Court Opinion

ID: 4601368
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:27:28.250322+00
Date Added: 2024-06-11T07:52:28.987009
License: Public Domain

BRIGGS-DARBY CONSTRUCTION CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  BRIGGS-KILLIAN COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  BRIGGS-SPENCE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  W. M. THORNTON, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Briggs-Darby Constr. Co. v. CommissionerDocket Nos. 90594, 90595, 90596, 90597.United States Board of Tax Appeals41 B.T.A. 136; 1940 BTA LEXIS 1232; January 19, 1940, Promulgated *1232  Petitioners issued all their capital stock to R. W. Briggs & Co. in exchange for a portion of the latter's machinery and equipment.  The exchanges were made pursuant to contracts between R. W. Briggs & Co. and its superintendents whereby the superintendents were entitled to acquire a 45 percent interest in the business out of profits.  The depreciable assets were exchanged at a value in excess of their value on the books of R. W. Briggs & Co.  Held, nontaxable exchanges occurred between R. W. Briggs & Co. and each of these petitioners, and the basis for depreciation is the same as it would be in the hands of the transferor.  Sec. 113(a)(8), Revenue Acts of 1932 and 1934.  Robert L. Sonfield, Esq., Ira S. Taylor, Esq., and Alwin Adam, C.P.A., for the petitioners.  I. M. Tullar, Esq., for the respondent.  ARNOLD *136  These proceedings, consolidated for hearing, involve deficiencies in income and excess profits taxes as follows: PetitionerDocket No.19331934Briggs-Darby Construction Co.:Income tax90594$1,119.85Excess-profits tax142.76Briggs-Killian Co.:Income tax90595336.49$734.61Excess-profits tax113.50Briggs-Spence Co.: Income tax90596432.881,215.88W. M. Thornton, Inc.: Income tax90597396.59*1233  The principal issue is the basis for depreciating certain road machinery acquired by the petitioners in exchange for capital stock, that is, whether the basis shall be the same as it would be in the hands of their transferor, or whether the basis should be the cost of said assets to each petitioner.  In Docket Nos. 90594 and 90595 an additional issue is presented as to the validity of the excess profits tax determined by the respondent.  It is conceded by petitioners that this issue is eliminated if their contention on the first issue is sustained.  *137  Separate stipulations of fact were filed in each proceeding.  It was orally stipulated at the hearing that the testimony in Briggs-Killian Co., Briggs-Spence Co., and W. M. Thornton, Inc., would be very largely the same as the testimony given in Briggs-Darby Construction Co. with reference to the general scheme for the organization of each of the petitioners and the transfer of the machinery and equipment from R. W. Briggs & Co. to them.  FINDINGS OF FACT.  Prior and subsequent to the incorporation of petitioners, under the laws of Texas, R. W. Briggs & Co. was a substantial corporation engaged in the contracting business, *1234  which included road construction.  Darby, Killian, Spence, and Thornton were engineers employed by R. W. Briggs & Co. as superintendents in charge of equipment and construction on certain of the latter's projects.  Competition between R. W. Briggs & Co., which operated many outfits, and smaller concerns, individually owned and operated, was keen.  In order to meet this competition and to afford its superintendents an opportunity for advancement, R. W. Briggs & Co. entered into a separate contract with each of the above named superintendents, providing for the creation of the petitioners and the transfer of certain designated machinery and equipment to each.  The equipment transferred to each petitioner did not exceed 5 percent of the assets of R. W. Briggs & Co.  The first of the aforesaid contracts, providing for the creation of the Briggs-Darby Construction Co., was executed by R. W. Briggs & Co. and E. B. Darby on or about February 1, 1931.  The agreement recites that Darby, "who has previously been employed as superintendent" by R. W. Briggs & Co., and the latter, "desire to form a working agreement" whereby Darby "shall become a part owner in the machinery and equipment which*1235  he is now operating and will from time to time operate in the future, and to share with" R. W. Briggs & Co. "in the profits or losses from such operation on a basis approximating fifty percent (50%) thereof * * *." The contract further recites that whereas R. W. Briggs & Co. has secured a contract for the construction of a portion of the state highway "which will be constructed under the direction of" Darby "with the machinery and equipment now in his charge with subsequent additions as may be necessary, the following conditions are therefore agreed to between the Parties to this contract": 1.  It is agreed by both Parties hereto that as soon as practicable a corporation will be formed with the following distribution of common stock: R. W. Briggs & Company, or its nominee51%R. H. Klossner4%E. B. Darby45%*138  2.  It is further agreed that the capital to be paid in now will be represented by the equipment to be used on the job mentioned above according to the attached list with values shown thereon, which values are hereby agreed upon as representing a fair and equitable price for each piece of equipment, the total value of same being herein agreed*1236  upon as the sum of Thirty-three Thousand ($33,000.00) Dollars.  3.  It is further agreed that the party of the Second Part shall execute his promissory note to the Party of the First Part for his prorate share of this capital stock, the same to be evidenced by four (4) equal notes, the first payable six (6) months after date and one each six (6) months thereafter until all of said notes are paid, the same to bear interest at the rate of six ( 6%) percent per annum, to provide for the usual acceleration of maturities upon non-payment of principal or interest, and to be secured by the transfer and deposit of said forty-four (44%) percent of the capital stock in the company owned by Second Party, the same to be held as collateral.  4.  It if further agreed that dividends not to exceed sixty-six and two-thirds percent (66 2/3%) of the profits may be declared at the end of each job and that not less than thirty-three and one third percent (33 1/3%) of the profits shall accrue to the corporation as a reserve for future operations, losses, or increase of capital stock, provided, however, that should the Party of the Second Part fail to satisfactorily make the payments due on his notes*1237  to the Party of the First Part when due and the holdings of Second Party in said corporation be termined, [sic] as hereinafter provided, the Party of the First Part shall be empowered to apply any portion of the said reserve fund which may be due to the Party of the Second Part to the retirement of the note.  5.  It is understood and agreed by both parties that the intent of this association is to build a substantial corporation for doing concrete paving or other construction work as may seem desirable, and to that end the Parties agree that in so far as practicable the earnings will be used to increase the value of the corporation, by first paying for the equipment, and second, to build a sufficient cash balance to properly operate the business, and the Party of Second Part agrees to apply all dividends declared and paid to him to the retirement of the notes due by him to the Party of the First Part, provided, however, that should the dividends declared to him at any time be more than sufficient to retire the next maturing note at its maturity that the Party of the Second Part agrees to apply all such dividend in excess of an amount equal to one hundred and fifty dollars ($150.00) *1238  per month for each month's duration of the contract from the profit of which the dividend has been declared to the payment of his notes, regardless of whether same are due or not.  The omitted portions provided that petitioner would take out and carry a $25,000 insurance policy on Darby's life; that R. W. Briggs & Co. would keep the books on each job so long as it was advancing money to petitioner and until the latter could maintain a bookkeeping department, for which services R. W. Briggs & Co. was to receive stipulated fees; that, where officers of R. W. Briggs & Co. acted in petitioner's behalf, the latter would pay the salary of the officer involved plus his traveling expenses; that R. W. Briggs & Co. would finance each job, petitioner to pay 7 percent interest on money advanced; books and records were to conform to the system and codes of R. W. Briggs & Co., which was given the *139  right to inspect same at any time; R. W. Briggs & Co. was to give petitioner the benefit of its purchasing power and any of petitioner's major purchases had to be approved by R. W. Briggs & Co.; Darby was to draw a salary of $100 a month as superintendent until such time as he had paid his*1239  notes and corporate capital was increased to $50,000, after which his salary was to be $500 per month; a schedule of equipment available for each job was to be made and estimated depreciation charged to the job, in case of dissolution of petitioner value of equipment in schedule should govern; R. W. Briggs & Co. was to execute contracts and make bonds for petitioner until the latter was financially able to act in its own behalf, petitioner binding itself to make no proposal and enter into no contracts without consent of R. W. Briggs & Co.; and R. W. Briggs & Co. was given a five-year option by Darby to purchase his interest at the then books value of his holdings.  The Briggs-Darby Construction Co. was organized on March 24, 1931, pursuant to the contract of February 1, 1931.  On that date its entire capital stock, consisting of 3,300 shares, was issued to R. W. Briggs & Co. in exchange for machinery and equipment having an agreed value as between the parties of $33,000.  At the time of the transfer these assets had a depreciated book value of $21,483 upon the books of R. W. Briggs & Co.  Darby gave his notes for 45 percent of the stock, which continued to be held in the name of*1240  R. W. Briggs & Co. until February 17, 1932, when 450 shares were transferred to Darby.  In making the transfer R. W. Briggs & Co. surrendered their certificate and two certificates were issued in lieu thereof, one to the superintendent for 450 shares and one to R. W. Briggs & Co. for 2,850 shares.  On or about March 15, 1932, R. W. Briggs & Co. transferred one share each to R. W. Briggs and R. H. Klossner.  On or about June 30, 1932, R. W. Briggs & Co. transferred 495 additional shares to Darby, and on or about December 26, 1932, another 210 shares.  May 16, 1933, the remaining 330 shares, representing 45 percent of petitioner's stock, were issued to Darby.  No stock was issued to Darby until it was paid for.  The R. W. Briggs & Co. contract with M. B. Killian, dated October 7, 1931, after referring to the construction contract held by R. W. Briggs & Co. and its desire "to employ" Killian "as Superintendent on said Job", sets forth terms of the employment as follows: 1.  First Party hereby employs Second Party as Superintendent during the construction of the work above described on said contract (and such other contracts as may be secured in the future and no which First Party*1241  employs Second Party as Superintendent) and while his services as such as [sic] satisfactory as hereinafter set out First Party agrees to pay Second Party *140  a salary of ONE HUNDRED DOLLARS ($100.00) per month, and in addition thereto Forty-Five Percent (45%) of the net profit which may accrue to First Party under said contracts.  Second Party agrees to perform his duty as Superintendent of said construction work udner the direction of the President and Board of Directors of First Party, and to devote his entire time thereto, and if at any time during the term hereof he should fail to perform such duty to the full satisfaction of the President of First Party, who shall be the sole judge thereof, this contract will automatically be terminated, and Second Party shall receive in addition to his salary of $100.00 per month for his services during the time he has actually worked the sum of $150.00 per month, less such amounts as may have heretofore been advanced to him.  It is agreed that Second Party shall have a salary of $100.00 per month from and after the date of the beginning of the work on said contract and that no advances in excess of said salary as agreed shall*1242  be made without the consent of the President and Board of Directors of First Party.  It is contemplated that First Party will at some future date form a corporation for the purpose of handling this work, and will assign to said corporation the contracts then held on which Second Party is being employed as Superintendent, and Second Party agrees to purchase from First Party 45% of the capital stock of said new corporation, and agrees that the 45% of the net profits as shown in this contract shall be used by the First Party in payment of 45% of the stock in the new corporation.  The Briggs-Killian Co. was organized in March 1932, pursuant to the above contract of October 7, 1931, and a subsequent contract made on March 15, 1932, between the same parties.  Upon incorporation of the petitioner, pursuant to said contracts, R. W. Briggs & Co. transferred certain machinery and equipment to petitioner, which had an agreed value as between the contracting parties of $20,000.  At the time of their transfer the machinery and equipment had a remaining depreciated value of $10,933.28 upon the books of R. W. Briggs & Co.  The entire capital stock of the Briggs-Killian Co., 2,000 shares, was*1243  issued to R. W. Briggs & Co. in exchange for said assets on March 15, 1932.  On the same day R. W. Briggs & Co. transferred one share each to R. W. Briggs, R. H. Klossner, and M. B. Killian.  Upon payment by Killian for his 45 percent interest, 899 shares were transferred to him on or about June 30, 1932.  The R. W. Briggs & Co. contract with T. R. Spence, dated October 1, 1931, contains practically the same preliminary provisions as the Darby contract except as to amounts involved, and except that paragraph numbered 1 of the Spence contract provides that the capital stock of the corporation to be formed is "to be owned by First Party [R. W. Briggs & Co.] or its nominees." Paragraphs 3, 4, and 5 of the Spence contract read as follows: 3.  Second Party agrees and obligates himself to purchase from First Party forty-five percent (45%) of the capital stock of said corporation, and agrees to pay therefor to First Party the sum of Thirteen Thousand Nine Hundred Fifty Dollars ($13,950.00).  It is agreed that up until the time he shall have paid First *141  Party said sum of Thirteen Thousand Nine Hundred Fifty Dollars ($13,950.00), that Second Party shall be entitled to receive*1244  from First Party, or from said corporation when formed, as compensation to him as Superintendent on said jobs, forty-five percent (45%) of the net profits derived from same, and agrees to pay forth-five percent (45%) of the net loss from any said jobs, if any loss is sustained, and Second Party hereby transfers and assigns to First Party all of his share of said net profits, except a drawing account of One Hundred Fifty Dollars ($150.00) per month, until same shall have fully paid to First Party the said sum of Thirteen Thousand Nine Hundred Fifty Dollars ($13,950.00) at which time said forty-five percent (45%) of the capital stock of said corporation shall be issued and delivered to Second Party.  In any event, Second Party agrees and obligates himself to pay for said stock on or before two (2) years from date hereof, and if he should fail or refuse to pay for all of same on or before two years from date hereof, then this contract may, at the election of First Party, be cancelled, and the First Party shall have the option either to issue and deliver to the Second Party such amount of stock for which he has fully paid under the terms of this agreement or to repurchase from Second Party*1245  all his rights in such stock by return to him of the then book value of such stock for which he may have fully paid.  4.  It is agreed that prior to the time Second Party shall have paid said sum of Thirteen Thousand Nine Hundred Fifty Dollars ($13,950.00) in full to First Party, he shall, in addition to receiving forty-five percent of the net profits from said job, receive further a salary of One Hundred Dollars ($10.00) [sic], per month as Superintendent, and that upon the full payment of said sum of Thirteen Thousand Nine Hundred Fifty Dollars ($13,950.00) to First Party, that from and after said date Second Party shall receive a salary of Five Hundred Dollars ($500.00) per month as Superintendent, unless same should be changed by the Board of Directors of said corporation, and said arrangements as to the payment to him of forty-five percent (45%) of the net profits shall terminate.  5.  It is further agreed that after the full and final payment by Second party to First Party for said stock, that a dividend of not to exceed two thirds of the profits may be declared at the end of each job, subject to the action of the Board of Directors of said Corporation, and that not*1246  less than one-third of the net profits shall be set aside by said Corporation as a reserve for future operations, losses or increase of capital stock, it being the intention of the parties hereto to build a substantial corporation for doing concrete paving or such other construction work as may seem advisable and to that end the parties agree that in so far as practicable, the earnings will be used to increase the value of the corporation by building a sufficient cash ablance to properly operate the business.  The remaining paragraphs of the Spence contract are practically the same as the final paragraphs of the Darby contract as hereinabove summarized.  The Briggs-Spence Co. was organized in February 1932, pursuant to a contract made on October 1, 1931, between R. W. Briggs & Co. and T. R. Spence and a bill of sale between R. W. Briggs & Co. and petitioner dated February 11, 1932.  Pursuant to said contracts, R. W. Briggs & Co. transferred to petitioner certain machinery and equipment which the contracting parties agreed had a value of $31,000.  At the time of transfer said machinery and equipment had a remaining depreciated value of $11,391.13 upon the books of R. W. Briggs & *1247 *142  Co.  All of petitioner's stock, 3,100 shares, was issued to R. W. Briggs & Co. on March 15, 1932.  On the same day R. W. Briggs & Co. transferred one share each to R. W. Briggs, R. H. Klossner, and T. R. Spence.  The shares representing Spence's 45 percent interest were issued to him as paid for, 1,045 shares being transferred to him on or about June 30, 1932, 315 shares on or about September 21, 1933, and 34 shares on or about December 26, 1934.  The R. W. Briggs & Co. contract with W. M. Thornton, dated December 22, 1932, after naming the parties thereto, provided as follows: WITNESSETH: First Party agrees to sell, and Second Party agrees to buy Seven Hundred Fifty (750) Shares of the capital stock of W. M. Thornton, Incorporated, a Texas corporation, of the par value of Five and no/100 ($5.00) Dollars, per share, on the following terms and conditions, to-wit: 1.  Second Party agrees to pay for said stock on or before two (2) years from this date, the total sum of Three Thousand Seven Hundred Fifty and no/100 ($3750.00) Dollars, with interest from and after maturity thereof, at ten per cent (10%) per annum.  2.  If on or before two (2) years from this date, *1248  Second Party should fail or refuse to pay the balance then due and owing on said stock, First Party may at its election declare this contract cancelled and any all amounts previously paid by Second Party thereon shall be forfeited to First Party as liquidated damages which are herein agreed upon, or First Party may at its election require specific performance hereof.  When said amount above mentioned shall have been fully, paid, First Party agrees to transfer and assign said stock to Second Party, his heirs or assigns.  3.  For the purpose of securing the payments of amounts due hereunder, Second Party hereby assigns and transfers and sets over to First Party all dividends and/or commissions now due, or which may hereafter become due and owing to him by W. M. Thornton, Incorporated, until the purchase price for said stock shall have been fully paid.  An executed copy hereof shall be delivered to said W. M. Thornton, Incorporated, as evidence of such assignment, and W. M. Thornton, Incorporated, joins herein for the purpose of acknowledging receipt of such assignment and evidencing its agreement to comply with the terms and conditions thereof.  W. M. Thornton, Inc., was organized*1249  in December 1932, pursuant to the written contract made December 22, 1932, between R. W. Briggs & Co. and W. M. Thornton and a charter contract executed by the incorporators of petitioner on December 26, 1932.  Pursuant to said contracts petitioner, on December 26, 1932, issued 3,500 shares of its 5,000 shares of capital stock, said 3,500 shares having a par value of $17,500, in exchange for certain machinery and equipment having an agreed value of $25,000, but subject to liens of $7,500.  At the time of their transfer said machinery and equipment had a remaining depreciated value of $23,630.98 upon the books of R. W. Briggs & Co.  On the same date R. W. Briggs & Co. transferred one share each to R. W. Briggs, *143  R. H. Klossner, and W. M. Thornton.  On or about June 29, 1933, 1,499 additional shares of stock in the petitioner were transferred to Thornton.  In computing depreciation for the taxable years each petitioner used the agreed value of the machinery and equipment when turned in for stock, which was the fair market value thereof.  The respondent computed depreciation upon the basis of the depreciated value of the machinery upon the books of R. W. Briggs & Co.  The*1250  parties stipulated that, if depreciation is to be computed upon the basis of the depreciated value of the assets in the hands of R. W. Briggs & Co., respondent's determination is correct; that, if depreciation is to be computed upon the agreed value of the machinery and equipment exchanged for capital stock, each petitioner is entitled to depreciation deductions as follows: For 1933For 1934Briggs-Darby Construction Co$17,294.38Briggs-Killian Co7,934.48$8,754.21Briggs-Spence Co8,863.5213,451.17W. M. Thornton, Inc15,197.23The excess profits tax deficiencies arise solely from the adjustments made to the depreciation allowances of the particular petitioners.  OPINION.  ARNOLD: In these proceedings R. W. Briggs & Co. exchanged certain depreciable assets for all the capital stock of each of the petitioners, pursuant to certain contracts with four of its superintendents.  The depreciable assets had been valued by the contracting parties prior to their exchange for capital stock as having a value in excess of their depreciated value upon the books of R. W. Briggs & Co.  The petitioners deducted depreciation based upon this increased valuation. *1251  This deduction respondent denied, but permitted a deduction for depreciation upon the same basis as such assets had in the hands of the transferor.  The respondent in his deficiency notices justifies his action under section 113(a)(7) of the Revenue Acts of 1932 and 1934.  In his brief he asserts that his action is supported in any event by sections 113(a)(8) and 112(b)(5) of said acts.  Section 113(a)(7) provides the basis for determining gain or loss, or depreciation, where property is acquired by a corporation "in connection with a reorganization." Section 113(a)(8) provides the basis where stock is issued "in connection with a transaction described in section 112(b)(5)." The latter section prohibits the recognition of gain or "if property is transferred to a corporation by one or more *144  persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporation." This prohibition likewise applies to the recognition of a new depreciable basis.  Sec. 114(a), Revenue Acts of 1932 and 1934.  Section 113(a)(7) applies to acquisitions of property in connection with a reorganization. *1252  Its application here depends upon whether a reorganization occurred, since in any event "an interest or control in such property of 50 per centum or more remained" in R. W. Briggs & Co.  A reorganization means, inter alia, "a transfer by a corporation of all or 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." Sec. 112(g)(1)(C), Revenue Act of 1934; sec. 112(i)(1)(B), Revenue Act of 1932.  "Control," as used in section 112 of each act, "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." The bases for depreciation, therefore, depend upon whether immediately after the transfers R. W. Briggs & Co. had the "ownership of at least 80 per centum" of the stock of each petitioner.  Under the stipulated facts R. W. Briggs & Co. owned 55 percent of the stock in any event, and it owned 100 percent of the stock unless the contracts transferred 45 percent thereof to the superintendents.  It is stipulated that all the stock of*1253  each petitioner was issued to R. W. Briggs & Co. and that it was the owner of record on the books of petitioners.  To establish new bases for their depreciable assets these petitioners must show that, despite the record ownership of R. W. Briggs & Co., 45 percent of the stock was owned by the superintendents immediately after the transfer of the assets for stock.  This, the petitioners have failed to do.  In their broader aspects the Darby, Killian, Spence, and Thornton contracts were employment contracts, coupled with the right to purchase.  They provide for small salaries and 45 percent of the operating profits in consideration for services as superintendents of construction.  R. W. Briggs & Co., however, required the superintendents to use their portion of the profits in the acquisition of a 45 percent interest in the several corporations.  The Killian, Spence, and Thornton contracts contain specific language relating to the purchase of stock by these superintendents from R. W. Briggs & Co.  More particularly, their contracts were contracts to purchase, and their ability to purchase was insured by the right to receive 45 percent of the profits from the construction jobs as compensation*1254  for their services.  We find no provisions in the contracts showing an intention, nor do we *145  find any acts by the parties manifesting an intention, that Killian, Spence, and Thornton were to become owners of 45 percent of the stock of the respective petitioners, either upon the execution of the contracts, the organization of the petitioners, or the exchange of the assets for the stock.  Our analysis of the contracts convinces us that the parties intended that ownership of the stock should remain in R. W. Briggs & Co. until the stock was paid for and transferred.  The Darby contract differs from the other contracts in that Darby was to and did execute notes for "his pro rata share" of the capital stock of Briggs-Darby Construction Co.  If it can be said that such notes were received in payment of his stock, he would be the equitable owner thereof even though the stock stood in the name of R. W. Briggs & Co. on the petitioner's books.  Paragraph 3 of the Darby contract provides that Darby's notes should be "secured by the transfer and deposit of * * * the capital stock in the company owned by" Darby, "the same to be held as collateral." This language indicates that the*1255  stock would be issued to Darby and he would transfer it to and deposit it with R. W. Briggs & Co. as collateral security for his notes.  If the parties intended that Darby should become the owner of the stock at the time the contract was executed, they failed to carry out their intention, because the stipulated facts show that all the stock of Briggs-Darby Construction Co. was issued to R. W. Briggs & Co.  The stock certificate record shows that capital stock was first issued to the incorporators on March 24, 1931, and that thereafter, and on the same date, certificate No. 5 was issued to R. W. Briggs & Co. for the full 3,300 shares.  This certificate was surrendered by R. W. Briggs & Co. on February 17, 1932, at which time the certificate was canceled and shares were issued to Darby for the first time.  Had the notes executed by Darby been intended as payment for his stock, the 1,485 shares would have been issued to him then and transferred by him to R. W. Briggs & Co. to hold as collateral as the contract provided.  This was not done, however, and the failure to follow the contract procedure convinces us that the notes were not given, or intended to be given, or received, as payment, *1256  but as evidence only of the amount of profits to be applied in the purchase of the stock.  The things done under the Darby contract are a strong indication of what the parties intended and further strengthen our opinion that the notes were neither given nor received in payment for the stock.  If we are to consider the notes as the equivalent of cash, there should have been some evidence adduced that the notes were so accepted.  In the absence of evidence of such understanding or intention, the notes can not be so considered.  , and cases there cited.  See also Williston on Contracts, vol. 3, sec.  *146  1922, p. 3265; ; ; ; . Since our analysis of the contracts indicates that R. W. Briggs & Co. had the ownership of 100 percent of the voting stock of each petitioner immediately after the exchanges, the transactions could come within either section 113(a)(7) or section 113(a)(8).  That is, the transfers as to these petitioners*1257  could have been in connection with a reorganization under section 113(a)(7), or in connection with a transaction described under 112(b)(5) as provided in section 113(a)(8).  We have considered the issue under section 113(a)(8), but the application of either section would fix the basis for depreciation as the same as the assets had in the hands of the transferor, ; certiorari denied, . We have considered the authorities cited by petitioners, including ; ; ; certiorari denied, ; , and others, but find them to be distinguishable upon their facts.  For the reasons hereinabove set forth we hold that petitioners are not entitled to a "stepped up basis" for depreciation.  Petitioners' alternative contention that the excess profit tax is invalid has been decided adversely to them in *1258 ; ; ; and . Decision will be entered under Rule 50.