Court Opinion

ID: 4609101
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:44:01.901221+00
Date Added: 2024-06-11T07:53:49.633048
License: Public Domain

CENTRAL NATIONAL BANK OF LINCOLN, NEBRASKA, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Central Nat'l Bank v. CommissionerDocket No. 59285.United States Board of Tax Appeals29 B.T.A. 719; 1934 BTA LEXIS 1493; January 10, 1934, Promulgated 1934 BTA LEXIS 1493">*1493  1.  Under an agreement between petitioner and another national bank, petitioner sold all its assets to the other bank and agreed to liquidate, and in consideration the other bank assumed all liabilities of petitioner to its depositors and creditors and also agreed to pay petitioner a certain sum which represented the total amount of petitioner's capital, surplus and undivided profits, plus an agreed amount for good will.  Held, the transaction was not a reorganization under section 112, Revenue Act of 1928, but a sale.  Pinellas Ice & Cold Storage Co. v. Commissioner,287 U.S. 462">287 U.S. 462, followed.  2.  Held, further, that gain resulted to petitioner in an amount equal to the agreed amount for good will, the evidence being insufficient to establish the value of petitioner's good will as of March 1, 1913.  C. Petrus Peterson, Esq., and Wm. C. Dorsey, Esq., for the petitioner.  Philip M. Clark, Esq., for the respondent.  MATTHEWS 29 B.T.A. 719">*720  This proceeding arises upon the determination by respondent of a deficiency in petitioner's income tax for the year 1929 of $8,090.42.  The petitioner assigns as error (1) that the respondent1934 BTA LEXIS 1493">*1494  treated as taxable profit to the petitioner the sum of $70,549.29, as received by the petitioner on a sale of its assets to the First National Bank of Lincoln, the petitioner contending that as a reorganization of the two banks the transaction was nontaxable; (2) in the alternative, that if there was a sale, the above sum did not represent profit, as determined by respondent, but was in consideration of the petitioner's good will, the value of which, on March 1, 1913, was in excess of this sum.  FINDINGS OF FACT.  The petitioner was organized as a national bank in 1907 and had a capital stock in 1929 of 2,000 shares of $100 par.  W. W. Hackney, Jr., was president, L. C. Chapin, vice president, and E. E. Emmett, cashier, of petitioner in 1929.  Some time prior to May 19, 1929, negotiations were begun between representatives of petitioner and representatives of the First National Bank of Lincoln, Nebraska, hereinafter referred to as the First National, with a view to merging the business of petitioner with that of the First National.  By May 16, 1929, the terms and conditions of the plan had been tentatively agreed upon and on that date three agreements were executed to carry out1934 BTA LEXIS 1493">*1495  the plan.  One of the agreements was executed by and between petitioner's shareholders, one by and between the First National's shareholders, and one by and between petitioner and the First National.  The agreement executed by petitioner's shareholders is as follows: WHEREAS, terms and conditions have been tentatively agreed upon for a merger of the business of Central National Bank of Lincoln, Nebraska, with that of the First National Bank of Lincoln, Nebraska, to become effective at the close of business May 18, 1929, and WHEREAS, such agreement contemplates Central National Bank of Lincoln, Nebraska, going into voluntary liquidation through transferring all of its assets, of every kind and description, to The First National Bank of Lincoln, Nebraska, which will assume and pay all liabilities of Central National Bank to depositors and all other creditors, and assume the obligations under the lease covering the present banking rooms of Central National Bank.  By this agreement each shareholder receives $200 per share for his stock.  WHEREAS, it is necessary for shareholders of Central National Bank owning not less than two-thirds of the entire capital stock of said bank to1934 BTA LEXIS 1493">*1496  signify their willingness and bind themselves and their legal representatives and assigns to vote in favor of such voluntary liquidation at any shareholders' meeting called and held for that purpose.  Now, THEREFORE, we the undersigned shareholders of Central National Bank (owning the number of shares appearing opposite our respective names) each one for himself or herself, and not one for the other, in consideration of the 29 B.T.A. 719">*721  mutual advantages and benefits which we and each of us secure, do hereby agree with each other and do hereby authorized and/or consent and/or empower and/or direct as follows: That we hereby authorize and consent to the voluntary liquidation of said bank and to the plan of liquidation as aforesaid.  That we hereby authorize, empower and direct the directors and officers of said bank to sell, transfer any and all of the assets of said bank for the purpose of said liquidation as aforesaid.  That we hereby authorize, empower and direct the directos and officers of said bank to execute and enter into any agreement with The First National Bank of Lincoln, Nebraska, which, in the judgment of said directors and officers, is necessary to the merger and1934 BTA LEXIS 1493">*1497  liquidation aforesaid.  That we further hereby authorize the boare of directors to proceed with the sale and transfer of the business of said bank to The First National Bank of Lincoln, Nebraska, and hereby consent that such sale and transfer may be made in advance of and without a formal meeting of shareholders, and we hereby authorize said directors and officers, after said sale and transfer is consummated, to call a meeting of all shareholders for the purpose of placing said bank in voluntary liquidation, and we hereby bind ourselves, our heirs, administrators, executors and assigns to be present at said meeting, either in person or by proxy, and at said meeting, or any adjournment thereof, to vote in favor of voluntary liquidation.  That we do hereby name, constitute and appoint L. A. Ricketts and A. W. Field, or either, our true and lawful attorney, or agent, to act for and represent us and each of us in any and all the foregoing matters, including voting in favor of voluntary liquidation, at any meeting called therefor.  This agreement was signed by 28 shareholders, representing 1,698 1/3 shares out of the total of 2,000 shares outstanding.  The agreement executed by1934 BTA LEXIS 1493">*1498  the First National's shareholders was signed by 102 stockholders, representing 7,714 shares out of the 8,000 shares outstanding.  This agreement is as follows: Whereas, terms and conditions have been tentatively agreed upon for the acquisition of the business of the Central National Bank of Lincoln, Nebraska, by The First National Bank of Lincoln, Nebraska, to become effective at the close of business May 18, 1929, and Whereas, it is desirable that the shareholders of The First National Bank of Lincoln, Nebraska, shall as soon as possible take all necessary legal steps, and effect an increase of the capital stock by five hundred (500) shares, to be sold to various shareholders of Central National Bank at two hundred twenty ( $220) dollars a share, Now, therefore, the undersigned shareholders of The First National Bank of Lincoln, Nebraska, being the owners of the number of shares in said bank appearing opposite their respective names, do each for himself or herself, and not one for the other, hereby agree as follows: 1.  That the board of directors and appropriate officers are authorized, empowered and directed to effect the purchase of the business of Central National Bank1934 BTA LEXIS 1493">*1499  of Lincoln, Nebraska, and the merger as provided in such tentative agreement.  2.  That the board of directors and appropriate officers are authorized, emplowered and directed to forthwith call a meeting of shareholders for the purpose of effecting an increase in the capital stock of this bank as above provided; 29 B.T.A. 719">*722  and for the further purpose of additionally amending its articles of association to provide for an increase in the number of directors which shall constitute the members of the board.  3.  That we hereby agree to be present, either in person or by proxy, at such shareholders' meeting or any adjournment thereof, and at such meeting or adjournment thereof to vote our stock, or cause our stock to be voted, in favor of said proposed increase in capital and in favor of said proposed increase in the members of this bank's directorate.  4.  The we and each of us hereby waive wholly whatever right we may have as shareholders to subscribe for any of said increase of 500 shares, and expressly consent that such additional shares may be sold as above contemplated.  5.  That for the purpose of making possible the consummation of all the proceedings and things herein1934 BTA LEXIS 1493">*1500  enumerated and contemplated, we hereby agree to execute of even date herewith a suitable and binding proxy for the purpose of the shareholders' meeting herein mentioned, which said proxy shall be used and be binding in the event of the absence of the signers thereof.  A proxy and waiver of the right to subscribe to the 500 shares to be issued was signed by 107 shareholders, representing 7,695 shares.  The proxies designated were authorized to vote at any meeting called for the purpose of consummating and carrying out the propositions, arrangements, and plans specified in the agreement signed by the stockholders of the First National, for the assumption of the liabilities of the Central National Bank to its depositors and creditors, and on all matters connected therewith, and also to vote to increase the capital stock of the First National from $800,000 to $850,000, and to cause the number of directors to be increased and the articles of association to be amended to permit these changes.  The agreement by and between the two banks, executed by their proper officers on May 16, 1929, is as follows: This agreemetn made this 16th day of May, 1929, by and between The First National1934 BTA LEXIS 1493">*1501  Bank of Lincoln, Nebraska, hereafter referred to as First National Bank, and Central National Bank of Lincoln, hereafter referred to as Central National Bank, WITNESSETH: 1.  Central National Bank hereby assigns, sells, transfers and conveys to First National Bank all its assets, real, personal and mixed, of every kind and description, at the close of business May 18, 1929, including (but not excluding items not specifically mentioned) (a) All cash on hand of Central National Bank; (b) All moneys due Central National Bank from other banks, bankers and trust companies; (c) All the bills receivable and accounts receivable and choses in action of Central National Bank (including judgments, claims for refunds and items charged off); (d) All bonds owned by Central National Bank; (e) All real estate and all other property owned by Central National Bank and not included in the preceding itemization of property, but including leasehold on banking rooms and fixtures, furniture and equipment contained in said rooms and vaults.  29 B.T.A. 719">*723  2.  Central National Bank shall have executed and delivered to First National Bank an agreement of persons owning at least 67% of the capital1934 BTA LEXIS 1493">*1502  stock of Central National Bank, agreeing to the voluntary liquidation of Central National Bank, at the expense of and by arrangement with the First National Bank.  3.  Central National Bank shall deliver to First National Bank a resolution of its stockholders in meeting formally assembled calling for the liquidation of Central National Bank under the provisions of the United States Revised Statutes, and the naming of L. C. Chapin as liquidating agent.  4.  Central National Bank shall also execute and deliver to First National Bank such other papers as may be requisite t fully and completely carry out the provisions and intent of this contract.  In carrying on any litigation in connection with property transferred hereunder, the name of Central National Bank or First National Bank, at the option of the latter, may be used.  5.  Central National Bank expressly represents that the attached statement of its assets, liabilities and surplus is a substantially correct statement of the condition of said bank at the close of business on the 15th day of May, 1929, but nothing herein shall be construed as a guarantee of the payment of any indebtedness owing Central National Bank.  6. 1934 BTA LEXIS 1493">*1503  In consideration of the foregoing, First National Bank expressly assumes and will pay all liabilities of Central National Bank to depositors and other creditors and expressly assumes all obligations under the lease covering the banking rooms now occupied by Central National Bank.  7.  First National Bank will also pay to Central National Bank $400,000 before the beginning of business May 20, 1929, said sum being the total amount of the capital, surplus and undivided profits of Central National Bank, plus an agreed amount for good will.  These three agreements constituted the only written agreements executed under the plan agreed upon.  However, L. C. Chapin, vice president of petitioner, who headed the committee representing the petitioner, had agreed with Paul R. Easterday, executive vice president of the First National, heading the committee representing the First National, that the petitioner's stockholders would subscribe and purchase all of the First National's new stock issue of 500 shares.  This agreement, although oral, was recognized by the parties to the negotiations as an essential condition of the merger, and the waivers of their right to subscribe made by the First1934 BTA LEXIS 1493">*1504  National's stockholders were made to this end.  Petitioner's stockholders were given the right to subscribe to one share of First National for each four shares of petitioner's stock held.  In accordance with the agreement between petitioner and the First National, all the assets of petitioner were transferred to the First National on May 20, 1929, and all its liabilities assumed by the First National on that date, the assets of the two banks being mingled together.  L. C. Chapin was appointed liquidating agent of petitioner.  The transaction was carried through by the First National opening a checking account ot the credit of petitioner in the amount of $400,000, before the opening for business on May 20, 1929.  Another new account was opened by the First National under "capital stock 29 B.T.A. 719">*724  increase." All this sum of $400,000 was checked out to petitioner's stockholders at the agreed basis of $200 a share for petitioner's stock, those of petitioner's stockholders who wished to purchase First National's stock at the price fixed (the original allotment being one share of First National's for four held of petitioner's stock) subscribing in the First National's dividend book, and1934 BTA LEXIS 1493">*1505  paying cash to Easterday, the First National's executive vice president, or, as many did, endorsing and delivering their checks to him, and receiving from him a receipt indicating the number of shares subscribed.  The stockholders of petitioner surrendered their stock in petitioner on receiving the checks in payment for it, and it was duly canceled by Chapin, as petitioner's liquidating agent.  The surrender and cancellation took about a fortnight from May 20, except for three shares, the owner of whcih was not found until July 1.  On June 29, 1929, the First National's stock was duly issued in the total amount of 500 shares to petitioner's stockholders in accordance with their previous subscriptions, but not in the same proportion as stock was held in petitioner, owing to the failure of some stockholders to subscribe and to the taking up of these shares by others of petitioner's stockholders.  Chapin, the last of petitioner's stockholders to subscribe, took all of the First National's stock still unsubscribed, or 74 shares.  The total cost of these 500 shares to petitioner's stockholders was, on the basis agreed upon of $220 a share, $110,000.  All but one of petitioner's officers1934 BTA LEXIS 1493">*1506  became officers of the First National after May 20, 1929.  All the acts contemplated by the plan of transfer were carried out and the petitioner was completely liquidated on September 29, 1929.  Over and above the combined amount of capital, surplus, and undivided profits of the petitioner was the sum of $70,649.29, which was the agreed amount paid by the First National for petitioner's good will.  The net assets, capital and surplus, and net earnings of petitioner for the five years next preceding March 1, 1913, were as follows: Net assets, capital, surplus and undivided profitsNet earnings - 5 years prior to March 1, 1913Feb. 14, 1908$167,606.032-14-1908 to 2-5-1909$10,359.97Feb. 5, 1909173,466.002-5-1909 to 1-31-191016,961.89Jan. 31, 1910182,927.891-31-1910 to 1-7-191115,885.61Jan. 7, 1911190,563.501-7-1911 to 2-20-191220,927.55Feb. 20, 1912202,491.052-20-1912 to 2-4 191319,112.49Total917,054.47Total83,247.51Average for 5 years183,410.89Average for 5 years16,649.50Petitioner's outstanding capital stock during this period was $150,000.  29 B.T.A. 719">*725  The dividends distributed by petitioner1934 BTA LEXIS 1493">*1507  for this period were as follows: YearDividendRatePercent1908$4,500319097,50054,50019103,7505 1/21911$9,000619129,7506 1/2191310,5007The dividends continued thereafter to increase at about the same rate.  The deposits of petitioner on April 4, 1913, were as follows: Interest-bearing type$544,300Noninterest-bearing deposits818,100Total1,362,400The average earnings and net assets for the five years next succeeding March 1, 1913, were as follows: Average earnings 1913 to 1918, 5 years$17,231.17Average net assets 1913-1918, 5 years218,044.82The net assets and net profits of petitioner for the five years next preceding (April to April) the transfer of May 20, 1929, were as follows: YearNet assetsYearNet profits1924$345,420.651924-1925$7,498.231925323,318.291925-192631,723.171926339,041.461926-192716,226.021927339,267.481927-192810,927.371928329,944.771928-19299,276.44Total1,676,974.65Total 5 years75,651.23Average335,394.93Average15,130.25Petitioner's trial balance as of May 18, 1929, showed1934 BTA LEXIS 1493">*1508  deposits on that date of $2,725,946.57.  OPINION.  MATTHEWS: A motion ot dismiss this proceeding for lack of jurisdiction was filed by respondent prior to the expiration of the time for filing his answer.  A hearing was held on the motion and upon consideration it was denied for the reason that under the authorities, ; , a national bank which goes into voluntary liquidation continues to exist as a body corporate, capable of suing or being sued until its affairs are completely settled.  29 B.T.A. 719">*726  The petitioner contends that the transaction set forth in our findings of fact was a "reorganization" within the meaning of the Revenue Act of 1928 and, as such, nontaxable.  The pertinent provisions of the Revenue Act of 1928, which are applicable here, are set out in the margin. 11934 BTA LEXIS 1493">*1509  Petitioner argues that, as a party to a reorganization, it exchanged its assets for 500 shares of stock in the First National at an agreed valuation of $110,000, plus $290,000 in cash, which under the plan of reorganization the petitioner distributed to its stockholders in liquidation.  The respondent contends that the transaction was a sale by petitioner of its assets for $400,000 cash and that on such transaction a gain of $70,549.29 was realized, relying on sections 111(a) and 112(a), (b)(4), and (d)(1).  The sum in question represents the amount agreed upon by petitioner and the First National in the transfer as value of petitioner's good will.  Petitioner contends in the alternative that even if this were not a reorganization, but a sale, the sum in question did not represent gain to petitioner, but the consideration paid by the First National for petitioner's good will, alleged to have a value not less than this sum on March 1, 1913.  Respondent in his determination allowed no March 1, 1913, value for good will.  29 B.T.A. 719">*727  1.  We shall consider the nature of the transfer first, for, if petitioner is correct in its contention on this score, we need not trouble with the second1934 BTA LEXIS 1493">*1510  question.  The respondent bases his contention that the transaction was a sale on the rule laid down by the Supreme Court in . In that case all of the petitioner's assets were transferred by a contract of sale to a corporation which paid over to petitioner about one third of the purchase price in cash and gave petitioner short term promissory notes for the balance.  Petitioner distributed to its stockholders the cash received and the proceeds of the notes as they were paid.  The petitioner sought to bring this within the reorganization provisions of the Revenue Act of 1926, but the Supreme Court, affirming the court below and this Board, held that short-term notes "were not securities within the intendment of the act and were properly regarded as the equivalent of cash." Since the petitioner exchanged its property not "solely for stock or securities in another corporation a party to the reorganization" (§ 203(b)(3)), for petitioner received cash and notes, and not for stock or securities and "also * * * other property or money" (within the proviso of § 230(e), the notes being obviously not "stock" and1934 BTA LEXIS 1493">*1511  not reasonably to be regarded as "securities"), it followed that the transaction did not fall within the reorganization provisions exempting from taxation on exchanges and would therefore reflect a taxable gain.  The acceptance of a contrary view, it was said, "would make evasion of taxation very easy." Was that the situation here?  The corresponding provisions of the 1928 Revenue Act, section 112(b)(4), (c), and (d), are identical with those of the Revenue Act of 1926.  Petitioner relies upon , where an Ohio bank, forbidden by law to purchase stock of any other bank in the state, appointed nominees, lent them cash without interest, and authorized them to buy all the capital stock, at $400 a share, of another Ohio bank.  When this had been done, the purchasing bank took over all the assets and liabilities of the selling bank and liquidated it.  The Board held that, while the purchase of the petitioner bank's stock might have been an ultra vires act under state law, the purchase by the bank's nominees was in substance a purchase by the bank, and the transfer of petitioner's assets to the purchasing bank, its sole1934 BTA LEXIS 1493">*1512  stockholder, therefore, while in form a sale of assets, was nothing more than a distribution of assets by petitioner in complete liquidation.  The Board did not adopt petitioner's argument that this was a reorganization under the 1926 Revenue Act, but held for the petitioner on the ground that the transaction was nontaxable as a complete liquidation of petitioner 29 B.T.A. 719">*728  under section 201(c), Revenue Act of 1926, by which the petitioner received no consideration for its assets from the purchasing bank.  When we apply the enalogy of that case to the present one, we find important differences.  Here there was no purchase of petitioner's stock by the First National, either directly (not permissible under the National Bank laws) or indirectly though nominees.  There was executed between the two banks only one instrument, which purported to be a contract of sale and by which petitioner was to convey to the First National all its assets and First National was to assume all liabilities and pay therefor "to Central National Bank", not to petitioner's stockholders, it will be noted, the sum of $400,000.  Petitioner's stockholders (the necessary two thirds) by the same instrument were1934 BTA LEXIS 1493">*1513  required to vote for liquidation of petitioner.  First National never owned in name or fact petitioner's stock.  The transfer of petitioner's assets to the First National, therefore, can scarcely be regarded as the liquidation by the First National of property over which it exercised legal ownership and control.  We pass to the next case upon which petitioner relies, , in which this Board held the transaction a reorganization under the 1926 Act, and, the distribution of proceeds having been made by petitioner to its stockholders, nontaxable under section 203(e)(1).  In that case the petitioner corporation contracted to transfer its assets and liabilities to another new corporation, petitioner's preferred stockholders to receive par value for their shares, and petitioner's common stockholders to receive cash and so many shares of preferred stock in the new corporation.  The cash and new shares were distributed by petitioner to its stockholders on receipt.  The petitioner's stockholders in their written contract bound themselves to receive shares and cash, as stated, of the new corporation in exchange for shares and assets1934 BTA LEXIS 1493">*1514  of petitioner.  Cf. , in which, under like circumstances, we held a reorganization had been effected. To state the National Pipe & Foundry Co. case is to show its variance from the case at bar.  The only contract between petitioner and the First National, as stated, binds petitioner, on its part, to transfer all its assets to the First National and to liquidate itself; on the First National's part, to pay to petitioner $400,000 cash and assume petitioner's liabilities.  Nothing more.  No obligation is imposed on petitioner's stockholders to take any of the First National's stock.  In fact, as petitioner admits, nothing appears in this contract to indicate it was anything but an outright sale of petitioner's assets for $400,000 cash.  When we look at the petitioner's stockholders' agreement of the same date, we find petitioner's stockholders binding 29 B.T.A. 719">*729  themselves, with respect to the projected "merger" and the payment to themselves of $200 a share for this stock, to vote for the sale and transfer of all of petitioner's assets to First National and to liquidate petitioner bank.  Nothing whatever is said about any obligation on1934 BTA LEXIS 1493">*1515  the part of petitioner's stockholders to take shares in First National.  In the First National's stockholders' agreement, however, the stockholders of that bank bind themselves to vote an increase of 500 shares of capital stock, "to be sold to various stockholders of Central National Bank at two hundred and twenty ( $220) dollars a share," and to execute waivers of thier right to purchase such additional stock, "that such additional shares may be sold as above contemplated." Chapin, vice president of petitioner and vice president of the First National after the transfer, testified that an oral but binding agreement between himself and possibly other officers and directors of petitioner, on the one part, and Easterday and others representing the First National, on the other part, had been entered into by which petitioner's stockholders were obligated to buy at the agreed figure of $220 a share all the new 500 shares issue of the First National's stock.  All stockholders of petitioner were given the privilege of subscribing to one share of First National stock for every 4 shares held of petitioner's stock.  And all this stock was bought by petitioner's stockholders, but not in the1934 BTA LEXIS 1493">*1516  fixed proportion.  In fact, of petitioner's 40 stockholders, 17 did not subscribe to any of the First National's stock, but the shares for which they were given the privilege of subscribing were taken by other stockholders.  Chapin testified that he was the last to subscribe, and he took all the remaining unsubscribed stock in the First National, 74 shares, although he had held in petitioner only 51 shares.  Giving the full weight which the evidence justifies, therefore, to the oral agreement that petitioner's stockholders would subscribe for the additional issue of 500 shares of the First National's stock, and to their opinion that such subscription was "an essential condition" of the transfer, we still are unable to reach the conclusion from these facts for which petitioner contends, namely, that the First National paid over to petitioner $290,000 and 500 shares of its stock for petitioner's assets and good will.  The purchase by the First National of petitioner's assets and good will for $400,000 and the subscription by some of petitioner's old stockholders to 500 shares of the First National's stock seem to us separable and separate transactions.  Viewed in this light, it was1934 BTA LEXIS 1493">*1517  not a reorganization, since there was no exchange of "stock or securities" and "other property or money" within the meaning of the statute.  As we are of the opinion that the transaction was a sale, in the nature of the complete sale of assets and good will by the petitioner 29 B.T.A. 719">*730  in the Pinellas Ice case, the immediate distribution by petitioner to its stockholders of the money received by it from the First National is immaterial, since section 112(d)(1), providing that a distribution by the receiving corporation to its stockholders of "such other property or money * * * in pursuance of the plan of reorganization" shall result in no gain to the corporation, applies only to the case of a reorganization.  There was here no distribution of anything in pursuance of a plan except cash.  It may be pointed out that there was an immediate distribution by the petitioner to its stockholders of the cash received on the purchase price, and, as they matured, of the proceeds of the notes, in the Pinellas case.  But this fact did not affect the Supreme Court's view in finding the transaction a sale.  It follows that the sum representing the excess over net assets of petitioner1934 BTA LEXIS 1493">*1518  paid to petitioner by the First National, $70,549.29, was gain to petitioner, as determined by respondent, cf. , unless it represented the fair value of petitioner's good will as of March 1, 1913, for which the First National gave consideration.  2.  This brings us to the second point.  Petitioner seeks by an argument based on petitioner's average invested capital and net earnings, evidence with respect to which both before and after 1913 was introduced, and also at the time of the transfer in 1929, to show that the sum in question represented petitioner's good will value as of March 1, 1913.  Petitioner's witness, clarke, president of the Omaha National Bank, testified that a rule of thumb method of valuing good will of a bank in 1913 was to take 5 percent of the bank's deposits, and by such method, the resulting computation of petitioner's good will as of March 1, 1913, was $68,100.  This rate of calculation, it was said, had become 2 or 3 percent by 1929.  In such fashion is explained how the natural increase of the good will from 1913 to 1929 would be offset by changed banking conditions, so as to make $70,000 seem reasonable as1934 BTA LEXIS 1493">*1519  good will value both in 1913 and at the time of the transfer to the First National in 1929.  For the five years next preceding the basic date, 1913, petitioner's average invested capital (its capital stock being then $150,000) was $182,410.89, and the average annual net earnings were $16,649.50.  If we take the period prior to 1913 and apply the customary Treasury rule of 8 to 10 percent on the average net tangible assets to determine what should be attributable to the intangible asset of good will, before capitalizing the remaining earnings at 15 to 20 percent to determine good will (cf. ), we find, after allowing a return on tangible net assets of 9 percent ($16,416), that very little of the average earnings can be regarded as attributable to an intangible asset.  No justification of petitioner's 29 B.T.A. 719">*731  contention results from this method.  Nor do we consider the expert testimony offered by petitioner's witness, Clarke, sufficient to show that the value of petitioner's good will on March 1, 1913, could be determined by the 5 percent of deposits method which he suggested as a basis for determining such value.  After reviewing1934 BTA LEXIS 1493">*1520  all the evidence, we have come to the conclusion, therefore, that petitioner has not submitted sufficient evidence to overcome the presumptive correctness of respondent's determination as to the value of petitioner's good will on March 1, 1913, and we hold that gain was realized by the petitioner, therefore, in the amount of $70,549.29 in the year 1929.  Reviewed by the Board.  Judgment will be entered under Rule 50.SMITH dissents.  Footnotes1. Sec. 112. (a) General rule. - Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.  (b) Exchanges solely in kind. - * * * * * * (4) SAME - GAIN OF CORPORATION. - No gain or loss shall be recognized if a corporation a party to a reorganization exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.  * * * (d) Same - gain of corporation. - If an exchange would be within the provisions of subsection (b)(4) of this section if it were not for the fact that the property received in exchange consists not only of stock or securities permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then - (1) If the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but * * * (i) Definition of reorganization. - As used in this section and sections 113 and 115 - (1) The term "reorganization" means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation), or (B) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to which the assets are transferred, or (C) a recapitalization, or (D) a mere change in identity, form, or place of organization, however effected.  (2) The term "a party to a reorganization" includes a corporation resulting from a reorganization and includes both corporations in the case of an acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation. ↩