Court Opinion

ID: 4625421
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:57:10.691291+00
Date Added: 2024-06-11T07:56:42.171480
License: Public Domain

ALBERT T. PERKINS, PETITIONER, ET AL. 1v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  Perkins v. CommissionerDocket Nos. 75488, 75489, 75490, 75491, 75492, 75493, 75524.United States Board of Tax Appeals36 B.T.A. 791; 1937 BTA LEXIS 653; November 3, 1937, Promulgated *653  A distribution made by a corporation in 1931 was in partial liquidation, and was not made "at such time and in such manner" as to be essentially equivalent to a taxable dividend within the meaning of section 115(g), Revenue Act of 1928.  George E. H. Goodner, Esq., Frederick, C. Rohwerder, C.P.A., and H. Stanley Hinrichs, Esq., for the petitioners.  Wm. E. Davis, Esq., for the respondent.  ARNOLD *791  These proceedings, which were consolidated for hearing, have one common issue, namely, whether a distribution made in 1931 by the St. Louis Frog & Switch Co. to these petitioners, as stockholders thereof, was an ordinary dividend, subject to surtaxes, or was a distribution in partial liquidation of that company.  *792  In the Colnon proceeding, Docket No. 75491, an addition question was presented, namely, the petitioner's right to a deduction of $3,603.54, representing trustees' commissions paid by her, but the parties disposed of this issue by stipulating that petitioner was entitled to the deduction.  Effect will be given to this stipulation in redetermining the deficiency under Rule 50.  In the proceeding by the trustees under the*654  will of John Scullin, Docket No. 75524, the additional question is presented of whether redemption of the corporate shares, distributed by the executors to the testamentary trustees, as capital, resulted in taxable income to the trust, notwithstanding the fact that money received replaced shares redeemed in the trust corpus.  Deficiencies in income tax have been asserted against the petitioners for the year 1931 as follows: Albert T. Perkins$369.68Robert E. Einstein3,772.19John J. Lichter5,249.04Katharene Fruin Colnon6,149.26Laura J. Jens$1,491.32Christopher W. Johnson167.44Trustees under the will of John Scullin21,065.13Separate stipulations of fact were filed in each proceeding, the pertinent portions of which appear in our separate findings as to each petitioner.  FINDINGS OF FACT.  Petitioner Albert T. Perkins resides at Clayton, Missouri.  Petitioners Robert E. Einstein, John J. Lichter, Katharene Fruin Colnon, and Christopher W. Johnson reside at St. Louis.  Petitioner Laura J. Jens resides at University City, Missouri.  Petitioners Mercantile-Commerce Bank & Trust Co. of St. Louis, Harry Scullin, and Charles L. Gilbert are trustees*655  of the estate of John Scullin, who died May 28, 1920.  The individuals reside and the corporation has its principal place of business in St. Louis.  The St. Louis Frog & Switch Co., hereinafter referred to as the company, was organized under the laws of the State of Missouri in 1906.  Thereafter it engaged in the business of manufacturing and selling frogs and switches for steam and electric railroads.  A frog is a crossing between two rails where they interest.  A switch is that part of the track which diverts the train from one track to another.  In 1906 there was a big demand for frogs and switches.  In or about 1923 to 1925 a reduction in the demand for frogs and switches began, which continued through the taxable year 1931.  This reduction in the demand was the outgrowth of three factors; (1) prolonged life of frogs and switches because of the use of harder steel; (2) railroads were no longer expanding and building new lines as *793  they had theretofore; and (3) railroads were making their own frogs and switches, and repairing them by a new welding process which further prolonged their usefulness.  By 1931 or 1932 the demand was not over 20 percent of what it formerly*656  was under normal conditions.  The company began to feel the effects of the reduced consumption in 1927 and 1928.  The decline in the demand for the company's products is shown by the table of profits earned and dividends paid during the years 1920 to 1931, inclusive: YearProfitsDividends paid1920$450,689.76$104,646.00192160,713.45104,646.001922144,448.19101,661.231923125,558.74178,560.001924115,110.3699,200.001925132,043.57119,040.001926$166,065.32$178,560.001927116,836.92178,560.00192875,647.44119,040.00192974,529.3199,200.00193029,129.44218,240.001931, Loss(31,917.24)1 49,600.00The continued decline in the demand for their products was a subject of discussion among the officers and stockholders of the company.  It was the concensus of their discussions that factors beyond their control caused the decline and that the company would have to retire from business.  In 1928 all the stockholders granted an option on their stock to certain parties attempting to form a combination of manufacturers, *657  but nothing came of it.  Again, in 1929, all the stockholders gave an option on their stock to Poor & Co., but this transaction likewise failed to materialize.  All of the stockholders were able to join in giving an option because the stock was closely held, there being about thirty stockholders, with six of them owning approximately 80 percent of the capital stock.  After these attempts of the stockholders had failed, the directors, at a special meeting on December 22, 1930, formally resolved "to recommend to stockholders at an annual meeting to be held February 2, 1931, that articles of association be so amended as will reduce the capital and capital stock in partial liquidation by retiring 40% of shares outstanding at $70.00 per share." At the same time the directors decided that the usual payment of additional compensation for the year 1930 would be omitted, owing to uncertain conditions in the industry.  Pursuant to the above resolution the company advised its stockholders, by letter from the president, dated January 2, 1931, that the board of directors had recommended a reduction of the capital stock by retiring 40 percent of the outstanding shares in partial liquidation, *658  and that it was proposed to pay each $70stockholder per *794  share for the stock retired.  A proxy and a waiver of notice was enclosed with this letter, and in each instance the proposed reduction of capital was referred to as being in partial liquidation.  The statement in the waiver of notice refers to the stockholders' meeting "at which a proposition is to be submitted to partially liquidate said company.  Said liquidation to be effected by a reduction in the number of shares of the capital stock now outstanding." At the annual meeting of the stockholders of the company on February 2, 1931, all stockholders were present in person or represented by proxy.  At this meeting the following resolutions were adopted: NOW THEREFORE, BE IT RESOLVED, that the capital of this Company be reduced by the sum of the Three Hundred Ninety Six Thousand Eight Hundred Dollars ($396,800.00), and that the number of shares of common capital stock be reduced from Twenty Thousand (20,000) shares of authorized stock, of which Nineteen Thousand Eight Hundred Forty (19,840) shares are outstanding to Twelve Thousand (12,000) shares, of which Eleven Thousand Nine Hundred Four (11,904) shares will*659  be outstanding, each of said shares to be of the par value of Fifty Dollars ($50.00), and BE IT FURTHER RESOLVED, that of the amount of Seventy Dollars ($70.00) per share so paid upon the common capital stock of this company so reduced, Twenty Dollars ($20.00) per share shall be paid from surplus and Fifty Dollars ($50.00) per share from capital, * * *.  The resolution further directed the company's officers and directors to take the necessary and proper steps to carry into effect the resolution adopted.  Thereafter, on February 5, 1931, the Secretary of State of Missouri certified that the company was authorized to decrease its capital stock from $1,150,000 to $750,000.  On or about February 11, 1931, the company retired 40 percent of its outstanding common stock by paying $70 per share therefor.  Each stockholder surrendered his old certificate or certificates, receiving cash for 40 percent of his shares and a new certificate for the remaining 60 percent of his holdings.  The old certificates were thereupon canceled.  In retiring and canceling these shares the company made no attempt to determine which shares of any particular stockholder should be retired and canceled.  *660  During the remainder of the taxable year and until the end of 1932 the company continued in business.  At the end of 1932 the company ceased operations, dismantled its plant, sold its machinery and stock of materials and offered its real property for sale.  At the time of this hearing the only remaining asset of the company, undisposed of, was its real property.  After the sale of its machinery the company changed its name to Frog & Switch Liquidating Co. because the purchasers of the machinery wanted to be assured that the company was going out of business.  *795  During 1932 the company paid a liquidating dividend of $33 per share.  This distribution was rubber stamped on each certificate and the par value reduced accordingly.  A charter amendment, dated December 22, 1932, shows that the company reduced its authorized capital stock "from $750,000.00 to $354,000.00 by reducing par value shares of common stock from $50.00 to $17.00 per share." In 1935 the company made a further distribution in liquidation of $8 per share, which distribution was rubber stamped on each certificate and the par value thereof reduced accordingly.  On January 1, 1924, the total investment*661  of the company in depreciable assets was $403,292.15 and its depreciation reserve was $128,478.70, or a net investment of $274,813.45.  After taking into consideration the cost of additions and the depreciation taken and allowed each year the net increase and/or reduction by years in this plant account was as follows: YearIncreaseReduction1924$4,905.4419251,806.891926$7,506.12192714,347.53192811,869.321929$14,433.3819309,373.4219311,594.67Total6,712.3359,124.44The undermaintenance of the plant during the period 1924 to 1931, inclusive, was due to the fact that the officers of the company foresaw the end of the business, and they believed that it was useless to acquire additional equipment.  During the taxable year the company retired its superintendent and one of his assistants because of their failing health and upon their own request.  Their positions were filled by subordinates and no new talent was employed by the company because of the retirement of these two employees.  The balance sheet of the company at December 31, 1930, was in part as follows (smaller items grouped): AssetsProperty$459,325.58Patents341.84Investments3,000.00Current assets:Cash113,738.63U.S. notes746,296.88Accounts receivable70,835.77Accrued interest receivable7,333.91Inventories205,577.83Total current assets(1,155,637.77)Insurance deposit2,195.58Deferred charges3,230.69Total1,623,731.46LiabilitiesCapital stock, 19,840 shares of common$992,000.00Current liabilities:Accounts payable3,619.70Federal and state income taxes (estimated)20,300.00Other current liabilities620.55Total current liabilities(24,540.25)Reserves240,053.65Surplus367,137.56Total1,623,731.46*662 *796  The parties stipulated "that in January 1931, when this distribution was made by the corporation, it had earned surplus which had been earned since March 1, 1913, in an amount in excess of the distribution." The distribution in February 1931 was the first of a series of distributions in complete liquidation of the company.  The pertinent portions of the stipulation of facts filed in each proceeding are summarized as follows: Albert T. Perkins - Docket No. 75488.Prior to March 1, 1913, Perkins purchased 20 shares of the common stock of the company at a total cost of $2,000.  The fair market value of the company's common stock on March 1, 1913, was not less than $317.22 per share and the value of petitioner's 20 shares was not less than $6,344.40.  On June 26, 1913, petitioner purchased two shares at a cost of $432.  On December 30, 1922, petitioner exchanged these 22 shares for 44 shares in a nontaxable recapitalization of the company, at which time petitioner also received a stock dividend of 176 shares.  Petitioner held his 220 shares until February 11, 1931, at which time the company retired 40 percent of its outstanding common stock, as hereinabove related. *663  In the retirement of 88 shares of his stock Perkins surrendered all his old certificates, receiving in exchange therefor $6,160, representing the shares retired, and a new certificate for 132 shares.  In his income tax return for 1931 petitioner reported a capital net gain from this distribution of $3,168.  In determining the deficiency the respondent considered the entire distribution of $6,160 as an ordinary dividend, subject to surtax.  Robert E. Einstein - Docket No. 75489.Prior to March 1, 1913, Einstein purchased 220 shares of the common stock of the company at a total cost of $22,000.  The fair market value of this stock on March 1, 1913, was not less than $317.22 per share, and the value of petitioner's 220 shares was not less than $69,788.40.  On June 26, 1913, Einstein purchased 22 shares at a cost of $4,752.  On December 19, 1913, he purchased 8 shares at a cost of $1,600.  On December 30, 1922, petitioner exchanged these 250 shares for 500 shares in a nontaxable recapitalization of the company, at which time he also received a stock dividend of 2,000 shares.  The 2,500 shares represented a total cost to petitioner of $28,352.  Einstein held the 2,500 shares*664  so acquired until February 11, 1931, at which time the company retired 40 percent of its outstanding common stock as hereinbefore related.  In this transaction *797  petitioner surrendered all his shares of stock and received $70,000 for 1,000 shares thereof, and a new certificate for 1,500 shares.  In his income tax return for 1931 petitioner reported a taxable profit of $36,000 from said distribution.  In determining the deficiency against him respondent considered the entire distribution an ordinary dividend, subject to surtax.  John J. Lichter - Docket No. 75490.Prior to March 1, 1913, Lichter purchased 200 shares of the common stock of the company at a total cost of $20,000.  The fair market value of this stock on March 1, 1913, was not less than $317.22 per share, and the value of petitioner's 200 shares was not less than $63,444.  On June 26, 1913, Lichter purchased 20 shares at a cost of $4,320.  On December 19, 1913, he purchased 30 shares at a cost of $6,000.  On December 30, 1922, he exchanged these 250 shares for 500 shares in a nontaxable recapitalization of the company, at which time he also received a stock dividend of 2,000 shares.  The 2,500 shares*665  represented a total cost to Lichter of $30,320.  On February 11, 1931, the company retired 40 percent of its outstanding common stock, as hereinbefore related, and Lichter surrendered all his shares of stock, receiving $70,000 for 1,000 shares thereof, and a new certificate for 1,500 shares.  In his income tax return for 1931 Lichter reported a taxable profit of $35,000 from said distribution.  In determining the deficiency against him the respondent considered the entire distribution an ordinary dividend, subject to surtax.  Katharene Fruin Colnon - Docket No. 75491.Katharene Fruin Colnon was the residuary legatee of her husband, Redmond S. Colnon, who died October 9, 1927.  She acquired 1,650 shares of the common stock of the company from the executors of the estate of Redmond S. Colnon under a decree of final distribution by the Probate Court of the city of St. Louis, Mo., dated December 21, 1928.  The fair market value of the common stock of the company on October 9, 1927, and on December 21, 1928, was not less than $70 per share, and the total value of her 1,650 shares was not less than $115,500.  Petitioner held her 1,650 shares until February 11, 1931, at which time*666  the company retired 40 percent of its outstanding common stock as hereinbefore related.  In this transaction petitioner surrendered all her stock, receiving in exchange $46,200, for 660 shares thereof, and a new certificate for 990 shares.  In her income tax return for 1931 petitioner treated the distribution as payment for the 660 shares of stock surrendered and did not report *798  any gain or loss therefrom.  In determining the deficiency the respondent considered the entire distribution received on February 11, 1931, as an ordinary dividend, subject to surtax.  Laura J. Jens - Docket No. 75492.Prior to March 1, 1913, Laura J. Jens acquired 160 shares of the common stock of the company by general bequest under the will of her husband, William Jens, deceased June 29, 1911.  The fair market value of the company's common stock on March 1, 1913, was not less than $317.22 per share, and the total value of petitioner's 160 shares at that date was not less than $50,755.20.  On December 30, 1922, petitioner exchanged these 160 shares for 320 shares in a non-taxable recapitalization of the company, at which time she also received a stock dividend of 1,280 shares.  Petitioner*667  held her 1,600 shares until February 11, 1931, at which time the company retired 40 percent of its outstanding common stock, as hereinbefore related.  In this transaction petitioner surrendered all her stock, receiving in exchange for 640 shares, $44,800, and a new certificate for 960 shares.  In her income tax return for 1931 petitioner included the distribution as payment for the 640 shares surrendered and reported a taxable profit of $23,040.  In determining the deficiency the respondent considered the entire distribution of $44,800 as an ordinary dividend, subject to surtax.  Christopher W. Johnson - Docket No. 75493.Prior to March 1, 1913, Johnson purchased 25 shares of the common stock of the company at a total cost of $2,500.  The fair market value of the company's common stock on March 1, 1913, was not less than $317.22 per share, and the value of petitioner's 25 shares on that date was not less than $7,930.50.  On June 26, 1913, Johnson purchased three shares at a cost of $648.  On December 30, 1922, petitioner exchanged his 28 shares for 56 shares in a nontaxable recapitalization of the company, at which time he also received a stock dividend of 224 shares.  The*668  total cost of petitioner's 280 shares was $3,148.  Petitioner held his 280 shares until February 11, 1931, at which time the company retired 40 percent of its outstanding stock, as hereinbefore related.  In this transaction petitioner surrendered all his stock, receiving in exchange for 112 shares, $7,840, and a new certificate for 168 shares.  In his income tax return for 1931 petitioner included the $7,840 distribution as payment for the 112 shares retired and reported a taxable profit of $4,032.  In determining the deficiency the respondent considered the $7,840 as an ordinary dividend, subject to surtax.  *799 Mercantile-Commerce Bank & Trust Co. et al., Trustees - Docket No. 75524.At the time of his death on May 28, 1920, John Scullin owned 754 shares of common stock of the company, which stock had had a fair market value on that date of $375 per share.  On December 30, 1922, the 754 shares were exchanged for 1,508 shares in a nontaxable recapitalization of the company, and at the same time the estate received a stock dividend of 6,032 shares.  On July 9, 1923, the 7,540 shares were distributed by the executors to petitioners, as trustees, their fair market value*669  on that date being $527,800, or $70 per share.  The petitioners, as trustees, held the 7,540 shares until February 11, 1931, at which time the company retired 40 percent of its outstanding capital stock, as hereinbefore related.  In this transaction petitioners surrendered all their stock, receiving in exchange for 3,016 shares $211,120, and a new certificate for 4,524 shares.  In their income tax return for 1931 petitioners included the distribution as payment for the 3,016 shares surrendered and reported a taxable profit of $98,020.  In determining the deficiency the respondent considered the entire distribution of $211,120 as an ordinary dividend subject to surtax.  OPINION.  ARNOLD: The principal issue in these proceedings is whether the payment by the company to the petitioners in redemption and cancellation of 40 percent of their stock was essentially equivalent to the distribution of a taxable dividend.  The petitioners contend that the distribution of February 11, 1931, was the first of a series of distributions in liquidation of the company.  The respondent concedes that the distributions by the company in 1932 and 1933 were distributions in liquidation.  The respondent*670  denies, however, that there was any general plan of liquidation at February 11, 1931.  It was recognized that the industry was overcapacitated, and that the company would have to restrict the amount of its output.  He points particularly to the testimony of Robert E. Einstein as supporting his position that no definite action was taken by the company toward liquidation until 1932, and argues that, since the stock was retired pro rata among all stockholders, out of earnings accumulated since February 28, 1913, the distribution was essentially equivalent to a taxable dividend and taxable to these petitioners as such.  The governing statute is section 115 of the Revenue Act of 1928.  This section defines a dividend as "any distribution made by a corporation to its stockholders * * * out of its earnings or profits accumulated after February 28, 1913." Sec. 115(a).  The pertinent *800  portion of section 115(c) 2 states that "amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock." Section 115(g) 3 deals with the redemption of stock, and provides that if "a corporation cancels or redeems its stock * * * *671  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 of a taxable dividend, the amount so distributed * * * shall be treated as a taxable dividend." Section 115(h) 4 defines partial liquidation.  *672  Section 115 of the Revenue Act of 1928 and the comparable sections of the other revenue acts have been considered from time to time by the Board and the courts in determining whether distributions were in partial liquidation, or were essentially equivalent to taxable dividends.  Almost without exception the decided cases hold that each proceeding must be determined upon its own particular facts, making it virtually impossible to state a general rule of construction applicable to all cases.  Certain principles have, however, been enunciated by the courts and the Board which aid in arriving at the solution of the problem presented.  It has been pointed out that section 115(c) in nowise limits distributions in partial liquidation to payments made in the course of winding up the corporation,  (C.C.A., 2d Cir.); and that the redemption of a part of its stock has no necessary relation to the winding up of the corporation's business.   (C.C.A., 3d Cir.); *673  (C.C.A., 1st Cir.).  *801  Section 115(g) was written into the revenue act so that corporations might not resort to the device of stock redemption or cancellation in order to make distributions essentially resulting in a division of profits,  (C.C.A., 3d Cir.).  The recognized test of whether a distribution is essentially equivalent to a taxable dividend turns on whether the capitalization was for an honest business purpose.  If the purposes of the corporation in capitalizing earnings and later redeeming the stock were legitimate, the courts will refuse to hold the distribution in redemption or cancellation a taxable dividend.  (D.C. App.); certiorari denied, ;  (C.C.A., 7th Cir.);  (C.C.A., 3d Cir.); certiorari denied, *674 ;  (C.C.A., 7th Cir.) If, however, the corporation's actions are for the purpose of throwing a protective cloak around the distribution of its earnings, so that formally it appears to be a capitalization of earnings, followed by a redemption of all or a part of the stock representing the increase in capital, the courts hold that the distributions are essentially equivalent to a taxable dividend.   (C.C.A., 7th Cir.); certiorari denied, ;  (C.C.A., 8th Cir.); certiorari denied, ;  (C.C.A., 5th Cir.);  (C.C.A., 4th Cir.).  Whether the corporation is in process of liquidation is a question of fact, , and cases there cited.  Liquidation has been defined as the operation of winding up the corporate affairs by realized its assets, paying its debts, and distributing*675  the balance among the stockholders.  . Whether the company here was in process of liquidation must be determined from the facts of record.  The circumstances and events preceding the distribution of February 11, 1931, support petitioners' contentions.  Many years prior thereto the officers of the company recognized that certain factors were curtailing the demand for their products.  The decline in the demand is depicted by the shrinkage in the company's earnings beginning in the late twenties, a fact of which the officers and directors of the company were well aware.  The record of earnings and dividends for the 11-year period 1920 to 1930, inclusive, shows that during this period the company was paying out dividends slightly in excess of earnings, and that in the taxable year 1931 an ordinary dividend of $49,600 had been paid prior to the distribution made on *802  February 11, 1931.  The intentional undermaintenance of the company's plant and equipment for years prior to 1931 and the failure to replace retiring employees support petitioner's position that the company was going out of business.  Two efforts by the stockholders*676  to sell all the stock of the company as a going concern lend further support to petitioner's theory.  In addition to the foregoing we have the formal declarations and affirmative actions of the officers, directors, and stockholders which have resulted in the almost complete liquidation of the company.  In December 1030 the directors recommended that 40 percent of the company's stock be retired in partial liquidation.  The president's letter to the stockholders prior to the annual meeting and the enclosed waiver of notice and proxy forms each advised of the proposed 40 percent reduction in partial liquidation.  The stockholders held their annual meeting on February 2, 1931, at which all the stockholders of the company were present in person or represented by proxy and voted the reduction as recommended.  On February 5, 1931, the decrease in the company's capital stock was authorized by the Secretary of State of Missouri, and on February 11, 1931, the redemption and cancelation occurred.  Coupling the circumstances leading up to the distribution on February 11, 1931, with the affirmative acts of the company's officers, directors, and stockholders, it is our opinion that the distribution*677  on that date was the first in a series of distributions in liquidation of the company.  The redemption and cancelation of the stock was not "at such time and in such manner" as to make the distribution essentially equivalent to the distribution of a taxable dividend.  Furthermore, the distribution of February 11, 1931, was not a distribution in the ordinary course of business, made with the intent to maintain the company as a going concern, but was made after the company decided to quit and with the intent to liquidate its business.  , affirming ; ; ; certiorari denied, . We can not agree with respondent's interpretation of the testimony of the witness Einstein.  The witness stated, in effect, that the company took no definite action until "we made that liquidation." Respondent says the relative pronoun used referred to the 1932 distribution.  A careful examination of the testimony preceding and following this statement*678  will disclose that the witness was referring to the 1931 distribution.  Indeed, there is no other distribution here in question, as respondent admits the 1932 and 1933 distributions were in liquidation.  *803  In Docket No. 75524 the petitioners, as trustees, present the additional proposition that the trust realized no taxable income by the distribution of February 11, 1931.  This is true, they say, because the stock distributed to them by the executors constituted capital of the trust, and the basis for determining gain or loss upon the distribution of said stock is its fair market value at the time of distribution.  Sec. 113(a)(5), Revenue Act of 1928. 5 Therefore, they insist that the cash received replaced the shares surrendered as capital, and, since the cash received equaled the fair market value of the stock when acquired, the petitioners realized no gain upon the redemption of 40 percent of their stock.  *679 Our decision in , supports petitioners in their contentions.  The provisions of section 113(a)(5) prescribe the basis for determining gain or loss, and, since the parties have stipulated the fair market value at the basic date and the date at which distribution was made, the only relevant fact remaining is the amount received upon disposions of the stock.  It is undisputed that petitioners received $70 per share in redemption of 40 percent of their stock, and in view of the uncontroverted facts petitioners realized no gain upon the redemption. Decision will be entered under Rule 50.Footnotes1. Proceedings of the following petitioners are consolidated herewith: Robert E. Einstein, Docket No. 75489; John J. Lichter, Docket No. 75490; Katharene Fruin Colnon, Docket No. 75491; Laura J. Jens, Docket No. 75492; Christopher W. Johnson, Docket No. 75493; Mercantile-Commerce Bank and Trust Co., Formerly Mercantile Trust Company, Harry Scullin and Charles L. Gilbert, Trustees under the will of John Scullin, Deceased, Docket No. 75524. ↩1. This dividend was not included in the 40 percent distribution hereinafter mentioned. ↩2. SEC. 115. (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.  In the case of amounts distributed in partial liquidation (other than a distribution within the provisions of section 112(h) 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 purpose of determining the taxability of subsequent distributions by the corporation.  3. SEC. 115. (g) Redemption of stock.↩ - If a corporation cancels or redeems it stock (whether or not such stock was issued as a stock dividend) 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 of a taxable dividend, the amount so distributed in redemption or cancellation of the stock, to the extent that it represents a distribution of earnings or profits accumulated after February 28, 1913, shall be treated as a taxable dividend.  In the case of the cancellation or redemption of stock not issued as a stock dividend this subsection shall apply only if the cancellation or redemption is made after January 1, 1926.  4. SEC. 115. (h) Definition of partial liquidation.↩ - As used in this section the term "amounts distributed in partial liquidation" means a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock. 5. SEC. 113. (a)(5) PROPERTY TRANSMITTED AT DEATH. - If personal property was acquired by specific bequest, or if real property was acquired by general or specific devise or by intestacy, the basis shall be the fair market value of the property at the time of the death of the decedent.  If the property was acquired by the decedent's estate from the decedent, the basis in the hands of the estate shall be the fair market value of the property at the time of the death of the decedent.  In all other cases if the property was acquired either by will or by intestacy, the basis shall be the fair market value of the property at the time of the distribution to the taxpayer.  In the case of property transferred in trust to pay the income for life to or upon the order or direction of the grantor, with the right reserved to the grantor at all times prior to his death to revoke the trust, the basis of such property in the hands of the persons entitled under the terms of the trust instrument to the property after the grantor's death shall, after such death, be the same as if the trust instrument had been a will executed on the day of the grantor's death. ↩