Court Opinion

ID: 4596857
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:17:57.645006+00
Date Added: 2024-06-11T07:51:41.151356
License: Public Domain

W. C. ROBINSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Robinson v. CommissionerDocket No. 99038.United States Board of Tax Appeals42 B.T.A. 725; 1940 BTA LEXIS 956; September 25, 1940, Promulgated *956  A parent corporation in 1935 transferred to a group of its stockholders, who collectively owned approximately 5 percent of its stock, all of the stock of one of its subsidiaries in exchange for their stock in the parent.  The stock received by the parent was not retired, but was placed in its treasury as treasury stock.  Held, following William A. Smith,38 B.T.A. 317">38 B.T.A. 317, that the transaction was a "sale or exchange" by the stockholders of their stock in the parent.  The amount of the gain or loss to be taken into account in computing the net income of each stockholder is governed by section 117 of the Revenue Act of 1934.  Charles D. Hamel, Esq., L. I. Park, Esq., and C. F. Rothenburg, Esq., for the petitioner.  William A. Schmitt, Esq., for the respondent.  MELLOTT*725  The respondent determined a deficiency in petitioner's income tax for the year 1935 in the amount of $707,192.49.  The sole question is whether petitioner, one of a group of stockholders of a parent corporation who acquired from the parent all of the stock of a subsidiary in exchange for their stock in the parent, received a distribution in partial liquidation*957  of the parent, in which event 100 percent of the profit is taxable under the provisions of section 115(c) of the Revenue Act of 1934, or whether he made a sale or exchange of a capital asset, in which event the tax is limited by section 117 of the same act.  The proceeding was submitted upon a stipulation of facts, supplemented by several written documents offered in evidence at the hearing.  *726  In addition, the parties agreed that the testimony and exhibits offered in the proceeding of Frank J. Lynch and Mary M. Lynch, Docket No. 99405, "be considered evidence in this case subject to * * * the * * * objections and rulings thereon that were made at the time the said case was heard." From the whole record we made the following findings of fact.  FINDINGS OF FACT.  Petitioner is a resident of Pittsburgh, Pennsylvania.  His books have been kept and his returns of income made on the basis of cash receipts and disbursements.  Within due time he filed with the collector of internal revenue at Pittsburgh his Federal income tax return for the calendar year 1935.  In 1905, a corporation known as the National Metal Molding Co. (hereinafter referred to as Metal Molding) was*958  organized under the laws of the State of Pennsylvania, with an authorized capital of 300 shares of common stock of a par value of $100 per share.  It engaged in the business of manufacturing and selling electrical conduits, including rigid conduits, outlet and switch boxes, copper wires, and cables.  Between the date of the organization of Metal Molding and March 1, 1913, its authorized capital stock was increased to 5,000 shares of a total par value of $500,000, all of which was outstanding as of March 1, 1913.  Of such increase, $134,000 represented capital paid in in 1906 and the balance represented stock dividends.  Subsequently its authorized capital stock was increased several times, the last increase being in January 1926 to 45,000 shares of a total par value of $4,500,000.  As of April 12, 1928, it had outstanding 40,700 shares aggregating in par value $4,070,000.  At all times during its existence, the petitioner was president and a director of Metal Molding.  He, as well as members of his family, held substantial blocks of stock in the corporation from its beginning.  On April 12, 1928, a corporation known as the National Electric Products Corporation (hereinafter referred*959  to as National) was organized under the laws of the State of Delaware, with an authorized capital of 50,000 shares of preferred stock with a par value of $100 per share and 300,000 shares of common stock without par value.  The authorized preferred stock was neither issued nor outstanding on October 31, 1930.  National was formed by a consolidation of the following corporations: The National Metal Molding Co.The Amerian Copper Products Co.  The American Circular Loom Co.  The American Wire & Cable Corporation*727  The latter two corporations were subsidiaries of the former two.  Subsequently, but prior to October 31, 1930, National also acquired the following corporations: The British American Tube Co.The Habirshaw Cable & Wire Corporation The Inca Manufacturing Co.All of the above mentioned corporations, except the American Circular Loom Co., were dissolved prior to 1935.  Petitioner and his family acquired substantial blocks of stock in National.  Metal Molding owned all of the stock of the American Circular Loom Co.  It also owned 50 percent of the outstanding capital stock of the American Wire & Cable Corporation.  The American Copper Products Co. *960  also owned 50 percent, or the balance of the outstanding capital stock of the American Wire & Cable Corporation.  The latter was a holding corporation, owning a controlling interest in the Habirshaw Cable & Wire Corporation.  As of October 31, 1930, National was engaged in two types of business.  One was the manufacture and sale of electrical conduits, outlet and switch boxes, and other items of a similar type.  The other was the manufacture and sale of copper rods, wires, and cables.  It continued to operate the Metal Molding plant near Pittsburgh.  It also had plants at Bayway, New Jersey; Hastings and Yonkers, New York; and Fort Wayne, Indiana, and had a small plant at Los Angeles, California.  The Phelps Dodge Corporation (hereinafter referred to as Phelps Dodge) was organized in 1885 under the laws of the State of New York as the Copper Queen Consolidated Mining Co.  On February 7, 1917, its corporate name was changed to Phelps Dodge Corporation.  Several changes in its capital structure were made, the last one prior to the taxable year being on September 22, 1931, when the certificate of incorporation was amended to provide for an increase of capital stock to $150,000,000, *961  consisting of 6,000,000 shares of a par value of $25 per share.  The purposes for which the Copper Queen Consolidated Mining Co. and/or Phelps Dodge were formed included the following: To conduct mining operations of all kinds; to purchase, hold, sell, convey, lease, explore, develop, improve, or otherwise deal in mining lands and other properties; to mine minerals and ores of all kinds; to smelt, reduce, and otherwise treat minerals, ores, and metals of all kinds; to sell the product of the foregoing operations and to carry on any business incidental thereto; to apply for, purchase, or otherwise acquire and hold, own, and use licenses in respect to, or otherwise turn to account, letters patent and any and all inventions, improvements, and processes used in connection with or secured under letters patent.  Its primary business now and always has been the *728  mining, production, smelting, refining, and sale of copper.  It has also engaged somewhat extensively in the business of manufacturing and/or fabricating copper wires, cables, and affiliated products, including insulated wire, strips, and tubes.  Prior to October 31, 1930, Phelps Dodge, being interested in fabricating*962  copper products, offered to consolidate with National in order to obtain the business of manufacturing and/or fabricating copper products then engaged in by National.  On October 31, 1930, Phelps Dodge acquired all of the then outstanding capital stock of National.  The outstanding capital stock of National on that date consisted of 300,000 shares of no par value common stock, for which Phelps Dodge exchanged 600,000 shares of its own $25 par value common stock.  By deeds dated December 5, 1930, and recorded December 10, 1930, the real estate and other plant assets of National in the State of Pennsylvania were transferred to Phelps Dodge.  Simultaneously therewith, all of said properties were leased back to National and the lease remained in full force and effect until March 21, 1935.  After Phelps Dodge took over the business of National there was considerable friction between its various officials, principally between petitioner, who had become chairman of the board of National, and L. A. Bennett, vice president of National in charge of its sales, on the one hand, and Wylie Brown on the other.  This friction became so disturbing that Phelps Dodge sought to put a stop to it*963  by dividing National into two parts under separate corporate names.  This was done as of January 1, 1932.  National was retained as a subsidiary to carry on the business of the former Metal Molding Co. and the American Circular Loom Co.  Another subsidiary corporation, the Phelps Dodge Copper Products Corporation (hereinafter referred to as Copper Products), organized in 1932, took over all the rest of the property and business of National.  Petitioner and Bennett were put in operating control of National and Brown was put in operating control of Copper Products.  The separation of National's business did not eliminate the friction.  National and Copper Products were selling the same products in certain localities.  This competition was a continuous source of trouble.  The Phelps Dodge officials finally came to the conclusion that the only way to eliminate the friction was to reorganize both corporations and bring them together again.  Such a plan was tentatively formulated but was not carried out because it would have involved a personal hardship on the employees and management of National as well as those of Copper Products in that it would have been necessary to eliminate some*964  of them.  There could have been only one operating head for the reorganized business.  *729  At that time a brother and two sons of petitioner were in the employ of National.  Bennett, vice president in charge of sales, was not getting along well with Wylie Brown.  Petitioner decided to get National back at any price.  His motive was to protect his organization, which would have been eliminated if National had continued with Phelps Dodge.  Bennett had been associated with petitioner since 1905.  He had acquired stock in Metal Molding in 1920 or 1921 and was a stockholder at the time of the reorganization of Metal Molding in 1928 into National.  At that time he acquired stock in National.  Bennett felt that National under Phelps Dodge control would eventually lose its business.  This meant that employees for whom he felt responsible would lose their jobs.  During 1933 and 1934 he discussed with petitioner a number of times the question of buying back the company.  Neither petitioner nor the other interested parties had sufficient available cash to make such purchase.  In the fall of 1934, petitioner had a conference with Cates, the president of Phelps Dodge, at which time*965  the latter wrote on a piece of paper that he would sell National back to petitioner for 300,000 shares of stock of Phelps Dodge.  The officials of Phelps Dodge felt that stock would be more useful to that corporation than cash.  All of the former stockholders of Metal Molding who had received National stock on April 12, 1928, and in turn Phelps Dodge stock on October 31, 1930, as set out above, except O. F. Felix and J. D. Lyon, joined petitioner in the reacquisition of the National stock.  Certain of the former stockholders, including Frank J. Lynch, Mary M. Lynch, and Holdship, did not exchange all of their Phelps Dodge stock.  Petitioner's own stock and the contributions which others were willing to make did not give him a sufficient number of shares of Phelps Dodge stock to acquire all of National stock.  To make up the deficiency he went into the market and bought, over a period of five months, approximately 30,000 additional shares of Phelps Dodge stock - enough to allow him and his associates to acquire all of the National stock.  When he began purchasing the said stock it was selling at around 12 1/2 and 13.  The delay in accumulating the stock was necessary in order not*966  to disturb the market.  On February 15, 1935, Phelps Dodge wrote petitioner as follows: We hereby offer to assign and deliver to you the entire capital stock of National Electric Products Corporation owned by us and, either before or after delivering these shares of stock to you, to transfer to that Company the plant, real estate and other assets in the State of Pennsylvania, the title to which is now in this Company and which it has leased to the National Electric Products Corporation.  If so advised, however, this Company is at liberty to retain some small manufacturing buildings and the machinery therein.  For this you are to assign and deliver to Phelps Dodge Corporation two hundred thousand *730  (200,000) shares of the capital stock of that company, duly endorsed and stamped for transfer, within thirty days of the date hereof, and, within a year from date, an additional ninety (90,000) thousand shares of stock of Phelps Dodge Corporation duly endorsed and stamped for transfer.  The closing of this transaction is to be at Forty Wall Street, New York City, within thirty days of the date hereof, either party giving five (5) days notice to the other in writing.  If*967  this meets with your approval, will you kindly note your acceptance at the bottom of this letter.  Acceptance was noted by petitioner.  On February 18, 1935, at a meeting of the board of directors of Phelps Dodge: Mr. Cates advised the Board that final arrangements had been made with Mr. Robinson for the sale to him of the National Electric Products Corporation on the basis of Phelps Dodge delivering to Mr. Robinson the entire capital stock of the National Electric Products Corporation and to transfer to that company the plant, real estate and other assets in the State of Pennsylvania, the title to which is now in Phelps Dodge Corporation and which it has leased to the National Electric Products Corporation.  This company may retain some small manufacturing building and the machinery therein.  For this Mr. Robinson will assign and deliver to Phelps Dodge Corporation 200,000 shares of the capital stock of that Company, duly endorsed and stamped for transfer, within thirty days from February 15, 1935, and, within a year from that date, an additional 90,000 shares of stock of Phelps Dodge Corporation, duly endorsed and stamped for transfer.  After discussion, on motion, duly made*968  and seconded, it was "RESOLVED, that the arrangement made by Mr. Cates with Mr. Robinson, as outlined above, is hereby ratified and approved and the proper officers of the Company are hereby authorized to carry out the arrangement and close the transaction at such place as they may decide on." Said contract was modified by a letter from the Phelps Dodge Corporation to petitioner, dated March 14, 1935, extending the delivery date of the 200,000 shares to March 25, 1935.  Subsequent to March 21, 1935, but during the year 1935, Phelps Dodge conveyed to National, in accordance with the contract of February 15, 1935, the "plant, real estate and other assets in the State of Pennsylvania", except "a small manufacturing building and the machinery therein." On March 21, 1935, petitioner, on behalf of himself and others, made delivery to Phelps Dodge pursuant to the contract of February 15, 1935, as amended by the letter of March 14, 1935, and on the same date, pursuant to said contract, on behalf of himself and others, acquired all of the then outstanding capital stock of National, to wit, 290,000 shares.  (Said corporation owned all of the stock of the American Circular Loom Co.) Phelps*969  Dodge entered the transaction on its books as a "sale." Between October 31, 1930, and March 21, 1935, 10,000 shares of the capital stock of National had been placed *731  in its treasury as treasury stock.  (Phelps Dodge continued to own the Copper Products Corporation.) The officials of Phelps Dodge wanted to have some of the Phelps Dodge stock on hand so that, if desired, it might be used in the purchase of other properties.  Therefore the 290,000 shares acquired from petitioner and the members of his family, were, upon acquisition, placed in the Phelps Dodge treasury and since then have been held continuously as treasury stock.  The outstanding capital stock of Phelps Dodge in the hands of the public immediately prior to said exchange, on March 21, 1935, including said 290,000 shares, consisted of 5,338,740 shares of common stock of a par value of $25 per share.  On March 21, 1935, simultaneously with the exchange between Phelps Dodge and petitioner, National wrote a letter to Phelps Dodge and Copper Products agreeing to purchase all of its requirements of copper rods, wire, and strip from them for three years, but reserving the right to purchase elsewhere 25 percent*970  of its needs if it deemed it advisable to do so for business reasons.  One of the conditions imposed was that Phelps Dodge's prices should be as favorable as those of two named companies.  Since said date, National has been engaged continuously in the business of manufacturing and selling electrical conduits, conductors, and insulators.  On February 18, 1935, Phelps Dodge purchased the entire property and assets of the United Verde Copper Co., as a going concern, for $18,606,000, and assumed all of its liabilities, financing the purchase partly by bank loans.  Although some consideration was given to using the treasury stock in connection with this purchase, none was ever so used.  A sale of the treasury stock at that time would not have furnished sufficient cash to make the purchase.  No other properties were acquired by Phelps Dodge subsequent to the acquisition of the 290,000 shares of treasury stock as set out above, but prior to such acquisition, in 1931, Phelps Dodge had acquired the Calumet & Arizona Mine and the Nichols Copper Co. through an exchange of stock.  The fabrication business of Phelps Dodge increased substantially subsequent to the disposition of the National*971  stock in 1935.  The total sales made by National in 1934 were approximately $14,700,000.  The total sales made by Copper Products were $13,800,000 in 1935; $21,000,000 in 1936; $30,700,000 in 1937; and about $19,000,000 in 1938, when general business became depressed.  Since 1935 the production facilities of Copper Products have been substantially increased and since that year roughly $2,500,000 in cash has been expended (capital expenditures) on its fabricating plants.  *732  Phelps Dodge's production of various metals for the years 1933 to 1937, both inclusive, was as follows: YearCopperSilverGoldPoundsOuncesOunces193377,592,0322,331,97143,8821934101,814,6293,247,71868,8891935176,875,8364,554,140107,4351936252,708,1146,248,568166,1501937314,448,7846,523,504177,062All of the facts pertaining to the basis of the Phelps Dodge stock in the hands of petitioner have been stipulated.  Effect will be given thereto in the computation under the Board's rules.  It is sufficient for present purposes to state that on March 21, 1935, petitioner, pursuant to his contract with Phelps Dodge as amended, *972  exchanged his 164,605 shares of Phelps Dodge stock for the same number of shares of National stock, the fair market value of the National stock being, as of the date acquired by him, $13 per share.  OPINION.  MELLOTT: As stated above, the sole question is whether the transaction whereby Phelps Dodge transferred, to a group of its stockholders, 290,000 shares of National stock for 290,000 shares of its own stock was a distribution in partial liquidation of Phelps Dodge, as respondent contends, or a sale or exchange of a capital asset, as petitioner contends.  If the respondent's contention is correct, the entire amount of the gain or loss must be recognized for tax purposes under the provisions of section 115(c) of the Revenue Act of 1934, 1 while if petitioner's contention is correct, the amount of gain or loss to be taken into account in computing his net income, is limited *733  by the provisions of section 117(a) 2 of the same act, pertaining to capital gains and losses.  *973  Section 155(i) of the Revenue Act of 1934 defines the term "amounts distributed in partial liquidation" as meaning "a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock." If the transaction in issue comes within this definition, respondent's determination must be sustained; if not, then petitioner must prevail.  Respondent takes the position that Phelps Dodge, for reasons satisfactory to itself, disposed of an undesirable but substantial portion of its business and assets; that by thus limiting its field of endeavor and restricting its business activities, it effected a partial liquidation; that the disposal of all of the National stock, together with the transfer of the legal title to the land, plant, and equipment, constituted liquidation in every sense of the word; that the reacquisition of 290,000 shares of its stock by Phelps Dodge constituted a redemption of the stock without the necessity of cancellation or any other affirmative act of retirement and despite any intent to reissue; and that the fact the reacquired stock has*974  been carried on its books as treasury stock is immaterial, inasmuch as the record shows no definite intent or fixed purpose to reissue.  He also contends that under the provisions of section 115(c) and 115(i), supra, a "partial liquidation" has taken place whenever a corporation has distributed money or assets in redemption of a part of its outstanding stock, even though a "winding up" of the affairs of the company is not contemplated, and that the distribution here under consideration was such a distribution.  Petitioner contends that the transfer to him of 164,605 shares of National stock for an equal number of shares of stock of Phelps Dodge was not a distribution in partial liquidation of the latter corporation.  In support of this contention he points to the provisions of section 115(i), supra, defining such a distribution to mean a distribution by a *734  corporation in complete cancellation or redemption of a part of its stock, and urges that the statutory definition is not satisfied where as here the stock was placed in the corporation's treasury for future use and was not retired.  He also urges that Phelps Dodge did not liquidate any part of its business and, *975  in executing the contract with petitioner, it was not motivated by a desire to liquidate any part of its business.  Petitioner takes the position that Phelps Dodge intended to consummate, and did consummate, a sale or exchange of the outstanding stock of National for 290,000 shares of Phelps Dodge stock, and calls attention to the fact that the parties have stipulated that he, pursuant to the contract with Phelps Dodge, "exchanged [his] 164,605 shares of stock stock of the Phelps Dodge corporation for 164,605 shares of stock of" National, and that the word "sale" was used in the written contracts between the parties, in the minutes of the board of directors of Phelps Dodge, and in recording the transaction on its books.  Prior to the passage of the Revenue Act of 1934, gains resulting from distributions in partial liquidation were treated and taxed as capital gains.  Therefore, whenever a shareholder relinquished part of his stock in a corporation and received in exchange therefor money or assets, any gain resulting to him was taxable as a capital gain, unless the distribution was "essentially equivalent to the distribution of a taxable dividend", in which event it was taxable*976  as a dividend under section 201(g) of the 1926 Act or under section 115(g) of the 1928 and subsequent acts.  The necessity for determining whether there was a sale or exchange of all or a part of a shareholder's stock to a corporation, or whether he received a distribution in partial liquidation, arises from the change made by section 115(c) of the 1934 Act, requiring that in cases of distributions in partial liquidation 100 per centum of the gain realized is to be taken into account in computing net income.  In other words, prior to 1934 a distribution in partial liquidation was treated the same as a sale or exchange of the stock and the amount of the gain or loss to be taken into account in computing net income was limited by the capital gains provisions of the various acts, whereas under the 1934 Act, in the case of a partial liquidation, such gain is no longer limited by the capital gains provisions and 100 percent thereof is subject to both normal tax and surtax.  In support of his contention, respondent cites and relies upon a number of cases involving the question of whether a corporation had made a distribution in partial liquidation or had made a distribution in cancellation*977  or redemption of a part of its stock "at such time and in such manner as to make the distribution and cancellation or redemption in whole or in part essentially equivalent to the distribution *735  of a taxable dividend." ; ; ; affd., ; . It is true, as respondent points out upon brief, that holding was made in some of the cited cases that a "partial liquidation" had occurred although a "winding up" of the affairs of the corporation was not contemplated (;), and even though there was no intention on the part of the corporation to liquidate (). It is not without significance, however, that, in every instance where it was held that a distribution in partial liquidation had been effected, it was accompanied by a retirement of a part of the corporation's stock.  *978 In the instant proceeding neither party contends that the distribution received by petitioner was taxable as a dividend.  The parties have stipulated that petitioner exchanged his shares of Phelps Dodge stock for an equal number of shares of National, and the transaction must be treated as a "sale or exchange" for tax purposes unless it falls within the definition of a distribution in partial liquidation contained in section 115(i), supra.Obviously, Congress did not intend that all transfers of money or assets by a corporation to its stockholders in exchange for a portion of its stock held by them should be treated as distributions in partial liquidation.  If such had been its intention, it would not have limited such distributions to those made in "complete cancellation or redemption" of a part of a corporation's stock.  Moreover, the fact that the distribution resulted in the cessation of a part of the corporation's business, as argued by the respondent, or did not do so, as argued by petitioner, is not controlling.  The question is not whether there was a partial liquidation in the sense in which these words are generally used, but whether there was a partial liquidation*979  as defined in the statute.  While neither party argues that the phrase "complete cancellation or redemption" is ambiguous, their divergent views as to its meaning justify some reference to the reports of the congressional committees at the time the Revenue Act of 1924 was under consideration.  The following excerpt from these reports tends to support the petitioner's contention that there can be no "complete cancellation or redemption" of a part of a corporation's stock unless it is retired: The theory of liquidating dividends is extended to distributions in partial liquidation.  If a corporation retires a portion of its capital stock, the transaction is treated, from the point of view of the stockholders as a sale of its stock.  If a corporation distributes an amount in partial retirement of its capital stock, the amount thereof is to be considered as a return of capital, and taxable *736  only if, and to the extent that, it exceeds the basis of the stock.  [House Rept. No. 179, 68th Cong., 1st sess.; Senate Rept. No. 398, 68th Cong., 1st sess. Italics ours.] Moreover, the respondent has tacitly adopted this interpretation of the quoted phrase in his regulations. *980  In article 115-5 of Regulations 86 it is said: * * * A complete cancellation or redemption of a part of the corporate stock may be accomplished, for example, by the complete retirement of all the shares of a particular preference or series, or by taking up all the old shares of a particular preference or series and issuing new shares to replace a portion thereof, or by the complete retirement of any part of the stock, whether or not pro rata among the shareholders.  [Italics ours.] The Circuit Court of Appeals for the First Circuit apparently had the same view; for it stated, in , that "The statute contemplates partial liquidation of corporations, accompanied by partial retirement of outstanding stock." [Emphasis supplied.] Since the passage of the Revenue Act of 1934, two published opinions have been promulgated by this Board in which the question was whether stockholders had made sales of their stock or whether they had received distributions in partial liquidation.  *981 , is relied upon by the petitioner, while , is relied upon by the respondent.  In , the facts were somewhat similar to those now before us.  Smith was the owner of 45 of the 1,000 outstanding shares of the capital stock of a corporation.  Being in need of money, he offered to sell his shares to the corporation for $1,000 per share.  The corporation accepted and paid him $45,000.  After receiving the stock the corporation did not cancel or retire it, but carried it on its books as treasury stock.  It was held that the transaction constituted a sale of the shares by Smith to the corporation, and that it was not a distribution in partial liquidation.  In , a corporation redeemed its preferred stock at $110 a share, and it was held that the stockholders received a distribution in partial liquidation.  In distinguishing this case from , it was said: But, in the Smith case, all the elements of a sale were present.  The reacquired stock was not retired, but was held in*982  the treasury of the corporation subject to reissuance.  The last sentence of paragraph (b) of the stock certificates, involved here, provides that preferred stock purchased or redeemed or discharged shall not be reissued.  The redemption, in other words, was to be complete.  It is proper to presume, therefore, that that procedure was followed when petitioner's stock was reacquired in 1934.  * * * This factual situation prevents, in our opinion, the application of the Smith case here.  *737  The 290,000 shares of stock received by Phelps Dodge from petitioner and his associates were neither canceled nor retired.  They were placed in its treasury as treasury stock and have been continuously so held.  The evidence discloses that they were placed in the treasury with the intention that they would be used to purchase additional properties, and that officials of the corporation, preliminary to taking this action, received the advice of counsel to the effect that under the laws of the State of New York treasury stock could be used for the acquisition of properties without regard to any preemptive rights of Phelps Dodge stockholders.  Notwithstanding this evidence, respondent argues*983  that an intention to retire the stock is manifested by the fact that none of it has been used by Phelps Dodge during the five years which have elapsed since it was acquired, even though the corporation has bought large properties and expanded its business.  He therefore contends that for the purposes of the instant case the stock should be considered in effect as canceled or retired.It is true that since Phelps Dodge placed the 290,000 shares in its treasury it has expended a substantial sum in expanding its plant facilities and purchased the properties of the United Verde Copper Co. as set forth in our findings.  It is also true that it did not use the treasury stock for either of these purposes.  However, we know of no rule of law, and respondent has not cited any, holding that treasury stock acquired by a corporation for the purpose of using it to purchase properties will be considered to have been completely canceled or retired if it is not used for that purpose within a certain period of time after its acquisition.  The 290,000 shares are still available as treasury stock for the purchase of properties, and the continued treatment of these shares as treasury stock indicates*984  an intention not to cancel or retire them, rather than to do so.  The stipulated facts indicate, and it is accordingly held, that Phelps Dodge did not make a distribution "in complete cancellation or redemption of a part of its stock." Petitioner therefore did not receive a distribution in partial liquidation when on March 21, 1935, he exchanged his 164,605 shares of Phelps Dodge stock for an equal number of shares of National, and the amount of the gain or loss to be taken into consideration in computing his net income is governed by the provisions of section 117, supra.Reviewed by the Board.  Judgment will be entered under Rule 50.ARNOLD and OPPER concur only in the result.  Footnotes1. SEC. 115.  DISTRIBUTIONS BY CORPORATIONS.  * * * (c) DISTRIBUTIONS IN LIQUIDATION. - Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock.  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.  Despite the provisions of section 117(a), 100 per centum of the gain so recognized shall be taken into account in computing net income.  In the case of amounts distributed (whether before January 1, 1934, or on or after such date) in partial liquidation (other than a distribution within the provisions of subsection(h) of this section of stock or securities in connection with a reorganization) the part of such distribution which is properly chargeable to capital account shall not be considered a distribution of earnings or profits within the meaning of subsection (b) of this section for the purposes of determining the taxability of subsequent distributions by the corporation.  ↩2. SEC. 117.  CAPITAL GAINS AND LOSSES.  (a) GENERAL RULE. - In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income: 100 per centum if the capital asset has been held for not more than 1 year; 80 per centum if the capital asset has been held for more than 1 year but not for more than 2 years; 60 per centum if the capital asset has been held for more than 2 years but not for more more than 5 years; 40 per centum if the capital asset has been held for more than 5 years but not for more than 10 years; 30 per centum if the capital asset has been held for more than 10 years. ↩