Gross
v.
Comm'r of Internal Revenue

This case is not covered by Casetext's citator
Tax Court of the United States.Jan 31, 1955
23 T.C. 756 (U.S.T.C. 1955)

Docket Nos. 46260-46270.

1955-01-31

GEORGE M. GROSS AND ANNA GROSS, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Harry J. Rudick, Esq., and Mason G. Kassel, Esq., for the petitioners. Clay C. Holmes, Esq., Robert A. Bridges, Esq., and Frank Cohen, Esq., for the respondent.


Harry J. Rudick, Esq., and Mason G. Kassel, Esq., for the petitioners. Clay C. Holmes, Esq., Robert A. Bridges, Esq., and Frank Cohen, Esq., for the respondent.

1. Petitioners are stockholders in several corporations, some organized to hold land and some to build and operate apartment developments thereon. The plans, financing, and construction of the developments were approved by the Federal Housing Administration which, pursuant to section 608 of the National Housing Act as amended, insured mortgages given by the operating companies to finance construction. The actual cost of construction was less than the estimates of the F.H.A. and less than the amounts received by the corporations under the insured mortgages. In 1948 and 1949 some of the operating companies made cash distributions to their stockholders from the excess of mortgage receipts over construction costs, from premiums on mortgage bonds issued, and from gross rents. Other operating companies made distributions from depreciation reserves. The land-holding companies placed mortgages on their lands, which had appreciated in value, and distributed some of the mortgage proceeds to the stockholders. The distributions exceeded the earnings or profits. The stock had been held for more than 6 months prior to the distributions. Held, the distributions in excess of earnings or profits should, pursuant to section 115(d), Internal Revenue Code of 1939, be applied against and reduce the adjusted basis of the stock and the excess over such basis is taxable as long-term capital gain.

2. Three principal stockholders were officers of certain of the corporations. The other stockholders were wives, children, or trusts for benefit of children, of these three. No amounts were paid or accrued as salaries of these officers during the taxable years 1948 and 1949. The The distributions were in proportion to the stockholdings. Held, the distributions to the officer-stockholders were not in any part salaries for their services.

OPINION

TIETJENS, Judge:

These consolidated proceedings contest deficiencies for 1948 and 1949 determined as follows:

+------------------------------------------------------+ ¦ ¦1948 ¦1949 ¦ +-------------------------------+----------+-----------¦ ¦George M. Gross and Anna Gross ¦$72,022.17¦$643,804.63¦ +-------------------------------+----------+-----------¦ ¦Alan Morton ¦13,445.86 ¦86,906.30 ¦ +-------------------------------+----------+-----------¦ ¦Robert Gross ¦13,411.92 ¦86,455.91 ¦ +-------------------------------+----------+-----------¦ ¦Norman and Alice Newhouse ¦ ¦91,767.68 ¦ +-------------------------------+----------+-----------¦ ¦Richard and Margaret Morton ¦10,201.70 ¦68,710.36 ¦ +-------------------------------+----------+-----------¦ ¦James Morton ¦13,623.75 ¦87,469.70 ¦ +-------------------------------+----------+-----------¦ ¦Lawrence and Irma Morton ¦67,126.57 ¦641,696.62 ¦ +-------------------------------+----------+-----------¦ ¦Peter Gross Trust ¦17,890.31 ¦104,480.30 ¦ +-------------------------------+----------+-----------¦ ¦Alfred Gross and Florence Gross¦77,411.33 ¦698,345.32 ¦ +-------------------------------+----------+-----------¦ ¦Gerald Gross Trust ¦13,510.55 ¦82,419.63 ¦ +-------------------------------+----------+-----------¦ ¦Jane Gross Trust ¦17,790.21 ¦103,761.69 ¦ +------------------------------------------------------+

The facts are stipulated and are so found and the exhibits are incorporated by this reference.

The petitioners George M. Gross and Anna Gross are husband and wife. They reside at Sands Point on Long Island, New York. They have three children, Robert, Gerald, and Alice Gross Newhouse. Alfred Gross is a brother of George. Florence Gross is the wife of Alfred. Alfred and Florence have two children, Jane and Peter. Irma Morton is a sister of George and Alfred Gross. Lawrence Morton is her husband. They have three children, James, Alan, and Richard.

The income tax returns of all the petitioners were filed with the collector of internal revenue at Brooklyn, New York. Joint returns for 1948 and 1949 were filed by George M. and Anna Gross, Richard and Margaret Morton, Lawrence and Irma Morton, and Alfred and Florence Gross. Joint returns for 1949 were filed by Norman and Alice Newhouse. Individual returns for 1948 and 1949 were filed by Alan Morton, Robert Gross, and James Morton. Fiduciary returns were filed by the trustees of the Peter Gross Trust, Gerald Gross Trust, and Jane Gross Trust.

For a number of years prior to 1948 George and Alfred Gross and Lawrence Morton were builders, principally of 1-family houses.

The Federal Housing Administration was created to encourage and develop the expansion of privately owned and privately financed housing.

First Mars Homes, Inc., Second Mars Homes, Inc., Third Mars Homes, Inc., and Fourth Mars Homes, Inc., all of which are Maryland corporations, were organized in 1943 to own and operate sections of a housing project in Baltimore County, Maryland, to be occupied by individuals engaged in defense work and their families. George M. Gross, Alfred Gross, and Lawrence Morton each owned 25 per cent of the stock. This project was completed in 1944. It was financed by mortgages insured by the Federal Housing Administration.

Upon the termination of World War II and the subsequent release of veterans from the Armed Forces, it became apparent that there existed an extreme shortage of housing facilities in the United States. This was caused in part by the facts that (a) many members of the armed services had married during the war, thus increasing the need for additional housing facilities, and (b) during the period of World War II, the construction of private houses and apartment dwellings had been curtailed.

Glen Oaks Village is a privately owned 2-story garden-type apartment development consisting of 134 2-story brick buildings containing 2,928 apartments. Its cost of construction was financed by mortgage loans made by the Bank of Manhattan Company, which mortgage loans were insured by the Federal Housing Administration under section 608 of the National Housing Act, as amended.

At the time the plan for the construction of Glen Oaks Village was conceived, the land on which the village was constructed was owned by three corporations controlled by the Gross and Morton families, namely, Permanent Land Corporation, Union Land Corporation, and Wenton Realty Corporation, all of which were organized under the laws of the State of New York.

The planning, financing, and building of Glen Oaks Village was under the general direction of George M. Gross, Alfred Gross, and Lawrence Morton. George M. Gross was primarily responsible for management, Alfred Gross for financing, and Lawrence Morton for construction of the project. None of the three devoted his entire time to the project.

Representatives of the Gross and Morton interests began negotiations in 1946 with the Bank of Manhattan Company for the issuance of mortgage loans to be used in financing the construction of Glen Oaks Village. The Federal Housing Administration was agreeable to the building of this project because of the extreme shortage of housing facilities for returning veterans in the metropolitan New York district and because at that time builders of large housing developments were generally unwilling to construct apartment-type housing projects.

The procedure of the Federal Housing Administration in determining whether it would insure mortgages under section 608 of the National Housing Act, as amended, was as follows:

(a) The proposed mortgagor first made an application to a lending institution for a loan;

(b) The proposed mortgagor was required to arrange for temporary financing by way of building loan agreements and for permanent financing by way of mortgages by a lending institution;

(c) As part of its application to a lending institution for a loan, the proposed mortgagor was required to submit a site plan containing a sketch of the project, detailed information showing the plan of construction and operation, an estimate of rental income and operating expenses, and an estimate of replacement cost of the property. The Federal Housing Administration was permitted to insure mortgages in the amount of 90 per cent of its total estimated replacement cost of the property, but the amount of the mortgage to be insured could not exceed $1,800 per room, which was later changed to $8,100 per apartment;

(d) The detailed information was then submitted by the proposed mortgagee to the Federal Housing Administration and was examined and evaluated by the Federal Housing Administration's architectural, valuation, and mortgage risk examining sections;

(e) The proposed mortgagee then applied to the Federal Housing Administration for mortgage insurance and if such mortgage insurance were approved, construction was commenced. Construction was inspected by Federal Housing Administration employees; insured building loan advances could not be disbursed by the lender without the consent of the Federal Housing Administration; and rents were frozen at the amount determined by the Federal Housing Administration;

(f) The Federal Housing Administration received from the mortgagee an examination fee of three-tenths of 1 per cent of the principal amount of the mortgage insured and an annual premium for such mortgage insurance of one-half of 1 per cent of the existing mortgage indebtedness.

The project known as Glen Oaks Village was constructed in two parts. Part I, consisting of 576 apartments covering approximately 25 acres of land, was erected by Glen Oaks Village, Inc., a New York corporation organized on April 8, 1947, on land leased from Permanent Land Corporation under indenture of lease dated May 1, 1947. The certificate of incorporation of Glen Oaks Village, Inc., followed the model form of Certification of Incorporation prepared by the Federal Housing Administration.

The lease between Permanent Land Corporation and Glen Oaks Village, Inc., was for an initial term of 50 years with a right of renewal on the part of the lessee for an additional period of 50 years. The rent paid by the lessee to the lessor under the lease was computed at 4 per cent of the value of the land as appraised by the Federal Housing Administration.

In November 1946, the Gross and Morton interests submitted a site plan to the Bank of Manhattan Company for the erection of part I of Glen Oaks Village which was approved by Federal Housing Administration.

Early in 1947, Glen Oaks Village, Inc., as proposed mortgagor, and the Bank of Manhattan Company, as proposed mortgagee, submitted the the Federal Housing Administration an application for mortgage insurance in the amount of $4,334,000 on F.H.A. Form No. 2013w to cover the construction of part I of Glen Oaks Village. This was approved by the Federal Housing Administration on March 31, 1947. The amount of mortgage insurance was subsequently increased to $4,348,400.

On April 18, 1947, it was agreed between Glen Oaks Village, Inc., the Bank of Manhattan Company, and the Prudential Insurance Company of America that upon the completion of construction of part I of Glen Oaks Village, Inc., the Bank of Manhattan Company which was providing temporary financing under a building loan agreement and mortgage would assign the mortgage to the Prudential Insurance Company of America upon payment of the bank of the principal amount of the mortgage plus a premium of 3 1/2 per cent of the principal amount of the mortgage payable to Glen Oaks Village, Inc.

On June 2, 1947, Glen Oaks Village, Inc., entered into a building loan agreement with the Bank of Manhattan Company under which the Bank of Manhattan Company agreed to advance the sum of $4,348,400 to be used for the purpose of constructing part I of Glen Oaks Village; the building loan agreement also provided that the amount was to be secured by a bond and mortgage, which mortgage was to be insured by the Federal Housing Administration under the provisions of the National Housing Act, as amended.

On June 2, 1947, pursuant to the above agreement, Glen Oaks Village, Inc., executed a mortgage on its leasehold in favor of the Bank of Manhattan Company in the amount of $4,348,400.

On June 2, 1947, the Federal Housing Administration insured such mortgage of $4,348,400 pursuant to the provisions of section 608 of the National Housing Act, as amended, and the Administrative Rules and Regulations for Rental Housing Insurance under section 608 of the National Housing Act issued by the Federal Housing Administration. The first annual premium for such insurance paid to the Federal Housing Commissioner was $21,742.

On March 18, 1948, Glen Oaks Village, Inc., and the Bank of Manhattan Company filed an amended application with the Federal Housing Administration requesting increased mortgage insurance due to changes in the plan and amendments to the National Housing Act. The application was subsequently approved by Federal Housing Administration which insured an additional mortgage on part I of Glen Oaks Village in the amount of $303,600. The total mortgage on part I of Glen Oaks Village insured by Federal Housing Administration was $4,652,000.

The amount of $4,652,000 was advanced by the Bank of Manhattan Company during the period July 1, 1947, through November 26, 1948. On the latter date, $726,526 was advanced which, with the amounts previously advanced, aggregated total mortgage moneys received from the Bank of Manhattan Company of $4,652,000.

The construction of part I of Glen Oaks Village was commenced in March 1947. It was constructed in units and the first tenants commenced occupancy in October 1947; it was completed in July 1948.

Part II of Glen Oaks Village consisting of 2,352 apartments covering approximately 100 acres of land was erected on land formerly owned by Union Land Corporation and Wenton Realty Corporation. In the early part of 1948, with the approval of the Federal Housing Administration, portions of such land were conveyed to Permanent Land #2 Corporation, Permanent Land #3 Corporation, Permanent Land #4 Corporation, Permanent Land #6 Corporation, Permanent Land #7 Corporation, Permanent Land #9 Corporation, Permanent Land #11 Corporation, Permanent Land #12 Corporation, Permanent Land #13 Corporation and Permanent Land #15 Corporation. The reasons for such conveyances were (1) the Federal Housing Administration was not authorized to insure a mortgage over $5,000,000 and it was believed that the cost of construction of part II would be in the neighborhood of $20,000,000; (2) part II was to be built in unitary sections, the average cost of each being about $2,000,000; and (3) mortgage financing could be more easily secured by having a separate corporation for each section.

Part II of Glen Oaks Village was developed and constructed pursuant to a method specifically approved by the Federal Housing Administration which was as outlined in the following seven paragraphs.

Separate corporations, namely, Glen Oaks Village #2, Inc., Glen Oaks Village #3, Inc., Glen Oaks Village #4, Inc., Glen Oaks Village #6, Inc., Glen Oaks Village #7, Inc., Glen Oaks Village #9, Inc., Glen Oaks Village #11, Inc., Glen Oaks Village #12, Inc., Glen Oaks Village #13, Inc., and Glen Oaks Village #15, Inc., were organized. Each of these was to lease a respective section of land, to construct apartments thereon, and to manage and operate the section so constructed. The certificate of incorporation of each of these corporations was patterned on the model form of Certification of Incorporation issued by the Federal Housing Administration.

Each of these numbered operating corporations leased the land owned by the correspondingly numbered Permanent Land Corporation.

The leases were for a term of 99 years with a right of renewal on the part of the lessee for an additional period of 99 years. The rent paid under each lease was computed at 4 per cent of the value of the land as appraised by the Federal Housing Administration.

Each of the operating companies then entered into a building loan agreement with the Bank of Manhattan Company under which the bank agreed to advance designated amounts to be used for the purpose of constructing the respective unitary section of part II of Glen Oaks Village by the respective operating company; each of such building loan agreements also provided that the amounts to be advanced by the Bank of Manhattan Company were to be secured by a bond and mortgage on the leasehold, which mortgage was to be insured by the Federal Housing Administration under the provisions of the National Housing Act, as amended.

Thereafter, each of the operating companies executed a mortgage on its leasehold in favor of the Bank of Manhattan Company. Each of such mortgages was insured by the Federal Housing Administration pursuant to provisions of section 608 of the National Housing Act, as amended.

The mortgage money for the mortgages was advanced by the Bank of Manhattan Company during the period May 1948 through November 1949.

Upon completion of the construction of each unitary section the mortgage executed by the Glen Oaks Village operating company was assigned by the Bank of Manhattan Company. The mortgages of companies #2, 3, 4, 6, 7, 9, and 11 were assigned to the Prudential Insurance Company. Those of companies #12, 13, and 15 were assigned to the New York State Employees' Retirement System.

The construction of part II of Glen Oaks Village was commenced in February 1948. It was constructed in units and the first tenants commenced occupancy in November 1948; it was completed prior to December 1949.

Each of the Glen Oaks Village operating companies issued 100 shares of preferred stock of the par value of $1 per share, to the Federal Housing Administration. Such preferred stock was issued to the Federal Housing Administration as a prerequisite to the securing of mortgage insurance. Its purpose was to allow Federal Housing Administration to control each corporation if and when a default occurs under the mortgage.

The Permanent Land corporations had no mortgage loans guaranteed by Federal Housing Administration. On October 19, 1949, each of the Permanent Land corporations executed bonds secured by first mortgages on its land dated October 19, 1949, in favor of Teachers Insurance and Annuity Association of America and received mortgage proceeds.

Seton Realty Corporation is a New York corporation organized in November 1946 to develop and own a shopping center for part I of Glen Oaks Village. It had no transactions with the Federal Housing Administration. In July 1948 Seton borrowed $240,000 from Massachusetts Life Insurance Company secured by a first mortgage on its real property. The real property consisted of land having a cost basis of $5,628 and store buildings which were completed in July 1948 at a cost of $717,456.65.

Glen Oaks Shopping Center, Inc., is a New York corporation organized in 1948 to develop and own a shopping center for part II of Glen Oaks Village. It had no transactions with the Federal Housing Administration.

The above-mentioned corporations were owned or controlled by members of the Gross and Morton families. The number of shares of common stock held by or for each member of the families in the taxable years is stipulated. These corporations kept their books and filed tax returns on the basis of a fiscal year ending March 31, except that Permanent Land Corporation and Seton Realty Corporation were on a calendar year basis and Permanent Land #2 Corporation and Permanent Land #6 Corporation were on the basis of a fiscal year ending February 28.

In 1948 Glen Oaks Village, Inc., Seton Realty Corporation, First Mars Homes, Inc., and Second Mars Homes, Inc., made cash distributions to their stockholders. In 1949 all the other Glen Oaks Village corporations, all the Permanent Land corporations, Seton Realty Corporation, Third Mars Homes, Inc., and Fourth Mars Homes, Inc., made distributions in cash to their stockholders in proportion to the stockholdings of the distributees. The amounts of the distributions are stipulated.

On March 15, 1949, Glen Oaks Shopping Center, Inc., made a distribution to its stockholders of undivided interests in vacant land in proportion to their stockholdings. At the time of this distribution the corporation had no accumulated earnings or profits for the year of distribution or prior years. Glen Oaks Shopping Center, Inc., did not write up the value of its real estate.

Prior to the cash distributions described, the distributing corporations on their books wrote up the value of their real estate by amounts which were equal to or in excess of the distributions. The amounts of such write-ups were credited on the corporations' books to accounts denominated Surplus Arising from Realty Appreciation. This real estate is still owned by the distributing corporations.

At the time of the distributions each stockholder had held his stock for more than 6 months.

The shares of stock were not held by any stockholder as stock in trade or other property of a kind which would properly be included in inventory if on hand at the close of the taxable year nor were they property held primarily for sale to customers in the ordinary course of any stockholder's trade or business.

In relation to the corporations here involved, George M. Gross, Alfred Gross, and Lawrence Morton acted in their individual capacities and not as a partnership or association. During the taxable years 1948 and 1949, the books and records of these corporations did not show the voting or payment of any salaries to the three named individuals. In 1950 these three individuals each received compensation of $25,000 from Glen Oaks Shopping Center, Inc., covering services from 1948 to the date of payment.

The corporations here involved are still in existence and at all times have been owned or controlled by the members of the Gross and Morton families.

The several Permanent Land corporations made distributions on November 2, 1948, of proceeds of mortgages. The following table shows the amount of the mortgage and the amount distributed in 1949 to the stockholders of each of these companies:

+---------------------------------------------------------+ ¦ ¦Amount of ¦Amount of ¦ +------------------------------+-----------+--------------¦ ¦ ¦mortgage ¦distribution ¦ +------------------------------+-----------+--------------¦ ¦ ¦ ¦ ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land Corporation ¦$427,500 ¦$260,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #2 Corporation ¦188,100 ¦123,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #3 Corporation ¦131,400 ¦85,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #4 Corporation ¦118,800 ¦60,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #6 Corporation ¦285,030 ¦144,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #7 Corporation ¦332,280 ¦185,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #9 Corporation ¦300,780 ¦181,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #11 Corporation¦194,130 ¦130,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #12 Corporation¦145,170 ¦100,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #13 Corporation¦149,760 ¦100,000 ¦ +------------------------------+-----------+--------------¦ ¦Permanent Land #15 Corporation¦193,500 ¦132,000 ¦ +---------------------------------------------------------+

The distributions by the other corporations were in the following amounts:

+------------------------------------------------------------------+ ¦ ¦ ¦Total distributions ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦ ¦to common ¦ +-----------+--------------------------------+---------------------¦ ¦Year paid ¦ ¦stockholders ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦ ¦ ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village, Inc ¦$800,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( First Mars Homes, Inc ¦40,000 ¦ +-----------+--------------------------------+---------------------¦ ¦1948 ¦( Second Mars Homes, Inc ¦40,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Seton Realty Corporation ¦60,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦ ¦ ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #2, Inc ¦350,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #3, Inc ¦240,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #4, Inc ¦250,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #6, Inc ¦600,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #7, Inc ¦650,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #9, Inc ¦605,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #11, Inc ¦375,000 ¦ +-----------+--------------------------------+---------------------¦ ¦1949 ¦( Glen Oaks Village #12, Inc ¦155,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #13, Inc ¦270,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Village #15, Inc ¦305,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Third Mars Homes, Inc ¦20,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Fourth Mars Homes, Inc ¦40,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Glen Oaks Shopping Center, Inc¦10,000 ¦ +-----------+--------------------------------+---------------------¦ ¦ ¦( Seton Realty Corporation ¦28,000 ¦ +------------------------------------------------------------------+

On the dates of the distributions, the accumulated earnings or profits, or deficit, as of the beginning of the fiscal year and the earnings or profits, or loss, of the current fiscal year were as follows:

+----------------------------------------------------------------------+ ¦ ¦At beginning of fiscal¦ ¦ ¦ ¦ +------------+----------------------+---------------------+------------¦ ¦ ¦year ¦Current year ¦ ¦ +------------+----------------------+---------------------+------------¦ ¦ ¦ ¦ ¦ ¦ ¦Distribution¦ +------------+-----------+----------+----------+----------+------------¦ ¦ ¦ ¦ ¦ ¦ ¦charged to ¦ +------------+-----------+----------+----------+----------+------------¦ ¦ ¦Accumulated¦ ¦ ¦ ¦earned ¦ +------------+-----------+----------+----------+----------+------------¦ ¦ ¦earnings ¦ ¦Earnings ¦ ¦surplus ¦ +------------+-----------+----------+----------+----------+------------¦ ¦ ¦or profits ¦Deficit ¦or profits¦Loss ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. Vill ¦ ¦$76,173.48¦ ¦$90,246.02¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦1st Mars ¦ ¦26,970.70 ¦ ¦5,856.66 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦2d Mars ¦ ¦29,581.67 ¦ ¦6,112.16 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #2 ¦ ¦33,644.27 ¦$13,235.26¦ ¦$13,235.26 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #3 ¦ ¦15,207.70 ¦8,944.53 ¦ ¦8,944.53 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #4 ¦ ¦29,312.51 ¦8,627.02 ¦ ¦8,627.02 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #6 ¦ ¦80,650.47 ¦ ¦21,375.40 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #7 ¦ ¦61,886.96 ¦ ¦2,943.07 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #9 ¦ ¦29,195.77 ¦ ¦45,872.44 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #11¦ ¦11,914.40 ¦ ¦39,640.23 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #12¦ ¦2,853.38 ¦ ¦20,183.01 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #13¦ ¦487.57 ¦ ¦28,475.26 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. V. #15¦ ¦609.17 ¦ ¦38,018.86 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. Corp ¦$20,930.78 ¦ ¦11,503.04 ¦ ¦32,433.82 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #2 ¦3,235.32 ¦ ¦1,785.42 ¦ ¦5,020.74 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #3 ¦2,922.90 ¦ ¦680.54 ¦ ¦3,603.44 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #4 ¦2,886.59 ¦ ¦793.23 ¦ ¦3,679.82 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #6 ¦6,718.44 ¦ ¦3,847.12 ¦ ¦10,565.56 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #7 ¦5,288.53 ¦ ¦3,594.32 ¦ ¦8,882.85 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #9 ¦1,967.10 ¦ ¦2,953.54 ¦ ¦4,920.64 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #11 ¦ ¦1,958.85 ¦1,476.33 ¦ ¦1,476.33 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #12 ¦ ¦1,471.64 ¦404.55 ¦ ¦404.55 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #13 ¦ ¦1,593.44 ¦500.01 ¦ ¦500.01 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦P. L. #15 ¦ ¦2,080.65 ¦870.41 ¦ ¦870.41 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦3d Mars ¦ ¦39,513.80 ¦ ¦10,587.02 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦4th Mars ¦ ¦61,756.03 ¦1,942.18 ¦ ¦1,942.18 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦G. O. Sh. C ¦ ¦2,349.53 ¦ ¦5,241.87 ¦ ¦ +------------+-----------+----------+----------+----------+------------¦ ¦Seton 1948 ¦ ¦10.00 ¦7,797.93 ¦ ¦7,797.93 ¦ +------------+-----------+----------+----------+----------+------------¦ ¦Seton 1949 ¦ ¦10.00 ¦12,593.05 ¦ ¦12,593.05 ¦ +----------------------------------------------------------------------+

The source of the distributions made by these corporations to their stockholders in the stockholders' taxable years 1948 and1949 was the earnings or profits of the corporations for the current fiscal year and accumulated earnings or profits as of the beginning of such year to the extent thereof, as shown above; and the distributions in excess of such earnings, or where there were no earnings available, were from the following sources:

In the case of the four Mars Homes corporations, from cash resulting from the build-up of depreciation reserves;

In the case of the 11 Permanent Land corporations, from moneys borrowed by the corporations and secured by mortgages on their lands;

In the case of the Glen Oaks Village corporations and Seton Realty Corporation, from cash accumulated from a combination of three sources: (1) Current gross rentals from tenants, (2) premiums received on bonds issued by the corporations to Prudential Insurance Company and New York State Employees' Retirement System, and (3) the excess of moneys borrowed for construction purposes, secured by a mortgage, over the cost of construction.

The premiums received by the Glen Oaks Village operating companies were in the following amounts:

+----------------------------------------------------+ ¦ ¦( Glen Oaks Village Inc ¦$108,546.25¦ +-----------+----------------------------+-----------¦ ¦ ¦( Glen Oaks Village #2, Inc ¦58,739.13 ¦ +-----------+----------------------------+-----------¦ ¦ ¦( Glen Oaks Village #3, Inc ¦40,144.59 ¦ +-----------+----------------------------+-----------¦ ¦From ¦( Glen Oaks Village #4, Inc ¦38,123.04 ¦ +-----------+----------------------------+-----------¦ ¦Prudential