Fairfield S.S. Corp.
v.
Comm'r of Internal Revenue

This case is not covered by Casetext's citator
Tax Court of the United States.Aug 7, 1945
5 T.C. 566 (U.S.T.C. 1945)

Docket Nos. 1471 1472.

1945-08-7

FAIRFIELD STEAMSHIP CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ATLANTIC COAST SHIPPING COMPANY, INCORPORATED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Frank V. Barns, Esq., and Winthrop O. Cook, Esq., for the petitioners. William F. Evans, Esq., for the respondent.


All stock of A corporation was held by B corporation. Both were under the same management. A owned a ship, which it was thought could be sold at a profit, while a loss could be taken on stock in another corporation owned by B. After a purchaser had been found for the ship and the price was agreed upon, it was transferred, in liquidation proceedings, to B and the sale completed, and B, in its income tax returns, offset the profit on the sale by the loss on other stock. Held, that A is taxable upon the profit upon the sale. Frank V. Barns, Esq., and Winthrop O. Cook, Esq., for the petitioners. William F. Evans, Esq., for the respondent.

These cases duly consolidated for hearing, involve deficiencies in income and declared value excess profits taxes for the calendar year 1940 as follows:

+---------------------------------------------------------+ ¦ ¦ ¦Declared value¦ +-------------------------------+----------+--------------¦ ¦ ¦Income tax¦excess profits¦ +-------------------------------+----------+--------------¦ ¦ ¦ ¦tax ¦ +-------------------------------+----------+--------------¦ ¦Fairfield Steamship Corporation¦$87,438.87¦$55,404.81 ¦ +-------------------------------+----------+--------------¦ ¦Atlantic Coast Shipping Co ¦75,520.07 ¦40,906.57 ¦ +---------------------------------------------------------+

Two questions are presented for determination:

(1) To which of the petitioning corporations is the gain of $419,733.45 realized from the sale of the steamship Maine in 1940 taxable?

The amount of the gain is not in dispute.

(2) Did the stock of Cuban Ports Terminal Co. owned by the Atlantic Coast Shipping Co. in the face amount of $390,000 become worthless in 1940?

FINDINGS OF FACT.

Fairfield Steamship Corporation (hereinafter referred to as Fairfield) was a corporation organized under the laws of the State of New York. It was dissolved and a certificate of dissolution was issued by the State Tax Commission on October 24, 1940. All of its capital stock was owned and held by the Atlantic Coast Shipping Co. (hereinafter referred to as Atlantic). Fairfield's income, declared value excess profits, and excess profit tax returns (Forms 1120 and 1121) for 1940 were filed with the collector for the second New York district at New York City.

Atlantic was a corporation organized under the laws of the State of Maryland. It was dissolved in December 1940. Prior to its dissolution, and at all times material to the questions here involved, its capital stock was owned and held as follows: 51 percent by Arthur R. Lewis, Jr., 39 percent by the estate of Arthur R. Lewis, Sr. (of which Arthur R. Lewis, Jr., and Frank V. Barns were the duly authorized and acting executors), and 10 percent by Margaret G. Dennis (hereinafter referred to as Dennis). Atlantic's income and declared value excess profits tax return (Form 1120) was filed with the collector of the district of Maryland at Baltimore, Maryland.

Cuban Ports Terminal Co. (hereinafter referred to as Cuban) was a corporation organized under the laws of the State of Delaware. It was dissolved in December 1940. Prior to its dissolution and after August 1937, 62 percent (3,900 shares) of its capital stock was owned by Atlantic (its cost or other basis therefor being $390,000 ) and 38 percent was owned by the estate of Arthur R. Lewis, Sr. Cuban's only substantial asset from 1925 to December 1940 was ‘Atares,‘ a wharf located at Havana, Cuba, and the equipment and gear appertaining thereto.

The cost or other basis of Cuban stock in Atlantic's hands is not in dispute.

In 1940 Arthur R. Lewis, Jr., (hereinafter referred to as Lewis), was president, treasurer, and a director of Fairfield, Atlantic, Cuban, and a fourth corporation, Seas Shipping Co. (hereinafter referred to as Seas). The offices of all of these corporations were at the same address and their books were kept there.

For some years prior to 1940 and until the transfer thereof to Atlantic on or about September 23, 1940, Fairfield was the owner and operator of the steamship Maine, the only other assets of Fairfield being some cash and receivables. The Maine was carried on Fairfield's books at the beginning of 1940 at the depreciated cost of $54,005. In February 1940, at a time when Lewis was in Havana, Cuba, Dennis who owned 10 percent of Atlantic's stock, asked Barns whether Atlantic was to be liquidated, or whether Lewis would be interested in buying her interest in Atlantic, so that she could realize some cash out of her investment, which had cost her $10,000. Lewis returned from Cuba about the middle of February 1940 and talked with Barns about liquidating Atlantic in such a manner as to save Federal taxes, so that the stockholders would get the greatest possible return. Subsequent conversations between Lewis and Barns resulted, late in August 1940, in the formulation of a plan for the liquidation of Atlantic. This plan, designed to effect certain tax benefits, contemplated the transfer by Fairfield of all its assets, including the Maine, to Atlantic in exchange for the surrender by Atlantic of the stock of Fairfield, and the liquidation of Fairfield, to be followed by the sale of the Maine by Atlantic at a profit. The plan further contemplated the disposition by Cuban of its principal asset, the ‘Atares‘ wharf, at a loss, creating a net deductible loss for Atlantic in the taxable year 1940, on the theory that by virtue of the sale of ‘Atares‘ the stock of Cuban held by Atlantic became worthless, thus offsetting the gain expected to be derived from the sale of the Maine. Dennis was invited late in August 1940 to attend an informal meeting with Barns and Lewis, which took place on September 13, 1940. At that meeting the plan of transferring Fairfield's assets to Atlantic, of Atlantic's selling the Maine, and of liquidating Fairfield and Atlantic, was discussed and its was decided to take the steps necessary to put the plan in effect at a formal meeting to be called on September 19, 1940.

Early in September 1940 and prior to September 13 Lewis asked Charles C. Pendleton (hereinafter referred to as Pendleton), who was executive vice president of Seas, to see what kind of an offer he could get for the Maine. Pendleton got in touch with Sylvester J. Lambert (hereinafter referred to as Lambert), a broker, who had previously sold ships on behalf of the Lewis interests and with whom Pendleton spoke almost daily. Pendleton requested Lambert, about September 9, to get the best price he could obtain on the vessel, advising him that there was a possibility of selling the Maine after certain formalities were taken care of. Although Pendleton knew, he did not tell Lambert that it was contemplated that any sale of the Maine would be made by Atlantic and not by Fairfield, which was the owner of the vessel at the time of this conversation. Lambert never knew who the title owner of the Maine was until September 30, 1940.

On September 9, 1940, Lambert, who knew that the British Government was in the market to purchase ships, addressed a letter to E. P. Rees, Director of the British Ministry of War Transports, also called the British Ministry of Shipping, which provided in part as follows:

We are authorized by the owners of the American S. S. ‘Maine‘ to submit this vessel to you for purchase and solicit your best firm offer. She is presently operating, however, is expected light at a North of Hatteras port between September 25th/30th * * * .

Rees ascertained about September 1, 1940, as a result of consulting Lloyd's Register, that the owner of the Maine was listed there as Fairfield.

On September 11, 1940, Lambert orally received a firm offer from Rees on behalf of the British Ministry to purchase the Maine at $45 per deadweight ton, subject to certain conditions. Lambert thereupon on September 11, 1940, wrote the following letter to Pendleton:

We are authorized by The British Ministry of Shipping to make you a firm offer for the purchase of the Steamer ‘MAINE‘ on the following terms:

$45.00 per deadweight ton

10% deposit to be paid in escrow on signing contract, the balance on delivery against bill of sale

Subject transfer flag without restriction

Delivery, North of Hatteras at port where there is no sales tax in effect

September 20th/October 10th

Otherwise terms of British Ministry form of contract, copy of which was sent to you under separate cover.

Pendleton communicated this offer to Lewis, who told him that the offer was unsatisfactory; that he should try to get a better offer; and that they were not in a position to sell the Maine because title to it was then held by Fairfield; and that any sale of the Maine would be made by Atlantic. Pendleton told Lambert that the offer of $45 would not be acceptable and Lambert suggested that he would try to get a better offer.

A few days after September 11, 1940, Rees orally renewed the offer for the Maine on behalf of the British Ministry at $47.50 per deadweight ton, subject to the same conditions. Lambert conveyed this second offer to Pendleton, who reported it to Lewis. Pendleton and Lewis decided to try to get more than $47.50 for the Maine. Pendleton thereupon told Lambert that the offer was not acceptable and that Lambert should try to get a better price. Lambert asked Pendleton to make a counteroffer, but Pendleton replied that they would not be in a position to make any counteroffer until certain formalities in the office took place. The declination of this offer was communicated to Rees.

On September 18, 1940, Rees orally made an offer through Lambert for the Maine at $50 per deadweight ton on the condition that a reply be received not later than 5 p.m. on September 18, 1940. Lambert orally communicated the offer to Pendleton, who relayed it to Lewis without advising the latter of the time limit. Lewis told Pendleton that the price was all right, but that the sale of the vessel would not be accomplished until after September 19, 1940, on which day appropriate corporate action would be taken by the stockholders of Atlantic and Fairfield to effect a transfer of title to the Maine from Fairfield to Atlantic. Pendleton told Lambert that the offer would be acceptable, but that nothing could be done until the vessel had been transferred to Atlantic, as he was not authorized to accept on behalf of Fairfield. Lambert, prior to 5 p.m. on September 18, 1940, advised Rees that the offer was accepted. Also, on September 18, 1940, Rees received a cable from London which read in part as follows:

You may negotiate MAINE but as vessel apparently closed shelter deck consider fifty dollars excessive and forty-seven point fifty should be equivalent to this type of vessel.

Rees replied to that cable the night of September 18, 1940, as follows:

MAINE: were under offer at $50 prior receipt your 1021 (reference is to cable quoted above) which owners have accepted * * * expect delivery Baltimore early October period.

On September 18, 1940, and until after her return to the port of New York on September 20, 1940, the Maine was under voyage charter from Fairfield to Seas. Rees did not have any information as to who the corporate owner of the Maine was, except the information contained in Lloyd's Register, and was not concerned with that fact, knowing that the Maine was one of the Arthur Lewis ships and believing that Lambert, as a responsible broker, had the necessary permission to deal with the British Ministry of Shipping. Lambert had inquired of Lewis in 1936 and 1937, and earlier, whether he would sell the Maine, and had been told that if he brought in a sufficiently high offer, anything would be sold.

On September 19, 1940, at 3 p.m., a special meeting of the stockholders of Atlantic was held and the following resolution was passed:

RESOLVED, that the Atlantic Coast Shipping Company, Incorporated, as sole holder of all the issued and outstanding stock of the Fairfield Steamship Corporation, cause a certificate of dissolution of the Fairfield Steamship Corporation to be executed and filed. That the Atlantic Coast Shipping Company, Incorporated, surrender to the Fairfield Steamship Corporation all of the stock of the Fairfield Steamship Corporation in exchange for the transfer to the Atlantic Coast Shipping Company, Inc. of the steamship MAINE, and all other property, tangible and intangible, of the Fairfield Steamship Corporation: * * *

This meeting was recessed and thereupon on the same day at 3:30 p.m., a special meeting of the stockholders of Fairfield was held and the following resolution was passed:

RESOLVED, that Arthur R. Lewis, Jr., President of Fairfield Steamship Corporation, be, and he is hereby authorized to take all necessary steps to sign all necessary certificates and instruments in order to carry out and effectuate the dissolution of the Fairfield Steamship Corporation, and the transfer of all of its assets to the Atlantic Coast Shipping Company, Incorporated, in exchange for all of the outstanding stock of Fairfield Steamship Corporation; * * *

This meeting was followed by a meeting of the board of directors of Fairfield held on the same day at 4 p.m., and the resolutions of the stockholders of Atlantic and of Fairfield were incorporated in the minutes of the meeting of Fairfield's board of directors. The board of directors also passed a resolution in the same terms as that passed by Fairfield's stockholders quoted above. Finally, the recessed meeting of Atlantic's stockholders was reconvened at 4:15 p.m. on the same day and the following resolutions were passed:

RESOLVED, that the President, Arthur R. Lewis, Jr., be, and he hereby is authorized to negotiate a contract for the sale of the ss MAINE, to a prospective British purchaser, at a purchase price of $50. per deadweight ton; and it is further

RESOLVED, that the President, Arthur R. Lewis, Jr., in the event that it is possible to negotiate and conclude such a contract for the sale of the ss MAINE, be and he hereby is authorized and directed to sign and execute all necessary papers to obtain permission from the United States Government to sell the vessel with transfer of flag to British registry, and to execute and sign any and all necessary papers to carry out such a sale and transfer of the ss MAINE; * * *

The purchase money in connection with the sale of the Maine was furnished by the British Government, which appointed a nominee to take title to the ship and operate it for the British Government rather than to take title to it itself, because the United States was not then at war.

On September 21, 1940, Rees received a cable from London in which Glover Brothers (London), Ltd., was nominated to take title to the Maine. Lambert was orally advised of this on the same day. On September 24, 1940, Lambert received written confirmation of this from the British Ministry and sent a copy of this letter to Pendleton. In the meantime, on September 23, 1940, Lewis, as president of Fairfield, executed a bill of sale of the Maine to Atlantic, which bill of sale was recorded at the Customhouse in Baltimore, Maryland, on September 26, 1940. Atlantic never owned any ships prior to its acquisition of the Maine; it was in the stevedoring business.

On September 30, 1940, a written contract for sale of the Maine was entered into between Atlantic and Glover Bros. at Jersey City, New Jersey. This contract was signed by Lewis, as president, on behalf of Atlantic, and by Hugh Reid, as attorney in fact, on behalf of Glover Bros. Reid's authority to act on behalf of Glover Bros. was received by cable from London about the same time that Glover Bros. was nominated as the purchaser of the Maine. The contract contained the same conditions as those specified in connection with the original offer. A deposit of $47,660 was paid upon its execution. The contract contained, inter alia, the following clause:

9. The Buyer shall not be obligated to accept delivery hereunder unless the United States Maritime Commission shall have approved the sale of the vessel to the Buyer and her transfer to British registry without any conditions imposed on either the Buyer or the Seller other than the usual conditions that the vessel shall be free of liens and encumbrances at the time of the sale. * * *

On October 2, 1940, Reid advised Atlantic by letter on behalf of Glover Bros. that they had accepted the afloat inspection and the dry dock inspection of the Maine (conditions in the formal contract of sale), and on October 3, 1940, the sale and transfer to the British registry and flag of the Maine was approved by the United States Maritime Commission, subject to the condition (acceptable to the buyer) that the Maine would not be used for a belligerent purpose or be made into a vessel of war.

On October 8, 1940, a special meeting of the board of directors of Atlantic was held and the following preamble and resolution was unanimously adopted:

WHEREAS, the stockholders of the Atlantic Coast Shipping Company, Incorporated, did heretofore, and on the 19th day of September, 1940, authorize the sale of the ss MAINE, and by resolution, authorized Arthur R. Lewis, Jr., as President, to enter into a contract for the sale of the ss MAINE; and

WHEREAS, Arthur R. Lewis, Jr., acting as President, did on the 30th day of September, 1940, enter into a contract for the sale of the ss MAINE to Glover Brothers (London) Ltd., of Bevis Marks House, London, England;

NOW, THEREFORE, BE IT

RESOLVED, that the act of Arthur R. Lewis, Jr., as President, in executing said contract for the sale of the ss MAINE, be and it is in all respects ratified and approved; and it is further

RESOLVED, that Arthur R. Lewis, Jr., President of Atlantic Coast Shipping Company, Incorporated, be, and he hereby is authorized to execute and deliver a formal bill of sale, and sign any and all necessary instruments to execute and carry out the sale of the ss MAINE to Glover Brothers (London) Ltd.; * * *

Lambert received a commission, which was paid by Atlantic, for procuring an acceptable offer for the vessel.

On December 27, 1940, there was transferred from Fairfield to Atlantic the balance of Fairfield's cash in the amount of $107,855.07, and some other debits and credits, all in exchange for all of the outstanding stock of Fairfield. ‘Atares‘ wharf was sold by Cuban in 1940 for $80,000, less approximately $1,400 expenses.

In its 1940 income and declared value excess profits tax return Atlantic reported a long term capital gain of $331,726.85 as a result of the sale of the Maine. It also reported a long term capital loss of $390,000, based upon the stock it owned in Cuban. Atlantic thus claimed a total net long term capital loss of $58,273.15. The only other income it had for 1940 was interest on loans, notes, mortgages, bonds, bank deposits, etc., in the amount of $325, and it had other allowable deductions for 1940, not questioned by the Commissioner, which totaled $105,066.49. Fairfield did not report any gain for Federal tax purposes from the sale of the Maine.

The executed sale of the Maine was in substance the sale of Fairfield.

OPINION.

DISNEY, Judge:

The first question propounded to us is simple: Was sale of the Maine made by Fairfield, or by Atlantic after acquisition of this ship by liquidation of Fairfield? In our opinion it was made by Fairfield and the agreed gain was properly taxed to that corporation. This conclusion we consider proper under Commissioner v. Court Holding Co., 324 U.S. 331, another effort to shift to stockholders the gain from sale of corporate property. Though recognizing the right of the taxpayer to consider tax consequences, we must and do scrutinize the reality of what happened in the facts presented to us.

The petitioner (with the burden of proof) seeks to establish a lack of connection between what took place while Fairfield owned the Maine and the transfer of the ship after liquidation to Atlantic, along the line of some cases which have recognized such distinction. Thus, the dissent in Court Holding Co. v. Commissioner, 143 Fed.(2d) 823, recognizes that there may be ‘complete abandonment by the corporation of its purpose to sell and renewal of negotiations followed by a sale by the stockholders.‘ In Commissioner v. Falcon, 127 Fed.(2d) 277, holding the corporation not liable for tax on gain from sale made by its stockholders the court held, to use the words of Meurer Steel Barrel Co. v. Commissioner, 144 Fed.(2d) 282, ‘that the acts in that case were unrelated and not part of an anticipatory plant.‘ We may not, however, fairly come to the same conclusion here. Passing over the one change in the contract (clause 9 above set forth in the facts), consisting of a condition imposed by the United States Maritime Commission as to nonbelligerent use of the ship, accepted by both parties, for we consider such change immaterial, the sale effected was in substance that which had been arranged while Fairfield held title to the ship. That there is here involved no sale by Atlantic, unrelated to what had been done by Fairfield, but one ‘part of an anticipatory plant,‘ is well shown by the fact that when, on September 19, 1940, Atlantic voted to authorize sale of the Maine, Lewis (who had obtained the offer from the British interests) was authorized to negotiate a contract of sale ‘to a prospective British purchaser, at a purchase price of $50. per deadweight ton; and * * * to sell the vessel with transfer of flag to British registry.‘ Plainly, the sale was no new matter when Atlantic entered the picture.

Petitioner, on brief, points out that Pendleton, instructed by Lewis, advised Lambert, on September 18, that the price ‘would be acceptable when the vessel was transferred to Atlantic * * * .‘ Though the language goes on to state that Pendleton could not deal with Fairfield, nevertheless it thus appears plain that (except for immaterial details) the offer was satisfactory and would be consummated by sale after a transfer of title. It is noteworthy that previous rejections of offers had been on the ground of price, which price was now satisfactory, showing that a deal had now been agreed upon— except for acquiring the property from some one else— indicating, we think, that Atlantic was made a conduit for Fairfield for that purpose.

It is to be noted also that, in the words of petitioner's reply brief, the ‘$50.00 a ton offer was accepted by Atlantic,‘ following the transfer to it, yet no evidence appears that any offer was ever made to Atlantic, or substantially other than as submitted while Fairfield was holder of title. Atlantic was not in the business of selling ships, but was in the business of stevedoring. In fact, it never, prior to acquisition of the Maine, owned any ship. All of the facts convince us that this is a case of conduit utilized by the original owner, Fairfield, to route the property to the purchaser after an arrangement so complete as to be considered by the purchaser as binding. Under such facts, and after the expression of the Supreme Court in the Court Holding Co. case, supra, that lack of execution of contract by the corporation (Fairfield), we may not give effect to the contention that no firm offer was accepted by Fairfield. We think it was accepted in substance by Fairfield by its conduit Atlantic, if not earlier. Lewis, the same man who governed the matter in accepting for Atlantic, governed the rejection (in effect only until after the transfer) by Fairfield. Such a rejection amounted, in substance, to acceptance, except that another (the conduit or nominee Atlantic) would carry out the agreement. Pendleton's testimony that ‘the offer would be acceptable when the vessel was transferred to the Atlantic Coast Shipping Company,‘ even though followed by a statement that the speaker could not deal or accept for Fairfield, in our opinion indicates clearly the unreality in the contention advocated by the petitioner. The transaction was merely, as a matter of form, completed by Atlantic.

* * * The incidence of taxation depends upon the substance of a transaction. The tax consequence which arise from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step, from the commencement of negotiations to the consummation of the sale, is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. (Citing in a footnote: Gregory v. Helvering, 293 U.S. 465; Minnesota Tea Co. v. Helvering, 302 U.S. 609; Griffiths v. Commissioner, 308 U.S. 355; Higgins v. Smith, 308 U.S. 473.) To permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress.It is agreed that respondent corporation never executed a written agreement, and that an oral agreement to sell land cannot be enforced in Florida because of the Statute of Frauds, Comp. Gen. Laws of Florida, 1927, vol. 3, Sec. 5779. But the fact that the respondent corporation itself never executed a written contract is unimportant, since the Tax Court found from the facts of the entire transaction that the executed sale was in substance the sale of the corporation. * * *

Unreality is further suggested, we think, by the fact that, though Atlantic, under petitioner's theory, received the ship in liquidation on September 23, 1940, and then sold it, the other property, including about $107,000 in cash, of Fairfield was not transferred to Atlantic until December 27, 1940, so that the liquidation, and apparently the cancellation of the stock held by Atlantic, was, in fact, not consummated until that time— long after disposition of the ship to the British interests. Since, under the provisions of Fairfield's resolution to liquidate, ‘all of its assets‘ were to be transferred to Atlantic ‘in exchange for all the outstanding stock of Fairfield Steamship Corporation,‘ the stock held by Atlantic was apparently not canceled until December 27, 1940, and Atlantic is seen dealing with a ship to which it had not, in fact, acquired a right.

In addition to the above cases, see Embry Realty Co. v. Glenn, 116 Fed.(2d) 682; R. G. Trippett, 41 B.T.A. 1254; affd., 118 Fed.(2d) 764; S. A. MacQueen, 26 B.T.A. 1337; affd., 67 Fed.(2d) 857; Liberty Service Corporation, 28 B.T.A. 1067; affd., 77 Fed.(2d) 94; Hellebush v. Commissioner, 65 Fed.(2d) 902; affirming 24 B.T.A. 660. We consider George T. Williams, 3 T.C. 1002, distinguishable upon the facts. The New York Statute, section 20, Stock Corporation Law (providing in substance that a stock corporation may sell assets with the consent of the holders of two-thirds of the shares), has no bearing, either in law or logic, upon the power of Fairfield to make the contract. It had only one stockholder. In re Steinberg's Estate, 274 N.Y.S. 914.

We conclude and hold that the Commissioner did not err in adding the profit upon sale of the Maine to the income of Fairfield.

Our decision on the first question renders it unnecessary to consider the second question— namely, whether the stock of Cuban owned by Atlantic became worthless in 1940— because that question is now moot, due to the fact that Atlantic was dissolved in December 1940 and that, with the elimination of the gain derived from the sale of the Maine from Atlantic's income for 1940, Atlantic's only other income for 1940 ($325) is offset by other uncontested deductions for the same period ($105,066.49).

Reviewed by the Court.

Decision will be entered in Docket No. 1471 (Fairfield) for the respondent, and decision of no deficiency will be entered in Docket No. 1472 (Atlantic). ARUNDELL, J., dissenting: I am unable to agree with the majority in their disposition of this proceeding. The crucial question here is whether the Fairfield Corporation negotiated the sale and actually entered into a contract to sell the steamship Maine. If this was so and Fairfield transferred the Maine to Atlantic, which consummated the transaction, then the sale was that of Fairfield and Atlantic was a mere conduit of title. Commissioner v. Court Holding Co., supra, upon which the majority rely, would then be in point and the intermediate transfer could be disregarded as a ‘formal device‘ unnecessary to the consummation of the transaction. The rationale of that and other similar cases is that, when the stockholders take title after the corporation has bound itself to sell the property, they can do nothing but carry out the corporate obligations.

The situation in the instant case is entirely different from that involved in the Court Holding Co. case, supra. Early in 1940 one of the stockholders of Atlantic indicated that she would like to get her money out and at that time plans were made for the eventual liquidation of Atlantic. The evidence is clear that the parties had decided to transfer the assets of Fairfield, including the steamship Maine, to Atlantic in exchange for all of Fairfield's outstanding capital stock. Atlantic was to sell the Maine. It was decided to put the above plan into effect at a formal meeting to be held September 19, 1940. In September Lewis, who was the owner of 51 percent of the outstanding capital stock of Atlantic, which in turn owned all the stock of Fairfield, asked Pendleton to see what kind of offer he could get for the Maine. Pendleton knew that any sale of the Maine would be made by Atlantic, not Fairfield. When the offer of $50 per deadweight ton was received on September 18, 1940, Pendleton told Lambert that the price was right, but that nothing could be done until the vessel had been transferred to Atlantic and that he was not authorized to accept on behalf of Fairfield. While Lambert advised Rees that the offer was accepted, nowhere in the record does it appear that he had authority to bind Fairfield to such contract.

It is clear that Lewis' activities were, and were intended to be, in behalf of Atlantic, and it was only on September 19, after the transfer of the Maine to Atlantic, that Lewis, as president of Atlantic, was authorized to conclude a contract for the sale of the Maine. Lambert's action was thus, in effect, approved only by Atlantic and never by Fairfield. Fairfield was never under a contract to sell the Maine to the British Government. I think the profits from the sale in question are taxable only to Atlantic. The principle here is the same as in George T. Williams, 3 T.C. 1002, and Chisholm v. Commissioner, 79 Fed.(2d) 14, and I think a similar treatment should be here accorded. I respectfully dissent.

VAN FOSSAN and MURDOCK, JJ., agree with this dissent.