Court Opinion

ID: 4590441
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:03:39.369312+00
Date Added: 2024-06-11T07:50:28.485853
License: Public Domain

DANIEL KELLY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  RICHARD G. LAMBRECHT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  GUSTAV DIETRICH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Kelly v. CommissionerDocket Nos. 8365 - 8367.United States Board of Tax Appeals10 B.T.A. 141; 1928 BTA LEXIS 4178; January 24, 1928, Promulgated *4178  1.  The fair market value of stock on March 1, 1913, determined.  2.  The gain derived from the exchange of stock for assets which were immediately exchanged for stock in another corporation, determined.  Harry B. Sutter, Esq., and E. H. McDermott, Esq., for the petitioners.  J. W. Fisher, Esq., for the respondent.  TRAMMELL *141  These proceedings, which were consolidated for the purpose of hearing and decision, are for the redetermination of deficiencies in income tax for 1919 in the following amounts: Daniel Kelly$52,224.68Richard G. Lambrecht47,424.99Gustay Dietrich54,178.54The deficiencies result in part from the respondent including in the taxable income of the respective petitioners as liquidating dividends the following amounts: Daniel Kelly$84,771.30Richard G. Lambrecht83,670.38Gustav Dietrich83,670.38FINDINGS OF FACT.  In 1905 Daniel Kelly and Richard G. Lambrecht associated themselves together in a partnership, known as Lambrecht, Kelly & Co., for the purpose of carrying on a general real estate and insurance business in Detroit, Mich., and paid in $10,000 as partnership*4179  capital.  The company's real estate business consisted of buying and selling real estate for others as well as for itself, handling subdivision work on its own account and for others, and managing properties.  The management of properties consisted of looking after taxes, insurance, collection of rent and maintenance of the property for the owners, for which a commission was received.  The insurance business included all kinds of insurance except life insurance.  From the beginning, the partnership employed real estate and insurance salesmen.  *142 Lambrecht went to Detroit in 1887 and in 1888 entered the employment of the Peoples State Bank, with which he remained until about 1902, when be became secretary and treasurer of the City & Suburban Homes Co., a real estate corporation in Detroit.  His duties in this position consisted of looking after the company's finances, running the office and looking after the salesmen, including the closing of real estate deals.  Prior to becoming a member of the partnership, Kelly had been employed by the Hackley National Bank in Muskegon, from which place he went to Detroit.  In 1906, Dietrich at the invitation of Kelly and Lambrecht*4180  became a member of the partnership and moved to Detroit.  Prior to this he had been employed by the Hackley National Bank at Muskegon for about 20 years.  All three had lived in Muskegon and were acquainted with each other.  The acquaintance of Kelly and Lambrecht had extended over a period of 10 or 12 years prior to 1905, while Dietrich had known Kelly all his life, and had been acquainted with Lambrecht for about 15 years in 1906.  Lambrecht's duties consisted of looking after the financial part of the business, managing the office, and looking after the closing of real estate transactions for the salesmen.  His work in closing real estate transactions was to handle the closing of preliminary contracts negotiated by the salesmen with the buyer or seller and to look after the abstracts and preparation of deeds.  Kelly's duties were to look after the real estate activities of the company, including the buying and selling of real estate for the partnership and for others.  Dietrich looked after the insurance part of the business and the secretarial work, including the books of account, meeting customers and arranging appointments for them with Kelly and Lambrecht.  For the first*4181  few years after becoming connected with the partnership, Lambrecht handled the collection of accounts, but afterwards did not devote much attention to this part of the business.  The partnership business was profitable from the beginning.  The earnings increased each year and by 1908 or 1909 it had fully developed into a going concern.  During the first year, the partnership employed two or three salesmen.  The number of employees was gradually increased until the company had a force of ten or twelve salesmen and two or three office employees.  By 1908 or 1909 the automobile industry had begun to influence the growth of Detroit, and during the following years there was a considerable increase in population and in real estate activities.  In 1911, a charter was obtained under the laws of Michigan for a corporation to be known as Lambrecht, Kelly & Co., with an authorized capital stock of $25,000.  The partnership business together *143  with its assets was transferred to the corporation for capital stock and the partnership was dissolved.  By incorporating it was thought that the organization would be more permanent and also as the company was having numerous dealings in*4182  real estate the inconvenience of having the wives of the partners join in the execution of deeds would be eliminated.  By March 1, 1913, through the issuance of stock for partnership assets and the issuance of stock dividends, the entire amount of the corporation's authorized capital stock, $25,000, consisting of 250 shares of common stock of a par value of $100 each, had been issued and was outstanding.  On March 1, 1913, the stock was owned as follows: Richard G. Lambrecht76 sharesDaniel Kelly77 sharesGustav Dietrich76 sharesSidney C. McLouth21 sharesThe above stockholdings remained unchanged until the dissolution of the corporation in 1919.  The corporation's balance sheet as at March 1, 1913, was as follows: AssetsLiabilitiesCash$29,733.34Accounts payable$45,248.54Real estate contracts80,283.76Loans and mortgages payable32,115.89Other receivables4,421.33Capital24,900.00Real estate3,102.53Undivided profits20,230.30Furniture and fixtures952.02Other permanent assets2,486.65Deferred charges1,515.10Total122,494.73Total122,494.73No amount was carried on the books for*4183  good will or other intangible assets.  The following is a statement of the corporation's net tangible assets and net earnings for the years ended August 31, 1910, to August 31, 1916, inclusive: Net tangibles at end of periodNet earnings for period1910$23,546.51$7,580.05191125,882.137,538.79191237,512.3413,130.21191351,954.3916,942.05191463,021.2516,316.86191576,470.3620,949.111916123,674.7944,953.29Totals402,061.77127,410.36Averages57,437.3918,201.48In 1913 Detroit was experiencing a rapid growth and from 1908 to 1918 its average annual increase in population was about 50,000.  During this period real estate activities and real estate values were increasing.  By 1913, the people in Detroit began to realize that the city's rapid growth was to containue and as a result a large number *144  were investing in real estate.  The city's rapid growth continued until the declaration of war in 1917.  At March 1, 1913, the firm of Lambrecht, Kelly & Co. was well organized to carry on the real estate business, and had a large insurance business.  It had a large number of clients of considerable means and was*4184  well and favorably known in the community, being one of the five leading real estate firms in Detroit.  Its profits had been increasing from year to year, and, due to the rapid expansion of Detroit, the prospects were good for further increases in profits.  The fair market value on March 1, 1913, of the business of Lambrecht, Kelly & Co., including both tangible and intangible assets, was $125,000.  The respondent determined the value to be $61,551.20, of which amount the allocated 77/250, or $18,957.40, to the stock owned by Kelly; 73/250, or $18,711.20, to the stock owned by Lambrecht; and 76/250, or $18,711.20, to the stock owned by Dietrich.  There were no sales of stock of Lambrecht, Kelly & Co. on or about March 1, 1913.  In 1919, the petitioners were also interested in the Michigan Investment Co., a Michigan corporation engaged in the business of dealing in land contracts, which were agreements of sale entered into between sellers and purchasers.  During the year, it was decided to bring the businesses of Lambrecht, Kelly & Co. and the Michigan Investment Co. into a single corporate firm and to continue the businesses of the two companies through a new corporation.  In June, *4185  1919, the stockholders of Lambrecht, Kelly & Co. adopted a resolution to dissolve the corporation and to distribute the assets in kind to the stockholders.  On June 28, 1919, the Michigan Investment Co. of Delaware was organized and incorporated under the laws of Delaware for the purpose of taking over the properties of the Michigan Investment Co., a Michigan corporation, and those of Lambrecht, Kelly & Co. The authorized capital stock of the Michigan Investment Co. of Delaware was $5,000,000, consisting of $3,000,000 preferred and $2,000,000 common, each share having a par value of $10.  The following contract relative to the transfer of the assets of Lambrecht, Kelly & Co. to the new corporation was entered into by the petitioners: THIS AGREEMENT, Made this 30th day of June, A.D. 1919, by and between Richard G. Lambrecht, Daniel Kelly, Gustav Dietrich and Sidney McLouth, hereinafter referred to as the individuals, parties of the first part, the Michigan Investment Company of Delaware, a corporation organized under the laws of the State of Delaware, hereinafter referred to as the Company, party of the second part, and the American Loan and Trust Company, a corporation organized*4186  under the laws of the State of Michigan, of Detroit, Michigan, hereinafter referred to as the Trust Company, parties of the third part, *145  WITNESSETH, that WHEREAS, the individuals are collectively the owners of all of the capital stock of the Lambrecht, Kelly and Company, a corporation organized under the laws of the State of Michigan, of Detroit, Michigan, which has been engaged in the real estate business, and which has determined to dissolve and wind up its affairs and distribute its assets in kind to its stockholders, and WHEREAS, the Company is desirous of obtaining from the Individuals the assets of the said Lambrecht, Kelly and Company and pay therefore in its capital stock at par; Now THEREFORE, it is hereby agreed by and between the parties as follows: 1. - The Individuals hereby agree that the said corporation, Lambrecht, Kelly and Company, will dissolve and will upon such dissolution cause its assets to be distributed in kind to its stockholders in proportion to their holdings of the capital stock of the said Lambrecht, Kelly and Company; that proceedings to effect such dissolution and distribution of assets will be prosecuted with diligence and such dissolution*4187  and distribution accomplished as speedily as can reasonably be done.  2. - That upon filing the petition for such dissolution application will be made for the appointment of the Trust Company as temporary and permanent receiver; that said Trust Company will accept such appointment if made and act as such temporary and permanent receiver.  3. - That when the Individuals shall become entitled to have said property distributed to them in kind, in proportion to their holdings of the stock of the said Lambrecht, Kelly and Company, they will cause the same to be assigned and conveyed either by the said Lambrecht, Kelly and Company, or its trustee, or in any other appropriate manner to the Company upon receipt of capital stock of the said company aggregating Dollars of par value, which shall be distributed among the Individuals in the proportions to their holdings of the capital stock of the said Lambrecht, Kelly and Company, to-wit: Richard G. Lambrecht, 76/250ths,Daniel Kelly,77/250ths,Gustav Dietrich,76/250ths,Sidney McLouth,21/250ths.4. - That when the dissolution of said Lambrecht, Kelly and Company has been effected and distribution of its assets*4188  ordered as aforesaid, the Company will cause certificates for its capital stock to be issued to the amount of Dollars of par value in favor of the Individuals in the proportion in the last paragraph mentioned, and in such denominations as the Individuals shall previous thereto have requested, and will deposit the same with the Trust Company to be by it delivered to the individuals upon receipt by the Trust Company of proper conveyance and assignment and delivery of the said assets as aforesaid, together with a consent to be executed by the individuals of the right to the use of the name of Lambrecht, Kelly and Company or Lambrecht, KellyCompany, and any good will to be derived therefrom.  The following are the pertinent portions of the decree of dissolution entered upon the petition filed by the stockholders to dissolve the company: This court having heretofore, by an order entered on the thirtieth day of August, A.D. 1919, appointed the first day of October, 1919 for all creditors.  *146  stockholders and other persons interested in Lambrecht, Kelly Company, a corporation, to appear before this court at the opening thereof on that day and show cause, if any they have, why*4189  such corporation should not be dissolved and the prayer of the petition filed herein granted, and it appearing to the court by due proof taken therein that the said corporation, Lambrecht, Kelly and Company has no Creditors and is not indebted to any person, firm or corporation, and on filing due proof of the publication of notice of the order aforesaid for three successive weeks in the Detroit Legal News, as directed by said order; On motion of Race, Haass and Allen, attorneys for said petitioners, it is ordered, adjudged and decreed that said Lambrecht, Kelly and Company is not indebted to any person, firm or corporation; that it has no creditors, that it has discharged all of its obligations; that it is most advantageous to its stockholders that its assets, both real and personal, or of whatsoever name and nature be distributed in kind; that the stockholders of said corporation with the respective amounts thereof held by each are as follows: Richard G. Lambrecht76 sharesDaniel Kelly77 sharesGustav Dietrich76 sharesSidney McLouth21 sharesTotal Number of shares250 sharesThat said corporation be and the same hereby is dissolved, and that its assets*4190  be and the same hereby are distributed in kind to its said stockholders in proportion to the amount of stock so held by each, viz: Richard G. Lambrecht76/250Daniel Kelly77/250Gustav Dietrich76/250Sidney McLouth21/250That this decree shall have the force and effect of a conveyance of all of said assets to said stockholders in the proportions of their several holdings of said stock as aforesaid, that the American Loan and Trust Company heretofore appointed temporary receiver of said Lambrecht, Kelly and Company distribute to said stockholders in the proportions aforesaid any money or other property received by it as such temporary receiver.  No attempt was made to partition the assets among the stockholders in separate parcels and on October 8, 1919, Lambrecht, Kelly & Co. deeded all of its property to its stockholders by the following instrument: THIS INDENTURE made the Eighth day of October, A.D. 1919, between Lambrecht, Kelly and Company, of the City of Detroit, County of Wayne, State of Michigan, a corporation organized and existing under and by virtue of the laws of the State of Michigan, party of the first part, and Richard G. Lambrecht, Daniel*4191  Kelly, Gustav Dietrich and Sidney McLouth, parties of the second part, WITNESSETH that the said party of the first part, for and in consideration of the sum of One Dollar and other good and valuable considerations, to it in hand paid by the said parties of the second part, the receipt whereof is hereby confessed and acknowledged, does, by these presents, grant, bargain, sell, remise, release and forever QUIT-CLAIM unto the said parties of the second part, and to their heirs and assigns FOREVER, all the property, both real and *147  personal, belonging to Lambrecht, Kelly and Company, a corporation, on the Thirtieth day of August, A.D. 1919, and which said property was, by decree of the Circuit Court for the County of Wayne, In Chancery, entered this day in the matter of the petition for dissolution of said Lambrecht, Kelly and Company, being file No. 72040, assigned and distributed to the parties of the second part on dissolution of said Lambrecht, Kelly and Company, together with all and singular the hereditaments and appurtenances thereunto belonging or in anywise appertaining; TO HAVE and TO HOLD the said above described premises to the said parties of the second part, and*4192  to their heirs and assigns, to the sole and only proper use, benefit and behoof of the said parties of the second part, their heirs and assigns, Forever, in the following proportions, viz; Richard G. Lambrecht 76/250; Daniel Kelly 77/250; Gustav Dietrich 76/250 and Sidney McLouth 21/250.  This deed is executed for the purpose of confirming the decree of dissolution of said Lambrecht, Kelly and Company and the assignment and distribution of all of the said assets as aforesaid.  IN WITNESS WHEREOF, the said corporation, party of the first part, has caused these presents to be signed in its name by its president and secretary and sealed with its corporate seal, the day and year first above written.  Signed, sealed and delivered in the presence of: LAMBRECHT KELLY & CO. L.S. (Signed) H. C. JOLLY By, (Signed) RICHARD G. LAMBRECHT Its President (Signed) A. DAVIS. and (Signed) GUSTAV DIETRICH Its Secretary.  State of MichiganCounty of Wayne ss On this 30th day of October A.D. 1919, before me, a Notary Public in and for said County, personally appeared Richard G. Lambrecht and Gustav Dietrich to me personally known, who being by me duly sworn, did each for himself say*4193  that they are respectively the president and secretary of Lambrecht Kelly and Company, the corporation named in and which executed the within instrument, and that the seal affixed to said instrument in the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors; and said Richard G. Lambrecht and Gustav Dietrich acknowledged said instrument to be the free act and deed of said corporation.  (Signed) Harry C. Jolly Notary Public, Wayne County, Mich.My commission expires May 25, 1921.  On October 31, 1919, the stockholders and their wives by the following instrument deeded all the property formerly belonging to Lambrecht, Kelly & Co. to the Michigan Investment Co. of Delaware: THIS INDENTURE, made this thirtieth day of October in the year of our Lord one thousand nine hundred and nineteen Between Richard G. Lambrecht and Bertha Lambrecht, his wife, Daniel Kelly and Byrdella Kelly, his wife, Gustav Dietrich and Ella Dietrich, his wife, and Sydney C. McLouth and his wife, parties of the first part, and Michigan Investment Company, a corporation, organized and existing under the laws*4194  of the State of Delaware, party of the second part, Witnesseth, that the said parties of the first part, for and in consideration of the sum of one dollar and other good and valuable considerations, to them in *148  hand paid by the said party of the second part, the receipt whereof is hereby confessed and acknowledged, do by these presents grant, bargain, sell, remise, release, alien and confirm unto the said party of the second part, and its successors and assigns All the property, both real and personal, formerly belonging to Lambrecht, Kelly and Company, a corporation, and which was duly distributed and assigned to the said Richard G. Lambrecht, Daniel Kelly, Gustav Dietrich, and Sydney McLouth by order and decree of the Circuit Court of the County of Wayne, in Chancery, entered on the eighth day of October, 1919, in the matter of the petition for dissolution of said Lambrecht, Kelly and Company, being file No. 72040 together with the right to the use of the name of Lambrecht, Kelly and Company, or Lambrecht, Kelly Company, and any good will to be derived therefrom.  Together with all and singular the hereditaments and appurtenances thereunto belonging or in anywise appertaining: *4195  To have and to hold the said premises and property as herein described, with the appurtenances, unto the said party of the second part, and to its heirs and assigns Forever, And the said Richard G. Lambrecht, Daniel Kelly, Gustav Dietrich and Sydney C. McLouth, four of the parties of the first part, for themselves, their heirs, executors and administrators, do covenant, grant, bargain and agree to and with the said party of the second part its successors and assigns, that at the time of the ensealing and delivery of these presents they are well seized of the above-granted premises in fee simple; that they are free from all incumbrances whatever and that they will, and their heirs, executors, and administrators shall, warrant and defend the same against all lawful claims whatsoever, And the said first parties represent that Sydney C. McLouth is the same person described as Sidney McLouth in said proceedings for the dissolution of Lambrecht, Kelly and Company.  In witness whereof, the said parties of the first part have hereunto set their hands and seals the day and year first above written.  (Signed) Richard G. Lambrecht (L.S.) (Signed) Bertha Lambrecht (L.S.) (Signed) Daniel*4196  Kelly (L.S.) (Signed) Byrdella Kelly (L.S.) Signed, sealed and delivered in presence of (Signed) H. C. Jolly.  (Signed) H. F. List.  (Signed) Gustav Dietrich (L.S.) (Signed) Sydney C. McLouth (L.S.) (Signed) Ella L. Dietrich (L.S.) (Signed) Mary A. McLouth (L.S.) STATE OF MICHIGAN, County of Wayne, ss.On this thirtieth day of October in the year one thousand nine hundred and nineteen before me, a Notary Public in and for said county, personally appeared Richard G. Lambrecht and Bertha Lambrecht, his wife, Daniel Kelly, and Byrdella Kelly, his wife, Gustav Dietrich and Ella Dietrich, his wife and Sydney C. McLouth and Mary A. McLouth, his wife, to me known to be the same persons described in and who executed the within instrument, who severally acknowledged the same to be their free act and deed.  (Signed) HARRY C. JOLLY, Notary Public, Wayne County, Michigan.  My commission expires May 25th, 1921.*149  For the assets previously belonging to Lambrecht, Kelly & Co. the stockholders, about July 1, 1919, received 45,000 shares of the stock of the Michigan Investment Co. of Delaware, represented by an equal number of shares of common stock*4197  and of preferred stock.  Of the 45,000 shares, each stockholder received the following number: Daniel Kelly13,860Richard G. Lambrecht13,680Gustav Dietrich13,680Sidney C. McLouth3,780Total45,000Subsequently, it was discovered that in transferring the assets previously owned by Lambrecht, Kelly & Co. a mortgage liability of $12,500 had been overlooked.  The stockholders thereupon returned to the Michigan Investment Co. of Delaware shares of stock as follows: Daniel Kelly385Richard G. Lambrecht380Gustav Dietrich380Sidney C. McLouth105Total1,250This leaves the net amount of stock received by each from the Michigan Investment Co. of Delaware as follows: Daniel Kelly13,475Richard G. Lambrecht13,300Gustav Dietrich13,300Sidney C. McLouth3,675Total43,750The net income of Lambrecht, Kelly & Co. for the fiscal years ended August 31, 1917, through the period ended June 30, 1919, was as follows: Year ended August 31, 1917$48,476.29Year ended August 31, 191818,350.07Period September 1, 1918, to June 30, 1919 (loss)12,991.12The following is a statement of the*4198  amounts at which the assets and liabilities of Lambrecht, Kelly & Co. were carried on its books and also the amounts at which they were set up on the books of the Michigan Investment Co. of Delaware after their transfer: *150 Per books of Lambrecht, Kelly & Co.Per books of Michigan Investment Co.ASSETSReal estate$208,951.76$433,811,92Bills receivable3,295.003,295.00Real estate contracts129,814.69144,519.93Accounts receivable13,842.4913,842.49Commissions paid2,977.882,977.88Stocks10,941.0321,490.00Liberty bonds9,050.009,050.00Furniture and fixtures417.95850.00Automobiles1,000.001,000.00Insurance premiums (accounts receivable)810.23810.23Cash on hand and in banks7,243.907,243.90Good will50,000.00Total388,344.93688,891.35LIABILITIES AND NET WORTHMortgages payable139,729.83139,729.83Bills payable38,500.0038,500.00Accounts payable60,360.0360,360.03Net worth149,755.07450.301.49Total388,344.93688,891.35Shortly after the transaction by which it acquired the assets of Lambrecht, Kelly & Co., the Michigan Investment Co. of Delaware acquired all the*4199  capital stock and assets of the Michigan Investment Co., a Michigan corporation that had been dealing in land contracts.  The par value of the capital stock of the Michigan Investment Co. of Michigan was $200,000 and was acquired by the Michigan Investment Co. of Delaware in exchange for $200,000 par value of the stock of the Delaware corporation.  The following is a statement of the amounts at which the assets and liabilities of the Michigan Investment Co. of Michigan were carried on its books and also the amounts at which they were taken up on the books of the Delaware corporation: Per books of Michigan Investment Co. of MichiganPer books of Michigan Investment Co. of DelawareASSETSCash and bank accounts$7,209.50$7,209.50Accounts receivable2,641.632,641.63Real estate contracts receivable518,964.32518,964.32Real estate2,820.982,820.98Liberty bonds650.00650.00Furniture and fixtures177.80177.80Reorganization expense2,500.00Total534,964.23532,464.23LIABILITIES AND NET WORTHAccounts payable4,037.914,037.91Notes payable10,000.0010,000.00Mortgages payable319,654.09319,654.09Reserve for mortgage tax763.89763.89Dividends payable3,500.00Income taxes payable1,665.02Net worth200,508.34192,843.32Total534,964.23532,464.23*4200 *151  Among the assets acquired by the Michigan Investment Co. of Delaware from Lambrecht, Kelly & Co. and the Michigan Investment Co. of Michigan in exchange for its capital stock were real estate contracts which were taken on the books of the new corporation at the amounts of $144,519.93 and $518,964.32.  By land contract as the term is used in connection with the sale of real estate in Detroit is meant a contract for the sale of real estate under the terms of which the purchaser agrees to pay a stipulated amount monthly until the full purchase price has been paid, title to remain in the seller until the contract has been fully complied with, at which time a warranty deed in fee simple is to be issued to the buyer.  Such contracts usually provide for payment within from five to seven years.  However, due to defaults of the purchasers it generally requires about seven years for the payments to be completed under a five-year contract and from nine to ten years under a seven-year contract.  Such land contracts are usually subject to a first mortgage which the seller of the land placed on it at the time he purchased it to secure the unpaid portion of the purchase price.  The*4201  amounts at which the land contracts were taken on the books of the new corporation represented the full face amount of such contracts and the full amount to be realized on them if and when the purchasers made their payments.  If all the purchasers had made the payments under the contracts when due the only profit the Michigan Investment Co. of Delaware would have derived would have been the 6 per cent interest which most of them were paying, less the cost of collection, which averaged about 5 per cent.  Land contracts usually arise from the sale of land that has been subdivided, and such contracts are not sold separately but a number together.  Real estate business in Detroit was unfavorably affected by the declaration of the war in 1917, and remained in a depressed condition until the latter part of 1920.  During the war the automobile business, an important factor in the general business life of Detroit, was not very active with the exception of the manufacture of automobiles for the Army.  During 1919, the population of Detroit decreased about 50,000.  During the latter part of 1919, the money market in Detroit was stringent and call money in New York was up to about 15 per*4202  cent, and the discount rate in Detroit in that year on land contracts was from 35 to 50 per cent of their face value, depending upon the value of the contract, its age and how much had been paid on it.  After the transactions by which the Michigan Investment Co. of Delaware acquired the assets formerly owned by the Michigan Investment Company of Michigan and Lambrecht, Kelly & Co., it entered into a contract with the Aetna Finance Corporation under which the remaining $4,350,000 of its capital stock was offered to the public *152  through the finance corporation.  The stock was sold in units of one share of preferred and one share of common stock at $20, the total par value of the two shares.  The finance corporation employed salesmen to go over the country and sell the stock.  It did not advertise very extensively.  Occasionally a little advertising was done in local papers around where salesmen were attempting to get subscribers.  Subscriptions for stock were taken for cash and one a deferred payment plan by which 20 per cent was paid down and 20 per cent each month for four months.  From July, 1919, to June 30, 1920, the Aetna Finance Corporation sold, with the exception*4203  of a few shares, stock amounting to $1,490,010, of which $1,077,030 was sold for cash and $412,980 represented subscriptions on the deferred payment plan.  The following statement shows how the subscribers met their subscriptions on the deferred payment plan: Canceled$127,175.00Paid as per purchase agreement199,690.59Payments made but delinquent:1 to 3 months$12,799.384 to 6 months5,875.007 to 9 months8,025.0010 to 12 months1,050.001 to 2 years1,985.003 to 6 years9,722.0339,456.41Unpaid as at September 30, 192546,658.00Of the subscriptions on the deferred payment plan that were canceled there was paid back to subscribers $9,415.33.  The Aetna Finance Corporation received as its compensation 15 per cent of the par value of the stock sold, or total commissions of $191,724.67.  For a while the Michigan Investment Co. of Delaware allowed subscribers interest on the payments made on subscriptions under the deferred payment plan, but did not charge interest on the unpaid balances of such subscriptions.  The Aetna Finance Corporation through its salesmen obtained subscriptions to the stock in 126 different cities located*4204  in 15 States, the District of Columbia, and Ontario, Canada.  The total number of subscribers so obtained was 1,132.  The number of shares subscribed for by each subscriber varied from 1 to 2,200, the average number being 131 shares, or an average subscription price of $1,310.  Of the total of 1,132 subscribers, 1,078 were in the State of Michigan, being located in 91 cities and towns.  The average number of shares subscribed for by the Michigan subscribers was 133, or an average subscription price of $1,330.  *153  After June 30, 1920, the Aetna Finance Corporation discontinued selling the stock and the balance of $2,859,990 unsold on that date remained unissued and nothing was done with it.  The earnings of the Michigan Investment Co. of Delaware from July 1, 1919, to December 31, 1919, after making deduction for taxes, were $17,350.57 on an average capital stock of $1,111,045.  The earnings for the year 1920, after making deduction for taxes, were $117,193.28 on an average capital stock of $1,876,995.  The fair market value of the stock in the Michigan Investment Co. of Delaware at the time of its receipt by the petitioners was $5 per share.  The respondent determined*4205  that upon dissolution of Lambrecht, Kelly & Co. and the distribution of its assets to the stockholders, the petitioners received as liquidating dividends the following amounts, which he subjected to both normal tax and surtax: Daniel Kelly$84,771.30Richard G. Lambrecht83,670.38Gustav Dietrich83,670.38OPINION.  TRAMMELL: The petitions in these proceedings allege that the respondent in determining the deficiencies involved herein erred: (1) In arriving at the value on March 1, 1913, of the stock of the petitioners in Lambrecht, Kelly & Co. by greatly undervaluing such stock; (2) in holding the value of the stock received by the petitioners in 1919 from the Michigan Investment Co. of Delaware to be equal to the par value of the stock received, thereby greatly overvaluing the stock; (3) in treating the transfer in 1919 of petitioner's interests in Lambrecht, Kelly & Co. to the Michigan Investment Co. of Delaware in exchange for stock in the latter company as involving taxable income.  The respondent denies that any error was committed in the determination of the deficiencies.  At the hearing the petitioners were permitted to amend their petitions by alleging*4206  that, if it is found that they received as a liquidating dividend the assets of Lambrecht, Kelly & Co. that were transferred to the Michigan Investment Co. of Delaware for stock in that company received by the petitioners, the respondent erred in subjecting such dividend to both normal tax and surtax.  Inasmuch as there were no sales of the stock of Lambrecht, Kelly & Co. on or about March 1, 1913, we will examine into the value of the assets and business of that company in order to ascertain if possible what was the fair market value of the stock of the petitioners *154  on that date.  Both the petitioner and the respondent used this method in determining the value of this stock.  With respect to the fair market value on March 1, 1913, of the business of Lambrecht, Kelly & Co., Paul A. Sarge testified that he had been an employee of Lambrecht, Kelly & Co. from about 1907 to 1911, at which time he became connected with another firm in Detroit.  He is and for four or five years has been a member of the appraisals committee of the Detroit Real Estate Board.  He has had wide experience in valuing real estate.  He testified that the value of the company's good will alone on March 1, 1913, was*4207  at least $100,000, and that if he could have bought the business he would have paid from $125,000 to $150,000 for it.  Claude M. Harmon, who has been in the real estate business in Detroit since 1894 and is a member of the appraisals committee of the Detroit Real Estate Board, of which committee he has been chairman several times, and who has had considerable experience in the brokerage business in real estate, testified that the business, including tangible and intangible assets, had a value at March 1, 1913, of from $125,000 to $150,000.  In view of the standing of Lambrecht, Kelly & Co. on March 1, 1913, its clientele, which included a number of people of considerable means, its previous earnings and the activity in real estate in Detroit as a result of the continued increase in population annually, and other evidence, we are of the opinion that the business had a fair market value of $125,000 on March 1, 1913.  Since the business had a value of $125,000 on that date, in our opinion the stock which represented the ownership of the business had the same fair market value.  The fair market value on March 1, 1913, of the stock owned by the petitioners in Lambrecht, Kelly & Co. was*4208  as follows: Daniel Kelly$38,500Richard G. Lambrecht38,000Gustav Dietrich38,000The respondent determined that the petitioners received taxable gain when they received the assets of Lambrecht, Kelly & Co. on the dissolution of that corporation, but used as a basis of determining the gain the market value of the stock of the Michigan Investment Co. of Delaware, which he considered to be the par value.  The petitioner, on the other hand, contends that the receipt by the petitioners of the assets of the old corporation on its dissolution and the transfer by them to the new corporation was all part of a single transaction; that in effect the petitioners exchanged their stock in Lambrecht, Kelly & Co. for stock in the Michigan Investment Co. of Delaware; that the petitioners acted merely as a conduit by which the assets of the old corporation were turned over to the new and that the transaction resulted in no taxable gain because the stock of *155  the new corporation had no fair market value when it was received by the petitioners.  In our view of the case it is not necessary for us to determine whether the receipt of the assets of the old corporation*4209  by the petitioner and the transfer to the new corporation for stock was in effect one transaction, or whether the receipt of the assets in liquidation of the old company is a separate transaction and the transfer thereof for stock another transaction.  The effect in so far as this case is concerned, is the same.  We found, from the evidence, that the stock of the new corporation had a market value.  The assets which came to the petitioners were exchanged, to all practical purposes, simultaneously for stock.  The value of what was received for the assets under the circumstances here represents the market value of the assets.  Then it becomes immaterial whether we hold that the gain is the difference between the March 1, 1913, value of the stock of the old corporation (that value being greater than cost) and the value of the assets of that corporation distributed to the petitioners, or the value of the stock of the new corporation for which it was immediately exchanged.  The respondent determined the fair market value of the assets and the fair market value of the stock of the new company to be the same, but held that the stock of the new company was worth par.  From a consideration*4210  of all the evidence we think that the respondent erred in that respect.  In our opinion the stock of the Delaware corporation was not worth par when received by the petitioners.  The authorized capital stock of the Michigan Investment Co. of Delaware was $5,000,000 of the par value of $10 per share.  All of this stock, except 63,750 shares, was turned over to the Aetna Finance Corporation in order to sell to the public.  There was then considerable high-pressure selling.  Subscriptions were taken in small blocks by the activity and personal solicitation of salesmen located in different parts of the country and Canada.  They worked on it for a year and finally gave it up.  Altogether they sold 149,001 shares.  A large portion was sold on the installment basis.  Much of it was not paid for, and many of the subscriptions were canceled.  We do not consider that sales of stock made under the circumstances under which this was sold is an indication of the market value of stock.  See . William C. Roney, a broker and dealer in stocks and bonds, both listed and unlisted, who was familiar with stock market conditions in 1919 and*4211  who was also familiar with the stock of the Michigan Investment Co. of Delaware, testified that in his opinion the block of stock received by the petitioners had in 1919 a maximum fair *156  market value of $5 per share.  Sheldon R. Noble, a member of a partnership with which he has been associated for 13 years and which is engaged in underwriting and distributing stock issues and in doing a general brokerage business, and who was also familiar with stock market conditions in 1919, testified that in his opinion the stock received by the petitioner could have been sold in that year at a price not in excess of 50 per cent of its par value.  The Michigan Investment Co. of Delaware, in entering the assets formerly belonging to Lambrecht, Kelly & Co. on its books, assigned to such assets greater values than previously assigned to them on the books of Lambrecht, Kelly & Co., and in some instances amounts in excess of their fair market value.  During 1919 the real estate business in Detroit was in a depressed condition due to the fact that the city's population was decreasing at the rate of 50,000 persons per year and that the money market was very stringent in that year.  From a*4212  consideration of all the evidence, we think that the net amount of 43,750 shares of stock in the Michigan Investment Co. of Delaware, received by the stockholders in Lambrecht, Kelly & Co. for their interests in that company, had a fair market value of $218,750, or $5 per share.  The fair market value of the net amount of stock received by each of the petitioners was as follows: Daniel Kelly$67,375Richard G. Lambrecht66,500Gustav Dietrich66,500Under the provisions of section 202 of the Revenue Act of 1918, the basis for determining the profit from the exchange of property acquired prior to March 1, 1913, is the cost of such property or its fair market price or value on March 1, 1913, whichever is greater, and where property is received in exchange for other property the property received is to be treated as the equivalent of cash to the amount of its fair market value, if any.  Under the Revenue Act of 1918 assets of a corporation distributed in kind in liquidation are considered as having been received in exchange for the stock, and the gain is subject to the normal as well as to the surtax.  The situation here presented is different from the facts in*4213  the case of , wherein the Circuit Court of Appeals for the Eighth Circuit held that a distribution of Earnings and profits accumulated since February 28, 1913, in liquidation was not subject to the normal tax.  In this case it is not shown that earnings and profits were distributed, but the assets were distributed in kind.  Any increase in value is not shown to have been realized by sale or other disposition by the corporation.  If the assets distributed consisted in part of accumulated earnings and profits, theevidence does not disclose it.  A balance sheet as of June 30, 1919, was introduced in evidence. *157  It showed a net worth as per books of $149,755.07, but this in and of itself is not sufficient evidence that there were any undistributed profits on hand.  It might have represented an unearned increment or increase in asset values unrealized by sale or other disposition or mere write up of values.  The tax liability would then be the same whether we hold that the transaction amounted to a liquidation dividend or an exchange of stock for stock.  *4214  The respondent determined the deficiency on the basis of the March 1, 1913, value.  It was not contended that this was erroneous in principle, and in the absence of any issue on that point we assume that the respondent followed the law and that the cost did not exceed the March 1, 1913, value.  . While there is no evidence directed specifically to the question, the evidence taken as a whole shows that there was an increase in value of the stock from the organization of the corporation up to March 1, 1913, and we are convinced that the cost was less than the March 1, 1913, value.  To the extent that the fair market value of the stock of the Michigan Investment Co. of Delaware at the time of its receipt by the petitioners in 1919 in exchange for their respective interests in Lambrecht, Kelly & Co. exceeds the fair market value of their stock in the latter company on March 1, 1913, we think the petitioners received taxable income in 1919.  Judgment will be entered on 15 days' notice, under Rule 50.