., and McClintic-Marshall Construction Co. of Illinois were held in Pittsburgh at 5:50 p.m. and 6 p.m., eastern standard time, respectively, with C. D. Marshall, H. H. McClintic, E. J. Patterson, and E. A. Gibbs present.  The meetings of the various corporations were held under verbal instructions from counsel and without written notices.  All preparations for the meetings had been made by counsel and Rodewald, of the firm of Smith, Buchanan, Scott & Gordon, brought to the meetings a memorandum*696  of procedure and the votes that were taken were in accordance with that memorandum.  The procedure followed was that the various motions and documents were read at the first meeting of the day, some probably not in full, and thereafter it was the understanding that the same action would be taken at the other meetings.  In so far as the minutes recite that the various meetings of the stockholders were called by the directors at the request of the stockholders, the minutes are incorrect.  There had been no previous meetings of directors calling special meetings of the stockholders except possibly in the case of the McClintic-Marshall Co. of California, where a special directors' meeting immediately preceded the special stockholders' meeting.  The minutes of the directors' meeting of the Illinois company reciting the reading of the minutes of the stockholders' meeting just held are also incorrect.  No such minutes were read and no such minutes were at the meeting.  The seven subsidiary companies of McClintic-Marshall continued to operate the various properties after December 31, 1960, as they previously had done.  McClintic-Marshall, which was authorized to do business in Pennsylvania, *697  took no steps to operate the properties nor to be registered to do business in any of the states in which the subsidiaries operated.  Seven documents executed by McClintic-Marshall under date of February 7, 1931, recited the assumption of liabilities of each of the seven subsidiaries in consideration of the declaration of liquidating dividends previously described.  According to the minutes of the Union Construction Co., a meeting of the board of directors was held at 3:45 p.m., eastern standard time, on December 31, 1930, at the Henry W. Oliver Building in Pittsburgh, with C. D. Marshall, H. H. McClintic, and E. J. Patterson, a majority of the board of directors, present.  A resolution was adopted calling for a special meeting of stockholders at 4 p.m., to be held on the same date and at the same place for the purpose of increasing the capital stock of the company from 50 shares to 5,000 *1007  shares.  At 4 p.m. the special stockholders' meeting was held with the same individuals present and representing all the outstanding stock of the company, either directly or by proxy.  At that meeting a resolution was adopted increasing the authorized capital stock of the corporation*698  from 50 shares to 5,000 shares.  A further resolution was adopted authorizing the board of directors at their discretion to issue any or all of the stock "for such consideration and to such persons or bodies corporate (whether stockholders of this corporation or otherwise) as may be permitted by law and by the terms of certificate of incorporation as amended and as to the said directors may seem advisable." The minutes also show a second meeting of the board of directors at 4:15 p.m. on the same date and at the same place, at which a resolution was adopted in the same terms and words as that adopted earlier in the day by the board of directors of McClintic-Marshall providing for the transfer by McClintic-Marshall of certain of its assets to the Union Construction Co. for 4,990 shares of the capital stock of the latter.  A resolution was also adopted approving the purchase of the Water Street property from the Kenilworth Land Co. for the sum of $130,132.55, and the giving of an option to that company for its repurchase within a period of two years.  The officers were authorized to purchase from McClintic-Marshall the 10 shares of the Union Construction Co. stock subscribed for by that*699  corporation for cash at the time the Union Construction Co. was organized.  Prior to the date or dates on which the minutes of the various meetings of the seven subsidiaries and the Union Construction Co. were put in final form and entered in the minute books, drafts thereof were sent to counsel for Bethlehem for suggestions.  In accordance with the suggestion made in Smith's letter to Moore on December 31, 1930, counsel for McClintic-Marshall and Bethlehem met in New York on January 6, 1931.  McMath, vice president of Bethlehem, was also present.  The only substantial difficulty had to do with the clause covering the assumption of liabilities.  McMath and counsel for bethlehem objected to the insertion in the contracts of a clause of general assumption by Bethlehem of the liabilities of the fabricating business of McClintic-Marshall without full disclosure on the part of McClintic-Marshall of the nature and extent of all liabilities not reflected in the McClintic-Marshall balance sheets.  They were afraid that the undisclosed liabilities might include liabilities of an extraordinary nature, not to be expected in the ordinary course of the fabricating business, and on the information*700  before them, were unwilling to write the provision sought by McClintic-Marshall into the contracts.  Smith insisted that the purchase of the fabricating business and the assumption of the liabilities thereof included the contingent and unknown liabilities and in keeping with *1008  instructions received by him from the common stockholders of McClintic-Marshall at a conference in Pittsburgh in the forenoon of December 31, 1930, insisted upon the blanket assumption of liabilities.  As a result of this difference the work on the contracts came to a halt and C. D. Marshall and Eugene G. Grace were advised.  Grace conferred with Marshall as to the fears expressed to him of hidden or abnormal liabilities and, upon being advised by Marshall that there was nothing abnormal about the contingent liabilities of McClintic-Marshall, instructed Bethlehem's counsel to proceed with the contracts along the lines desired by counsel for McClintic-Marshall.  The above conferences continued through January 8.  After that date no further meetings were held until February 10, the date of delivery of the consideration and the various instruments of assignment and conveyance.  During the interval between*701  January 8 and February 10, counsel for the parties were in communication with each other by mail and telephone.  After the conferences on January 6, 7 and 8, Moore caused Schlottman to be sent to Pittsburgh to make an examination, the purpose of which was to make certain that the fabricating assets to be received under the agreement with McClintic-Marshall were not depleted in any way.  Moore was particularly interested in seeing that any money which had accrued by way of profits to the fabricating business from and after June 1, 1930, would be transferred with the business and not invested in some way other than in the business itself.  Schlottman proceeded to Pittsburgh on or about January 12, where he spent several days making the check desired by Moore.  During that time he made an audit of the list of assets which had been drawn up by Pittenger for transfer to the Union Construction Co.  He also worked out with Pittenger a division of the cash between the fabricating assets which Bethlehem or its "nominees" were to receive and the nonfabricating assets which were to be transferred to Union.  According to the agreement between the parties, the McClintic-Marshall stockholders*702  were to retain all dividends declared on McClintic-Marshall stock on or before October 1, 1930, and from and after that date McClintic-Marshall was to receive the dividends and interest on the Bethlehem stocks and bonds which were to be exchanged for its fabricating assets and business.  The dividends on the 240,000 shares of stock were not actually paid over to McClintic-Marshall, but it was permitted to deplete the fabricating assets in an amount equal to the dividends on the 240,000 shares of Bethlehem stock from and after October 1, 1930.  This was taken into consideration by Schlottman in making his check of the assets to be transferred to the Union Construction Co. and those to be transferred under the contract with Bethlehem.  The fabricating *1009  assets to be transferred were also diminished to make allowance for the interest on the $8,200,000 in Bethlehem bonds, and this item was also taken into consideration by Schlottman in making his check of the assets which were to be transferred to Union.  On January 14, 1931, Moore was advised by Rodewald that Schlottman and Pittenger had agreed upon the division of the assets and that the transfer to Union would be made on*703  the basis of that division.  Schlottman's report of the examination was relayed to Moore by Schick, comptroller for Bethlehem, under date of January 21, 1931.  Price, Waterhouse & Co. made two reports to Bethlehem under the same date covering the transactions of McClintic-Marshall and its subsidiaries from July 1, 1930, to November 30, 1930.  On January 15, 1931, an indenture between McClintic-Marshall and the Union Construction Co., bearing date of December 31, 1930, was executed.  By the terms of the agreement McClintic-Marshall transferred the "Omitted Assets" to Union for 4,990 of the total 5,000 shares of Union stock and the assumption by Union of certain of McClintic-Marshall's liabilities outlined in the agreement.  It is stipulated by the parties that, except for the purpose of determining the amount of the earnings, profits, or income of McClintic-Marshall, the fair market value of all net assets of the McClintic-Marshall Corporation, including the property transferred to the Union Construction Co. and prior to giving effect to the reissuance of the 263 shares of preferred stock sold to common stockholders above described, was, at the time of the transfer to Union, $66,078,260.12. *704  It was further stipulated that the value stated is apportionable to the common and preferred stocks of the McClintic-Marshall Corporation and to the capital stock of the Union Construction Co. as follows: To preferred stock of McClintic-Marshall Corporation, 25,457 shares at $130 per share$3,309,410.00To 60,200 shares of common stock of McClintic-Marshall Corporation18,523,590.00To 4,990 shares of capital stock of Union Construction Co44,245,260.1266,078,260.12The ratios existing at that time, on the basis of such apportionment, between the fair market value of petitioner's 18,060 shares of common stock of the McClintic-Marshall Corporation and petitioner's 1,497 shares of common stock of the Union Construction Co. were 29.5108 per centum and 70.4892 per centum, respectively.  McClintic-Marshall and Union both kept their books on the accrual basis.  Entries thereon reflecting the above transaction were dated December 31, 1930, but were actually written in the following month.  Several of the checks relating to the book entries were delivered *1010  and paid on January 22, 1931.  The certificate of the Union charter amendment, increasing its*705  capital stock, was signed on December 31, 1930, and filed for recordation in Delaware on January 15, 1931.  On the same date the Kenilworth Land Co. conveyed the Water Street Property to Union and Union executed in favor of Kenilworth the option to repurchase.  Stock transfer notices covering the transfer of stock from McClintic-Marshall to Union were dated January 16, 1931, and mailed January 17, 1931.  Transfer stamp vouchers were dated January 16, 1931.  Notices to debtors whose accounts were transferred by McClintic-Marshall to Union were dated December 31, 1930, and certified January 15, 1931.  Certificates for the 4,990 shares of Union stock dated December 31, 1930, were made out and delivered to the four common stockholders of McClintic-Marshall in the following month.  Petitioner received 1,497 such shares.  He entered the transaction in his books under date of January 1, 1931.  On January 3, 1931, and shortly thereafter, dividends and interest were received on the securities later transferred by McClintic-Marshall to Union and the checks therefor were deposited to the credit of Union on the date received.  The agreement reached by Grace and Marshall on or about January 8, 1931, was*706  followed by a written contract dated January 22, 1931.  In the preliminary paragraphs of the agreement were representations by McClintic-Marshall as to its properties and financial condition.  Among the representations made were the following.  * * * Except for the sale, assignment and transfer of certain property, copies of the instruments covering which have been delivered to Bethlehem, and for the payment by McClintic-Marshall of certain cash dividends which are mentioned in paragraph (e) of these representations of fact and a dividend paid in the stock of another corporation owned by it, no substantial change was made in the properties and assets of McClintic-Marshall and/or the Subsidiary Companies between June 30, 1930 and the date hereof, except such changes as were made in the ordinary course of the business of McClintic-Marshall and/or the Subsidiary Companies.  * * * Other portions of the agreement describing the properties to be acquired and the consideration therefor read in part as follows: The parties hereto desire that McClintic-Marshall shall be reorganized through the acquisition by Bethlehem of all the properties and assets owned by McClintic-Marshall (but none*707  of its capital stock) at the time the transaction covered by this Agreement (hereinafter called the Transaction) shall be closed (which shall then include the properties and assets, but not the shares of stock, of the first seven of the Subsidiary Companies as listed in said Appendix A), the immediate distribution of the bonds and shares of stock of Bethlehem which are to be delivered by it to McClintic-Marshall pursuant to the provisions of this Agreement and the dissolution as soon as practicable of McClintic-Marshall and of said first seven of the Subsidiary Companies whose properties and assets are to be acquired by Bethelehem, and to that *1011  end the parties hereto have agreed upon the plan of reorganization which is evidenced by this Agreement.  * * * FIRST, Upon the terms and conditions hereinafter set forth McClintic-Marshall agrees that, in exchange for $,,200,000, principal amount, of the bonds of Bethlehem, hereinafter described and hereinafter sometimes called the New Bonds, and 240,000 shares of the Common Stock of Bethlehem of the same class, nature and description as the Common Stock of Bethlehem now outstanding and listed on the New York Stock Exchange, *708  McClintic-Marshall will convey, assign and transfer, or cause to be conveyed, assigned and transferred to Bethlehem, or to one or more nominees of Bethlehem as Bethlehem shall elect (a) all the properties and assets of every nature and description of McClintic-Marshall, including its good will and the right to use its corporate name, but not including any shares of its capital stock or the shares of stock of said first seven of the Subsidiary Companies, and (b) all the properties and assets of every nature and description of said first seven of the Subsidiary Companies, including their respective good wills and the right to use their respective corporate names; and Bethlehem, relying upon the representations sentations of fact of McClintic-Marshall hereinabove set forth, agrees that, in exchange for said properties and assets, Bethlehem will execute, issue and deliver to McClintic-Marshall said $8,200,000, principal amount, of the New Bonds and certificates for said 240,000 shares of said Common stock.  With certain specified exceptions Bethlehem agreed to assume all the liabilities of McClintic-Marshall.  Among the obligations assumed was an item of $12,000,000 in outstanding bonds*709  of the McClintic-Marshall Construction Co., which bond issue was secured by the pledge of 160,000 shares of 6 percent cumulative preferred stock of the Aluminum Co. of America, owned by A. W. Mellon and R. B. Mellon and loaned to the McClintic-Marshall Construction Co. for such purpose.  Bethlehem agreed that other collateral satisfactory to the trustee would be deposited in lieu of such Aluminum Co. stock and that the owners of such stock would be paid $50,000 per year for the use thereof during the period the Aluminum Co. stock should remain pledged.  It was further provided.  * * * All deeds, assignments and other instruments of conveyance by which the properties and assets to be conveyed, assigned and transferred to Bethlehem as aforesaid shall be so conveyed, assigned and transferred shall provide that they shall take effect as of January 31, 1931, whether or not actually executed and delivered on that date.  It was also provided: As a part of this plan of reorganization, all of the New Bonds of Bethlehem to be received by McClintic-Marshall under the provisions of this Agreement and all of said 240,000 shares of its Common Stock shall be distributed to the stockholders*710  of McClintic-Marshall.  The agreement provided that the transaction should be closed on February 3, 1931, which date was later extended to February 10, 1931.  *1012  On January 23, 1931, Grace, acting for Bethlehem, and on January 27, 1931, Marshall, acting for McClintic-Marshall, signed the above agreement bearing the date of January 22, 1931.  The agreement was placed before the board of directors of McClintic-Marshall at a special meeting held in Pittsburgh on January 26, 1931, and a resolution was adopted authorizing and directing the officers to execute the instrument for and on behalf of the corporation.  Preliminary to the adoption of the resolution mentioned, the minutes show the following: The Chairman then presented and read to the meeting a plan of reorganization.  On motion, it was unanimously resolved that said plan of reorganization shall be copied into the minutes of the meeting, a copy of which plan is as follows: PLAN OF REORGANIZATION.  Bethlehem Steel Corporation will acquire from McClintic-Marshall Corporation all the properties and assets owned by McClintic-Marshall Corporation (but none of its capital stock) at the time the transaction covered*711  by the reorganization agreement shall be closed (which shall then include the properties and assets, but not the shares of stock of McClintic-Marshall Construction Company, a Pennsylvania corporation, McClintic-Marshall Contruction Company of Illinois, an Illinois corporation, McClintic-Marshall Construction Company of New York, Inc., a New York corporation, McClintic-Marshall Company of California, a California corporation, McClintic-Marshall Steel Supply Company, a Pennsylvania corporation, McClintic-Marshall Export Company, a Delaware corporation, and McClintic-Marshall Company, a Delaware corporation, each of which companies has heretofore declared a liquidating dividend of all of its assets and properties pursuant to which McClintic-Marshall Corporation has become entitled through stock ownership or by assignment to all such assets and properties.) The bonds and shares of stock of Bethlehem Steel Corporation which are to be delivered by it to McClintic-Marshall Corporation pursuant to the provisions of the reorganization agreement will be distributed immediately to the stockholders of McClintic-Marshall Corporation, and McClintic-Marshall Corporation and the seven subsidiary companies*712  above mentioned will be dissolved as soon thereafter as practicable.  On motion, the following resolution was unanimously adopted: RESOLVED: that the plan of reorganization which the Chairman has presented and read to this meeting and which this Board has directed to be copied into the minutes of this meeting be, and the same is hereby, approved and adopted.  Resolutions were also adopted authorizing and directing the seven subsidiary corporations to execute instruments of conveyance of their properties to Bethlehem or such other corporations as it might designate.  By a further resolution a liquidating dividend was declared of all the Bethlehem stock and bonds to be received in exchange for McClintic-Marshall's fabricating business and assets.  In connection with the liquidating dividend the officers were authorized and directed to require from the stockholders refunding bonds or other security which "as to said officers may seem desirable for the *1013  purpose of protecting the corporation from any and all claims or liabilities, contingent, adccrued or otherwise, which have been or may be asserted against it." The meeting was conducted from a memoradum, in the same manner*713  as the meetings of December 31, 1930.  On January 30, 1931, at a further meeting, the board passed a resolution to change the name of the McClintic-Marshall Corporation to William Penn Corporation.  A resolution was also adopted directing that the stock and bonds of Bethlehem to be received for the fabricating business and assets of McClintic-Marshall be issued directly to the holders of the common capital stock of McClintic-Marshall in proportion to their respective holdings, and authorizing and directing the secretary or assistant secretary of McClintic-Marshall to deliver a certified copy of the resolution to Bethlehem.  The resolution named C. D. Marshall to receive the Bethlehem stock and the bonds for the stockholders.  The stockholders approved the amendment changing the name of the corporation to William Penn Corporation at a special meeting held on February 3, 1931.  Also on January 30, 1931, the name of the McClintic-Marshall Constuction Co. was changed to William Penn Construction Co.  The certificate of the Secretary of State of Pennsylvania showing the change of name bears the date of February 24, 1931.  On February 6, 1931, the capital stock was reduced from 50,000*714  shares having a par value of $100 per share, to 100 shares having a par value of $100 per share.  On February 7, 1931, McClintic-Marshall sold the stock of the Construction Co. to its four stockholders, A. W. Mellon, R. B. Mellon, C. D. Marshall, and H. H. McClintic, for the sum of one dollar, the 100 shares being divided 30 shares each to A. W. Mellon and R. B. Mellon and 20 shares each to C. D. Marshall and H. H. McClintic.  On January 29, 1931, the board of directors of the Bethlehem Steel Corporation, at its regular quarterly meeting held in New York City, ratified, confirmed, and approved the action taken by its president, Eugene G. Grace, in executing the above agreement with McClintic-Marshall.  The Bethlehem Steel Corporation was organized December 10, 1904, under the laws of New Jersey, and is the owner of the stock of fifty or sixty corporations, sometimes referred to as the Bethlehem group.  The business of the group is that of carrying on an integrated steel business.  Bethlehem itself operates no properties.  Among the companies owned by Bethlehem in 1930 and 1931 were the Bethlehem Steel Co., a Pennsylvania corporation, Bethlehem Mines Corporation, a Delaware corporation, *715  Beth-Mary Steel Corporation, a Maryland corporation, Pacific Coast Steel Corporation, a Delaware corporation, and Midvale Steel Co., a Pennsylvania corporation.  The largest of *1014  the operating companies in the Bethlehem group is the Bethlehem Steel Co.  It operates the steel producing properties in the East, while similar properties in the West are operated by the Pacific Coast Steel Corporation.  These operations include the production of structural steel, steel plate, tin plate, rolling mill equipment, and other steel products and the operation of blast furnaces.  The Bethlehem Mines Corporation operates coal mines, ore mines, quarries, and properties of similar character.  The Beth-Mary Steel Corporation owns the properties of the Bethlehem group which are located in the State of Maryland.  It also owns the stock of the Bethlehem Iron & Steel Corporation, a New York corporation, located in New York, which owns the properties of the Bethlehem group located in New York.  These properties are leased to the Bethlehem Steel Co. for operation.  The Midvale Steel Co. was incorporated under the laws of Pennsylvania on December 14, 1880.  Its name was changed to McClintic-Marshall*716  Corporation on February 5, 1931.  To avoid confusion it will be referred to herein as Midvale.  At the time its name was changed, it had 50 shares of stock outstanding, 45 shares being held directly by Bethlehem and the other five shares by directors.  During the months of September, October, and November, 214,159 shares of Bethlehem common stock were purchased on the New York Stock Exchange, under authorization from Grace, for use in the acquisition of the fabricating business and assets of McClintic-Marshall.  In authorizing the purchase of stock for the purpose mentioned above, Grace had the informal approval of the members of Bethlehem's board of directors.  The cash of the Bethlehem group is carried by the Bethlehem Steel Co. in an account designated as "Inter-company Balances." Through this account each company is credited with its portion of the profits on any contract or job in which it participates and with the cash coming into the account through such company.  In a similar manner each company is charged through the account with its expenditures.  In making the purchases of the Bethlehem stock described above, the checks were drawn by the Bethlehem Steel Corporation. *717  The books of that corporation do not show acquisition of the stock, however, and it was not charged with the cash so expended, its cash being neither increased nor decreased as a result of the purchases.  The disbursements for the shares purchased were charged against the Bethlehem Mines Corporation and described as disbursements "for account of Bethlehem Mines Corporation." The shares, when acquired, were carried on the books of the Bethlehem Mines Corporation in an account designated "Contingent Fund Assets." In its balance sheet of December 31, 1930, the Bethlehem Mines Corporation carried the 240,000 shares of Bethlehem stock as *1015  "Investment-Capital Stock of Domestic Corporations." The balance sheet of Bethlehem for the same date showed these shares as outstanding.  The consolidated balance sheet showed a footnote to the effect that the 240,000 shares were to be used in part payment for McClintic-Marshall assets.  Upon the purchase of the various lots of Bethlehem stock, the shares so acquired were transferred to the names of individuals.  These individuals signed statements to the effect that the stock so held was owned by Bethlehem, and they assigned to it any*718  and all dividends thereon.  The dividends paid during the year 1930 and until February 1931 on the stock in question were not paid to the individuals in whose names the shares stood, nor were they paid to Bethlehem, in accordance with the signed orders of those individuals; the dividends were paid to the Bethlehem Mines Corporation which, according to the books of account, was the purchaser and owner of the stock.  Bethlehem at no time received credit or showed receipt of the dividends on its books.  The entries on the books were made with the intention of showing the Bethlehem Mines Corporation as the owner of the stock.  Some time in February 1931, 25,841 shares of Bethlehem stock acquired by the Bethlehem Mines Corporation prior to the McClintic-Marshall negotiations were written down on the books to the average cost of the 214,159 shares acquired during the months of September, October, and November, 1930.  The total write-down amounted to $912,849.  Thereafter the average cost of the entire 240,000 shares was reflected as $76.74 per share.  Bethlehem was never at any time charged with the amount by which the stock was written down.  The Bethlehem Mines Corporation was credited*719  with the amount of the write-down and an account of the Bethlehem Steel Co., designated as "Reserve for Depreciation of Investments", was charged.  By instruments dated February 7, 1931, McClintic-Marshall, McClintic-Marshall Construction Co., McClintic-Marshall Construction Co. of Illinois, and McClintic-Marshall Steel Supply Co. conveyed to Midvale all their real estate and interest in real estate.  By instruments bearing the same date the McClintic-Marshall Construction Co. of New York, Inc., conveyed its real estate to the Bethlehem Iron & Steel Corporation, and the McClintic-Marshall Co. of California conveyed its real estate to the Pacific Coast Steel Corporation.  By bills of sale also bearing the date of February 7, 1931, McClintic-Marshall, McClintic-Marshall Construction Co., McClintic-Marshall Construction Co. of Illinois, McClintic-Marshall Construction Co. of New York, Inc., McClintic-Marshall Co. of California, McClintic-Marshall Steel Supply Co., McClintic-Marshall Export Co. And McClintic-Marshall *1016  Co. transferred all assets except real estate and patents to Midvale.  The transfers of patents and trade marks were covered by separate instruments to meet*720  the requirements of the offices in which notices of such transfers were to be filed.  Under date of February 10, 1931, an instrument designating Bethlehem as party of the first part, McClintic-Marshall as party of the second part, and the seven subsidiary corporations as parties of the third part, and reciting the transfer and conveyance by McClintic-Marshall to Bethlehem or "nominees", was executed by Bethlehem, wherein Bethlehem, in accordance with the terms of the agreement of January 22, 1931, assumed and agreed to pay or to cause to be paid all liabilities of the group, except those specifically excepted in the January agreement.  By an instrument bearing the same date and naming Bethlehem, the McClintic-Marshall Construction Co. and the Union Trust Co. of Pittsburgh as parties, Bethlehem assumed the $12,000,000 bond issue of the Construction Co.  A third instrument, also dated February 10, 1931, was executed by Bethlehem, the McClintic-Marshall Construction Co., A. W. Mellon, and R. B. Mellon.  It provided for the substitution of collateral in connection with the $12,000,000 bond issue in place of the then existing collateral which belonged to petitioner and R. B. Mellon.  *721  In accordance with the request of McClintic-Marshall, the 240,000 shares of Bethlehem common stock were issued 72,000 shares each to A. W. Mellon and R. B. Mellon and 48,000 shares each to C. D. Marshall and H. H. McClintic.  On February 10, 1931, C. D. Marshall delivered his receipt covering the 240,000 shares of Bethlehem common stock and the $8,200,000, principal amount, of Bethlehem 4 1/2 per cent Serial Gold Bonds, reading as follows: RECEIVED from Bethlehem Steel Corporation, a New Jersey corporation, $8,200,000, principal amount, of its Four and One-Half Per Cent. Serial Gold Bonds and Certificates for 240,000 shares of its common stock made out in the following names and for the number of shares set after each such name, respectively: Andrew W. Mellon72,000 sharesRichard B. Mellon72,000 sharesHoward H. McClintic48,000 sharesCharles D. Marshall48,000 sharesDated February 10, 1931.  [Signed] C. D. MARSHALL.  The bonds after authentication by the Union Trust Co. of Pittsburgh, as trustee, were actually delivered by William J. Brown, treasurer of Bethlehem, to the Bankers Trust Co. in New York, and the Bankers Trust Co.'s receipt was delivered*722  to Marshall.  The four common stockholders of McClintic-Marshall directed a letter to Bethlehem, bearing the date of February 10, 1931, granting *1017  an option to purchase the 100 shares of William Penn Construction Co. stock for the sum of one dollar at any time within ninety days after the collateral furnished by A. W. Mellon and R. B. Mellon in connection with the $12,000,000 bond issue of the Construction Co. should be released from the lien of the trust.  Bethlehem exercised the option and acquired the stock for the sum of one dollar.  The Construction Co. is still in existence, but holds no properties and conducts no business.  The stock of the Riter-Conley Co., Kenilworth Land Co., Steel Frame House Co., and Steel Frame House Finance Co. was transferred to Midvale.  It was delivered on February 10, 1931.  On each instance the certificates were delivered endorsed in blank and the name of Midvale (McClintic-Marshall Corporation of Pennsylvania) was written in.  All of the properties transferred and conveyed by McClintic-Marshall and its subsidiaries in accordance with the agreement of January 22, 1931, including the real estate in California and New York and the*723  stock of the Kenilworth Land Co., Riter-Conley Co., Steel Frame House Co., and Steel Frame House Finance Co., were entered on the books of Midvale.  None of the properties acquired and none of the liabilities assumed in connection therewith were ever entered on the books of Bethlehem.  In May of 1931 the California real estate was transferred by proper book entries to the Pacific Coast Steel Corporation and the New York real estate was similarly transferred to Bethlehem Iron & Steel Corporation.  In making these transfers the Pacific Coast Steel Corporation was charged with the net amount of $660,939 for the real estate conveyed to it and Midvale was credited with that amount, and Bethlehem Iron & Steel Corporation was charged with the net amount of $2,397,275 for the real estate it received and Midvale was credited in the same amount.  The minute books of those corporations contain no reference to the acquisition of any of the McClintic-Marshall assets.  After the name of Midvale was changed to McClintic-Marshall Corporation on February 6, 1931, a new ledger was set up on which an account was opened designated as "Investment in properties purchased from McClintic-Marshall, (Del. *724  )." The amount of the investment was shown as $26,617,246.  The journal voucher from which the entry was posted was dated March 12, 1931, and designated as being for the "Month of February, 1931." The voucher reads as follows: To record the purchase of the properties of McClintic-Marshall Corporation, (Del.) pursuant to the agreement dated January 22, 1931, between Bethlehem Steel Corporation and McClintic-Marshall Corporation, (Del.).  Delivery made to McClintic-Marshall Corporation, (Del.) of 240,000 shares of Bethlehem Steel *1018  Corporation Common Stock - without par value and $8,200,000 par amount, of Bethlehem Steel Corporation 4 1/2% Serial Gold Bonds, in payment of properties.  AccountDescriptionAmountAmount2-FMarketable Securities 240,000 shares - B.S. Corp. Common Stock$18,417,246.009-AInter-Company Balances Bethlehem Steel Corporation8,200,000.00$26,617,246.00A second journal voucher of Midvale dated March 13, 1931, also purporting to cover a transaction in February, shows "Purchase from Bethlehem Steel Corporation of 240,000 shares of Bethlehem Steel Corporation Common Stock, without par value" at $76.74 per share, *725  or $18,417,246.  Under the same date, however, a Bethlehem Mines Corporation journal voucher was drawn to show transfer of 240,000 shares of Bethlehem common stock direct from the Bethlehem Mines Corporation to Midvale for $18,417,246.  The name of Midvale (McClintic-Marshall Corporation) was subsequently stricken through and the name of Bethlehem inserted therefor.  Thereafter, under date of April 15, 1931, journal vouchers were entered in the records of Bethlehem to show a purchase in February of the 240,000 shares of Bethlehem common stock by Bethlehem from the Bethlehem Mines Corporation, at $76.74 per share, or $18,417,246, and at the same time a sale of the same shares, at the same price, to Midvale.  The 240,000 shares of Bethlehem common stock were carried on the books of the Bethlehem Mines Corporation as its property from the time of purchase on the New York Stock Exchange up to the time of transfer to Midvale, and at no place on the books of Bethlehem is there any entry showing that Bethlehem transferred the said 240,000 shares of stock to McClintic-Marshall for its fabricating business and assets.  The dividends on the 240,000 shares of Bethlehem common stock up to*726  February 1931 were eventually credited to Midvale.  By the terms of the agreement McClintic-Marshall was entitled to the dividends on the said stock after October 1, 1930, and this credit was made to Midvale to offset the amount by which the fabricating business and assets were diminished when transferred in accordance with the agreement dated January 22, 1931.  On February 10, 1931, the fair market value of the 240,000 shares of Bethlehem common stock was $13,920,000 and that of the $8,200,000, face value, of its bonds was $7,913,000, or 63.7567 per centum and 36.2433 per centum, respectively, of the total of $21,833,000.  It was stipulated that the accumulated earnings or profits of McClintic-Marshall available for distribution in dividends were $25,000,000 as of February 10, 1931, of which sum not less than $18,000,000 was accumulated prior to December 31, 1930.  The amounts were so *1019  stipulated without prejudice to the contentions of the parties as to their availability for distribution as dividends by McClintic-Marshall, Union, and Pitt Securities Corporation, a corporation subsequently organized to take over part of the assets transferred by McClintic-Marshall*727  to Union.  Under date of February 15, 1931, Bethlehem directed a letter to Midvale (McClintic-Marshall Corporation of Pennsylvania) stating that the letter was to confirm an agreement wherein Midvale had agreed to assume and had assumed all obligations of Bethlehem under its agreement with McClintic-Marshall dated February 10, 1931, except the $12,000,000 bond issue of the McClintic-Marshall Construction Co., and had agreed to pay to Bethlehem $20,200,000 on demand and a further amount equal to the cost of the 240,000 shares of Bethlehem common stock.  On the same date Bethlehem directed a letter to Beth-Mary Steel Corporation, stating that it was to confirm the assumption by Beth-Mary Steel Corporation of the $8,200,000 in Bethlehem bonds used in the acquisition of the fabricating business and assets of McClintic-Marshall and the assumption of the $12,000,000 bond issue of the McClintic-Marshall Construction Co., and further stating that in connection with such assumption Bethlehem had assigned and transferred all of its rights to receive from Midvale the $20,200,000, as above set forth.  The transfer of properties between members of the Bethlehem group was not unusual when suggested*728  for purposes of business expediency, but in each instance where such transfers were made the proper charges and credits were entered on the books of each corporation and record ownership actually passed in respect of assets so transferred.  After such transfers the recipient of the assets treated those assets as its own, taking up the income therefrom and sustaining the expenses incident thereto.  In connection with the acquisition of the property of McClintic-Marshall by the various subsidiaries of the Bethlehem Steel Corporation and the assumption of the bond indebtedness of the Beth-Mary Steel Corporation, no change was made in the outstanding capital stock of any of the corporations.  Bethlehem's outstanding common stock amounted to 3,200,000 shares.  It also had 7 percent cumulative preferred stock having a par value of $100,000,000 outstanding.  On January 20, 1931, the Union Trust Co. and Marshall and McClintic, representing themselves and A. W. Mellon and R. B. Mellon, entered into an agreement providing that the Trust Co. would purchase from them Bethlehem bonds in the principal amount of $8,200,000, to be issued by that company under the terms set forth in the contract. *729  On February 10, 1931, the Bankers Trust Co. informed Marshall that it held the bonds subject to his order.  On *1020  February 11, 1931, Marshall authorized the Bankers Trust Co. to deliver them to the Union Trust Co. in accordance with the agreement of January 20.  The Union Trust Co. issued its checks to the petitioner and the other McClintic-Marshall stockholders.  The petitioner received $2,373,900, representing the sale of his portion of the bonds at 96, plus accrued interest of $12,300.  The petitioner entered the amount so received on his books under date of February 11, 1931, and reported in his income tax return a profit of $1,922,631.  It was admitted in the pleadings that the item of $12,300 was erroneously reported by the petitioner as interest received.  Bethlehem had no arrangement or agreement with the Trust Co. governing the disposition of the bonds after issuance.  McClintic-Marshall, the name of which was changed to William Penn Corporation, has conducted no business since February 10, 1931, and since that date has had no assets.  In February 1933 Its certificate of incorporation was amended, reducing its capital stock to 100 shares having a par value of*730  $100 per share.  IV. - The Liquidation of Union Construction Co.  The Koppers Co. - Union Construction Co. reorganization. - Among the investment assets transferred to Union by McClintic-Marshall was a block of 500,000 of the 600,000 outstanding common shares of the Koppers Co., a Delaware corporation (hereinafter called Koppers Co.), engaged, with its many subsidiaries, in building byproduct coke ovens, in processing coal, in manufacturing and marketing the byproducts thereof, and in carrying on related industries.  The remaining 100,000 shares of Koppers Co. stock were owned by Henry B. Rust, chairman of the board of directors of the Koppers Co., and by members of his family.  For about a year prior to March 1931 the officers of the Koppers Co. had been considering a plan to reorganize the company for the purpose of consolidating the interests which the company's stockholders owned, in the same proportions, in other companies.  A. W. Mellon, R. B. Mellon, C. D. Marshall, H. H. McClintic, and H. B. Rust owned the common shares of Fuel Investment Associates, which in turn owned a group of other companies, principally located in Boston.  The reorganization was proposed*731  also in order to secure individual instead of corporate ownership of the stock of these various companies and to facilitate the economical control and operation of such corporations.  Therefore, the following plan, dated March 30, 1931, was formulated and submitted to the interested stockholders: REORGANIZATION OF THE KOPPERS COMPANY.  The stock of the Koppers Company, formerly held by McClintic-Marshall Corporation, has recently been transferred to The Union Construction Company.  It is desired to have this stock distributed to the stockholders of The Union Construction *1021  Company without recognition of gain for tax purposes.  In this connection it has been suggested that it might be advisable to combine under one Massachusetts Trust all of the assets now owned by The Koppers Company as well as Fuel Investment Associates, an existing Massachusetts Voluntary Association, which owns a majority of the common stock of Eastern Gas and Fuel Associates.  (The present capitalization of Fuel Investment Associates consists of 600,000 common shares owned by the gentlemen who at present, directly or indirectly, own The Koppers Company and 315,630 $7.00 preferred shares owned by*732  Koppers Gas and Coke Company.  It has substantially no outstanding liabilities.) The following plan has been suggested to carry out the foregoing purposes and incidentally also to strengthen the Fuel Investment preferred stock and thereby the earnings of Koppers Gas Coke Company.  THE PLAN.  (1) The stockholders of The Koppers Company, except the Union Construction Company, unite in organizing The Koppers Company, a Massachusetts Trust, hereinafter called Company X to which they transfer all of their shares of stock of the present Koppers Company of Delaware in exchange for all of the stock of Company X issued to them in proportion to their respective contributions to Company X.  (2) The Union Construction Company transfers to Company X all of its stock in the existing Koppers Company of Delaware in exchange for shares of stock of Company X issued to it also in a proportion based on its contribution to Company X.  (3) The Union Construction Company distributes to its shareholders pro rata the stock of Company X acquired under step (2).  (4) The common shareholders of Fuel Investment Associates being the same as the common shareholders of Company X transfer all shares of*733  Fuel Investment Associates to Company X as contribution to capital surplus - or sell the same to Company X for the figure they originally paid for such shares which was a nominal sum.  (5) The Koppers Company may now be dissolved.  * * * The first four steps thus outlined were carried out.  On April 24, 1931, a Massachusetts voluntary association named the "Fuel Company" was formed.  On May 8, 1931, its name was changed to "The Koppers Company" (hereinafter called the Koppers trust).  Its authorized capital was 500,000 shares of no-par value.  Fifty of its shares were issued to H. B. Rust in exchange for 10 shares of Koppers Co. stock.  On April 25, 1931, the declaration of trust was amended to assign a par value of $1 to each share and the remaining 499,950 shares of the trust were issued to H. B. Rust and members of his family in exchange for 99,990 shares of the Koppers Co. stock.  On May 8, 1931, the Koppers trust increased its authorized shares from 500,000 to 3,000,000.  On the next day its trustees accepted a plan of reorganization proposed by Union, whereby Union transferred the 500,000 outstanding shares of Koppers Co. stock in exchange for the remaining 2,500,000*734  shares of the Koppers trust.  *1022  Upon the instruction of Union, such shares were issued to A. W. Mellon, R. B. Mellon, C. D. Marshall, and H. H. McClintic in the amounts of 750,000, 750,000, 500,000, and 500,000 shares, respectively.  That method was adopted pursuant to a resolution of the Union board of directors, passed on May 9, 1931, which provided that a dividend of the 2,500,000 shares of Koppers trust be declared payable to the Union common stockholders and charged against its surplus.  At the same time the officers of the trust were authorized to purchase all of the outstanding shares of Fuel Investment Associates.  That purchase was made in May 1931.  The petitioner's books show the receipt of his Koppers trust shares on May 9, 1931, as a tax-free dividend resulting from the reorganization of Union.  Appropriate entries appear on Union's books reflecting the transfer of the Koppers Co. stock to the Koppers trust, the distribution of Koppers trust shares to Union stockholders, and the reimbursement of the Koppers Co. for transfer stamps.  It was stipulated that, except for the purpose of determining the amount of the earnings, profits, or income of Union, at the*735  time of the transfer the fair market value of all the net assets of Union, including the 500,000 shares of Koppers Co. common stock, was $44,993,766.73, of which $37,500,000 was apportionable to the 2,500,000 shares of Koppers trust and $7,493,766.73 was apportionable to the 5,000 shares of capital stock of Union, and that the ratios existing at that time, on the basis of such apportionment, between the fair market value of the petitioner's 1,500 shares of capital stock of Union and the petitioner's 750,000 shares in the Koppers trust, were 16.6551 percent and 83.3449 percent, respectively.  The Pitt Securities Corporation - Union Construction Co. reorganization. - On May 21, 1931, the Pitt Securities Corporation (hereinafter called Pitt) was organized under the laws of the State of Delaware with an authorized capital of 50 shares of stock of $100 par value each.  On May 22, 1931, the officers of Union subscribed for 10 shares of Pitt stock and paid therefor $1,000 in cash.  The subscription contained an option to repurchase the shares at $105 per share.  On the same day Pitt accepted the subscription.  On May 25, 1931, the board of directors of Union approved such subscription*736  and directed its officers to transfer the 10 shares of Pitt stock to Pitt when the latter should exercise its option to repurchase.  Thereupon the board adopted the following plan of reorganization: Union Construction Company, being the owner of all of the outstanding capital stock of Pitt Securities Corporation, that is to say, ten (10) shares, will transfer to Pitt Securities Corporation certain assets in exchange for the remaining forty (40) shares of the capital stock of Pitt's Securities Corporation which it is authorized by its charter to issue, Pitt Securities Corporation assuming and agreeing to pay or satisfy and perform certain indebtedness, liabilities and obligations *1023  of or assumed by Union Construction Company.  The said forty (40) shares of capital stock of Pitt Securities Corporation will be immediately distributed as a dividend to the stockholders of Union Construction Company, the corporation's surplus being in excess of the book value of the assets conveyed to Pitt Securities Corporation.  and authorized its officers to execute an indenture in harmony with the plan.  On the same day the officers of Pitt adopted resolutions directing reciprocal actions*737  by Pitt.  By the identure dated and executed on June 1, 1931, Union transferred to Pitt, in exchange for 40 shares of stock of the latter company, assets valued at $12,552,471.78 and consisting of $980,279.51 in cash, certain accounts receivable, stocks, bonds, miscellaneous property, and the Water Street land.  Pitt agreed to assume all of Union's liabilities and obligations except those relating to the redemption of the first preferred stock of McClintic-Marshall (being those involved in the Corbett suit).  Union thereupon distributed to its stockholders the 40 shares of Pitt stock, of which the petitioner received 12 shares.  On June 1, 1931, Pitt reacquired the 10 shares of its own stock from Union and paid $1,050 therefor.  The transfer of the assets from Union to Pitt is reflected by appropriate entries on the books of both companies under date of June 1, 1931, as to all assets but cash and, under date of June 11, 1931, as to cash.  On June 2, 1931, Pitt received a payment on an account receivable transferred from Union and the usual rent from the lessee of the Water Street property.  Later in the month it received further payments on accounts receivable so transferred. *738  On June 1, 1931, and thereafter in that month, Pitt paid certain current bills such as were formerely paid by Union.  Subsequent to June 1, 1931, Union received no cash except the $1,050 representing the repurchase of the Pitt stock.  The certificates of stock of Pitt issued to the Union stockholders were dated June 1, 1931, but the receipts therefor were undated.  The receipt of the Pitt stock by the petitioner is shown on his books under date of June 1, 1931.  The original issue stamps affixed to the stock certificates were marked "cancelled" June 1, 1931, but the voucher and check therefor were dated December 29, 1931, and June 8, 1932, respectively.  The vouchers for the purchase of the transfer stamps upon the transfers of stock by, Union to Pitt were prepared May 25, 1931.  The checks therefor were dated May 29, 1931, and paid on various dates from June 8 to July 2, 1931.  On June 5, 1931, all the stockholders of Union consented in writing to the dissolution of that corporation and the distribution of its assets in complete liquidation thereof after the payment or other disposition of its debts and obligations.  The board of directors of *1024  Union thereupon ordered*739  such dissolution and distribution and authorized its officers to take all action necessary to accomplish that purpose.  On or after June 5, 1931, and during that year, Union distributed its remaining assets to its stockholders.  The corporation was dissolved on June 29, 1931.  At the time of the said distribution the fair market value of the gross assets distributed was $3,112,746.83, of which the petitioner received securities of the fair market value of $922,145.16, accrued interest on bonds amounting to $11,323, and $380.01 in cash.  The petitioner's books show the receipt of such distribution under date of July 27, 1931.  On June 5, 1931, the Union directors also authorized the distribution to its individual stockholders in proportion to their stock ownership of $5,000 shares of Koppers Gas & Coke Co. stock, 300 shares of Bellefield Co. stock, and 1,500 shares of Westinghouse Air Brake Co. stock.  Vouchers were prepared on May 25, 1931, and checks were issued on May 29, 1931, to cover state and Federal transfer stamps upon the various shares of stock in the said three companies.  It was stipulated that except for the purpose of determining the amount of the earnings, profits*740  or income of Union, at the time of the transfer from Union to Pitt and the distribution of the Pitt stock the fair market value of all the net assets of Union was $7,450,575.28, apportionable as follows: To 40 shares of capital stock of Pitt Securities Corporation$4,520,158.61To $5,000 shares of capital stock of Union Construction Co.2,930,426.677,450,575.28and that the ratios then existing, on the basis of such apportionment, between the fair market value of the petitioner's 1,500 shares of capital stock of Union and petitioner's 12 shares of capital stock of Pitt were 39.3316 and 60.6684 percent, respectively.  During the period from its formation to its dissolution Union had net earnings (before distribution, if any) amounting to the sum of $1,060,135.23.  The Union-Koppers reorganization and the Union-Pitt reorganization were parts of a plan for the liquidation of Union.  In his return, petitioner reported as capital gain the net excess of the cash plus the market value of the securities distributed to him pursuant to the liquidation resolution of June 5, 1931, over the adjusted basis for his Union stock, after allocation of part of his original*741  basis for such stock to Koppers shares and Pitt stock.  In computing his capital gain, petitioner deducted the sum of $139,577.03, being the amount of the liabilities of Union which had assumed as consideration for the liquidation distribution and which had been paid by Pitt at his request and for his account.  In computing the gain with respect to the Union liquidating dividend (as in the case of the *1025  Bethlehem bonds) petitioner used as the March 1, 1913, value of McClintic-Marshall Construction co. stock a figure of $353 per share for the common and $148 per share for the preferred, stating on his return that such figures were tentative and that subsequently proper figures would be presented.  In the notice of deficiency respondent made no change in this determination of gain on the liquidation of Union except to assert a lower adjusted basis for petitioner's Union stock on account of his determination of March 1, 1913, value of McClintic-Marshall Construction Co. stock.  In his answer respondent affirmatively avers that he erred in his notice of deficiency (1) in understating the amount of the distribution in liquidation; (2) in applying section 112(g) to a portion*742  of the distributions; and (3) in failing to treat the entire amount of the gain realized on such liquidation as ordinary income subject to surtax rates.  V. - The Payments by Union Construction Co. and Pitt Securities Corporation for the Account of Petitioner.At the request of the petitioner and the three other common stockholders, transferees of the assets of McClintic-Marshall, Union paid during 1931 the following amounts for the purposes indicated: PurposeDateAmountLegal expenses in re McClintic-Marshall - Bethlehem reorganizationFeb. 13$75,000.00Accountant's fees rendered McClintic-MarshallFeb. 173,291.50Annual fee for statutory representation of McClintic-MarshallFeb. 17100.00Reimbursement to Bethlehem for stock transfer stampsFeb. 2110,032.00Apr. 4233.50Counsel fees for services and expenses in re Bethlehem transactionApr. 42,518.28May 253,801.26Reimbursement to Bethlehem for 1930 income taxMay 252,369.8797,346.41The above payments were made for the account of the petitioner and the three other stockholders in proportion to their stock ownership in McClintic-Marshall and carried on Union's*743  books as open accounts against each of them. Union transferred those accounts to Pitt and appropriate entries reflecting such transfers were made on Pitt's books.  The item of $2,369.87, paid May 8, 1931, was an indebtedness of Union which was erroneously charged to the petitioner and other stockholders and paid by them in December 1934, as hereinafter set forth.  Petitioner's proportion of such item was $710.97.  During 1931 Pitt paid other obligations of McClintic-Marshall aggregating $2,327.89, for which petitioner and its other stockholders were liable as such transferees and charged them to the stockholders as accounts receivable.  Thus, Pitt's books showed a total charge of *1026  $29,902.30 to the petitioner.  The petitioner's books show the same amount under date of December 31, 1931, as his debt to Pitt.  On June 5, 1931, the petitioner and the three other common stockholders of Union, in consideration of the assignment and transfer to them by Union of all of its assets in complete liquidation, entered into an agreement with Union to pay, in proportion to their stockholdings, all of Union's liabilities and obligations relating to the Corbett claim, which was primarily*744  a potential liability of McClintic-Marshall and had been assumed by Union.  The Corbett case was settled on or about July 16, 1931, at an aggregate cost of $465,256.77.  This sum was composed of the following items which Pitt paid at the request and for the accounts of the petitioner and the three other Union stockholders: DatePayeePurposeAmountJuly 16George Wharton PepperSettlement of claim$400,000.00July 24Ward & GrayLegal expenses11,730.37Pepper, Bodine, Stokes & Schochdo30,169.49Smith, Buchanan, Scott & Gordondo23,333.33July 27Ward & GrayCosts23.58Total465,256.77The foregoing payments were charged by Pitt to the accounts of the petitioner and the three other Union stockholders and carried on Pitt's books as accounts receivable.  On July 27, 1931, the petitioner's accounts reflected the payment of $139,577.03 made by Pitt for him, but the sum of $29,203.93 originally paid by Union and assumed by Pitt did not appear on his books until December 1, 1931.  The charge of $169,479.33 against the petitioner on the books of Pitt remained unchanged until December 7, 1934, when the amount was balanced by a credit*745  entry of the same amount.  No interest was charged or paid on the account.  Under date of July 27, 1931, an entry appears on the petitioner's journal in the amount of $139,577.04 described as "Bills payable - Pitt Secur. Corp.  Mr. Mellon's liability as transferee of McClintic-Marshall Corp. on account of the Corbett suit - See agreement of June 5, 1931." In the case of R. B. Mellon, the item was not entered on his books as bills payable to Pitt until December 31, 1931.  The offsetting debit entry was to R. B. Mellon's Union account, a capital account covering his investment in that corporation.  The pages preceding the entry of July 27, 1931, contain entries dated in December of that year.  Thereafter, the record reveals no intention on the part of the petitioner to repay such sums until on or about November 30, 1934.  On that date the estate of R. B. Mellon sent a letter to Pitt stating that according to the books of the late R. B. Mellon, he was indebted to Pitt in the sum of $169,479.34 and inclosing a check for that amount.  *1027  Thereupon Pitt made immediate demand for payment of a similar amount from the petitioner and proportionate amounts from the other two stockholders. *746  On December 4, 1934, the petitioner paid to Pitt $169,479.33 and recorded such payment on his bills payable account.  In December 1934 McClintic and Marshall also made payment to Pitt of their portions of such sums so appearing on Pitt's books.  During February, March, and May, 1931, Union made several payments for McClintic and Marshall.  After June 1, 1931, Pitt made similar payments for them.  These items were carried in separate accounts on Union's books (and subsequent to June 1, 1931, on Pitt's books) and were currently repaid by the debtors.  On March 7, June 13, September 14, and December 15, all in 1932, cash distributions described as dividends were made by Pitt to its four stockholders in proportion to their respective stockholdings.  The amount distributed on each occasion was $275,000.  In each instance petitioner received $82,500 and R. B. Mellon, Marshall, and McClintic each received proportionate amounts.  Thus petitioner received in 1932 dividends aggregating $330,000.  At the time the payments described above were made, no steps were taken to apply any portion of he amounts distributed against the accounts carried on the books of Pitt as owing to that corporation*747  by each of the four stockholders.  Pitt acquired the cash so distributed by reason of the payment by the Koppers trust of its account of $1,106,250.  No action authorizing the distribution of a dividend to the stockholders was taken by the board of directors until March 2, 1933.  On that date a meeting of the board of directors was held, the minutes of which recite the payment by the Koppers trust of its account and the distribution of the proceeds, with the exception of $6,250, to the stockholders of Pitt in accordance with their shareholdings and further recite the adoption of a resolution approving the action of the officers of the company in making such distribution.  At the time of the distribution of the Bethlehem stock and bonds to the four stockholders of McClintic-Marshall, February 10, 1931, they executed a refunding receipt which provided that if any of the stock or bonds so received by them should be required to pay the Corbett claim or any liability arising from it, they would return to McClintic-Marshall such Bethlehem securities as might be needed for that purpose.  They also deposited 12,500 shares of Bethlehem common stock as collateral security to protect the refunding*748  receipt agreement.  Upon the settlement of the Corbett suit the Bethlehem stock and refunding receipt were returned to the four stockholders.  During the period from its formation to the payments made in July 1931, aggregating $465,256.77 and relating to the Corbett claim, Pitt did not sustain an operating loss.  *1028  In his notice of deficiency respondent made no addition to petitioner's income on account of the payments, aggregating $169,479.33, made on his behalf by Union and Pitt.  In his answer he affirmatively alleged that such payments constituted dividends as contemplated by section 115 of the Revenue Act of 1928.  The payments above described, aggregating, in the case of petitioner, $169,479.33, were dividends and not loans to petitioner.  VI. - The Fair Market Value of Stock of McClintic-Marshall Construction Co.In his return for the taxable year, in computing gain with respect to a liquidating dividend from the Union Construction Co. and on the sale of certain bonds of the Bethlehem Steel Corporation acquired by him, as herein elsewhere described, petitioner used as the value on March 1, 1913, of 9,030 shares of common stock and 600 shares of the preferred*749  stock of the McClintic-Marshall Construction Co., then owned by him, a figure $353of per share for the common and $148 per share for the preferred.  In the return the following reservation was made: In the computation of gain with respect to the liquidating dividend received from Union Construction Company and the sale of bonds of Bethlehem Steel Company (reported on Schedule D), a tentative basis has been adopted.  It is believed that the gain so computed and returned is in excess of the gain actually realized.  In due course a proper basis will be presented and claims for refund filed.  The respondent determined the March 1, 1913, value of the common and the preferred stock to be, respectively, $158.54 and $123.23 per share.  At the hearing the March 1, 1913, value of the preferred stock was stipulated to be $130 per share.  The McClintic-Marshall Construction Co. (hereinafter in this part sometimes called the Company) was organized under the laws of Pennsylvania on March 20, 1900, by A. W. Mellon, R. B. Mellon, H. H. McClintic, and C. D. Marshall.  On or about April 1, 1900, it acquired the assets and assumed the liabilities of a bridge company at Pottstown, Pennsylvania, *750  paying therefor $137,500 par value of 7 percent cumulative nonparticipating preferred stock.  At the same time it issued for cash at par $87,500 par value of its 7 percent cumulative nonparticipating preferred stock and $100,000 par value of common stock.  During 1901 and 1902 additional common stock of $150,000 par value was issued for cash at par and $225,000 par value of additional 7 percent cumulative nonparticipating preferred stock was issued for cash at par.  On or prior to December 31, 1908, all of the 7 percent cumulative nonparticipating preferred stock was redeemed by the Company for *1029  cash at par.  On or about December 31, 1908, the Company issued as stock dividends to its common stockholders $2,760,000 par value of common stock and $290,000 par value of a new 6 percent noncumulative participating preferred stock.  Thereafter, prior to March 1, 1913, the Company issued for cash at par additional shares of said 6 percent noncumulative participating preferred stock of the par value of $196,900.  During the fiscal year ended January 31, 1913, and the month of February 1913 the Company redeemed, partly at par and partly at book value, shares of said 6 percent noncumulative*751  participating preferred stock having a total par value of $107,800.  In August 1912 the Company issued 500 shares of its common stock having a par value of $50,000 as additional compensation to W. M. Sterrett for services he was about to render the Company by going to the Panama Canal Zone in connection with a contract for the construction and erection of the Panama Canal lock gates.  This stock was charged to the Panama Canal account on the books of the company at the amount of $50,000 and in the claim subsequently filed with Congress on account of the loss on the Canal contract the sum of $50,000 was included as part of the total cost.  On March 1, 1913, there were outstanding 30,600 shares of common stock of the par value of $100 each and 3,791 shares of 6 percent noncumulative participating preferred stock of the par value of $100 each.  The preferred stock was subject to call in whole or in part at the option of the board of directors at $100 per share, or at the book value as shown by the last annual statement of assets and liabilities of the Company submitted to and approved by the board of directors, whichever was greater.  The capital paid in and retained in the business*752  exclusive of stock dividends at the end of each fiscal year was as follows: Fiscal yearCommonPreferredTotal1901$100,000$225,000$325,0001902200,000450,000650,0001903250,000450,000700,0001904250,000395,000645,0001905250,000350,000600,0001906250,000350,000600,0001907250,000350,000600,0001908$250,000$350,000$600,0001909250,000124,100374,1001910250,000162,500412,5001911250,000183,400433,4001912250,000195,400445,40019131 300,00089,100389,100The business of the McClintic-Marshall Construction Co. was the fabrication and erection of structural steel.  Its raw material was mostly steel shapes, plates, and bars, purchased from companies engaged in the general production of steel.  Its work consisted of the fabrication and erection of the steel framework of office, mill, and factory buildings; train sheds; freight depots and terminals; pier sheds; *1030  warehouses; grandstands; drill halls; deck; through truss; cantilever and other types*753  of bridges and viaducts; turntables; ore trestles and bins; ore bridges; signal and catenary bridges; transmission poles and towers; coal bins; head frames; tipples; and numerous other types of buildings, structures, and engineering works.  The type of business was such as to require a relatively small inventory or plant investment, as compared to a fully integrated steel company.  The largest part of the company's raw material was the finished product of the steel companies that sold it to the McClintic-Marshall Construction Co.  When it came to the shops of the latter, a large part of it was already of the proper length, shape, etc., to go into the particular job.  The Company fabricated and erected steel, but did little or no manufacturing.  The erection or construction part of the business required a comparatively small investment, as the necessary field equipment was relatively small even on a large job.  The Company's usual practice was to order the material after the contract had been obtained, and this practice permitted the material to be purchased in such forms, shapes, and dimensions as to require the minimum of shop work prior to the work of erection or construction on*754  the job site.  The business was largely of a processing and engineering nature, and results depended much more on efficiency of personnel, perfection of organization, and high grade management than on the amount invested in physical properties.  By March 1, 1913, the Company's personnel was well organized and experienced.  Except for a small minority interest outstanding at certain intervals, the common capital stock of the McClintic-Marshall Construction Co. was owned by the organizers in the following proportions: Petitioner, 30 percent; R. B. Mellon, 30 percent; H. H. McClintic, 20 percent; C. D. Marshall, 20 percent.  On March 1, 1913, there were outstanding 30,600 shares of common stock, all of which was owned by the above persons except 500 shares owned by W. M. Sterrett.  On said date there were outstanding 3,791 shares of preferred stock, 2,408 of which were owned by the four above stockholders.  The remainder was owned by major employees holding responsible positions with the organization.  The securities of the Company were not listed or dealt in on any exchange.  Substantially the only dealings in the stock, at least prior to 1913, consisted of the issuance of common stock*755  at par, and the issuance and redemption of preferred stock at par or book value as hereinabove stated; and except that out of the 2,900 shares of preferred stock issued as a stock dividend to the common stockholders in 1908, 872 shares were transferred by the common stockholders to certain employees of the Company.  At all times from 1900 to 1913 the directors of the Company were A. W. Mellon, R. B. Mellon, C. D. Marshall, H. H. McClintic, and *1031  W. S. Mitchell; and the officers of the company were C. D. Marshall, president; H. H. McClintic, vice president; and W. S. Mitchell, secretary and treasurer.  S. W. and R. B. Mellon were capitalists and bankers who had large financial resources both personally and by reason of their interest in and connection with important banking institutions.  McClintic and Marshall were civil engineers, who, after graduation from Lehigh University in 1888, entered the employ of the Shiffler Bridge Co.  From 1900 throughout their business lives they were the active managers of the business of the McClintic-Marshall Construction Co. and affiliated companies.  During the period from 1900 to 1913 and thereafter, Marshall had direct supervision*756  of the administrative end and McClintic direct supervision of the production end of the business of McClintic-Marshall Construction Co.  From shortly after it was founded, the McClintic-Marshall Construction Co. determined upon, and consistently adhered to, a policy of using a substantial part of its earnings for growth and expansion.  The amount distributed to stockholders was substantially increased after the common stock dividend of $2,760,000 was issued in December 1908.  The rates and amounts of dividends paid are as follows: On common stockOn preferred stockFiscal year ended Jan. 31 -RateAmountRateAmountPer centPer cent1901$2,177.76$11,840.201902NoneNone190327,747.4857,361.241904717,500.00731,500.001905717,500.00731,500.001906717,500.00724,500.001907717,500.00724,500.001908717,500.00724,500.0019097114,100.00727,448.65Do(1)2,760,000.00(1)290,000.0019107210,700.00729,717.7919117210,700.00733,044.5619127210,700.00731,823.171913NoneNone729,456.00The*757  Company began business in 1900 with one plant, the bridge works at Pottstown, Pennsylvania, with a capacity of approximately 2,500 tons per month.  An August 1900 a site was acquired at Rankin, Pennsylvania, and shop No. 1 was constructed on that site during 1901 and 1902.  This shop had a capacity of about 3,500 tons per month.  In 1906 additional land was acquired at that place and a new shop built, which brought the capacity of the Rankin plant to 7,500 tons per month.  In 1907 the fabricating property and plant of the American Structural Steel Co. at Carnegie, Pennsylvania, was acquired, adding 1,000 tons per month to the capacity of the Company.  By 1908 the total productive capacity had reached 12,000 *1032  tons per month.  By March 1, 1913, the total capacity of the Companyy at its plants at Rankin, Pennsylvania, Pottstown, Pennsylvania, and Carnegie, Pennsylvania, had reached 12,800 tons per month, or 153,600 tons per year, of which 111,600 tons had been constructed new from 1902 to 1911.  No plants or extensions were in process of erection on March 1, 1913.  The Company's shops were kept up to date and in excellent condition at all times.  On March 1, 1913, an office*758  was maintained at each of the three plants, a general office was maintained at Pittsburgh, Pennsylvania, and sales offices were maintained at New York, Pittsburgh, Chicago, St. Louis, Detroit, Columbus, and San Francisco.  The Company had also acquired in 1909 and continued to own on March 1, 1913, at Indiana Harbor near Chicago, a 50-acre site favorably located and appropriate for another plant whenever such plant expansion in the Chicago district should be decided upon.  While there were numerous concerns engaged in the structural steel business in competition with the McClintic-Marshall Construction Co., by the year 1908 it had become the second largest concern engaged in that business in the United States.  The largest company engaged in that business was the American Bridge Co., a subsidiary of the United States Steel Corporation.  Based on tonnage capacity and tonnage output, the American Bridge Co. was approximately five times as large as the McClintic-Marshall Construction Co. on March 1, 1913.  At that time the capacity of the McClintic-Marshall Construction Co. was approximately twice that of its next largest competitor.  Prior to March 1, 1913, the McClintic-Marshall Construction*759  Co. had fabricated and/or erected the structural steel for many structures, both large and small, and of many types of construction.  By March 1, 1913, the Company had acquired a high reputation in the industry for the quality of its management, its efficiency of operation, and for ability to perform its contracts, however difficult the engineering or other problem involved.  Generally speaking, the Company used the accrual method of accounting, supplemented by the completed contract method with respect to its construction contracts.  Its accounting period was the fiscal year ending January 31.  The greater portion of its income was derived from contracts for the fabrication and erection of structural steel.  Profits realized or losses sustained from the performance of such contracts were accounted for through its construction ledger.  All costs, including material, labor, and overhead, were debited to accounts in that ledger.  When bills were rendered for any portion of a contract price, the amounts were credited therein, with a corresponding charge to accounts receivable, and when collections were made the credit was to accounts receivable.  Thus, at a given time, the construction*760  ledger reflected a debit balance or a credit balance, *1033  depending upon whether the costs exceeded the billings, or vice versa.  The debit or credit balance in an account covering a particular contract was closed out to profit and loss during the period when the job had been completed and final settlement made with the other party to the contract.  For balance sheet purposes, the net difference between the total debits and the total credits covering all open contracts carried in the construction ledger was reflected under the head of inventories.  By this method, the construction ledger items or the inventory items contained in the various balance sheets reflect either a concealed profit or concealed loss, the nature and the exact amount of which could be determined only by a detailed analysis of all the open contracts.  Under date of June 21, 1910, the Company entered into a contract with the Isthmian Canal Commission to furnish and fabricate the material for and to erect the Panama Canal lock gates.  This contract was obtained as the result of competitive bidding.  There were four bids submitted, the approximate totals of which were as follows: McClintic-Marshall Construction Co$5,374,474.82United States Steel Products Export Co. (affiliated with the American Bridge Co.)6,103,041.10Maryland Steel Co8,409,369.31Riter-Conley Manufacturing Co10,183,257.00*761  By the terms of the contract the exact contract price was determinable in accordance with the quantity of work done or material delivered and erected at specified unit prices.  The contract required the furnishing and erection of 46 lock gates, 42 of which were to be completed on or prior to March 1, 1913, and the remaining four by June 1, 1913.  On March 1, 1913, none of the gates had been completed.  By supplemental contract dated May 20, 1913, the time for completion was extended to March 1, 1914.  The greater part of the work in the Canal Zone was performed with native labor.  McClintic-Marshall had never used native labor previously nor had it done any work in the tropics.  The petitioner and his brother, R. B. Mellon, were jointly and severally sureties on the contract in the amount of $1,075,000.  The fabrication work on the Panama Canal job, which was done at the No. 2 shop at Rankin, Pennsylvania, was begun in December 1910 and was completed in January 1913.  On March 1, 1913, substantially all the material had been shipped to the Isthmus, and the work of erection at the Isthmus had been approximately 50 percent completed.  The erection work was not finally completed until*762  March 1914.  The weight of the structural steel and other material furnished by the Company was 61,004 tons.  The contract price as estimated in the contract was $5,374,474.82 and, as finally billed against the Isthmian Canal Commission, was *1034  $5,680,097.09.  The total amount invested in the project on March 1, 1913, was $6,241,853.36, or $561,756.27 more than could be received under the terms of the contract.  On that date the erection cost amounted to $2,191,521.35, of which $652,598.28 represented the cost of field erection equipment, and the amount expended for material, fabrication, etc., was $4,050,332.01.  The total cost of erection was $4,324,795.46 and the cost of the material, its fabrication, and all other miscellaneous costs was $4,119,187.74.  The total cost expended was $8,444,983.20, and the total excess of expenditures over the total bills rendered was $2,764,886.11.  After completion of the work in 1914, the McClintic-Marshall Construction Co. petitioned Congress for relief, ultimately receiving an additional payment of $714,007.39, thereby reducing its loss to about $2,050,970.69.  On the books of account of the McClintic-Marshall Construction Co. *763  the loss was charged off as follow: Fiscal year ended January 31 -Amount1913$100,073.59191414,000.00191524,000.00191624,000.0019171,477,634.84191879,556.551919331,705.71Total2,050,970.69It was apparent on March 1, 1913, that a large loss would be sustained as a result of the completion of the lock gate contract, and it could have been estimated with a reasonable degree of accuracy that the loss would be at least $2,000,000.  The Panama Canal contract added to the prestige of the Company and was of large value as advertising.  For several years prior to March 1, 1913, the production and consumption of steel in the United States had increased with great rapidity.  This period was marked by an increase in the weight of locomotives and railroad cars, with a corresponding increase in the weight of rails and in the weight and strength of bridges; by the erection of multiple-story buildings; the building of larger commercial and the light and power industries; the building of larger commercial and industrial plants; and the development of tunnels and subway systems in transportation.  During the same period there had been a rapid*764  growth in the structural steel industry.  Continued expansion in the structural steel industry could reasonably have been foreseen on March 1, 1913.  The business of the Company was obtained largely as the result of competitive bidding.  The nature of the business was such that *1035  each job involved engineering problems not encountered on others.  The principle source of the raw materials used by the Company was the rolling mills.  During the period prior to 1913 those materials were purchased on the open market.  In 1922 and 1923 the plant properties of the Company were the subject of a retrospective appraisal.  The appraisal comprised a restatement of the actual cost or the estimated cost of reproduction new of each item of property as of the year in which acquired, and the estimated cost of reproduction new as of March 1, 1913, of all plant property items in service on that date.  The appraisal also estimated the annual rate of depreciation accrued on March 1, 1913.  The appraisal covered the entire period from the formation of the Company on April 1, 1900, to June 30, 1922.  The adjustments resulting from the appraisal were entered on the Company's books in 1926, *765  by way of lump sum debits and credits to the property accounts, depreciation reserves, and surplus accounts.  The books of accounts for the earlier years were not changed.  Preparatory to the trial of the valuation issue in this proceeding the appraisal adjustments were retroactively applied to the respective accounting periods affected.  The estimated costs in the appraisal were substituted for the costs of additions to the property account as reflected by the books, the estimated appraisal depreciation was substituted for the depreciation actually taken on the books of the Company, and the differences were used to increase or decrease the book earnings of each year.  The excess of the depreciated reproductive cost as of March 1, 1913, over the depreciated costs built up by the appraisal between April 1, 1900, and March 1, 1913, was added to surplus as of March 1, 1913, as "Appreciation." The earnings of the Company as (1) reflected by its books of account, except for minor adjustments made by revenue agents, and (2) as retroactively stated to incorporate the adjustments resulting from the retrospective appraisal, are as follows for the years indicated: Year or period ended January 31 - (1) Earnings per books(2) Earnings as revised1901 (10 months)$119,916.02$120,328.98190281,954.2149,434.321903353,702.44365,226.691904553,327.34589,335.73190583,035.62127,743.501906438,621.77493,240.361907611,667.45741,876.211908901,846.90962,629.401909$405,105.44$400,711.311910451,964.17436,246.991911654,143.74755,782.471912157,851.45218,936.071913262,686.87331,552.48Total5,075,823.425,593,044.51*766  Of the net increase of $517,221.09 in the revised earnings, $319,029.36 was due to the actual or estimated cost of additions to the property in excess of the costs reflected on the books of account, and the remainder *1036  of $198,191.73 was the reduction in depreciation resulting from the substitution of the basis set up in the appraisal for the amount of depreciation originally credited to the property account on the books.  The net increase of earnings for the month of February 1913 amounted to $6,282.10, of which $6,160.87 represented additional estimated costs and $121.23 represented a decrease in depreciation.  In addition, the retroactive books entries made in 1926 increased the surplus account on March 1, 1913, by $298,639.11, representing the excess of the reproductive costs as of that date, less the estimated depreciation accrued, over the restated actual or estimated cost of the property as acquired, less the estimated depreciation thereon.  Thus, as of March 1, 1913, the surplus of the company was increased by a total of $822,142.30, consisting of surplus by restorations, $325,190.23; surplus by depreciation restored, $198,312.96; and surplus by appreciation, *767  $298,939.11.  The annual capacity of the McClintic-Marshall plants, the output of finished structural steel, the percentage of capacity utilized, the total price at which the production was billed to the purchaser, and the average price of the product per ton for each fiscal year ended January 31, were as shown in the following table: Fiscal year - Annual capacity in tonsTonnage outputPercent utilizedTotal billingsAverage price per ton billed1901 (10 months)30,000190272,00031,07242.15190372,00052,84573.40$4,083,998$77.28190472,00058,38881,094,577,89678.40190572,00045,23362.822,821,00862.37190672,00067,53293.794,412,42265.341907138,000111,42180.747,795,41469.961908144,000111,18477.219,392,34484.481909144,00080,45055.875,425,97367.451910144,00097,07067.415,867,50760.451911153,600132,72086.418,787,09966.211912153,600101,37066.007,245,19871.471913153,600106,02569.036,873,37764.83Included in the output and total billing for the fiscal years 1912 and 1913, as shown in the above tabulation, are the following*768  quantities of material produced for the Panama Canal lock gates and the amounts billed thereon: 1912 - 27,089 tons billed at$1,202,5691913 - 33,915 tons billed at1,488,989If those amounts are eliminated from the production and billings for those two years, the average price per ton of the other material produced and billed would be $81.35 per ton for the fiscal year 1912 and $74.67 per ton for the fiscal year 1913.  The earnings of the Company per ton of output as originally recorded on its books and as retroactively recorded to reflect the adjustments *1037  to its earned income due to the retrospective appraisal were as follows for the fiscal years ended January 31: Earnings per ton of outputFiscal year -Original books Revised by appraisalAnnual5-year averageAnnual5-year average19011902$2.64$1.5919036.696.9119049.4810.0919051.842.8219066.49$5.437.30$5.7419075.496.006.666.761908$8.11$6.28$8.66$7.1119095.045.394.986.0819104.665.964.496.4219114.935.655.696.1019121.564.862.165.2019132.483.733.134.09*769  If the tonnage produced in the fiscal years 1912 and 1913 for construction of the Panama Canal lock gates is eliminated, and if the amount charged off the books in the fiscal year 1913 by reason of that contract is restored to the earnings for that year, in order that the effect of the Panama work may be eliminated from the calculation, the adjusted profit per ton of output and the five-year running average for those two fiscal years would be as follows: Original booksRevised by appraisalFiscal year -Annual5-year averageAnnual5-year average1912$2.13$4.972.95$5.3519135.034.365.994.82The net worth of the McClintic-Marshall Construction Co. at the end of each fiscal year (1) as shown by its books of accounts, (2) as revised to incorporate adjustments resulting from the adoption of the retrospective appraisal and from minor adjustments made by revenue agents, and (3) the borrowed money used in the business, are as follows: Year ended January 31 - (1) Net worth(2) Net worth (3) Borrowed per booksrevisedmoney1901$436,545.02$413,931.55$100,0001902843,499.23806,365.87550,00019031,162,282.951,136,673.84850,00019041,611,610.291,622,009.57350,00019051,600,645.911,655,753.07100,00019061,997,267.682,106,993.431,124,20019072,566,935.132,806,869.642,024,00019083,426,782.033,727,499.04896,20019093,464,438.823,760,661.70270,00019103,714,385.203,994,990.901,350,00019114,156,099.344,527,928.81700,00019124,091,995.964,516,341.711,100,00019134,219,134.624,705,401.312,980,000*770 *1038  The following balance sheet of McClintic-Marshall Construction Co. is a statement of the assets and liabilities of that company (1) as reflected on its books of March 1, 1913, (2) as adjusted by agents of the Bureau of Internal Revenue for excise and income tax purposes, and (3) to incorporate the adjustments to the fixed assets, depreciation reserve, and surplus resulting from the retroactive application of the 1922-1923 retrospective appraisal: McClintic-Marshall Construction Co. Balance Sheet - March 1, 1913. Adjustments by revenue agentPer revenueAs per booksDebitCredit agentDebitCreditAmendedASSETSCash$100,447.06$100,447.06$100,447.06Bills 25,113.7825,113.7825,113.78receivableAccounts 1,170,322.181,170,322.181,170,322.18receivableInventories:Construction 2,916.437.572,916,437.572,916,437.57ledgerMaterials219,659.09219,659.09219,659.09Rivets 30,268.2230,268.22and boltsFuel6,504.346,504.346,504.34Supplies32,075.4732,075.4732,075.47Investments22,840.0022,840.0022,840.00Deferred 30,608.6330,608.6330,608.63chargesFixed assets:Property383,893.94383,893.94$18,343.30365,550.64Railroad $51,118.2651,118.26sidingsBuildings605,949.06605,949.06315,411.46921,360.52Equipment882,981.49882,981.49671,960.381,554,941.87Office 14,823.0414,823.047,557.0522,380.09furnitureand fixturesErection 192,400.26192,400.26192,400.26toolsPanama field 652,598.28652,598.28652,598.28eqipChicago land280,181.85$25,522.26254,629.59254,629.59Seattle land10,697.701,114.819,582.899,582.89Appreciation361,915.85361,915.85as of 3/1/13Total7,577,801.9626,667.077,551,134.891,407,963.0018,343.308,940,754.59LIABILITIES AND CAPITALAccounts $799,756.17$799,756.17$799,756.17payableBills payable2,480,000.002,480,000.002,480,000.00Mortgages50,000.0050,000.0050,000.00Deferred 2,560.192,560.192,560.19creditsReserve for depreciationCost7,520.297,520.29$198,312.96$702,513.62511,720.95On 63,276.7463,276.74appreciationReserves:For liability2,919.582,919.582,919.58insuranceFor 4,691.744,691.744,691.74compensationinsuranceFor taxes1,804.121,804.121,804.12Capital stock:Common3,060,000.003,060,000.003,060,000.00Preferred379,100.00379,100.00379,100.00Surplus - 789,449.87$26,667.07762,782.80762,782.80earnedSurplus by325,190.23325,190.23restorationsSurplus by198,312.96198,312.96depreciationrestoredSurplus by 298,639.11298,639.11appreciationTotal7,577,801.9626,667.077,551,134.89198,312.961,587,932.668,940,754.59*771 *1041  The dollar value, tonnage and average value per ton of the new business contracted for during the fiscal years ended January 31, 1902, to January 31, 1913, inclusive, was as follows: Fiscal year -Amount in round figuresTonsAverage value per ton1902$3,850,00055,508$69.3619033,897,00050,36177.3819043,427,00049,08669.8219053,690,00064,62657.1019067,920,000108,43173.0419076,310,00086,39473.041908$7,200,000100,762$71.4619094,154,00061,54267.5019108,768,000148,23359.55191110,444,000138,47175.4219127,350,000129,10256.9319135,443,00081,20867.03The amounts shown for the fiscal year 1911 include the contract price of the Panama Canal lock gates of about $5,375,000 and approximately 60,000 tons.  The earnings per share on the 30,600 shares of common stock of the Company outstanding on March 1, 1913, after provision for the preferred stock dividends actually paid, (1) as indicated by the original books of account after minor adjustments by agents of the Bureau of Internal Revenue, and (2) as adjusted in conformity with the 1922 - 11923 retrospective appraisal, *772  for the fiscal years 1907 to 1913, inclusive, were as follows: Fiscal year ended January 31 - (1) Per share original(2) Per share revised1907$19.19$23.44190828.6730.66190912.3412.20191013.8013.291911$20.30$23.6219124.126.1119137.629.87If the loss charged off on the books in the fiscal year 1913 arising from the Panama Canal contract is eliminated, the original book earnings for the fiscal year 1913 would be increased to $10.89 per share and the revised earnings to $13.14 per share.  In the years subsequent to January 31, 1913, to and including December 31, 1930, the net earnings of McClintic-Marshall (before deducting the Panama Canal losses or Federal income taxes) segregated as to income from investments and earnings applicable to operations, the cash dividends paid, the annual capacity in tons, the tonnage output, the percentage of capacity utilized, and the earnings per ton of output were as follows: *1042  Petitioner and respondent have stipulated that the fair market value on March 1, 1913, of the 3,790 shares of preferred stock of the McClintic-Marshall Construction Co. outstanding on that date may*773  be taken to be $492,830, or $130 per share, (1) for the purpose of ascertaining the basis for determining gain or loss on that portion of petitioner's holdings of stock of the McClintic-Marshall Corporation, a Delaware corporation, attributable to the 600 shares of said preferred stock held by him on March 1, 1913, and (2) for the purpose of determining the amount to be substracted from the value of the assets and business of the McClintic-Marshall Construction Co. on March 1, 1913, to ascertain the fair market value of the common stock of said corporation outstanding on said date in the event that method of valuation should be resorted to in this proceeding by either party, or by any witness, or by the Board.  The fair market value on March 1, 1913, of the 9,030 shares of the commom stock of the McClintic-Marshall Construction Co. owned by the petitioner on that date was $300 per share.  *1043  VII. - The Contributions Issue.The petitioner was born in Pittsburgh, Pennsylvania, on March 24, 1855, and has continuously maintained his home there.  He served as Secretary of the Treasury from March 4, 1921, to February 12, 1932, and as Ambassador to Great Britain from April 1, 1932, to*774  March 4, 1933.  For a number of years prior to 1930 the petitioner had been a collector of rare paintings and had acquired a notable collection of masterpieces.  While he was Secretary of the Treasury he conceived the purpose of establishing a National Art Gallery to which he would give his own collection and to which other works of art might be added as gifts from himself and others.  He contemplated establishing the gallery in Washington for the benefit and enjoyment of the American people, comparable to other famous galleries of the world, such as a national gallery in London, which was founded by an individual and presented to the nation.  In 1927 petitioner caused a study to be made by an attorney of the matter of organization and management of such a project.  He expressed his purpose to Lord Duveen, a trustee of the National Gallery of London, and a well known art dealer, and outlined to him his ideas concerning the building and its possible position on the Mall in Washington.  Lord Duveen introduced petitioner to John Russell Pope, a well known architect.  To the same end, petitioner conferred with the head of the National Gallery of Art (a bureau under the Smithsonian Institution). *775  The paintings owned by the petitioner in 1930 and supplemented by purchases in 1931, in the opinion of experts, constituted the finest private collection in the world and were superior to any museum collection in the United States.  The collection was composed of masterpieces of Botticelli, Raphael, Titian, Perugino, Holbein, Duurer, Jan van Eyck, Velasquez, Van Dyck, Rubens, Rembrandt, Frans Hals, Hobbema, Cuyp, Gainsborough, Raeburn, Romney, Turner, Constable, and other noted artists.  Many of the paintings represented the outstanding work of the Old Masters created during the greatest periods of their careers.  The petitioner has made large contributions to many charitable, religious, and educational causes.  During 1930 his gifts for such purposes aggregated $1,503,266.84.  In order to facilitate the proper administration and distribution of certain of his donations the petitioner created a trust called "The A. W. Mellon Educational and Charitable Trust" (hereinafter designated as the Trust).  Under the trust agreement executed December 30, 1930, the petitioner provided that all moneys, securities, and other property passing to the trustees from him or from any other donors*776  should be held in trust *1044  for the purposes of the Trust.  Those purposes were specified as follows: The purposes of the Trust(1) This trust is created and shall be administered and operated exclusively for the benefit of, and the trust estate shall be distributed by the Trustees exclusively in aid of such religious, charitable, scientific, literary and/or educational purposes as, in the judgment of the Trustees shall be in furtherance of the public welfare and tend to promote the well-doing or well-being of mankind, and/or to or for the use of the United States, any state, territory, or any political subdivision thereof, or the District of Columbia, for such exclusively public purposes as the Trustees shall determine, such distribution of the trust estate to be made at one time or from time to time and at such times and in such manner and amounts as the Trustees, in their absolute discretion, shall deem to be prudent.  Without intending to limit or restrain in any manner or to any extent whatever the absolute discretion which the Donor hereby intends to vest in the Trustees, the Donor requests the Trustees to give careful consideration to the needs of those religious, *777  charitable, scientific and educational institutions in which the Donor, by membership, association or contribution, has manifested special interest or to which the Donor may hereafter direct the attention of the Trustees.  (2) As regards the distribution of the trust estate for religious, charitable, scientific, literary and/or educational purposes, such distribution may be effected by the Trustees by establishing or maintaining, in whole or in part, religious, charitable, scientific, literary and/or educational activities, agencies, institutions or corporations, or in aiding any such activities, agencies, institutions or corporations already established and at the time being existing, or in any other manner or for any other purpose which shall be deemed by the Trustees as an effective means or agency for the promotion or furtherance of religion, charity, science, literature and/or education.  (3) [Providing for acceptance and administration of gifts from other persons.] (4) In no event and under no circumstance shall any part of the trust estate, whether principal, income or accumulations, be distributed to or inure to the benefit of - (a) the Donor or his heirs or personal*778  representatives; (b) any of the Trustees or their successors in the trust; (c) in the event of the incorporation of the corporation hereinafter provided for, any shareholder, member, director, trustee or officer of such corporation; (d) any corporation, association or trust, unless it be organized and operated exclusively for religious, charitable, scientific, literary and educational purposes, or for one or more of such purposes, and/or for the prevention of cruelty to children or animals, and unless no part of the net earnings thereof inures to the benefit of any shareholders, member, director, trustee, officer, or other person engaged in the management of its affairs; or (e) the United States, any state, territory, or any political subdivision thereof, or the District of Columbia, unless for one or more exclusively public purposes; * * * The trustees were given power to hold and dispose of the trust estate with full authority and discretion in its management, including the *1045  organization of a corporation to carry out the trust purposes.  The trustees were empowered to increase their number to not to exceed nine.  Title of the trust estate was to be held in*779  the name of the Trust or a succeeding corporation or in the name of a nomine if advisable to do so.  The trustees were to receive no compensation for their services as such, but were to be reimbursed for necessary expenses and in event of delegation of certain duties were to receive appropriate compensation therefor.  The petitioner, Paul Mellon, and Donald D. Shepard were designated as trustees.  Paul Mellon is the petitioner's son and Shepard is an attorney in the petitioner's employ and a director of various corporations in which the petitioner is interested.  The trust agreement contains also the following provision: (9) This trust shall be irrevocable and shall continue until the final distribution of the entire trust estate unless the Trustees shall determine to cause the corporation provided for in subdivision (8) of Article IV to be incorporated in which event proper provision shall be made so that such corporation shall continue to exist until the final distribution of the entire trust estate.  The trust instrument was acknowledged on December 30, 1930, and recorded on January 5, 1935.  The petitioner gave $10,000 to the Trust at the time the trust deed was executed. *780  On the same day he transferred to the Trust an oil painting known as the Cowper Madonna of 1508 by Raphael, valued at $800,000.  On that day he wrote to the trustees as follows: In connection with my gift of an oil painting representing the Madonna and Child, known as the Nicolini Madonna, or Cowper Madonna of 1508 by Raphael, to The A. W. Mellon Educational and Charitable Trust, I have to express to you, herein, without intending to limit or restrain in any manner or to any extent whatever the discretion of the trustees in the disposition of the picture for the public educational purposes for which it is intended, my wish that the painting be held by you as Trustees of the Trust to be transferred to the National Gallery of Art, for the use of which Gallery a building to be situated in Washington is now under contemplation, if and when such a building is completed, or to some other Art Gallery or Museum built for the Government to house the Nation's objects of fine art, or in the event of its sale, if such action is deemed advisable, that the proceeds thereof be used by the Trustees of the Trust for similar purposes.  On June 5, 1931, the petitioner executed a deed of gift in*781  the following form: KNOW ALL MEN BY THESE PRESENTS, that I, ANDREW W. MELLON, of Pittsburgh, Pennsylvania, have given, transferred and delivered, and by these presents do give, transfer and deliver unto THE A. W. MELLON EDUCATIONAL AND CHARITABLE TRUST the paintings enumerated and described in the memorandum marked Appendix A, hereto attached and made a part hereof, to be and become a part of the trust estate constituting said trust, and to be used and disposed of by the trustees thereunder exclusively for the uses and purposes specified in, and in accordance with the provisions of the deed of trust, dated December 30, 1930, under which said trust was created.  *1046  IN WITNESS WHEREOF I have hereunto set my hand and seal this 5th day of June, 1931.  The instrument was formally signed and acknowledged under seal.  By this gift petitioner transferred to the trustees the following paintings: Name of artistTitle of pictureCostRaphaelMadonna Alba$1,166,400TitianToilet of Venus544,320PeruginoCrucifixion with Virgin, St. John, Magdalene, and Jerome195,615van EyckThe Annunciation503,010BotticelliAdoration of the Magi838,3503,247,695*782  The fair market value of these paintings in June 1931 was $3,247,695, their cost to petitioner.  On the same day a letter similar in import to his letter of December 30, 1930, was sent by the petitioner to the trustees.  The trustees accepted the gift under the terms of the trust by letter bearing the same date as the deed of gift.  The five paintings covered by the deed of gift of June 5, 1931, were purchased from the Soviet Government through M. Knoedler & Co., art dealers, prior to March 30, 1931.  On or about the latter date they were sent directly by that company to the Corcoran Gallery of Art in Washington, D.C., and placed in a special room reserved for the storage of the paintings, under an agreement between petitioner and the director of the gallery.  That room is fireproof and well ventilated and protected.  Its door has two locks, the key to one being held by the officials of the gallery and the key to the other by petitioner.  Other paintings later donated to the Trust are also stored in that room.  The Corcoran Gallery owns a large and valuable collection of paintings but carries no insurance on them.  No insurance has been carried on the paintings owned by the Trust*783  while stored at the Corcoran Gallery.  These paintings have never been exhibited to the public since their acquisition by petitioner.  During the years from 1932 to 1935 the petitioner and Paul Mellon made the following donations to the Trust in cash, paintings, and securities: YearCashPaintingsSecuritiesTotal19321 $35,000$6,065,400$6,100,40019331 50,00050,000193460,0008,903,4652 $614,2259,577,6901935487,500487,500Total145,00014,968,8651,101,72516,215,590*1047  On March 30, 1932, the petitioner gave to the Trust nineteen paintings which had cost $6,065,400 and on December 28, 1934, he gave to it 45 paintings having a cost of $8,903,465.  These gifts were accompained by letters similar to the letter of December 30, 1930.  The total amount dontated to the Trust in cash, securities, and works of art to April 9, 1935, was $20,266,840.  During the several years the petitioner claimed only portions of the value of his gifts to the Trust as deductions from his income.  In his return for the taxable year 1931 he made no claim on account*784  of the gift dated June 5, 1931, of the five paintings above named.  The claim arises by virtue of the petition herein and amendments thereto.  The Trust has maintained its office in the offices of the petitioner in the Mellon National Bank Building of Pittsburgh.  Its bank account was opened by the trustees in the Mellon National Bank on January 1, 1931, by the deposit of $10,000 in cash, heretofore mentioned.  The additional cash contributions made by the petitioner and Paul Mellon were so deposited at or about the time they were paid.  The account was also augmented by interest on bank deposits and the proceeds from loans secured by the Trust.  The Trust opened its books of account in April, 1931, and entered the transactions which occurred prior thereto.  The trustees of the Trust have maintained such books since that date.  The trustees have rented a safety deposit box in which all securities and valuable papers of the Trust are kept.  The trustees have duly recorded the minutes of their meetings held whenever the business of the Trust required.  On September 23, 1931, the Trust set aside $10,000 exclusively for public charitable purposes.  Appropriations aggregating $2,450*785  were made from that fund for unemployment work, Red Cross and other such relief activities.  During the early part of 1932 it devoted a considerable amount of money to like causes.  It also has established scholarships, assisted in the education of needy individuals, made donations to educational institutions and contributed to community chests and welfare and recreational work.  Up to January 1, 1935, the trustees had distributed $205,214.84 for charitable, educational, and religious purposes.  They also purchased, for $34,000 portraits of four former Presidents of the United States to be presented to the National Art Gallery when established.  All expenditures reflected in the books and record of the Trust have been made by the trustees.  The paintings donated by the petitioner to the Trust subsequent to June 5, 1931, are held in petitioner's apartment in Washington under an express agreement with the trustees and are fully covered by insurance.  Other paintings owned by petitioner are insured for 80 percent of their cost.  Insurance policies secured in 1934 covering the paintings owned by the Trust were originally written in the name of petitioner, *1048  but upon attention*786  being called to the omission of the interest of the Trust therein, an endorsement was attached to indicate such interest.  The policies were purchased by petitioner for the benefit of the Trust and paid for by him.  Excepting those stored in the Corcoran Art Gallery, petitioner has kept the paintings owned by the Trust constantly insured at his own expense.  The books of petitioner reflect his original ownership of the paintings donated by him to the Trust and the transfer of such donations to the Trust.  The books of the Trust reflect the receipt and possession by it of such paintings.  The care and protection of the paintings given to the Trust on December 28, 1934, were discussed by the trustees and it was decided December 31, 1934, that, in view of the excellent conditions, as determined by experts, surrounding their location in petitioner's apartment in Washington, the paintings should remain there in his custody for the benefit of the Trust, the same being insured by petitioner and he assuming responsibility for their care and protection.  The A. W. Mellon Educational and Charitable Trust was organized, and was operated in 1931, exclusively for religious, charitable, scientific, *787  literary, or educational purposes and no part of its net earnings inured to the benefit of any private sharesholder or individual during that year.  The transfer to the Trust on June 5, 1931, of the five paintings above named was a valid completed gift.  Conclusion of Fact as to Fraud.Petitioner did not file a false and fraudulent return, with the purpose of evading taxes.  No part of the deficiency, if any, resulting from the recomputation consequent hereon, is due to fraud with intent to evade taxes.  OPINION.  I. - The Stock Sales.VAN FOSSAN: The stock transactions described in part I of our findings of fact - specifically, the sale by petitioiner of stock of Pittsburgh Coal Co. to the Union Trust Co., the sale by R. B. Mellon on petitioner's behalf of stock of the WesternPublic Service Corporation to the Union Trust Co., and the sale by petitioner of stock of five corporations to the Ascalot Co., are the only stock sales under question in this proceeding.  The sale of Pittsburgh Coal Co. stock and the sale of stock of the Western Public Service Corporation are the only items against which the charge of fraud is now specifically made.  *1049  Though*788  our finding of fact that the sale of the Pittsburgh Coal Co. common stock was a completed and bona fide sale disposes of the issue, we will advert to some of the arguments relied on by respondent to support his disallowance and to sustain his charge of fraud.  Respondent contends that this sale of stock was invalid because inspired by a tax-saving motive.  The sale was frankly admitted to have been made to establish the amount of loss in value of the stock and with the further purpose of claiming a deduction of such amount in petitioner's tax return.  The law on this question is clear.  "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose a pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." Gregory v. Helvering, 69 Fed.(2d) 809. In the same case in the Supreme Court, the Court, speaking through Mr. Justice Sutherland, said: "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes or altogether avoid them, by means which the law permits, can not be doubted." *789 Gregory v. Helvering,293 U.S. 465">293 U.S. 465. The same law that requires the reporting of profits for taxation grants the taxpayer the right to deduct certain losses actually incurred.  So far as the tax-saving motive was concerned, petitioner had full sanction of the law.  Respondent points to the "casual manner" in which the sale was made.  The word "casual" when so used is a relative term.  It depends on the familiarity of the principals with matters of similar import.  That which would cause the man of limited experience to ponder and hesitate long before consummation might well seem to be handled most casually by the man of large affairs.  Both parties to this sale were men of wide business experience, well informed as to the subject matter and possessed of all the information necessary to enable them to make up their minds.  Each knew the other was capable of carrying out his bargain.  If they desired, the one to sell, the other to buy, there was no occasion for further consideration or delay.  Respondent further contends that a genuine sale by petitioiner of his Pittsburgh Coal Co. stock is inconceivable because of the strategic importance in petitioner's portfolio*790  of investments of the ownership of such stock.  He points to the later sale of the stock by the Union Trust Co. to the Coalesced Co. and argues that the two transactions were but parts of a plan conceived by petitioner for retaining control of the stock while obtaining a deduction from his taxes.  The answer to the first phase of this contention is that the evidence clearly establishes that petitioner did sell all of his Pittsburgh Coal common stock and has never reacquired the same or similar property.  *1050  The answer to the second phase of respondent's argument is that the Coalesced Co. was a wholly separate corporate entity, entitled to buy and sell at its election.  Petitioner had parted with all voting interest in the Coalesced Co. when he made a gift of all of the common stock to his children.  Respondent contends that Coalesced was a "family corporation" controlled by petitioner.  Although it was a "family corporation" in that the owners of the common stock were, respectively, the son and the daughter of petitioner, while petitioner owned the preferred stock, petitioner did not control or dictate the policy of Coalesced.  On parting with the common stock he severed*791  all active relationship with the company.  The corporation was thereafter controlled by its new common stockholders.  The record clearly establishes that petitioner had no knowledge of the purchase by Coalesced of the stock of the Pittsburgh Coal Co. until some months after it occurred.  But even were the control referred to by respondent proven to exist, the legal conclusion which he would have us draw, that the sale was invalid, would not follow.  The separate legal entity of a corporation is not thus lightly put aside.  Commonwealth Improvement Co. v. Burnet,287 U.S. 415">287 U.S. 415; Johnes v. Helvering, 71 Fed.(2d) 214; Edward Securities Corporation,30 B.T.A. 918">30 B.T.A. 918; affd., 83 Fed.(2d) 1007; A. S. Eldridge,30 B.T.A. 1322">30 B.T.A. 1322; affd., 79 Fed.(2d) 629. Previous to the Revenue Act of 1934 the validity, for tax purposes, of a sale between persons, otherwise legally qualified, in no wise depended on the consanguinity of the participants.  Assuming an ability on the part of each to fulfill his commitments, a man might deal as freely with his brother, his son, his daughter, or with a corporation in*792  which he or they were interested, as with a stranger.  It was only when fraud or other exceptional circumstance was proven to exist that the law refused full recognition to their transactions.  Here there was neither fraud nor exceptional circumstance to create an exception to the rule.  The subsequent acquisition of the stock by Coalesced in no way colored or affected the validity of the prior sale by petitioner.  Respondent also advances the argument that the Union Trust Co. was merely an accommodation holder for the benefit of petitioner and, since Coalesced did not acquire the stock until April 25, 1932, the sale did not actually occur in the taxable year 1931.  The record furnishes a complete answer to this argument.  Petitioner sold the stock to the Union Trust Co. without reservation or restriction on December 30, 1931.  The Trust Co. paid petitioner the current market price.  Petitioner never reacquired the stock.  This transaction was an absolute and legal sale.  It was in no way dependent on or affected by the subsequent acquisition by Coalesced.  The record establishes that the sale by the Trust Co. four months later was *1051  an entirely separate and distinct*793  transaction, conducted without the knowledge or concurrence of petitioner, based on its own adequate considerations.  The inference that the Trust Co. was, in this case, merely an accommodation holder is squarely met and answered by the evidence.  Respondent alleges in his answer, and in argument lays great stress on the charge, that petitioner's gifts of property to his children, the sales of stock to corporations owned by them, and the sales of stock to other corporations which later sold to corporations owned by the children were but part nd parcel of a plan conceived by petitioner for distributing his wealth to his children in order to defeat possible gift, estate, and inheritance taxes.  Respondent's argument is apparently based on the assumption that if such motive existed it would invalidate the transfers.  Here he falls into error.  The only effect of a gift tax, albeit in 1931 there was no Federal law imposing such a tax, is to require the payment of a tax on the transfer.  It presupposes a completed gift.  Likewise, the estate tax law does not invalidate transfers made in contemplation of death.  It merely provides for the inclusion in the taxable estate of property so*794  transferred, regardless of the transfer of ownership.  Here, moreover, all of the sales in question were at market and, thus, being made for an adequate and full consideration in money or money's worth, are expressly without the scope of the estate tax provisions.  In the instant case we are concerned solely with the taxation of income.  Were respondent to establish by proof the truth of his allegation, we are unable to perceive any legal consequence of advantage to the Government that would follow in this proceeding.  Not only is there no evidence in support of the allegation that petitioner's gifts and sales were thus motivated, there is, on the contrary, a normal and rational explanation of petitioner's procedure.  His gifts were both an evidence and a consequence of the nearness of the relationship between petitioner and his children.  This thread of paternal interest appears persistently throughout the record in this case.  It is a key which unlocks many otherwise unrevealed chambers of the petitioner's mind and provides effective refutation of the inferences respondent would have us draw from petitioiner's conduct.  Moreover, petitioner's action was based on long established*795  family precedent.  When petitioner was young in the field of business his father had made him a gift of a part ownership, and later of entire ownership, of the bank which was the cornerstone in his subsequently successful business career.  This expression of confidence was pursuant to a plan, adopted and followed to its conclusion by the father, of distributing all of his property to his children during his lifetime.  When petitioner's brother, R. B. Mellon, returned from the West, petitioner *1052  gave him a half interest in the bank, thereby beginning a long business association which had been both happy and profitable.  Thus, when his own children approached maturity, petitioner determined to follow the precedent, well proven in his own experience, and confer on them, at once, responsibility and opportunity.  He initiated a policy of making gifts of securities and other property to them.  Convinced of the wisdom of his policy and satisfied with the judgment thus far shown by them in handling substantial affairs, and further motivated by a desire to be relieved of part of the responsibility of active supervision and management of his many business interests, petitioner, in*796  the taxable year, made large gifts of securities to his children.  There was nothing unique in the fact that petitioner determined to school his children in the handling of wealth while he was yet alive or that his interest in them went so far as to provide them with the material means whereby, during his lifetime, they might assume among their fellows a position of influence and leadership.  Likewise, there is nothing unusual in his desire to be rid of part of the responsibility consequent on the possession of great wealth.  Further, dealing with the same matter, respondent calls to attention the fact that petitioner and his brother, R. B. Mellon, pursued almost identical courses in bestowing property on their children and argues that this evidences a joint intentioin to defeat taxes.  What has been said above is equally pertinent here.  It may be said in passing, however, that the fact that two men, brothers in blood, intimate business associates, endowed with the same family tradition, may have followed the same procedure is not difficult to understand.  Nor is any unfavorable inference to be drawn from that fact.  The test is the motive behind the parallelism of conduct.  Concert*797  of action, as such, is not condemned by the law.  It is only when concert of action results from improper motives that the word "conspiracy" is to be applied.  Here the evidence does not establish an improper motive.  The sale by petitioner of Pittsburgh Coal Co. stock is clearly demonstrated to have been bona fide and legal in all aspects.  Respondent alleges that, in the event the sale of Pittsburgh Coal Co. stock be held valid, the basis for determining loss on part of the stock so sold was the value of that stock on December 30, 1931, when it was transferred from the Joint Account to petitioner's personal account.  This allegation rests entirely on his other allegation that the Joint Account was a partnership.  In his brief respondent attaches no importance to this contention and relies entirely on his efforts to prove the sale fraudulent.  The finding of fact that the relationship between A. W. and R. B. Mellon, evidenced by the Joint *1053  Account, was not a partnership carries with it, of necessity, the denial of respondent's contention.  This conclusion is fully supported by the evidence and the applicable law.  In the sale of stock of the Western Public Service*798  Corporation a different question is presented.  Petitioner contends that the record reveals a complete bona fide sale to the Union Trust Co. and an independent acquisition of the same amount of the same stock 37 days later.  He contends that such transactions were made in good faith and that no contract or option to reacquire was entered into within 30 days of the original sale.  Respondent contends that no valid sale was made; that the transaction was a mere accommodation sale; subject to an understanding or agreement that the same shares would be retransferred to the original owner after the expiration of the statutory period; that petitioner has not sustained his burden of proof.  He contends further that the sale was fraudulent.  The respondent disallowed the claimed loss on the ground that the disposal does not appear to have occurred in "transactions on which losses may be recognized for income tax purposes." This language was all-comprehensive.  It cast on the petitioner the burden of proving all the elements and facts necessary to justify a deduction.  Under such circumstances the petitioner must prove not only that a sale had been made, but that no contract or option to*799  reacquire had been entered into within 30 days of the sale.  Rand v. Helvering, 77 Fed.(2d) 450. Moreover, in his petition taxpayer recognized this burden and alleged that no contract or option to reacquire had been entered into within the statutory period of 30 days.  This face he failed to prove.  Both parties to these transactions are dead and the testimony before us is, therefore, not as complete as it might otherwise have been.  Though the paucity of proof may be due to causes beyond the control of petitioner, this fact does not relieve petitioner of his burden.  The record does not reveal specifically when R. B. Mellon and H. C. McEldowney agreed to the reacquisition.  On the evidence before us, we are unable to hold that petitioner has sustained the burden of proving that he suffered a deductible loss in the transactions in stock of the Western Public Service Corporation.  The alleged loss is accordingly disallowed.  The third item of stock sales disallowed by respondent was the sale by petitioner of stock in five corporations to the Ascalot Co.  In his answer respondent alleged that these sales were fraudulent, but on brief and argument he abandoned*800  this charge and rested on the proposition that they did not give rise to deductible losses because, as he contends, the sales did not constitute transactions entered into for profit.  He urges that the sales were made for tax saving; *1054  that they were parts of petitioner's plan to distribute his property to his children; that they were accommodation transfers; and that the record is so confusing as to defy a conclusion that real sales were made.  Since most of these propositions have been dealt with hereinbefore, our conclusions may be briefly stated.  The stocks sold were taken from petitioner's investments.  They were sold at market prices to a corporation in which petitioner owned no stock, the amount realized being less than the cost to petitioner.  They were not reacquired within 30 days, four of them never again coming into petitioner's ownership, and the fifth being purchased from the Ascalot Co. more than two years later at a substantial profit to Ascalot.  The consideration agreed to be paid was properly accounted for in the books.  We find no merit in any of respondent's contentions.  The sales were complete, valid sales, regular in every way and satisfying*801  every proper test.  There is nothing inconsistent or difficult of understanding, as respondent would have us believe, in the fact that the father, to establish the deductibility of a loss, sold certain stocks which had fallen in value to a company owned by his daughter.  Both were dealing for personal advantage - the father, apparently to minimize his taxes by sacrificing certain stocks showing a loss in value; the company, a wholly separate entity, to make an investment in stocks which, in its opinion, held fair prospect of recovery and increasing in value.  The question is in no wise complicated nor were the rights of the company circumscribed by the fact that petitioner's daughter owned all of the stock of the Ascalot Co.  The deductions claimed as a result of the sales to the Ascalot Co. were improperly disallowed.  The Charge of Fraud.The respondent rests his whole case of fraud on the two stock transactions first above discussed, i.e., the sale of the common stock of the Pittsburgh Coal Co. and the sale of stock of the Western Public Service Corporation.  We have incorporated in our findings of fact our conclusion that petitioner did not file a false and fraudulent*802  return for the purpose of evading taxes.  But little need be said in amplification.  Just as the law cloaks every man with a presumption of innocence, it likewise clothes him with a presumption of good faith in his business dealings.  Fraud is never presumed.  It must be proven by clear and convincing evidence.  Having carefully considered all of the evidence and all of the inferences properly to be drawn therefrom, we find in our minds no *1055  doubt as to the correct determinatioin.  The record before us does not sustain the charge of fraud.  II. - The Ownership of the Bank Stocks.By amendment to his answer, filed at the hearing, respondent alleges that petitioner was, in 1931, the actual owner of certain bank stocks on which dividends were paid in the taxable year in he amount of $804,466; that petitioner did not report any of such dividends as income but reported $755,397.64 thereof as interest received; that petitioner sustained a loss of $1,875 through the worthlessness of certain of said stocks which he did not claim; and that, accordingly, petitioner understated his income in the net amount of $47,193.36.  Wherefore, respondent makes claim for an increased*803  deficiency.  In his brief in chief respondent indicates his position to be that in addition to adding the relatively small item of income to that reported by petitioner, the acceptance of his conclusion as to the ownership of the bank stocks tends to support his position that petitioner dominated the Union Trust Co. at the time of the purchase by it of the stock of the Pittsburgh Coal Co. and Western Public Service Corporation and lends force to his challenge of the credibility of petitioner's sworn testimony.  Respondent correctly states the question here presented to be one of fact, namely, Was petitioner the actual owner of the bank stocks during the taxable year? On this issue respondent has the burden of proof.  To establish his contention he must do more than throw doubt on the validity and completeness of the sale.  He must establish by a preponderance of the evidence and of the probabilities that a sale did not occur in 1921 when the formal contract of sale was entered into and that petitioner was the actual owner of the bank stocks in 1931.  On its face the written agreement was clearly sufficient to accomplish a sale.  The provision permitting termination of the obligation*804  in the event of death of either party was in the nature of an unexecuted option and did not limit or abridge the legal completeness of the contract.  The question here presented arises chiefly from other circumstances and the conduct of the parties respecting the contract and payments thereunder in the years 1921 to 1932.  The facts on which respondent chiefly relies are that, at various times after the contract with his brother was entered into, petitioner loaned his brother money which was used to purchase additional bank stocks or to exercise rights issued on bank stocks covered by the contract; that at the suggestion of petitioner's financial secretary, the interest rates were increased at various times somewhat paralleling the *1056  trend of dividends paid; that various sums were paid petitioner by his brother and his son for the purpose of equalizing the interest paid petitioner and the dividends paid on the bank stocks.  Addressing ourselves to the question involved, the record shows that petitioner was fully advised of the necessity of divesting himself of the bank stocks to qualify as an ex officio member of the Federal Reserve Board.  We have his categorical*805  testimony to the effect that he intended to, and did, sell without reservation; that, at the time of the hearing, he did not own, and had not since March 1, 1921, owned any bank stocks; that the signed contract represented the entire agreement without restriction or limitation.  We have a contract adequate to accomplish the purpose.  The books of the parties reflect as sale in 1921.  Petitioner reported the gains and losses on the sale of the stocks in his 1921 tax return and paid taxes accordingly.  In a situation such as is here presented much depends on the assumption with which one starts.  Where the first step in a train of circumstances is assigned a particular characterization, it often seems that all succeeding steps partake of this same character.  If one starts with the assumption that a man has practiced a deception it is sometimes not difficult so to construe all his subsequent actions as to seem to be a part of a fraudulent plan and thus by one false step so to color the situation as to misconceive the entire truth.  But the law approves of no such assumption.  Men are presumed to act honestly in their business dealings until the contrary is clearly proved.  The conclusion*806  which respondent asks would require us to reject as unworthy of belief the direct, unequivocal testimony of petitioner and other witnesses.  The length of time necessarily consumed in presenting the voluminous evidence in this case, the vigor and meticulous care of counsel in examinatiion and cross-examination, and the intricacy of detail inquired into, have afforded the Board an unusual opportunity to study and weigh the character of the witnesses and to judge of the probability or improbability of the truth of their testimony.  This study leads us to the conclusion that petitioner's testimony is entitled to full credence.  We accept as the truth his testimony that he sold the stocks absolutely; that there was no agreement, express or implied, to retain any interest therein; that he reserved no right to reacquire them except as appears in the written contract.  To sustain respondent's contention it would be necessary to hold, in effect, that petitioner and his brother entered into a conspiracy deliberately and fraudulently to conceal the truth and misrepresent the facts as to the ownership of the bank stocks.  This conclusion the record before us does not justify.  *1057 *807  Respondent points to the fact that R. B. Mellon borrowed various sums of money from petitioner and used such funds to purchase additional bank stocks.  The record also establishes, however, that petitioner loaned his brother money on many occasions having no relation to this issue.  In one such transaction the loan was in the sum of $1,250,000.  With certain comparatively insignificant exceptions, the bank stocks purchased were natural accretions to the original list of stocks made available by stock rights.  Neither the fact of the purchase of such stocks with money borrowed from petitioner nor the pledging of the same to secure the repayment of the loan which had been added to the R. B. Mellon indebtedness is inconsistent with petitioner's contention that he made an absolute sale.  Respondent also lays great stress on the facts that the interest rate was twice increased, closely paralleling the dividends paid and that, by a final payment, interest paid to petitioner and dividends received by R. B. Mellon were brought into exact balance.  However impressive these facts may seem when baldly stated, the record contains a reasonable explanation.  When petitioner's financial secretary, *808  who had previously, without petitioner's knowledge, suggested to R. B. Mellon that the interest rate be increased, was asked to recount the conversation that occurred on the occasion when the equalizing payment was under discussion, he stated: * * * Mr. R. B. Mellon called me in and asked me if I would check an interest calculation that he had caused to be made.  It was an accounting of all of the dividends that he had received, and all of the interest that he had paid; and his remark was, as I recall the remark, "I do not care to profit by this, and I want to pay Andy the entire amount of earnings that I have received, over and above the interest that I have paid." The testimony of this witness was to the same effect when asked to explain the increase in the interest rate.  Adequately to appreciate the significance of the above quoted statement, it is necessary again to recall that these men were not only brothers, but intimate business associates.  It is necessary also to realize that the then pending appointment of the petitioner to official position was deemed by him and his brother alike to be both an honor and a sacrifice.  That R. B. Mellon was proud of the honor that*809  was to be conferred on his brother was but a normal reaction.  That he did not care to profit from the situation and desired to do whatever he might to lessen the sacrifice was, under the intimacy of relationship between them, likewise a normal reaction.  Thus it is that the simple statement quoted above is pregnant with the whole truth of the matter and constitutes complete refutation of the inference respondent asks us to draw.  The reasons for the increases in the interest rate, for the equalizing payment, for the transfer *1058  of the obligation to Paul Mellon without profit are on.  R. B. Mellon did not care to profit by reason of the appointment of his brother to office.  Considering all of the evidence and weighing all of the probabilities, we conclude that the respondent has not sustained his burden of showing that in 1931 the bank stocks belonged to petitioner.  It follows that the dividends paid on the bank stocks were not taxable to him.  III. - The McClintic-Marshall - Bethlehem Transaction.(This issue is dealt with infra by Mr. Turner.) IV. - The Liquidation of Union Construction Co.In this issue we are confronted by the question of the*810  amount of gain realized by petitioner from the liquidation of Union.  The distribution in liquidation was preceded by the Union-Koppers reorganization and the Union-Pitt reorganization, both transactions being admitted by respondent to be statutory reorganizations.  In the notice of deficiency, respondent recognized the regularity and statutory completeness of these reorganizations.  The only change made by respondent was in the March 1, 1913, value of McClintic-Marshall Construction Co. stock used as a basis in determining petitioner's gain.  In his answer, however, respondent alleged in effect, and on brief contends, that since the reorganization and the liquidation were but steps in a single comprehensive plan, the paramount object of which was the liquidation of Union, the receipt by the stockholders of the stock of Koppers and Pitt and the remaining assets of Union should be treated as the receipt of stock of parties to a reorganization and "other property" under section 112(c)(1), 2 under which the gain, computed as a unit, is recognized to the extent of the fair market value of the "other property." Computed in that manner, there is no proration of the basis of the petitioner's*811  Union stock and on the facts in this case the recognized gain is an amount equal to the fair market value of the assets of Union exclusive of the Pitt and Koppers stock.  Petitioner contends that the reorganizations and the liquidation were separate and distinct, that the stock received pursuant to the two reorganizations is free of tax, and that the gain on the liquidation *1059  is the difference between the fair market value of the assets received and the basis to him of his Union stock after proration on account of the two reorganizations.  *812  Although we have foubnd as a fact that the Union-Koppers and the Union-Pitt reorganizations were parts of a plan for the liquidation of Union, the conclusion asked by respondent does bnot follow.  The same question was considered by the Board in Rudolph Boehringer,29 B.T.A. 8">29 B.T.A. 8, wherein it was held on substantially similar facts that section 112(g) 3 governed the distribution pursuant to a reorganization.  The consequence of this holding was to require a proration of the basis of the stock of the distributing company between the old and the new stock inj determining gain on the liquidation.  The question was again presented in the recent case, North American Utility Securities Corporation,36 B.T.A. 320">36 B.T.A. 320, where we affirmed the holding in the Boehringer case and observed: The distribution of Newport Industries stock is conceded to have been pursuant to the plan or reorganization and at the time of that distribution there was no surrender by the stockholders of their old stock or any agreement to surrender it at any time in the future.  The fact that their old stock was not surrendered brings this transaction squarely within the terms of section*813  112(g) and has been emphasized as a controlling factor in the Boehringer case and the Gross case, supra [88 Fed.(2d) 567]. This distribution taken alone is clearly governed by section 112(g).  The respondent argues that this distribution can not be considered alone, but must be considered as a step in a single transaction which includes the second distribution.  We find no authority which requires this result in the situation before us.  The distributions were carried out as separate transactions and each transaction specifically falls within separate sections of the statute.  We see no compelling reason for disregarding what was actually done when it was apparently done in good faith for the purpose of obtaining the benefits clearly conferred by the separate provisions of the statute.  We find no authority for holding that section 112(g) is not applicable where a reorganization is part of a plan of liquidation.  * * * * * * That the two distributions should constitute one is the keystone of the respondent's argument and with it falls his whole case.  Since they were separate distributions and separate transactions there was no "exchange" of stock in*814  the Newport Co. for stock of Newport Industries, Inc.  There was no surrender of the former in return for the distribution of the latter, and such an "exchange" is necessary to the application of sections 112(b)(3), (c)(1), and (e) for which respondent is contending.  Furthermore, since the two distributions are separate transactions it is immaterial that the first distribution may have been in liquidation as well as pursuant to a reorganization, because the liquidation section (115(c)) is expressly limited by the reorganization provisions (section 112) and therefore section 112(g) would apply under the *1060  specific terms of both sections.  This is clearly held by the decision of the Circuit Court of Appeals for the Fifth Circuit in Gross v. Commissioner, supra.* * * Thus, in the Gross case, even though the distribution was in liquidation as were later distributions in the same case, section 112(g) was held to govern because of the specific limitation of section 115(c) by the provisions of section 112.  The identical reasoning is applicable in the case at bar and is controlling.  *815  The Gross case cited in the foregoing quotation is clearly in point.  There the stockholders of corporation A resolved to transfer to corporation C all of the assets of A, excluding all cash in excess of $100,000 and certain stocks and bonds, in exchange for stock of C, which was to be distributed directly to the stockholders of A.  The stockholders of A also resolved at the same time not to distribute the remaining assets of A immediately but to have A hold them until such time as a distribution and dissolution should be deemed advisable.  The above plan was carried out and distribution of most of the assets of A was accordingly made.  Within three weeks thereafter all but a small part of the remaining assets of A were distributed in partial liquidation of A, and the remaining assets were distributed about a year later in final liquidation of A.  The Board held that there was no reorganization and that section 115(c) applied.  The Circuit Court of Appeals reversed theBoard for treating the distribution of the C shares to the A stockholders as part of a liquidating distribution under section 115(c) and held that section 112(g) applied to that distribution.  The court held further*816  that 115(c) applied only to the later liquidating distributions.  Applying the foregoing decisions to the facts in this case, it appears that the petitioner was correct in the theory underlying his computation of gain upon the Union liquidation.  V. - The Payments by Union Construction Co. and Pitt Securities Corporation for the Account of Petitioner.A further issue arising from petitioner's relations with Union and Pitt involves the determination of the proper treatment of the sum of $169,479.33 comprising payments made by Union and Pitt for the account of petitioner on account of obligations of McClintic-Marshall not assumed by Union or Bethlehem and chargeable to petitioner and the other stockholders of McClintic-Marshall, either as transferees of McClintic-Marshall or as obligors of Union's debts assumed by them upon its liquidation.  The record establishes, and we have found as a fact, that these payments constituted dividends and not loans to the stockholders.  *1061  Though the items were carried on the corporate books as charges against the stockholders and on the petitioner's books as accounts payable and notwithstanding the repayment by the stockholders*817  in 1934, other evidence of record convinces us that in the taxable year they were not regarded as obligations requiring repayment, but represented, in fact, dividends within the meaning of section 115 of the revenue act.  Interest was neither charged by the corporation nor paid by the stockholders.  Although other items of expense for the account of the stockholders were paid by the corporation and reimbursement made currently by the stockholders, the items here involved remained on the books.  The most outstanding fact is that during the year 1932 the company distributed as dividends an aggregate amount of $1,100,000, of which petitioner received $330,000, but made no effort to recoup the outstanding accounts charged against the four stockholders.  The explanation for this failure to follow the normal course of conduct, that one of the stockholders "needed the money", scarcely commends itself as adequate.  The items should accordingly be added to petitioner's income.  A further ruling is necessary as to the treatment of these items with respect to the computation of tax.  Certain of the items, aggregating $29,191.33, were paid by Union and Pitt for the petitioner as a transferee*818  of the assets of McClintic-Marshall.  These items were debts of McClintic-Marshall, and, therefore, should be added to the adjusted basis of the petioner's common stock of McClintic-Marshall, after apportioning that basis between the McClintic-Marshall common and the Union stock, as indicated in the findings of fact.  Further amounts paid by Pitt for the petitioner, aggregating $139,577.03, represent obligations specifically assumed by him in consideration of the transfer of Union assets to him and the other stockholders in complete liquidation of that corporation.  In computing his net gain from such liquidation, therefore, liabilities so assumed and paid are deductible from the gross value of the petitioner's distributive share.  O. B. Barker,3 B.T.A. 1180">3 B.T.A. 1180; Benjamin Paschal O'Neal,18 B.T.A. 1036">18 B.T.A. 1036; Sigmund Spitzer,23 B.T.A. 776">23 B.T.A. 776; Edward S. Harkness,31 B.T.A. 1100">31 B.T.A. 1100. The final item of $710.97 must also be deducted from the petitioner's gain from the Union liquidation, since it was the petitioner's share of the debt of Union erroneously charged to the petitioner and paid by him.  That debt must be accounted for*819  before a correct computation of the petitioner's gain from such liquidation can be made and, therefore, is in the same category as the payment of $139,577.03 above mentioned.  *1062  VI. - The valuation of the Stock of McClintic-Marshall Construction Co.In his tax return, in computing gain on the sale of Bethlehem bonds acquired as hereinbefore outlined and on the liquidation of Union, petitioner used a tentative figure of $353 per share as the fair market value on March 1, 1913, of the common stock of the McClintic-Marshall Construction Co. Respondent reduced this figure to $158.54.  In his petition taxpayer claims a value of $500 per share.  Addressing ourselves to the question thus presented, it is noted that although the company had enjoyed a rapid rate of growth from its organization in 1901 to 1908, its record thereafter to March 1, 1913, is not impressive.  In 1908 it had net earnings of $962,000.  In 1909 and 1910 earnings fell to $400,000 and $436,000, respectively.  Tonnage output fell proportionately.  In 1911 tonnage output increased and with it earnings rose to $755,000, but in 1912 output fell of sharply and earnings fell to $219,000.  For the fiscal*820  year ended January 31, 1913, output made a slight gain and earnings rose to $331,000.  Total earnings from 1901 through the fiscal year 1913 aggregated $5,593,000.  The earnings per ton of output fell from $8.66 in 1908 to $3.13 in 1913, with a low figure of $2.16 in 1912.  For the seven-year period ended in 1913 the average earnings were $563,000, the average profit per ton was $5.78.  Though plant capacity had increased from 30,000 tons in 1901 to 153,000 tons in 1913, neither the tonnage output nor earnings had kept pace.  It can not be overlooked that the earnings for the ten months of 1901 were $120,000 while those of 1912 were but $219,000, and those of 1913 were $331,500.  Although the low earnings of 1912 and 1913 were in part due to the Panama Canal contract, this was but one fact in the aggregate of the experience of the company and can not be said to explain away the general downward trend in the years from 1908 to 1913.  The record also shows that, for the first time since 1903, the company failed to pay a dividend on its common stock for the fiscal year ended January 31, 1913.  Viewing this record, it is our judgment that the estimate of future earnings of $1,000,000*821  per year which formed the basis for the opinions of value given by most of petitioner's witnesses was not warranted by the experience of the company and that their opinions must be discounted accordingly.  Though it be true that the average earnings of the company in the years subsequent to 1913 exceeded a million dollars a year, there was little basis in the record of the years prior to cause one to think the earnings would jump from $331,500 in 1913 to $1,012,000 in 1914.  In connection with the earnings subsequent to 1913 it is noted that after reaching a million dollars in 1914 they fell to $760,000 *1063  in 1915.  The large earnings in the years 1917 through 1919 were undoubtedly favorably influenced by the abnormal conditions existing throughout the world.  Thus it is that we are convinced that the consensus of opinion of the taxpayer's witnesses that on March 1, 1913, the company had a total value of $15,000,000, and that the common stock had a fair market value of approximately $475 per share, was not justified by the history of the company and the facts known on the basic date.  On the other hand, we are convinced that the opinions of respondent's witnesses, which*822  varied from $140 to $160 per share, were arrived at by too strict an adherence to mathematical formulae and gave too little weight to the intangible values established by the record.  We also believe these witnesses gave undue weight to the loss on the Panama Canal contract.  Despite the downward trend from 1908 to 1913, the record demonstrates that this company had had an unusually rapid growth without the investment of additional capital, enjoyed excellent management, and possessed almost unlimited financial support.  Without recitation here of the other similar facts appearing fully in our findings of fact, we are of the opinion that the values found by these witnesses are much below the actual value of the stock.  We have found as a fact that the common stock of the McClintic-Marshall Construction Co. had a fair market value on March 1, 1913, of $300 per share.  This value was arrived at by a study of all of the evidence on the subject, both factual and opinion.  It will serve no useful purpose to attempt to review all of the many factors and considerations entering into this final judgment of value.  Sufficient to say that it represents the result of weighing all pertinent facts*823  revealed by the record as known on the basic date; of giving force to prospects then reasonably to be expected to materialize in the future; of considering the trend of conditions in the then business world and with especial regard to the specific industry; of studying the various formulae employed by the several witnesses and of attributing to the opinions of these witnesses such weight as in our judgment the facts show them to be entitled to receive.  The reasonableness of the judgment so arrived at has been tested by reference to subsequent history and found to have been justified.  The figure of $300 per share, found to be the fair market value on March 1, 1913, of the common stock, together with the figure of $130 per share, stipulated to be the value of the preferred stock on such date, will be used in computing the gain realized by petitioner on the sale in the taxable year of bonds of the Bethlehem Steel Co.  These figures will, likewise, be used in computing the gain to petitioner on the liquidation of the Union Construction Co.  *1064  VII. - The Contributions Issue.The issue as to charitable contributions was raised by affirmative allegations in taxpayer's*824  petition and amendments thereto.  He did not claim the deduction here involved in his return.  Briefly stated, it is alleged that in 1930 petitioner created an educational and charitable trust to which he gave various sums of money, securities, and certain valuable works of art, in pursuance of a plan, the chief object of which was to establish a great national gallery of art.  It is alleged further, and here contended, that in the taxable year petitioner gave to this trust five paintings which were of a then present value of $3,247,695; that the trust was organized and operated exclusively for educational and charitable purposes; that no part of the net earnings of the trust inured to the benefit of any private shareholder or individual.  On the basis of such allegation and the proof of record petitioner asks a deduction from income within the limits alllowed by statute.  On his part, respondent contends that the trust does not meet the statutory tests; that the discretion vested in the trustees is too broad and that the purposes of the trust are vague; that the gifts were not bona fide and were not completed by delivery; that petitioner has never parted with dominion over the paintings; *825  that enjoyment has never inured to the people of the United States; and that at the time of the hearing petitioner had not caused plans to be drawn or made any commitment to build or endow a gallery in Washington, or elsewhere.  The first object of scrutiny should be the instrument creating the trust.  On careful reading there can be no doubt that in itself it was in all respects adequate to create an educational and charitable trust.  It conforms to every proper test in form, announced purpose, and limitation.  That the trust was broad in concept and indefinite in designating its beneficiaries argues for its validity, not its infirmity.  Textbook writers agree that an essential of a public trust is that it be broad in its scope and indefinite as to its specific beneficiaries.  From these very facts it derives its character.  Such is the law of Pennsvlvania, where the trust was created.  In Thompson Estate,282 Pa. 30">282 Pa. 30; 127 Atl. 446, the court observed: The fact that no fixed charity is described, the power of selection having been given by the decedent to another, does not render the trust uncertain, if some tribunal has been designated for the naming*826  of those who shall benefit.  * * * It is immaterial how vague, indefinite and uncertain the objects of the testator's bounty may be, provided there is a discretionary power vested in someone over its application to those objects.  *1065  But, respondent objects, no completed gift was made in the taxable year.  He contends that there was no delivery of the paintings to the trust.  This objection is fully met by the general rule of law that where a deed of gift under seal is executed and delivered no manual delivery of the property is necessary.  Here the gift was accomplished by formally executed deed of gift under seal, accompanied by delivery of the instrument.  Moreover, it was held In re Elliott (1933), 312 Pa. 493">312 Pa. 493; 167 Atl. 289, "constructive delivery is always sufficient where actual manual delivery is either inconvenient or impracticable." Here the property was of great value and had been stored in a specially fitted room at the Corcoran Art Gallery for safe keeping.  When petitioner executed the deed of gift and delivered it to the trustees, together with a directory letter evidencing a then present intention to make a gift, and received*827  from them a letter accepting the gift, the paintings being at the time in the possession of a third party located in Washington and manual delivery being obviously both inconvenient and impracticable, constructive delivery took place.  Thereupon the key to the storage room containing the paintings previously held by petitioner in his own right became the property of petitioner as a trustee of the trust to which the property had been given.  It would require a plain distortion both of fact and of law to hold that on the facts here present there was no delivery.  Smith v. Commissioner, 59 Fed.(2d) 533; Owen v. Commissioner, 53 Fed.(2d) 329; Reese v. Trust Co.,218 Pa. 150">218 Pa. 150; 67 Atl. 124. Further objection is raised that enjoyment of the paintings has not yet been permitted to the public; that at the time of the hearing no plans or commitments to build a gallery had been adopted.  In William T. Bruckner et al., Trustees,20 B.T.A. 419">20 B.T.A. 419, addressing itself to this question of deferred enjoyment, the Board said: Its conservation during a wise consideration of how best to fulfill the charitable purpose*828  is not at variance with the clear legislative purpose of the deduction, and the statute should not be so narrowly read as to exclude situations so plainly within its beneficent intendment.  So it is here.  The maturing of a project so vast in scope as that indicated by petitioner in the deed of gift is not a matter of days or weeks, but of years.  That petitioner held a persisting intention to further the purposes of the trust is indicated by his gifts in subsequent years.  Our conclusion in the matter is indicated in our findings of fact and in the above observations.  We are convinced that the trust created by petitioner was a valid legal trust, organized and operated exclusively for educational and charitable purposes and that in the *1066  taxable year petitioner made a valid gift to the trust of the property in question.  The value of the gift has been stated in our findings of fact.  III. - The McClintic-Marshall Corporation - Bethlehem Steel Corporation Transaction.TURNER: In his income tax return the petitioner reported no gain and claimed no loss upon the distribution of the Union Construction Co. stock and the Bethlehem stock and bonds to him as a stockholder*829  of the McClintic-Marshall Corporation.  It is his position that the Union stock was received by McClintic-Marshall in a reorganization under the clause (B) of section 112(i)(1) 4 of the Revenue Act of 1928, wherein McClintic-Marshall transferred a portion of its assets to Union for more than 80 percent of its stock and distributed the stock to its stockholders pursuant to the plan of reorganization.  He further contends that after that reorganization had been completed McClintic-Marshall then transferred all of its assets (being the total assets as they were in the beginning less the assets transferred to Union) to the Bethlehem Steel Corporation in a reorganization under clause (A) of section 112(i)(1), supra, for 240,000 shares of Bethlehem common stock and $8,200,000, face value, Bethlehem 4 1/2 percent serial Gold bonds, which stock and bonds were distributed to the stockholders pursuant to the plan of reorganization.  He claims that these two transfers were separate and independent of each other and were therefore reorganizations in and of themselves and that both the distribution of the Union stock and later the distribution of the Bethlehem securities fall within the provisions*830  of section 112(g) 5 of the act, under which the gain to the stockholders on these distributions is not to be recognized.  *831 *1067  The respondent in his notice of deficiency took the position that the transaction with Bethlehem was not a statutory reorganization, claiming that Bethlehem did not acquire substantially all of the assets of McClintic-Marshall.  He computed the gain on the distribution of the Bethlehem securities as the fair market value of the said securities less that portion of petitioner's basis for his McClintic-Marshall stock remaining after allocating a proportionate part of that basis to the Union Construction Co. stock and the Bethlehem securities received.  He made no computation of gain nor addition to petitioner's taxable income in respect of the Union stock received.  The respondent now claims, and has affirmatively pleaded in his answer, that the gain from the distribution by McClintic-Marshall to its stockholders of the Union stock and the Bethlehem securities is to be recognized under the provisions of section 112(c)(1) 6 of the act, to the extent of the fair market value of the Bethlehem stock and bonds.  He still makes no claim that the McClintic-Marshall - Union transaction was not a reorganization.  His reasoning is that the distribution of the Union stock and*832  the Bethlehem securities were distributions in complete liquidation, and, taken together, were received by the stockholders in full payment in exchange for their McClintic-Marshall stock within the meaning of section 115(c) 7 of the statute; that the exchange in liquidation was also in pursuance of a plan of reorganization because the distribution of the Union stock, an essential step in complete liquidation, was pursuant to the plan of reorganization between McClintic-Marshall and Union and the Union stock was therefore the stock of a corporation a party to the reorganization; that the Bethlehem - McClintic-Marshall transaction, not being a reorganization, the Bethlehem securities were not securities of a corporation a party to the reorganization and the exchange, in liquidation, of the McClintic-Marshall stock for Union stock and Bethlehem securities was not *1068  "solely" for stock of a corporation a party to the reorganization (stock of Union) within the meaning of section 112(b)(3), 8 but also for "other property" (Bethlehem securities) and the gain from such exchange is to be recognized under section 112(c)(1), supra, to the extent of the fair market value of the*833  "other property." *834  The respondent makes the further claim that regardless of the relation between the McClintic-Marshall - Union transaction and the McClintic-Marshall - Bethlehem transaction and regardless of whether or not it is held that the fabricating assets were all or substantially all of the assets of McClintic-Marshall at the time of their disposition under the Bethlehem contract, Bethlehem still was not a corporation a party to a reorganization within the meaning of section 112(i)(1)(A), supra, and its stock and bonds were not therefore the securities of a corporation a party to the reorganization for the reason that the fabricating assets of McClintic-Marshall were actually acquired not by Bethlehem, but by Midvale and two other subsidiaries of Bethlehem, all three of which were corporations separate and distinct from Bethlehem.  The petitioner's contention, that the gain realized by him upon the distribution by McClintic-Marshall of the Bethlehem securities is not to be recognized in the computation of his taxable income, rests entirely upon the claim that the McClintic-Marshall - Bethlehem transaction was a statutory reorganization and that the Bethlehem securities were the securities*835  of a corporation a party to the reorganization and were distributed pursuant to the plan of reorganization.  He can be sustained only by a finding that Bethlehem acquired "substantially all the properties" of McClintic-Marshall within the meaning of clause (A) of section 112(i)(1) of the Revenue Act of 1928, supra. There is no contention that the Bethlehem transaction was a transaction wherein McClintic-Marshall transferred assets to a corporation which immediately after the transfer was controlled by McClintic-Marshall or its stockholders so as to make the transaction a reorganization within the meaning of clause (B) of the section mentioned.  When the negotiations between Bethlehem and McClintic-Marshall were started in the summer of 1930, and when the general understanding was reached in October following, as to the assets to be acquired and the price to be paid, there was no intention on the part of *1069  either corporation that Bethlehem should acquire all or substantially all of the assets then owned by McClintic-Marshall.  In fact it was definitely understood that the only assets under consideration were the fabricating assets, which in value constituted about one-third*836  of the total assets of McClintic-Marshall.  When the understanding as to assets and price had been reached, the lawyers were instructed to draw up the contracts.  They were further instructed to draw the contracts in such a manner, if possible, as to prevent the recognition of taxable gain to McClintic-Marshall, or its stockholders.  Bethlehem, of course, was not primarily concerned in the recognition or nonrecognition of gain to McClintic-Marshall or its stockholders, but it did instruct its attorneys to cooperate with the attorneys of McClintic-Marshall in accomplishing, if possible, the desired result.  The efforts of the attorneys to prevent recognition of gain resulted in the organization of the Union Construction Co. on October 27, 1930.  It was intended that the Union Construction Co. should be used as a conduit through which the fabricating assets would be transferred to Bethlehem or "nominees", the thought being that McClintic-Marshall would transfer the fabricating assets to Union for all of its stock, which would be issued directly and proportionately to the stockholders of McClintic-Marshall, and that Union would thereupon transfer the said fabricating assets to Bethlehem*837  or "nominees" in exchange for the Bethlehem common stock and bonds agreed upon, which stock and bonds would be issued directly to the stockholders of Union, and Union would thereupon be dissolved.  After drafting and redrafting contracts designed to make the transfer in the manner outlined, the plan of procedure was changed in December of 1930 at the instance of McClintic-Marshall, but no change in the substance of the transaction was made or contemplated.  Under the new plan of procedure the assets not involved in the Bethlehem transaction were to be transferred to the Union Construction Co. so that on the date of formal conveyance of the fabricating assets to Bethlehem, or "nominees", McClintic-Marshall would actually hold only the fabricating assets to be so conveyed.  Our first question, and the one which has received most of the attention of counsel, then is whether or not McClintic-Marshall could or, on the facts here, did bring the transaction to dispose of a part of its assets to Bethlehem or "nominees" within the intent and meaning of section 112(i)(1)(A), supra, by transferring the remainder of its assets to Union prior to the formal conveyance of the fabricating assets*838  under the contract with Bethlehem.  In considering the question stated we shall refer to the conveyance of the fabricating *1070  assets as if actually made to Bethlehem instead of subsidiary corporations, separate and distinct from Bethlehem.  The above question is answered in the negative by the United States Circuit Court of Appeals for the Fourth Circuit in Helvering v. Elkhorn Coal Co., - Fed.(2d) - (Oct. 18, 1937), wherein the court reversed the decision of the Board reported at 34 B.T.A. 845">34 B.T.A. 845. The court said in part: A careful consideration of the evidentiary facts discloses no purpose which could have been served by the creation of the new company and the transfer of the assets to it, except to strip the old company of all of its properties which were not to be transferred to the Mill Creek Company, in anticipation of that transfer.  The creation of the new company and its acquisition of the assets of the old was not a corporate reorganization, therefore, within the meaning of the statute or within any fair meaning of the term "reorganization".  It did not involve any real transfer of assets by the business enterprise or any rearranging of corporate*839  structure, but at most a mere shifting of charters, having no apparent purpose except the avoidance of taxes on the transfer to the Mill Creek Company which was in contemplation.  To use in part the language of the Supreme Court in Gregory v. Helvering,293 U.S. 465">293 U.S. 465, 469, it was "simply an operation having no business or corporate purpose - a mere device which put on the form of a corporate reorganization as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not to reorganize a business or any part of a business," but to give to the intended transfer to the Mill Creek Company the appearance of a transfer of all the corporate assets so as to bring it within the non-recognition provision of section 203(h)(1)(A). * * * We do not see how that case [Gregory v. Helvering] can be distinguished from this.  If the property which was to be transferred to Mill Creek had been transferred to a new company created for the purpose and had been by that company transferred to Mill Creek, no one would contend that there was a distinction, 9 and certainly there is no difference in*840  principle between creating a subsidiary to take and convey the property to the intended transferee and creating a subsidiary to take over the other assets and having the old company make the transfer.  In either case, the apparent reorganization is a mere artifice; and it can make no difference which of the affiliated corporations makes the transfer of assets which it is desired to bring within the non-recognition provisions of the statute.  While the above decision of the Circuit Court of Appeals in Helvering v. Elkhorn Coal Co., supra, in our opinion definitely disposes of this issue, we are of the further opinion that this case, on its facts, is a much stronger case for the respondent and that the claim of the petitioner that the Bethlehem transaction was a statutory reorganization would fall of its own weight even if the court had adopted the view, expressed by Judge Watkins in his dissenting*841  opinion and by the *1071  Board in its majority opinion, that the Elkhorn Coal Co. did serve a business purpose and that Gregory v. Helvering did not apply.  It was the view of Judge Watkins that the Elkhorn Coal Co., although organized for the specific purpose of avoiding the recognition of gain by literal compliance with the reorganization provisions of the statute, did serve a business purpose since it did continue in existence as a corporation and did thereafter own and operate the properties transferred to it.  Similarly, the majority of the Board was of the opinion that the transfer to the Elkhorn Coal Co. "was for a legitimate business purpose and was intended to be a permanent exchange and not merely a temporary holding of title to obscure he real transfer", and, further, that it "was not a device to hide the real nature of the later transfer" to Mill Creek.  Obviously the facts in the instant case do not justify similar conclusions as to the organization of the Union Construction Co., nor as to its subsequent use.  It was not organized to carry on any business, nor was it intended that it should continue in existence or even hold any assets for an appreciable*842  length of time.  On the contrary, it was organized to serve as a conduit for the transfer of the fabricating assets to Bethlehem and the distribution of the price to be received, namely, the Bethlehem stock and bonds, to the stockholders of McClintic-Marshall, after which, to use the words of the Supreme Court in Gregory v. Helvering, supra, it was to be "put to death." The use of a corporation for such a purpose and in such a manner was held not to be a reorganization within the meaning of the statute.  Gregory v. Helvering, supra.Furthermore the use to which Union was actually put places the petitioner in no stronger position.  It served no "legitimate business purpose," but merely indulged "in a temporary holding of title to obscure the real transfer." It was in truth "a device to hide the real nature of the later transfer," its sole function being to act as a depositary for the assets omitted from the Bethlehem transaction at the time of the formal transfer to Bethlehem, after which, again using the language of the Supreme Court, it was "put to death." In fact, the petitioner, by his own testimony and by cross-examination of Shaner, a witness called by the respondent, *843  has shown that there was no intention that Union would be more than a temporary holder of the Koppers Co. stock, which stock represented in value $37,500,000 of the total value of $44,245,260.12 of the assets received by Union from McClintic-Marshall.  According to these witnesses a plan to put the ownership and control of the Koppers Co. in individuals rather than a corporation had been in process of preparation for a year or two, but that plan was not worked out in time to rid McClintic-Marshall of the Koppers stock prior to the transfer of the fabricating *1072  assets under the agreement with Bethlehem.  Counsel for the parties were in a dilemma.  If McClintic-Marshall still held the Koppers stock at the time of the Bethlehem transfer there would not be even a ritualistic compliance with the reorganization provisions of the statute in so far as the Bethlehem deal was concerned, and we have already pointed out that the original plan to use Union as a conduit for transfer of the fabricating assets to Bethlehem while McClintic-Marshall continued to hold the Koppers stock and other assets was definitely outside the statute and later so held in Gregory v. Helvvering, supra.*844   Distribution of the Koppers stock and other assets to the sockholders prior to completion of the Koppers reorganization, so as to strip McClintic-Marshall of all "Omitted Assets" at the time of the Bethlehem transfer, would have been the distribution of a taxable dividend or a distribution in liquidation outside of the nonrecognition provisions of the statute.  See Thurber v. Commissioner, 84 Fed.(2d) 815, reversing the Board in Alice V. St. Onge,31 B.T.A. 295">31 B.T.A. 295. The attorneys were accordingly hard pressed for a plan of procedure that would even give the appearance of a reorganization and not result in recognition of all or a substantial portion of the gain realized both by McClintic-Marshall and its stockholders.  The result was the shifting of the "Omitted Assets" to Union.  Union conducted no business and it was not intended that it should conduct any business.  Its sole function was to hold the "Omitted Assets" in the place of McClintic-Marshall at the time of the transfer to Bethlehem and until a formal distribution of a major portion of those assets could be made to the stockholders of McClintic-Marshall in the form of the Koppers and Pitt*845  reorganizations, after which it was dissolved.  It is thus apparent that the only purpose served by the shift of the omitted assets to the Union Construction Co. was to give the appearance in the Bethlehem transfer "of a transfer of all the corporate assets * * * to bring it within the nonrecognition provision" of section 112(i)(1)(A).  "The avoidance or suspension of taxes is not a business", Electrical Securities Corporation v. Commissioner, 92 Fed.(2d) 593. Accordingly, the transfer of the fabricating assets to Bethlehem under the circumstances described was not a reorganization within the meaning of the statute.  Helvering v. Elkhorn Coal Co., supra.It is strenuously urged by counsel for the petitioner that the transfer of the "Omitted Assets" to Union was in no way connected with or dependent upon the Bethlehem transaction; that such a disposition of these assets by McClintic-Marshall had definitely been determined upon long prior thereto; that the transfer to Union was made for a definite business purpose separate and apart from the Bethlehem transaction, and would have taken place regardless of the deal with *1073  Bethlehem.  The witnesses*846  through whom petitioner sought to establish the above facts were Rodewald, Pittenger, and Patterson.  In response to questioning by petitioner's counsel, these witnesses made some rather broad and sweeping statements, but upon examination by counsel for the respondent their admissions as to the information on which the statements were based indicated no definite plan and at the most nothing more than an idea.  Both Pittenger and Patterson, when asked as to the basis for their assertions, referred to the annual report of C. D. Marshall to the stockholders of the McClintic-Marshall Construction Co. under date of February 24, 1920, wherein Marshall stated, "As a number of our investments do not have any direct bearing on the manufacturing operation of McClintic-Marshall Construction Company, and the Riter-Conley Manufacturing Company, I recommend that the following investments be sold at actual cost to McClintic-Marshall Corporation, to be organized as a holding company, and for the purpose of taking care of investments that it may be to our interest to acquire in the future." On cross-examination they admitted that after the Marshall report nothing whatever appears in the minutes or*847  records of any of the companies in the group with reference to such a segregation.  Furthermore, it is to be noted that the McClintic-Marshall Corporation, a corporation given the same name as that suggested by Marshall in his report, was organized in 1926, but no segregation of the fabricating and nonfabricating assets was made or attempted.  Rodewald stated that his conclusions were drawn from his association with the affairs of the company.  He was unwilling to say that he had held conferences or talked with any officer or stockholder of the company about the matter prior to the negotiations with Bethlehem.  It was suggested in questions by counsel for petitioner and assented to by the witnesses that the retirement of the preferred stock of McClintic-Marshall, first issue, was a step in carrying out a predetermined plan of segregation, but, under questioning by counsel for the respondent, they admitted there was nothing in the records of McClintic-Marshall to form a basis for that claim.  Pittenger's strongest statement was that he had discussed the matter with Patterson, an officer of McClintic-Marshall and other corporations in the group.  Patterson, even though an officer of*848  the corporation and a holder of some of the preferred stock retired, stated that he could not recollect that the call of the preferred stock, first issue, had anything to do with such a plan.  It is also significant to note that Marshall's idea back in 1920 was that the so-called investment assets be placed in a corporation "to be organized as a holding company and for the purpose of taking care of investments." The Union Construction Co. was not such a corporation.  At the time it was organized it was not intended that it *1074  should continue in existence and the facts show that it did not continue in existence for the purpose of taking care of investments or for any other purpose.  It was dissolved within five months of the date on which the "Omitted Assets" were conveyed to it.  Rodewald did testify that the attorneys received instructions from the stockholders of McClintic-Marshall at a conference held in the forenoon of December 31, 1930, to carry through the transfer of the "Omitted Assets" to Union regardless of the outcome of the transaction with Bethlehem, but the fact nevertheless remains that these instructions did not come until the negotiations with Bethlehem*849  had reached the stage of a general understanding and, considering the events as they actually occurred, the record will not sustain a finding that anything was done in the way of segregating the fabricating and nonfabricating assets except in connection with and as an incident to the Bethlehem deal.  That the primary transaction was the transfer of a portion of McClintic-Marshall's assets to Bethlehem or "nominees" and not a transfer of substantially all of the assets, as claimed by the petitioner, and that the transfer of "Omitted Assets" to Union was merely incidental to the Bethlehem transaction and a part of the mechanics of the transfer to Bethlehem are shown by a review of the events as they occurred.  The first of the chain of these events occurred in August of 1930, when Grace, president of Bethlehem, suggested to Marshall, chairman of McClintic-Marshall's board of directors, that Bethlehem would like to acquire the fabricating business and assets of McClintic-Marshall.  Before the end of October, after numerous conferences and a study of the audit reports of Price, Waterhouse & Co. covering the fabricating business of McClintic-Marshall, an understanding had been reached*850  as to the assets Bethlehem would acquire and the price it would pay.  Neither side of this equation was thereafter changed.  The attorneys for both parties were called in and instructed to draw up the contracts to reflect the understanding reached.  These attorneys, on the witness stand, disavowed any suggestion that they were negotiators or acted in any capacity other than attorneys.  Bethlehem's attorneys were instructed to cooperate with the attorneys of McClintic-Marshall in working out a mode of transfer in such a way, if possible, that no taxable gain should be recognized to McClintic-Marshall or its stockholders.  Prior to the end of October an understanding had also been reached to the effect that all of the income of McClintic-Marshall attributable to its fabricating business, from and after June 30, 1930, should go to Bethlehem as a part of the fabricating assets, except that dividends paid prior to October 1, 1930, by McClintic-Marshall should not be disturbed and except further that the officials of McClintic-Marshall should still receive the customary bonuses upon the basis of the actual *1075  earnings of McClintic-Marshall for the entire year of 1930.  On the*851  other hand, it was agreed that McClintic-Marshall should receive in addition to the 240,000 shares of Bethlehem stock and the $8,200,000, face value, of Bethlehem bonds, the dividends and interest paid on such stock and bonds from and after October 1, 1930.  In accordance with their instructions, the attorneys proceeded with the drafting of contracts to effect the transfer of the fabricating business and assets of McClintic-Marshall to Bethlehem in a manner that would prevent, if possible, the recognition of gain to McClintic-Marshall or its stockholders.  To carry out that purpose, McClintic-Marshall, on October 27, 1930, organized the Union Construction Co. and subscribed for 10 qualifying shares of its stock.  The drafts of the contracts which passed between counsel for the parties during the period from the date on which they began their work down to December 27, 1930, show that the method of transfer first devised was to transfer the fabricating business and assets to the Union Construction Co. for 40 shares of its 50 shares of authorized stock and have these 40 shares issued direct to the stockholders of McClintic-Marshall pro rata, after which Bethlehem would transfer 240,000*852  shares of its common stock and $8,200,000, face value, of its bonds to Union for all of its assets, whereupon Union was to be dissolved and the Bethlehem securities distributed to its stockholders.  For reasons not definitely shown, the plan of procedure outlined above was changed by counsel for McClintic-Marshall at or about December 27, 1930.  On that date Smith, chief counsel for McClintic-Marshall, wrote Moore, chief counsel for Bethlehem, stating in part: "* * * the plan will be to transfer certain assets to Union Construction Company under a reorganization.  This being done, McClintic-Marshall Corporation will transfer and convey all of its remaining assets direct to Bethlehem, or nominees of the latter, likewise under a reorganization." On December 31, 1930, C. D. Marshall, H. H. McClintic, E. J. Patterson, and E. A. Gibbs, as directors of McClintic-Marshall and seven of its subsidiaries, and the first three named as directors of the Union Construction Co., went through the formalities of holding directors' meetings of the corporations mentioned for the purpose of carrying out the preliminary steps for the transfer of the fabricating business and assets of McClintic-Marshall*853  to Bethlehem.  Liquidating dividends of the seven subsidiaries were voted in order to place all of the fabricating assets in McClintic-Marshll for the purpose of transfer to Bethlehem.  Formalities of resolutions by McClintic-Marshall and the Union Construction Co. were indulged in to show authority for transfer, as of that date, of various assets of McClintic-Marshall to the Union Contruction Co. for 4,990 shares of the Union Construction *1076  Co.'s 5,000 shares of authorized capital stock, a resolution also having been adopted on that date to increase the authorized capital stock of Union Construction Co. from 50 shares to 5,000 shares.  All action taken during the afternoon was taken under the direction and supervision of one of McClintic-Marshall's attorneys and was in accordance with a memorandum of procedure brought by him to the meeting, which in sequence was declared to be a meeting of the directors of each of the various corporations.  On the same date, December 31, 1930, Smith wrote Moore, enclosing two copies each of the various contracts covering the McClintic-Marshall-Bethlehem transaction, and suggested that he, Rodewald, and Shepard should come to Moore's office*854  on January 6 "with a view to getting all these papers in final form so that this transaction may be speedily consummated." Copies of all minutes, contracts, and other papers in connection with the transfer of the "omitted assets" to Union were also submitted to counsel for Bethlehem from time to time.  According to correspondence between Smith and Moore, the deeds of conveyance had been practically completed by December 20, 1930.  Claiming that the resolutions in the meeting of December 31, 1930, effected the transfer by McClintic-Marshall of the "omitted assets" to Union, the petitioner places great emphasis on a dispute which occurred between counsel at the meeting on January 6 over the wording of that provision of the contract governing the assumption by Bethlehem of McClintic-Marshall liabilities.  He claims that the events of that meeting definitely show that the Bethlehem transaction had not been agreed upon until after the Union deal had been completed.  While, according to Grace, it was understood in October that Bethlehem was to pay 240,000 shares in stock and $8,200,000 in bonds for McClintic-Marshall's fabricating business and assets and was to assume the liabilities of*855  that business as a going business, counsel had had some disagreement as to the wording of that provision of the contract which was to govern the assumption by Bethlehem of these liabilities.  Counsel for McClintic-Marshall wanted a blanket assumption, while counsel for Bethlehem wanted to know definitely what the liabilities were.  Price, Waterhouse & Co. had early in December been assigned to make a check of McClintic-Marshall's affairs, including the "Omitted Assets" as well as the fabricating assets, for the purpose of disclosing as far as possible the information Bethlehem's counsel desired.  Their report, dated January 5, 1931, listed several contingent liabilities, and at the time of the meeting on January 6, McClintic-Marshall's counsel, under instructions from its stockholders, insisted upon a clause for blanket assumption of the liabilities.  Bethlehem's counsel demurred and the work of drafting the contracts *1077  came to a halt.  Grace and Marshall, the negotiators for the two companies, were advised.  Marshall assured Grace that there were no abnormal undisclosed liabilities, and upon that assurance Grace instructed the Bethlehem attorneys to proceed with the drafting*856  of the contract after the manner desired by McClintic-Marshall.  There were no further difficulties in putting the contracts into shape.  It was Grace's testimony that it was his "understanding that the decks were substantially cleared of any controversial or unsettled question, and that they could go forward with getting the contract into final form." No further conferences were held and all matters of detail in the final writing of the contracts were settled by correspondence or over long distance telephone.  The actions of the parties from and after that date definitely indicate that they considered the deal settled as between the two corporations and that the properties would be formally exchanged for securities on the date specified.  Although the agreement between McClintic-Marshall and the Union Construction Co. covering the transfer of the "Omitted Assets" bears the date of December 31, 1930, it was executed on January 15, 1931.  The petitioner claims that this delay was purely incidental and had no reference whatever to the Bethlehem deal, and that the transfer to Union was effective as of December 31, 1930.  The facts show, however, that, immediately after the conferences*857  in New York on January 6, 7, and 8 between counsel for Bethlehem and counsel for McClintic-Marshall, Schlottman, assistant comptroller for Bethlehem, was sent to Pittsburgh for the purpose of checking with Pittenger the division of the assets of McClintic-Marshall between Bethlehem and the Union Construction Co., and that when Schlottman expressed his satisfaction over the division of these assets between the two companies the contract between the Union Construction Co. and McClintic-Marshall was completed and executed.  Another very significant fact is that Bethlehem or "nominees" did not acquire all of the fabricating assets of McClintic-Marshall but, through the division made by Pittenger and Schlottman, the fabricating assets were reduced and in part transferred by McClintic-Marshall to the Union Construction Co. as an offset against Bethlehem for a part of the purchase price to be paid for the fabricating business and assets.  In other words, a portion of the fabricating assets was included in the transfer to Union to take the place of the dividends and interest on the 240,000 shares of Bethlehem stock and the $8,200,000 of Bethlehem bonds which had been paid to the Bethlehem*858  Mines Corporation for the period from and after October 1, 1930.  It is thus apparent that the transfer by McClintic-Marshall to the Union Construction Co. was dependent upon the completion of the McClintic-Marshall-Bethlehem transaction, for a portion of the purchase price *1078  paid to McClintic-Marshall for its fabricating business was transferred to the Union Construction Co. as a part of the consideration for the Union capital stock, and this is true regardless of the sequence of dates on which any formality connected with either the transfer by McClintic-Marshall to Union or the transfer by McClintic-Marshall to Bethlehem or "nominees" occurred.  The transfer to Union, as it was worked out and actually occurred, could not possibly have been made except as a part of the agreement between McClintic-Marshall and Bethlehem, or simultaneously therewith, or after its completion.  Accordingly, treating the date upon which agreement between Bethlehem and McClintic-Marshall was actually reached as the determining date, Bethlehem did not as a matter of fact acquire and could not have acquired substantially all of the assets of McClintic-Marshall.  It was only through such an agreement*859  that the assets to be transferred to Union could be determined.  Considering the events in the order of occurrence, Bethlehem literally and as a matter of fact did not acquire substantially all of the assets of McClintic-Marshall so as to make the transaction a reorganization under clause (A) of section 112(i)(1), supra, and the gain to the petitioner on the distribution to him of the Bethlehem stock and bonds must be recognized.  Also in this connection see Starr v. Commissioner, 82 Fed.(2d) 964. First Seattle Dexter Horton National Bank v. Commissioner, 77 Fed.(2d) 45; West Texas Refining & Development Co. v. Commissioner, 68 Fed.(2d) 77; and Prairie Oil & Gas Co. v. Motter, 66 Fed.(2d) 309. We are also of the opinion that the respondent is sound in his contention that Bethlehem may not be considered as a party to a reorganization for the reason that the fabricating assets of McClintic-Marshall were actually acquired by Midvale and two other subsidiaries of Bethlehem and not by Bethlehem, and that under such circumstances the distribution of the Bethlehem securities by McClintic-Marshall to*860  its stockholders is a distribution in which the present gain or loss realized must be recognized.  The decision of the United States Supreme Court in Groman v. Commissioner,302 U.S. ,82, is directly in point and is controlling.  In that case the parent corporation, Glidden, corresponding in this case to Bethlehem, was the contracting corporation.  Glidden entered into a contract with the stockholders of a corporation referred to as Indiana, agreeing that it would organize a corporation referred to as Ohio, all of the common stock of which would be owned by Glidden, and that Ohio would acquire all of the stock of Indiana, exchanging therefor Ohio preferred stock and Glidden preferred stock.  The question was whether or not the parent or contracting corporation, *1079  Glidden, was a party to the reorganization wherein Ohio, its subsidiary, acquired all of the stock of Indiana in the exchange mentioned.  It is to be noted that Ohio was not a party to the contract and its rights and obligations were derived solely by its subsequent arrangement or agreement with Glidden, which was the corporation obligated in the contract with the stockholders of Indiana. *861  If Glidden was a party to the reorganization which subsequently occurred between Indiana and Ohio, the stock of Glidden was the stock of a corporation a party to the reorganization and the gain realized by the stockholders of Indiana upon receipt of the Glidden stock was not recognizable under section 112(b)(3) of the Revenue Act of 1928, supra. The Supreme Court, in holding that Glidden was not a party to the reorganization and that the gain on receipt of the Glidden stock was to be recognized, said: * * * Glidden received nothing from the shareholders of Indiana.  Glidden transferred nothing to them.  The exchange was between Indiana's shareholders and Ohio.  Do the facts that Glidden contracted for the exchange and made it possible by subscribing and paying for Ohio's common stock in cash and prior preference stock, so that Ohio could consummate the exchange, render Glidden a party to the reorganization?  No more so than if a banking corporation had made the agreement with Indiana's shareholders and had organized the new corporation, and, by subscription to its stock and payment therefor in money and the banking company's stock put the new company in position to complete*862  the exchange.  Not every corporate broker, promoter, or agent which enters into a written agreement, effectuating a reorganization, as defined in the Revenue Act, thereby becomes a party to the reorganization.  * * * It is argued, however, that Ohio was the alter ego of Glidden; that in truth Glidden was the principal and Ohio its agent; that we should look at the realities of the situation, disregard the corporate entity of Ohio, and treat it as Glidden.  But to do so would be to ignore the purpose of the reorganization sections of the statute, which, as we have said, is that where, pursuant to a plan, the interest of the stockholders of a corporation continues to be definitely represented in substantial measure in a new or different one, then to the extent, but only to the extent, of that continuity of interest, the exchange is to be treated as one not giving rise to present gain or loss.  If cash or "other property", - that is, property other than stock or securities of the reorganized corporations, - is received, present gain or loss must be recognized.  Was not Glidden's prior preference stock "other property" in the sense that its ownership represented a participation in*863  assets in which Ohio, and its shareholders through it, had no proprietorship?  Was it not "other property" in the sense that qua that stock the shareholders of Indiana assumed a relation toward the conveyed assets not measured by a continued substantial interest in those assets in the ownership of Ohio, but an interest in the assets of Glidden a part of which was the common stock of Ohio?  These questions we think must be answered in the affirmative.  To reject the plain meaning of the term "party", and to attribute that relation to Glidden, would be not only to disregard the letter but also to violate the spirit of ther Revenue Act.  We hold that Glidden was not a party to the reorganization and the receipt of its stock by Indiana's shareholders in exchange, in part, for their stock was the basis for computation of taxable gain to them in the year 1929.  *1080  In this case, as in Groman v. Commissioner, supra, the parent corporation, Bethlehem, was the contracting party the only difference in that respect being that in Groman v. Commissioner the parent corporation named a specific subsidiary, to be organized, as the corporation which would*864  carry out the contract, while here Bethlehem specified that either it or its "nominees" would acquire the assets involved.  McClintic-Marshall was advised, however, that the Midvale Steel Co., a subsidiary of Bethlehem, would acquire the assets to be conveyed except the California and New York real estate, which was to be transferred to the Pacific Coast Steel Corporation and the Bethlehem Iron & Steel Corporation, respectively, and the deeds of conveyance were so drawn.  In this case, as in the Groman case, the parent and contracting corporation, Bethlehem, received nothing from McClintic-Marshall, the transferring corporation.  Neither did Bethlehem transfer anything to McClintic-Marshall.  The assets were acquired by corporations separate and distinct from Bethlehem.  Schlottman, assistant comptroller for Bethlehem and its subsidiary corporations, testified that in all of the dealings between Bethlehem and its subsidiaries and between the subsidiaries themselves great care was taken to conduct those dealings in a manner so as to definitely preserve the separate and distinct entities of the various corporations.  It is argued for the petitioner, however, that Bethlehem was*865  in reality the acquiring corporation; that it paid for the assets acquired with its own stock and bonds; and that the acquiring corporations merely held title to the assets for convenience of operation or acquired them from Bethlehem in a subsequent transaction.  Such argument can not be reconciled with the testimony of Schlottman.  Furthermore, the facts show that the Bethlehem stock used in the acquisition of the fabricating assets of McClintic-Marshall was bought on the open market and that, although it was bought under orders placed in the name of Bethlehem, it was actually paid for by a subsidiary known as the Bethlehem Mines Corporation.  The dividends paid on the stock so purchased during the period from the time of its purchase until the transfer to McClintic-Marshall were paid to the Bethlehem Mines Corporation, which, according to the books of account, was the purchaser and the owner of the stock.  Bethlehem at no time received credit or showed receipt of the dividends so paid on its books of account.  Certain journal vouchers indicate a purchase of the 240,000 shares of Bethlehem stock by Bethlehem from the Bethlehem Mines Corporation and a subsequent sale by Bethlehem to*866 Midvale.  One of the vouchers as originally made indicated that the stock was acquired by Midvale directly from the Bethlehem Mines Corporation.  This voucher was later changed in April following to show first a purchase by Bethlehem from Bethlehem Mines and then a sale to Midvale.  At no place, however, do *1081  the books of Bethlehem itself show a transfer of the 240,000 shares of Bethlehem stock to McClintic-Marshall for its fabricating business and assets.  On the other hand, the books of Midvale do show such a transfer by it.  With reference to the bonds used in the transaction with McClintic-Marshall, the record shows they were assumed by the Beth-Mary Steel Corporation, another subsidiary of Bethlehem.  From certain letters directed by Bethlehem to Midvale, under date of February 15, 1931, it appears that on some date not disclosed Midvale had agreed to assume and did assume all liability to the Bethlehem Mines Corporation for the 240,000 shares of Bethlehem stock and all liability to the Beth-Mary Steel Corporation for the $8,200,000, face value, of bonds and the assumption by it of the $12,000,000 outstanding bond issue of the McClintic-Marshall Construction Co.  Bethlehem*867  itself was out nothing and received nothing by reason of its contract with McClintic-Marshall.  A further fact which brings the instant case within the ruling of the Supreme Court in Groman v. Commissioner, supra, is that after the exchange McClintic-Marshall or its stockholders did not have that continuity of interest which, according to the above statement from the Surpreme Court's opinion, they must have in a substantial measure in the acquiring corporation.  The ownership of the stock and bonds of Bethlehem, which in turn owned the stock of Midvale, the Bethlehem Iron & Steel Corporation, and the Pacific Coast Steel Corporation, which had acquired the assets of McClintic-Marshall, was not such a continuity of interest as would make the exchange "one not giving rise to present gain or loss." As we have pointed out above, the organization and use of the Union Construction Co. served no business purpose and under the decisions in Gregory v. Helvering, supra, and Helvering v. Elkhorn Coal Co., supra, the utilization of Union under the circumstances described did not constitute a reorganization within the meaning of the statute.  Under these*868  decisions the respondent might well have claimed that all of the gain resulting from the distribution in complete liquidation of McClintic-Marshall, the said distribution including both the Union Construction Co. stock and the Bethlehem stock and bonds, should be recognized.  He has made no such claim, however, but has limited his claim under this issue to the gain realized upon the distribution of the Bethlehem securities, and not only has he limited his claim to the gain on the Bethlehem securities, but in computing such gain has treated the McClintic-Marshall - Union Construction Co. transaction as a statutory reorganization and the Union Construction Co. stock as the stock of a corporation a party to the reorganization and as having been distributed pursuant to the plan of reorgnization.  *1082  Literally, the Union stock and the Bethlehem securities were distributed by McClintic-Marshall to its stockholders without the surrender by them of their McClintic-Marshall stock.  Although the authorized stock has since been reduced in amount and the name of the corporation has been changed to William Penn Corporation, the corporation is still in existence and its stock is outstanding. *869  The record indicates that the corporation is being kept alive because there are certain unsettled and contingent liabilities.  On the basis of these facts and the admission of the respondent that the Union Construction Co. stock was the stock of a corporation a party to a reorganization, distributed pursuant to the plan of reorganization, the distribution made by McClintic-Marshall of the Union stock and the Bethlehem securities falls directly within the prior decisions of the Board in Rudolph Boehringer,29 B.T.A. 8">29 B.T.A. 8, and North American Utility Securities Corporation,36 B.T.A. 320">36 B.T.A. 320. Under these decisions the gain realized by the petitioner on the distribution of the Bethlehem securities is the excess of the fair market value of those securities over that portion of petitioner's basis for his McClintic-Marshall stock which remains after allocating a proportionate part of such basis to the Union stock received.  The allocation of basis to the Union stock should be made in accordance with the figures and percentages stipulated by the parties and shown in our findings of fact.  In making the claim that the gain from the distribution of the Bethlehem*870  securities is to be recognized under section 112(c)(1), supra, respondent made the further claim that on the facts stipulated as to the earnings of McClintic-Marshall available for distribution as dividends, the gain so realized and recognized constituted a dividend under section 112(c)(2) 10 of the act.  The application of section 112(c)(2) can not be reconciled with the decisions in Rudolph Boehringer, supra, and North American Utility Securities Corporation, supra, applied above, and is denied.  *871  Reviewed by the Board.  Decision will be entered under Rule 50.*1083  SMITH, STERNHAGEN, ARUNDELL, VAN FOSSAN, BLACK and TYSON concur in the result reached in issue III, the McClintic-Marshall - Bethlehem transaction, solely on the ground that it is controlled by the decision of the Supreme Court in Groman v. Commissioner,302 U.S. 82">302 U.S. 82. LEECH, MURDOCK (Concurring in part), TURNER (Concurring in part) LEECH, concurring: I agree with the result the majority reaches on all issues.  As to that involving the Bethlehem - McClintic-Marshall transaction, I concur for the reasons expressed by Murdock.  MURDOCK (Dissenting in part), TURNER (Dissenting in part) MURDOCK, dissenting and concurring: The evidence shows to my satisfaction that the petitioner is entitled to deduct the loss claimed on the sale of the Western Public Service Corporation stock.  I concur in the result reached by the majority of the Board on all other issues although I do not agree with all that is said in the majority opinions.  I decide the McClintic-Marshall - Bethlehem reorganization issue against the contention of the petitioner, first, because, on authority*872  of Groman v. Commissioner,302 U.S. 82">302 U.S. 82, Bethlehem was not "a party to a reorganization" and, second, because, the subsidiaries of Bethlehem did not acquire "substantially all" of the assets of McClintic-Marshall within the meaning of the statute.  Alice V. St. Onge,31 B.T.A. 295">31 B.T.A. 295; David Gross,34 B.T.A. 395">34 B.T.A. 395. See also dissent in Elkhorn Coal Co.,34 B.T.A. 845">34 B.T.A. 845. TURNER, dissenting and concurring: We are not here called upon to consider transactions prompted by normal business motives.  In all of the major issues the transactions themselves or the manner of their execution were induced by the desire to reduce taxable income and not by business purposes.  With reference to the transfer of the Pittsburgh Coal Co. common stock to the Union Trust Co., the petitioner himself testified that "everything was fixed up for taxes at that time." With reference to the transaction involving the stock of the Western Public Service Corporation, Phillips, senior employee of the petitioner and his brother, R. B. Mellon, and the only witness who had any direct knowledge of the transaction with the Union Trust Co. in respect thereto, *873  stated that he knew of no purpose other than that of creating a loss deduction for income tax purposes.  In the case of the sale by the McClintic-Marshall Corporation of its fabricating business and assets, the negotiating parties, after they had agreed upon the substance of the transaction, the assets to be acquired by Bethlehem, and the price to be paid, instructed the attorneys to draw up the contract or contracts in such a manner, if possible, that the assets might be transferred from McClintic-Marshall to Bethlehem *1084  so as to avoid any recognition of gain to the McClintic-Marshall Corporation or its stockholders.  The result of these instructions was the extended experimentation with the various forms of contract, the organization of the Union Construction Co. for use as a conduit in making the transfer to Bethlehem, its actual use for holding the other assets when the formal transfer to Bethlehem was made, and, after that, its dissolution.  Accordingly, we do not have here the case of the ordinary taxpayer who, at the end of the year, shapes his income tax return to reflect the results of business concluded, but the case of a taxpayer who just prior to the end of*874  the taxable year undertakes to shape his business affairs and the results therefrom to match the pattern of the income tax return he desires to file.  We have the case of a taxpayer who, prior to the close of the taxable year, checks his gains and estimates the tax due thereon for the purpose of determining whether it is in excess of the amount which he considers as a "fair" amount for him to pay to the Government in the form of income taxes.  The survey in the instant case disclosed income taxes greatly in excess of the amount considered "fair" and the transaction with the Union Trust Co. covering the Pittsburgh Coal Co. common stock resulted.  It is well settled that the purpose of tax avoidance does not in and of itself vitiate the legal consequences of a transaction.  Furthermore, as the majority opinion points out, "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes or altogether avoid them, by means which the law permits, can not be doubted." Gregory v. Helvering,293 U.S. 465">293 U.S. 465. But when tax avoidance is the primary motive, as is the admitted case here, the transactions involved are to be subjected to careful scrutiny*875  to determine whether they are "in fact as well as in legal form what the participants" claim them to be.  Percy C. Madeira,36 B.T.A. 456">36 B.T.A. 456; Robert Wilson Carter,36 B.T.A. 598">36 B.T.A. 598; James Nicholson,32 B.T.A. 977">32 B.T.A. 977; affd., 90 Fed.(2d) 980; Sydney M. Shoenberg,30 B.T.A. 659">30 B.T.A. 659; affd., 77 Fed.(2d) 446; Grace A. Cowan, Executrix,30 B.T.A. 296">30 B.T.A. 296; Rand Co.,29 B.T.A. 467">29 B.T.A. 467; affd., 77 Fed.(2d) 450; Harold F. Seymour,27 B.T.A. 403">27 B.T.A. 403; Harold B. Clark,2 B.T.A. 555">2 B.T.A. 555. And a taxpayer who indulges in transactions primarily for the purpose of tax avoidance does so with his eyes wide open and must face the tax consequences if his judgment has been faulty, the legal advice followed unsound, or the form or ritual indulged in falls short of accomplishing his purposes.  For, as the court said affirming Robert P. Morsman,33 B.T.A. 800">33 B.T.A. 800, at 90 Fed.(2d) 22, "When a taxpayer thus boldly proclaims that his intent, at least in part, in attempting to create a trust is to evade taxes the court should examine the forms used*876  by him for the accomplishment of his purpose *1085  with particular care; and, if his ingenuity fails at any point, the court should not lend him its aid by resolving doubts in his favor." The petitioner here claims that he has accomplished his purpose and has complied with all legal requirements in connection with all transactions indulged in by him for the purpose of reducing his taxable gain and the amount of tax due thereon.  He rests his claim for such a conclusion upon written documents and book entries carefully drawn and made with the primary purpose in mind of reducing taxable net income.  On some of the issues the formal documents are supplemented by categorical statements of the petitioner himself.  The respondent claims that the documentary evidence so prepared and relied on by the petitioner is at the most in the nature of self-serving declarations and that such weight as might otherwise be given to it is destroyed and nullified by surrounding circumstances, the course of conduct of the parties participating in the transactions, and various statements and acts of the parties themselves and other individuals at times when the tax effect was not in mind.  Pittsburgh*877  Coal Co. Stock.On this issue there must have been an actual sale of the Pittsburgh Coal Co. common stock and that sale must have occurred in 1931 if the petitioner is to prevail.  The petitioner claims that such a sale did take place in December of 1931, with the Union Trust Co. as the purchaser.  The burden was on him to establish that fact and, if he has failed to do so, he is not entitled to have doubts resolved in his favor.  Robert P. Morsman, supra.In my opinion there is evidence of record which refutes, or to state the conclusion most leniently for the petitioner, casts a definite cloud of doubt on his claim that he made an outright and bona fide sale of the stock to the Union Trust Co., and the evidence submitted by him does not clear away those doubts.  For that reason I am unable to agree with the conclusion reached in the majority opinion, that the petitioner has sustained his burden and that a valid sale was made.  That the form of a sale to the Union Trust Co. was indulged in is beyond doubt, but, as we said in *878 Sydney M. Shoenberg, supra, "It is well settled that a mere ritualistic compliance with legal forms is not enough." We also have the petitioner's statement declaring an intention to sell the stock to the Union Trust Co. and the further assertion by him that he did sell the stock to that company.  In that connection, however, we further find in Sydney M. Shoenberg, supra, that "A sale must rest on a genuine intention to dispose of property without reservation or evasion of mind.  What is in the minds of the parties is not to be determined solely by self-serving *1086  declarations or testimony of the party interested.  It is pertinent to consider all the acts of the parties, the several steps employed, and all other related facts and inferences." In Rand Co., supra, the court, in affirming the Board, said: If the sales by the taxpayers to Trux were complete and final with no understanding with him as to repurchase, the loss was deductible; otherwise not.  Shoenberg v. Commissioner, 77 Fed.(2d) 446, (C.C.A. 8).  The burden was upon taxpayers to establish the above fact.  Transactions of this character are necessarily secret, *879  and the real situation is known only to the immediate parties.  The Board was not compelled blindly to accept their testimony that there was no such understanding.  It could examine the probabilities of such truth * * *.  Further, in Harold F. Seymour, supra;James Nicholson, supra;Percy C. Madiera, supra;Robert Wilson Carter, supra;James W. Singer,32 B.T.A. 177">32 B.T.A. 177; D. A. Belden,30 B.T.A. 601">30 B.T.A. 601; Charles S. Hempstead,18 B.T.A. 204">18 B.T.A. 204; Albert W. Finlay,17 B.T.A. 828">17 B.T.A. 828; and numerous other cases, we have, in the light of surrounding circumstances, refused to accept categorical conclusions in the testimony of the various petitioners to the effect that actual sales were accomplished.  The Board was unwilling to lend its aid in resolving doubts in their favor.  In this connection it seems to me pertinent to review the acts of the parties, the character of the property dealt with, the testimony of the witnesses, and their relation to the transaction and to each other, in order to determine the probability that the petitioner sold and that the Union Trust*880  Co. acquired or intended to acquire as its own and without reservation the 123,622 shares of the Pittsburgh Coal Co. common stock in question.  The transaction took place between the petitioner and H. C. McEldowney, president of the Union Trust Co., and the only testimony bearing directly on the purported sale and purchase is that of the petitioner, who said that he went to the Mellon Bank Building and saw McEldowney at the close of a meeting of the Mellon Bank and told him he would like to sell to the Union Trust Co. his Pittsburgh Coal Co. common stock; that McEldowney asked one or two questions "concerning the amount, and the stock and so forth" and, after being told that the amount in round figures came to $500,000, considered the matter for a moment and said: "All right.  Send it up and we will take it." That, according to the petitioner, was "substantially everything that was said." Having supplied us with the petitioner's version of the transaction, counsel for the petitioner called witnesses from the Union Trust Co. to show its position and attitude in the matter.  The witnesses called, however, were subordinates in the bank and disavowed any knowledge of the details or*881  circumstances of the actual transaction *1087  between the petitioner and McEldowney.  Counsel for the petitioner brought out that the stock at the direction of McEldowney was taken up on the books of the bank as an investment and that title was taken in the name of the Acly Co., a partnership composed of officers in the bank, organized for the purpose of holding title to securities belonging to the bank.  It was also brought out that there were two similar partnerships, one by the name of Mac & Co. and the other by the name of Clay & Co.  It was explained that securities held in trust were transferred to Mac & Co. and that securities held for clients or customers or in any custodian relationship were transferred to Clay & Co.  On cross-examination by counsel for respondent, however, it was admitted that Mac & Co. was not even organized until after the Pittsburgh Coal Co. stock had been transferred to Coalesced.  It was further admitted that, while the Acly Co. may have been organized for the purpose of holding title to securities owned by the bank, during the year 1930, 36 out of the 39 dividend-paying stocks held by Acly did not belong to the bank but to customers of the bank. *882  Such was the use of Acly at the time the Pittsburgh Coal Co. stock was transferred to it.  It was further shown that, during 1931, 17 out of the 27 dividend-paying stocks held by Acly belonged to customers of the bank and not the bank itself.  As to the character of the stock, the petitioner himself testified that it had no actual or intrinsic value and that it had no prospects as a dividend producer.  The Pittsburgh Coal Co. had not, according to the petitioner, paid dividends on the common stock "for a large number of years" and the accumulated dividends on its preferred stock were then in excess of $40 per share and at the time of the hearing had increased to approximately $65 per share.  The coal business, as affecting the Pittsburgh Coal Co., had been in a decline for more than fifteen years and there was nothing at the time to indicate that anything but a continued decline could be expected.  And even though there might be an improvement in the coal business in general, it was the petitioner's opinion that it would not come in time to be of any benefit to the common stockholders of the Pittsburgh Coal Co.  The only value that the petitioner was willing to attribute to the*883  common stock of the Pittsburgh Coal Co. was a strategic value for voting purposes.  Undoubtedly McEldowney was also fully aware of these facts, since his company had handled the original purchase by the petitioner and his brother of some of these same shares, and in 1929 had sold a $20,000,000 bond issue for the Pittsburgh Coal Co.  Yet we are asked to find as a fact that the Union Trust Co. actually purchased, with the funds of its investors and depositors and as an investment, 123,622 shares of that stock, a stock which had no dividend prospects and which the bank had never seen *1088  fit to invest in even during the prosperous days of the Pittsburgh Coal Co., if it had ever known such days.  Another circumstance which seems to me to be of significance in determining the position of the Union Trust Co. in the Pittsburgh Coal Co. stock transaction is the manner of its disposition.  The testimony in that connection was given by Korb, one of McEldowney's subordinates.  Korb disavowed actual or direct knowledge of the circumstances or terms of acquisition of the stock by the bank.  In reality he took up the story in March of 1932, when, according to his testimony, he was instructed*884  by McEldowney to dispose of the stock if and when a reasonable return could be received on the bank's investment therein.  Korb's activities in that direction were limited exclusively to calls made to H. M. Johnson, the petitioner's principal personal employee.  He stated that he asked Johnson if he knew of any one interested in acquiring the stock and was advised that he knew no one.  Korb made no further inquiries of any one and stated that he made no effort to dispose of the stock to any other party or interest, but some two or three weeks later called Johnson a second time and, upon either the second or third call, Johnson asked that a price be quoted.  The price was quoted in the form of a memorandum, reading as follows: Figured for April 25, 1932.  A. W. MELLON.Dec. 30, 1931, 123,622 shares Pittsburgh Coal Company Common Stock ( $100 par value) at 4.0445875$500,000.00Cost$500,000.00Interest - 118 days at 6%9,833.33Stock Transfer Stamps4,944.88Penna. Five Mill Tax2,500.00$517,278.21Average price figured on $517,278.21$4.18435399Upon the receipt of the above quotation Johnson acquiesced in Korb's proposition and it was then for*885  the first time that Korb, according to his testimony, learned that the stock was to go to the Coalesced Co. instead of the petitioner.  In addition to the fact that Korb actually made no effort to dispose of the Pittsburgh Coal Co. common stock to anyone other than the petitioner, it is interesting to note from his testimony that he knew practically nothing about the stock and made no effort to learn anything about the condition of the company.  He could not have informed any prospective purchaser as to the voting rights of the common and preferred stock, nor of the dividend provisions of the preferred stock.  He did not know the date of the last dividend *1089  paid on the common stock, nor its dividend record.  He knew nothing of the funded debt, and could not say whether the bonds outstanding were mortgage bonds.  He had no knowledge as to the holdings of the company, the accessibility of its properties, the acreage in operation nor of the reserve acreage.  He knew nothing about the facilities of the company for handling and transporting coal, and made no inquiry as to the value of the properties back of the stock.  It is further of interest and significant to note that*886  Johnson, the petitioner's secretary and principal personal employee, was of the opinion that it would have taken the Union Trust Co. about five years to have disposed of the stock on the market at the rate at which it was then being traded.  I am able to reach no other conclusion than that the Union Trust Co. throughout the transaction looked to the petitioner to take up or to provide a taker for the Pittsburgh Coal Co. stock and to pay a reasonable sum for services rendered.  It is asking too much for me to believe that a bank such as the Union Trust Co. would purchase for its portfolio, at a price of $500,000, shares of stock which had no dividend prospects and on which no dividends had been paid "for a large number of years", a stock secondary to an issue of preferred stock which at that time had dividends accumulated against it in excess of $40 per share, a stock which the petitioner himself stated had no actual or intrinsic value, and a stock which, according to the petitioner's principal employees, would have required the bank approximately five years to dispose of if it had been dependent upon the open market.  And while Korb, under cross-examination by respondent's counsel, *887  did not accede to a description of the stock as a "frozen asset", he did admit that he would not classify it as a "liquid asset." At this point mention should also be made of the contention of the respondent that the petitioner in reality had no desire or intention of disposing of his Pittsburgh Coal Co. common stock to any interests outside of his family, and the facts and circumstances upon which this contention is based.  At some period between 1927 and 1930, probably 1929, petitioner received an offer from Frank E. Taplin to purchase 100,000 shares of common stock of the Pittsburgh Coal Co. at $100 per share and as a down payment Taplin offered a certified check for $500,000.  The stock at that time was selling on the market for an amount in excess of $80 per share.  This offer the petitioner rejected and stated as his reason therefor that Taplin's chief interest in acquiring the stock of the Pittsburgh Coal Co. was for the purpose of supplying freight for a railroad in which he was interested; that the Pittsburgh Coal Co. was an important factor in the welfare and industrial and commercial life of the Pittsburgh area; that control of *1090  the Pittsburgh Coal Co. by Taplin*888  would have been injurious to Pittsburgh; and for those reasons he would not have sold the stock to Taplin under any circumstances.  Prior to his testimony in this connection, however, the petitioner had stated that the Pittsburgh Coal Co. stock had no actual value and no dividend prospects and that the company had been in a bad way for some fifteen years; that his holdings in the common stock of the company were securities that he desired to dispose of and that he "would have desired before that time to have sold the stock" if he had had it before him "and there was the opportunity or the occasion to do so." Yet the stock had been specifically brought to his mind by the Taplin offer of 1929 or thereabouts, and he had refused to consider the offer and took no further steps to dispose of it.  It may also be noted here that the only value of any nature that petitioner was willing to attribute to the stock was a strategic value for voting purposes, and it was that strategic voting value as distinguished from value as an investment which apparently caused Taplin to make his offer in 1929 and prompted the petitioner to refuse it.  He admitted from the witness stand that, when he decided*889  "to sell" the block of stock in 1931, he made no effort to learn whether Taplin or any other outside interest might still be interested in acquiring the stock and reiterated that he would not have sold the stock to Taplin in any event, while contending at the same that he made a definite, outright sale of the stock with no strings attached and did not care what became of it.  The respondent's explanation, which in the light of the facts seems the more reasonable one, is that it was at all times intended that the stock would eventually be acquired by the Coalesced Co. and that the Union Trust Co. was merely a depository until such time as it might be deemed expedient to transfer the stock to Coalesced.  In this connection it is pointed out that R. B. Mellon, petitioner's brother, formed a corporation parallel in almost every respect with the Coalesced Co. and that R. B. Mellon's holdings in the Pittsburgh Coal Co. stock passed directly from him to such corporation without any detours through the Union Trust Co. or other corporation.  If the petitioner had dealt directly with Coalesced and Coalesced had paid to him in December 1931, out of its cash and funds acquired by use of its*890  credit, the sum of $500,000 and had continued to hold the stock as it has since the acquisition thereof in April of 1932, there would be much less cause to doubt the petitioner's claim that an actual sale was made.  Edward Securities Corporation,30 B.T.A. 918">30 B.T.A. 918; affd., 83 Fed.(2d) 1007; A. S. Eldridge,30 B.T.A. 1322">30 B.T.A. 1322; Ralph Hochstetter,34 B.T.A. 791">34 B.T.A. 791; Jones v. Helvering, 71 Fed.(2d) 214; James E. Wells,29 B.T.A. 222">29 B.T.A. 222. As it is, however, the transaction did not take that course and petitioner's position must stand or fall on the *1091  soundness of his claim that he made an actual and outright sale to the Union Trust Co. during 1931, and to sustain him on that claim we are asked to ignore the facts reviewed above and to conclude that the Union Trust Co. purchased the stock and later found a buyer in Coalesced free and clear of any understanding with the petitioner as to its subsequent disposition.  In Harold F. Seymour, supra, we said: Though the Board has approved deductions for losses where the evidence was not decidedly more favorable to petitioner than*891  that surrounding the first purported sale, we can recall no case in which approval has been given where the same parties went through almost the identical process in the next year.  To approve a single instance requires the resolving of many doubts in favor of the petitioner, but to permit a recurrence of the same procedure in the next year under the circumstances here present overtaxes our credulity.  Despite the statement of the parties to the transactions that they were outright sales, we are not convinced that such sales were free and genuine.  In our judgment they were lacking in bona fides.  If the transaction of 1927-1928 stood alone the deduction might conceivably have been allowed, but the repetition thereof for the years 1928-1929 in precise parallelism goes beyond mere coincidence.  It casts such doubt on the good faith of petitioner in both years as to make it impossible for us to approve the purported sales.  The evidence and inferences reasonably to be drawn therefrom lean too strongly against petitioner to permit us to approve the deductions.  While we have before us only the one taxable year, 1931, in line with the holding in the case cited, proof was offered of*892  similar activities of the petitioner in the years 1932 and 1933.  In December of 1932 we find the petitioner again going over the matter of his prospective income tax for that year and a review of securities which, if sold, would result in the loss deductions desired for reducing net taxable income.  We again find the petitioner and Johnson agreeing upon the use of certain securities, and we find that this time Johnson made the deal with H. C. McEldowney, president of Union Trust Co., the transaction occurring on December 29, 1932.  This time, instead of the securities of one company, we find that a number of securities were involved, but in that list we find securities even less attractive as an investment than was the Pittsburgh Coal Co. common stock in December 1931.  We find the Union Trust Co. purportedly paying $6,500 for preferred shares of the United Porto Rican Sugar Co., which company was even then in default on an outstanding issue of gold notes and in the same transaction paying $10,400 for $208,000 par value of the gold notes then in default.  In the same transaction we find the Union Trust Co. purportedly paying $19,937.50 for 5,500 shares of Missouri Pacific Railroad*893  Co. preferred stock, while in the same transaction it was able to acquire Missouri Pacific Railroad Co. gold bonds having a par value of $219,000 at 7 5/8 cents on the dollar.  To conclude that any normal bank would carry among its investments *1092  securities of such character, let alone make an outright purchase of them, is incredible, and we find that almost immediately the Union Trust Co. took the necessary steps to clear these securities from its portfolio.  In February following Korb received instructions from McEldowney with reference to these securities similar to the instructions in March of the preceding year with reference to the Pittsburgh Coal Co. common stock.  Korb, as before, called Johnson and inquired for a purchaser and Johnson advised Korb that he would call him back and let him know.  He suggested, however, that Korb quote him a price.  In the meantime the market price of the American Locomotive Co. shares had increased from $200,000, the price at which they had been listed in the December transaction, to $240,000.  Johnson balked at paying the market price of $240,000, and fixed the price at $215,000.  Upon consultation with McEldowney, Korb was instructed*894  to accept Johnson's price.  To further offset the apparent profit to the Union Trust Co. on the American Locomotive Co. shares, reductions were made on the "sales" slip in the price at which the Missouri Pacific preferred shares and bonds and the Sugar Co.'s gold notes were transferred to Coalesced.  The Sugar Co. preferred stock was listed on the "sales" slip at $6,500, the same price at which it had been included in the December transaction.  Korb, who had been employed by the Union Trust Co. for approximately 20 years, was unable to recall any instance except those described in this proceeding where the Union Trust Co. ever at any time purchased a stock which at the time of purchase was neither earning nor paying a dividend unless the acquisition was in connection with some contract designed to indemnify the bank against loss.  Lightbown, chief clerk in the bond department, who had been with the bank since 1921, knew of no other instance where the Union Trust Co. had ever acquired preferred stock in a corporation which was in default on its notes.  It is also significant, in my opinion, that the Union Trust Co. did not consider the stock of the Pittsburgh Coal Co. as sufficient*895  collateral on Coalesced's purchase note for $400,000 and within a few days Coalesced, at the request of the bank, deposited as additional collateral Republic of Poland bonds having a par value of $500,000.  In December of 1933 the petitioner and Johnson were again making a survey of the petitioner's affairs from an income tax standpoint and the sale of certain securities was considered.  On this occasion Johnson suggested that the Coalesced Co. could use such securities, but the petitioner, according to Johnson, stated that in this instance if the Coalesced Co. desired to acquire the securities it would have to do so through the market, while on the other hand the petitioner testified *1093  that it was Johnson who suggested that the securities be sold on the market and that Coalesced could place a purchase order at the same time.  A reason prompting the sale through a broker was that question had been raised about a sale of securities for tax purposes to a family corporation.  The result was that Johnson placed an order with the brokerage firm of Moore, Leonard & Lynch to sell the securities in question for the account of the petitioner and at the same time placed a matched*896  order on the part of Coalesced to buy these same securities.  The same employees who delivered the securities to the brokerage firm for the account of petitioner brought them back to the office of the petitioner for the Coalesced Co.All of the securities "sold" by petitioner to the Union Trust Co. at a loss during the years 1931 and 1932 were the securities "sold" for the purpose of creating loss deductions and in each instance, shortly after the close of the year, all of such securities were acquired from the Union Trust Co. by Coalesced.  The petitioner here admittedly elected to decrease the amount of what would otherwise be his taxes by the creation of a loss deduction, and, if the record contained only the evidence of the formalities indulged in by him and the Union Trust Co. in connection therewith, and the formalities later indulged in with reference to the acquisition of the same stock by the Coalesced Co. in April of the following year, and the testimony of the petitioner of his intention to finally and definitely dispose of the stock, we should undoubtedly, in the light of the decisions referred to above, hold that he had sustained his burden of proving a sale to the*897  Union Trust Co. in December of 1931, and that as a result thereof he is entitled to the loss deduction claimed.  The evidence of record is not so limited, however, but also includes the detailed circumstances outlined above, which in my opinion definitely cast a cloud of doubt on the claim of the petitioner that the sales were outright and bona fide, doubts which the petitioner has not succeeded in clearing away and, as the court pointed out in Robert P. Morsman, supra, the petitioner's ingenuity having failed him in this connection, the Board should not lend him its aid by resolving the doubts in his favor.  Again referring to the conclusions of the Board in Harold F. Seymour, supra, the nature, condition, and state of the securities involved in the transaction and the recurrence of similar procedure in the following years "under the circumstances here present overtaxes" my credulity.  For that reason I am unable to agree with the conclusion reached in the majority opinion with respect to the transaction in December of 1931 between the petitioner and the Union Trust Co. covering the 123,622 shares of common stock of the Pittsburgh Coal. Co.  *1094 *898 Western Public Service Corporation Stock.While I concur in the result reached by the majority on this issue, I am unable to agree that a categorical finding should be made that R. B. Mellon, acting for the petitioner and himself, made a valid sale of 54,000 shares of stock of the Western Public Service Corporation to the Union Trust Co. on December 2, 1931.  It is my opinion that the Division erred in denying to the respondent the right to introduce evidence which it was claimed tended to show that the members of the executive committee and the board of directors of the Union Trust Co. used that company for the purpose of going through the formality of sales to it of certain securities, particularly Western Public Service Corporation stock, in December of each year in order to create loss deductions, when as a matter of fact it was understood that shortly after the running of a period of thirty days they would similarly go through the formality of a repurchase of these same securities.  It was the position of counsel for the respondent that the evidence offered, when considered with other evidence in the record, would show that the transaction between R. B. Mellon and the Union*899  Trust Co. in respect of the 54,000 shares of Western Public Service Corporation stock was of that character and that no actual sale of the stock was ever made or intended.  In my opinion the Division undertook to prejudge evidence which it neither heard nor examined and without knowing what it would show when considered with other evidence of record.  As the record now stands it shows that the Union Trust Co. engaged in similar transactions with other individuals, particularly members of its board of directors and executive committee, who transferred stock to it in December and reacquired the same stock thirty to ninety days later.  At or about the same time that R. B. Mellon transferred 54,000 shares of the Western Public Service Corporation stock to the Union Trust Co., William B. Schiller and Roy A. Hunt, members of the board of directors and the executive committee, so transferred and reacquired 5,000 shares and 6,000 shares, respectively, of Western Public Service Corporation stock.  The Union Construction Co. Liquidation.The Board has found as a fact that the Union-Koppers and the Union-Pitt reorganizations and the distribution by Union to its stockholders of the Koppers*900  stock and the Pitt stock acquired in those reorganizations were parts of a single plan to completely liquidate Union.  With this conclusion I am in hearty accord.  In my opinion, however, that finding precludes the holding thereafter made that the distribution of the Koppers stock and the Pitt stock falls within the *1095  meaning of section 112(g) 1 of the Revenue Act of 1928, and further precludes the conclusion reached that application of the section mentioned requires that the distribution of the Koppers stock, the Pitt stock and the other assets, even though actually made in a single plan for the complete liquidation of Union, be broken up into three separate transactions for the purpose of computing the gain to the stockholders therefrom, also that the basis to the stockholders of the Union stock be prorated to the three separate transactions for purposes of such computation.  To so hold is to make a gain computing or determining section out of section 112 instead of a gain recognizing section, as the statute definitely shows it was intended to be.  There is nothing in that section at any place prescribing the method for the computation or determination of gain.  *901  The realization of gain by stockholders from distributions made to them by the corporations in which stock is held is governed by section 115 of the act, entitled "DISTRIBUTIONS BY CORPORATIONS." Distributions in liquidation are specifically dealt with in subsection (c) of that section, which reads in part as follows: (c) Distributions in liquidation. - Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock * * *.  The gain or loss to distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. [Italics supplied.] From the above it appears that the statute presents a complete and orderly course to be followed in determining the income tax effect of distributions in liquidation.  The nature of the distribution or transaction for the purpose of determining gain or loss is to be resolved by the application of section 115(c), supra. The amount of the gain or loss is to be determined or computed under the provisions of section 111, and the extent to which the gain or loss so realized and so computed is to be*902  recognized is next determined by the application of section 112.  The Koppers stock, the Pitt stock and the other assets of Union having been distributed to the stockholders of Union in a single plan of complete liquidation, the receipt by the petitioner of his pro rata share of such assets was, under the plain wording of section 115(c) quoted above, an exchange by him of his Union stock for such assets.  *1096  Following the course directed by the statute and referring next to section 111 for determination of the gain from such an exchange, we find in subsection (a) that "the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom" over the taxpayer's basis, and, further, in subsection (c) that "The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received." Applying the above mentioned provisions of section 111 to the instant case, the gain to the petitioner from the liquidation of Union was the difference between the fair market value of the property received, namely, the Koppers stock, the Pitt stock and other*903  assets, and the basis to him of his Union stock.  Certainly there is nothing in section 111, the section that governs the "DETERMINATION OF AMOUNT OF GAIN OF LOSS", that gives any color to the claim that the gain in the case of an exchange of property is to be computed or determined separately with respect to each item of property received in the exchange, but to the contrary, the plain language of the statute is that the amount realized is the "sum" of the money "plus" the fair market value of the property and the gain is the excess of that total over the taxpayer's basis for his stock in the corporation liquidated.  The nature of the transaction having been determined by section 115(c) and the amount of the gain computed or determined under section 111, we are next directed to section 112 to determine the extent to which the gain realized and determined is to be recognized for income tax purposes.  Bearing in mind that section 115(c) directs that distributions in complete liquidation shall for purposes of the income tax statute be treated as in exchange of the stock for the assets distributed, we find in section 112(a) a provision that "Upon the sale or exchange of property the*904  entire amount of the gain * * * determined under section 111 shall be recognized, except as hereinafter provided in this section." Referring to the remaining provisions of section 112 in order, the first subsection prescribing the extent to which the gain to a stockholder from corporate distributions is recognized is 112(b)(3), which provides: No gain or loss shall be recognized if stock or securities in 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.  Admittedly the shares of Koppers stock and of Pitt stock were acquired by Union in corporate reorganizations and in each instance were securities of a corporation "a party to a reorganization." It is also true that the plans of reorganization contemplated the distribution of these shares by Union to its stockholders.  It is thus apparent *1097  that the only circumstance that prevents nonrecognition of all the gain realized by the petitioner from the liquidation of Union is that the exchange by him of his Union stock was not "solely" for the Koppers stock and the*905  Pitt stock, but for other property as well.  Proceeding with the examination of section 112, we find that the exception of fact which prevents the application of section 112(b)(3) is specifically dealt with in section 112(c)(1) as follows:" * * * if an exchange would be within the provisions of subsection (b) * * * (3) of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph [(b)(3)] to be received without recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property." With section 112(c)(1) we have a complete statutory formula for determining the effect for income tax purposes of the liquidation of Union.  To summarize, the distributions in complete liquidation of Union constituted an exchange by petitioner of his Union stock for Koppers stock, Pitt stock, and other assets, and the gain is to be determined under section 111 and recognized to the extent provided by section 112.  Sec. 115(c).  The gain determined under section 111 is the*906  difference between the basis of petitioner's Union stock and the fair market value of the Koppers stock, the Pitt stock, and other assets.  Sec. 111(a) and (c).  If the petitioner had received only the Koppers stock and the Pitt stock in such exchange, then none of the gain realized under section 115(c) and determined under section 111 would have been recognized because in such case the exchange of the Union stock would have been "solely" for the stock of corporations which were parties to reorganizations and in pursuance of the plans of reorganization.  Sec. 112(b)(3).  The Union stock was not exchanged "solely" for the Koppers stock and the Pitt stock, however, but for other assets as well, and as a result the gain is recognized "but in an amount not in excess of * * * the fair market value of such other property." Sec. 112(c)(1).  There is no question that the gain realized was in excess of the fair market value of the property received other than the Koppers and Pitt stock and, applying section 112(c)(1), the gain recognized as distinguished from gain realized or determined is limited to the fair market value of the other property.  It is at once apparent that no part of the*907  value received by the petitioner in liquidation of Union in the form of Koppers or Pitt stock is recognized for income tax purposes, the gain realized being limited to the fair market value of other property.  *1098  As authority for the application of section 112(g) to the distribution of the Koppers stock and the Pitt stock to the stockholders of Union, the majority opinion relies upon the former decisions of the Board in Rudolph Boehringer,29 B.T.A. 8">29 B.T.A. 8, and North American Utility Securities Corporation,36 B.T.A. 320">36 B.T.A. 320. The reasoning is, first, that the Koppers stock and the Pitt stock having been distributed to the stockholders of Union without simultaneous physical surrender of their Union stock certificates, there was no actual exchange of Union stock for Koppers and Pitt stock and that an exchange is a prerequisite to the application of sections 112(b)(3) and 112(c)(1) and, second, that the distribution of the Koppers stock and the Pitt stock, even though made in complete liquidation of Union, having been made without actual and simultaneous physical surrender of Union stock certificates, the distribution of the said Koppers stock and*908  the Pitt stock literally falls within the language of section 112(g).  It is then concluded that the application of section 112(g) requires that the distribution of the Koppers stock, the Pitt stock, and other assets, even though actually made in a single plan for the complete liquidation of Union, be broken up into three separate transactions for the purpose of computing the gain to the stockholders therefrom, and in making the computation that the basis of their Union stock must be prorated to the three transactions.  The inference is that to hold otherwise would result in the recognition of gain on the distribution of the Koppers stock and the Pitt stock which admittedly were in each instance securities of a corporation a party to a reorganization and were distributed in pursuance of these plans of reorganization.  Considering first the proration of the basis of the Union stock, it has been pointed out above that the application of section 112(c)(1) and the computation of the gain from the liquidation of Union as a unit does not result in recognition of any part of the gain received in the form of Koppers or Pitt stock for under the provisions of that section the gain recognized*909  is limited to the fair market value of the other property distributed, and no part of the value attributable to the Koppers stock or Pitt stock is included.  It is thus apparent that the nonrecognition of gain on the distribution of the Koppers stock and Pitt stock under the circumstances herein is not dependent upon the application of section 112(g).  It is further apparent that the result reached in the majority opinion is not a matter of recognition or nonrecognition of gain, but a matter of computation which is governed by section 111 and not by section 112(g) or any other provision of section 112.  The most obvious fallacy in the majority opinion however is in the conclusion that the distribution of the Koppers stock and Pitt *1099  stock was not in exchange for the Union stock, within the meaning of section 112(b)(3) and section 112(c)(1), but was a distribution of those stocks without the surrender of the Union stock within the provisions of section 112(g).  This conclusion entirely ignores and completely writes out of the statute the provision quoted above from section 115(c) to the effect that distributions "in complete liquidation of a corporation shall be treated*910  as in full payment in exchange for the stock."Congress, by the provision referred to, has completely removed any doubt as to the treatment of distributions in complete liquidation with respect to the stock of the corporation so liquidated.  By that provision Congress has plainly said that a corporation and its stockholders may not defeat the exchange provisions of the statute by a mere failure at the time of liquidation to surrender the certificates which after all are only evidence of the shares in a corporation.  Furthermore it should be pointed out that no contention is made that the Union stock was not physically surrendered as soon as the distribution in liquidation was concluded.  The failure to apply section 115(c) to a distribution made by a corporation, pursuant to a plan of reorganization, may be due in part to an impression which seems to prevail in some quarters and which unfortunately may be inferred from language used in some of the decisions, to the effect that section 115(c) and section 112 are each exclusive of each other in their application.  From the plain language of section 115(c) previously quoted, it is at once apparent that the language there used is*911  applicable to all corporate distributions in liquidation and includes the distributions falling within the provisions of section 112.  In other words, all distributions which meet the requirements of section 112 are also within the provisions of section 115(c), but all distributions falling within the provisions of section 115(c) are not necessarily subject to the provisions of section 112.  The majority opinion does find authority for the conclusions reached in Rudolph Boehringer, supra, and North American Utility Securities Corporation, supra. Both cases ignore or overlook the provisions of section 115(c), supra, to the effect that for the purposes of the income tax statute, distributions in complete liquidation of a corporation are to be treated as in exchange for the stock of the corporation so liquidated, and in my opinion should be overruled.  When distributions in complete liquidation of corporations are treated as exchanges, the nonapplicability of section 112(g) at once becomes apparent.  That section by its plain language is applicable only to cases where the stock of the corporation making the distribution is not exchanged.  *1100 *912  Furthermore, I am of the opinion that the only reasonable interpretation of section 112(g) is that it was intended to apply to situations where the corporation making the distribution was to be continued as the owner of some property and the stock of such corporation would thereby have some value and that it was not to be applied in cases where a complete liquidation was made and the corporation, even though not formally dissolved, had no assets and its stock, even though not surrendered, had no value behind it.  There is no language in the statute which prescribes a split-up of the basis of the old stock between the stock received in complete liquidation without recognition of gain and other assets received in the same plan of liquidation for the purpose of computing the gain from the liquidation, even though it be said that section 112(g) does apply.  The only statutory provision from which it might even be inferred that such a split-up of the basis of the old stock is intended, is found in section 113(a)(9). 2 That section prescribes the basis the stock received in a section 112(g) distribution is to have for the purpose of determining gain or loss from its subsequent sale or disposition. *913  For that purpose the stock so received does take an allotted portion of the basis of the old stock, while the remaining portion of the old basis is left to the old stock for the purpose of determining the gain or loss in the event of its subsequent sale or disposition.  Under the circumstances of a complete liquidation, however, the old stock, even though outstanding, would have no value upon which any portion of the original basis could be prorated to it.  Consequently the entire basis of the old stock would necessarily be applied against the fair market value of all the property distributed in liquidation and none of it would be left to the old stock and we would still find no justification for a computation of the gain herein in the manner contended for by the petitioner and approved by the opinion of the majority.  *914 Gross v. Commissioner, 88 Fed.(2d) 567, is cited in the majority opinion as being clearly in point and the facts therein are given in considerable detail to show its applicability to this issue in the instant case.  The distinction between the two cases in my opinion is readily apparent.  In this case we have found that complete liquidation and distribution of all of the assets of the Union Construction *1101  Co. was determined and carried out as a part of a single plan of complete liquidation.  Union conducted no business and was not intended to conduct any business.  It was organized to hold certain assets for the purpose of giving the appearance of a class A reorganization to the transfer by McClintic-Marshall of its remaining assets to Bethlehem and when that purpose was served Union was dissolved.  In the Gross case the facts show that the stockholders of the Tampa Box Co., which was a business corporation and had been actively engaged in the conduct of business, determined that the corporation be not immediately dissolved but that it should continue to hold a substantial portion of its assets until such time as the board of directors should deem*915  it advisable to make a distribution of those assets and such time as the stockholders themselves might determine upon the legal dissolution of the corporation.  Furthermore the facts show that the distribution of a substantial portion of those assets was not determined upon and the legal dissolution of the corporation was not ordered for at least a year.  It is further significant to note that that corporation, even though not actively engaged in the conduct of business during the year preceding its formal dissolution, was by remaining alive serving a business purpose - the preservation of its name was of value and of importance in the particular trade in which the corporation had been engaged - and, further, when legal dissolution was finally determined upon more than a year later, particular care was taken to see that a new corporation was organized for the purpose of acquiring and preserving the valuable name of the old corporation.  The distinction between that case and the instant case is substantial and apparent.  In that case there was no complete liquidation or dissolution and no complete liquidation or dissolution was intended.  The stock of the Tampa Box Co. was not surrendered, *916  but retained by the stockholders for a definite purpose, that of keeping the corporation alive in order that it might continue to hold a substantial amount of assets, also for the purpose of preserving a name valuable in the trade in which the corporation had been engaged.  Thus in the Gross case we have distributions made under circumstances which literally and actually bring it within the provisions of section 112(g).  We have no such circumstances present in the instant case.  For the reasons stated above, I am unable to agree with the conclusions reached in the majority opinion of this issue and respectfully express my dissent.  MELLOTT, ARNOLD, HILL, DISNEY, HARRON, and KERN agree with the concurring and dissenting opinion of TURNER.  Footnotes1. This proceeding was heard before a special Division of the Board consisting of Van Fossan, presiding, Trammell, and Turner.  Trammell resigned from the Board after completion of the testimony but before the final submission of the case.  By direction of the Board the opinion is written in part by Van Fossan and in part by Turner. ↩1. Plus accrued interest. ↩1. Includes $50,000 par value issued for services in August 1912 but not entered on books until December 1913. ↩1. Stock dividend. ↩1. By Paul Mellon.  ↩2. $106,725 by Paul Mellon. ↩2. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  (c) Gain from exchanges not solely in kind. - (1) If an exchange would be within the provisions of subsection (b)(1), (2), (3), or (5) of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property. ↩3. (g) Distribution of stock on reorganization.↩ - If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized. 4. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (i) Definition of reorganization. - As 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.  * * * (j) Definition of control.↩ - As used in this section the term "control" means the ownership of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation.  5. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (g) Distribution of stock on reorganization.↩ - If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization, stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized. 6. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (c) Gain from exchanges not solely in kind. - (1) If an exchange would be within the provisions of subsection (b)(1), (2), (3), or (5), of this section if it were not for the fact that the property received in exchange consists not only of property permitted by such paragraph to be receiveed without the recipient shall be recognized, but in an amount not in excess of the sum of such money receipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.  ↩7. 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 * * *.  The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112.  * * * 8. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (b) Exchanges solely in kind. - * * * (3) STOCK FOR STOCK ON REORGANIZATION. - No gain or loss shall be recognized if stock or securities in 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. ↩9. The transaction there desciribed by the court is an exact duplicate of the original plan worked out by the attorneys in the McClintic-Marshall - Bethlehem transaction in their effort to prevent, if possible, the recognition of gain to McClintic-Marshall or its stockholders. ↩10. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (c) Gain from exchanges not solely in kind. - * * * (2) If a distribution made in pursuance of a plan of reorganization is within the provisions of paragraph (1) of this subsection but has the effect of the distribution of a taxable dividend, then there shall be taxed as a dividend to each distributee such an amount of the gain recognized under paragraph (1) as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913.  The remainder, if any, of the gain recognized under paragraph (1) shall be taxed as a gain from the exchange of property. ↩1. SEC. 112.  RECOGNITION OF GAIN OR LOSS.  * * * (g) Distribution of stock on reorganization.↩ - If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation a party to the reorganization stock or securities in such corporation or in another corporation a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized. 2. SEC. 113.  BASIS FOR DETERMINING GAIN OR LOSS.  (a) Property acquired after February 28, 1913. - The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that - * * * (9) TAX-FREE DISTRIBUTIONS. - If the property consists of stock or securities distributed after December 31, 1923, to a taxpayer in connection with a transaction described in section 112(g), the basis in the case of the stock in respect of which the distribution was made shall be apportioned, under rules and regulations prescribed by the Commissioner with the approval of the Secretary, between such stock and the stock or securities distributed. ↩