Williams
v.
Comm'r of Internal Revenue

This case is not covered by Casetext's citator
Tax Court of the United States.Jun 19, 1944
3 T.C. 1002 (U.S.T.C. 1944)

Docket No. 2172.

1944-06-19

GEORGE T. WILLIAMS, TRANSFEREE OF SEEKONK CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Robert L. Bridges, Esq., C. William Maxeiner, Esq., and Gardiner Johnson, Esq., for the petitioner. Harry R. Horrow, Esq., for the respondent.


1. Where the sole stockholder of a corporation contracts as an individual to sell property which he expects to receive as a distribution in liquidation of a corporation already in process of dissolution, and the sale is consummated after title vests in him, held, on the facts, the sale is by the stockholder as an individual and not as an agent of the corporation, and the gain thereon is not taxable to the corporation.

2. An agency relationship may not be implied from the mere fact that a sole stockholder of a corporation in process of dissolution contracts as an individual to sell property which he expects to receive as a distribution in liquidation. Robert L. Bridges, Esq., C. William Maxeiner, Esq., and Gardiner Johnson, Esq., for the petitioner. Harry R. Horrow, Esq., for the respondent.

The Commissioner has determined that the petitioner, as transferee of the assets of the Seekonk Corporation, a dissolved corporation, is liable for deficiencies in income tax and declared value excess profits tax for the year 1941 in the amounts of $167,567.38 and $80,661.40. The petitioner does not dispute his liability, as transferee, for deficiencies of the corporation, but contends that the determination of the deficiencies is erroneous. The questions presented are whether a gain upon the sale of a motor ship and income from the operation of the ship prior to the sale are taxable to the corporation or to the petitioner individually.

FINDINGS OF FACT.

The petitioner, George T. Williams, is an individual residing in San Francisco, California, with his place of business at 310 Sansome Street, San Francisco. He filed his income tax return for the period here involved with the collector of internal Revenue for the first district of California.

The Seekonk Corporation was duly organized under the laws of the State of New York on November 22, 1927, with an authorized capital of 2,000 shares of no par value. George T. Williams was one of the original stockholders of the Seekonk Corporation, and on or before December 31, 1932, he became and, until the date of dissolution of the corporation, remained its sole stockholder. The principal assets of the Seekonk Corporation, as of March 25, 1941, were the motor ship Willmoto, certain bank accounts and moneys, accounts receivable in connection with the charter and operation of the Willmoto, certain accounts receivable from George T. Williams, and 100 shares of the common stock of Otis Elevator Co. The business of the Seekonk Corporation consisted of chartering the Willmoto to others.

In the month of November 1940, Seekonk Corporation entered into negotiations with Wallem & Co. of Hong Kong, looking to the purchase of the Willmoto by Wallem & Co. On December 31, 1940, the United States Maritime Commission disapproved the sale and transfer of the Willmoto by Seekonk Corporation to Wallen & Co. and the transaction was abandoned.

On March 13, 1941, the Seekonk Corporation contracted to sell the Willmoto to the Manila Steamship Co. for the price of $670,650. The sale of the Manila Steamship Co. was likewise disapproved by the United States Maritime Commission on March 21, 1941, and on March 31 a deposit in escrow that had been made by the Manila Steamship Co. was released by the Bank of New York, agent, upon authorization by Seekonk Corporation.

In January 1941 the Willmoto was chartered by Seekonk Corporation to American South African Lines for a voyage to the south and east coasts of Africa and return. The vessel was scheduled to return from the voyage between about April 20 and April 30, 1941.

After the refusal of the United States Maritime Commission to permit the transfer of the vessel to Philippine registry, it was apparent to Williams and to the other directors of the Seekonk Corporation that no sale involving a transfer to a foreign registry would be permitted by the Maritime Commission. Such inquiries as had been made by American buyers during the preceding six months indicated that American buyers were offering prices much lower than the prices offered by foreign buyers and it appeared to the directors of the Seekonk Corporation that at the going charter rates the vessel would earn more in twelve months than had theretofore been offered by American buyers for similar vessels. Thereafter Seekonk commenced negotiations looking toward further charters.

Between March 1 and March 25, 1941, Lewis D. Craig, bookkeeper and office manager of Seekonk Corporation, and bookkeeper for Williams personally, advised Williams that if the vessel were to continue on charter a considerable amount in income taxes and excess profits taxes could be saved by liquidating the corporation and by Williams conducting the business as an individual. On March 25, 1941, Williams decided to follow Craig's recommendation and to liquidate the Seekonk Corporation. On that day the board of directors, composed of Williams, Craig, and Chalmers Graham, adopted the following resolution:

RESOLVED: That the said corporation be liquidated and that Chalmers G. Graham, attorney at law, be and he hereby is authorized and empowered to do and perform all things necessary to effect such liquidation.

RESOLVED: That the President and Secretary of the corporation do and perform all things and sign all documents necessary to accomplish said liquidation and distribution of the assets of the corporation to the stockholders.

On the same day a special meeting of the stockholders of the corporation was held, at which there was present Williams, the sole stockholder. The following resolutions were adopted:

RESOLVED: That the action taken on March 25, 1941, at the hour of ten o'clock a.m. by the Board of Directors in resolving that the corporation be dissolved and its assets distributed to the stockholders, be, and the same hereby is, ratified and confirmed in all respects.

RESOLVED: That said directors and officers of the said corporation are hereby authorized and empowered to effect such dissolution of said corporation and to distribute the assets of said corporation to the stockholders thereof on condition that any or all remaining debts or liabilities of said corporation be assumed by the distributees of the property of said corporation.

RESOLVED: That the President and Secretary of said corporation do and perform all things necessary to effect the dissolution of said corporation, to transfer its assets to the stockholders, and to provide for the payment of its obligations.

On March 28, Graham telegraphed Arthur M. Boal, counsel in New York for the Seekonk Corporation, and for Williams personally, as follows:

Seekonk Corporation incorporated New York November 22 1927 sole stockholder owning 2000 shares common George T. Williams desires immediate voluntary dissolution and distribution of assets to sole stockholder please advise straight whether you can accomplish same without necessity sending any documents from here. If not air mail immediately documents required accomplish dissolution. Could you sign documents on telegraphic authority power of attorney from Williams.

The certificate of dissolution and the application for consent to dissolve were received from Boal on March 31, and immediately executed by Williams and Craig, as president and secretary of the Seekonk Corporation. In the application for consent to dissolve, it was recited that none of the assets had been transferred to the sole stockholder, that he would acquire the assets upon dissolution and that no liquidating dividends had been made up to that time. On the balance sheet attached to the form the Willmoto appeared as an asset of the corporation. The documents were sent by air mail by Graham to Boal on the same date, March 31. Immediately upon receipt, April 2, Boal transmitted the documents to the New York Department of Taxation and Finance, as required by law. On April 14, 1941, the Secretary of State of the State of New York issued a certificate of dissolution and the corporation was dissolved on that date.

No date was formally fixed for the liquidation of the corporation, but it had been suggested in the meeting of March 25 that a logical time would be March 31, 1941, inasmuch as that was the close of the first calendar quarter. Graham, in the letter accompanying the executed forms for dissolution sent to Boal on March 31, wrote as follows:

* * * We trust that this will enable you to close out this corporation immediately. Naturally, we should like it done as of April 1, so we can close our books of that date.

The bank account standing in the name of the Seekonk Corporation was not immediately transferred to the name of George T. Williams, but was used to pay certain of the liabilities incurred by Seekonk prior to March 31, 1941. On July 11, 1941, most of the balance of the bank account was transferred to Williams' personal account. Shortly after July 11, the closing entries on the books of the Seekonk Corporation were made ‘as of‘ March 31. The following balance sheets show the assets and liabilities of the corporation on March 31, 1941, and the assets and liabilities transferred to Williams on the books of the corporation.

+-------------------------------------------------+ ¦ ¦ ¦As of date ¦ +----------------------+-----------+--------------¦ ¦ ¦As of March¦transferred on¦ +----------------------+-----------+--------------¦ ¦ ¦31,1941 ¦books to ¦ +----------------------+-----------+--------------¦ ¦ ¦ ¦Williams ¦ +----------------------+-----------+--------------¦ ¦ASSETS ¦ ¦ ¦ +----------------------+-----------+--------------¦ ¦Cash in bank ¦$20,882.72 ¦$32,964.67 ¦ +----------------------+-----------+--------------¦ ¦Investments ¦4,045.00 ¦4,045.00 ¦ +----------------------+-----------+--------------¦ ¦Due form broker ¦370.00 ¦370.00 ¦ +----------------------+-----------+--------------¦ ¦Notes receivable ¦337,744.33 ¦304,744.33 ¦ +----------------------+-----------+--------------¦ ¦Master's a/c's ¦2,816.23 ¦2,695.05 ¦ +----------------------+-----------+--------------¦ ¦Personal injury claims¦350.00 ¦1,250.33 ¦ +----------------------+-----------+--------------¦ ¦Ships accidents claims¦8,000.00 ¦ ¦ +----------------------+-----------+--------------¦ ¦M/S WILLMOTO ¦235,000.00 ¦235,000.00 ¦ +----------------------+-----------+--------------¦ ¦Spare parts ¦6,941.53 ¦6,941.53 ¦ +----------------------+-----------+--------------¦ ¦Furniture and fixtures¦543.00 ¦543.00 ¦ +----------------------+-----------+--------------¦ ¦Prepaid insurance ¦14,692.00 ¦13,017.59 ¦ +----------------------+-----------+--------------¦ ¦Norton, Lilly ¦ ¦1,397.07 ¦ +----------------------+-----------+--------------¦ ¦Total ¦631,384.81 ¦602,968.57 ¦ +----------------------+-----------+--------------¦ ¦LIABILITIES ¦ ¦ ¦ +----------------------+-----------+--------------¦ ¦Depreciation reserve ¦181,428.67 ¦184,724.23 ¦ +----------------------+-----------+--------------¦ ¦1940 income taxes ¦50,000.00 ¦62,251.00 ¦ +----------------------+-----------+--------------¦ ¦1941 incometaxes ¦41,000.00 ¦ ¦ +----------------------+-----------+--------------¦ ¦Accrued wages ¦9,550.00 ¦9,675.00 ¦ +----------------------+-----------+--------------¦ ¦Capital sock ¦110,000.00 ¦110,000.00 ¦ +----------------------+-----------+--------------¦ ¦Surplus ¦239,406.14 ¦236,318.34 ¦ +----------------------+-----------+--------------¦ ¦Total ¦631,384.81 ¦602,968.57 ¦ +-------------------------------------------------+

On August 13 the last checks of Seekonk were cleared by the bank, exhausting the balance, and the account was closed.

From and after April 1, 1941, every item of income realized from the operation of Willmoto was deposited to the personal account of Williams and all expenses incurred in connection with the operation of the ship were paid from his account. Those items of income and expense are listed below.

+---------------------------------------------------+ ¦Income: ¦ ¦ ¦ +------------------------------+---------+----------¦ ¦Charter hire ¦ ¦$30,969.44¦ +------------------------------+---------+----------¦ ¦Stores sold ¦ ¦3,048.66 ¦ +------------------------------+---------+----------¦ ¦Insurance recovered (accident)¦ ¦4,054.22 ¦ +------------------------------+---------+----------¦ ¦Total ¦ ¦38,072.32 ¦ +------------------------------+---------+----------¦ ¦Deductions: ¦ ¦ ¦ +------------------------------+---------+----------¦ ¦Charter commissions ¦$799.55 ¦ ¦ +------------------------------+---------+----------¦ ¦Freight ¦170.23 ¦ ¦ +------------------------------+---------+----------¦ ¦Repairs ¦3,662.00 ¦ ¦ +------------------------------+---------+----------¦ ¦Salaries and wages ¦11,449.00¦ ¦ +------------------------------+---------+----------¦ ¦Rent ¦810.00 ¦ ¦ +------------------------------+---------+----------¦ ¦Travel ¦411.64 ¦ ¦ +------------------------------+---------+----------¦ ¦Food ¦399.34 ¦ ¦ +------------------------------+---------+----------¦ ¦Telephone and telegraph ¦78.58 ¦ ¦ +------------------------------+---------+----------¦ ¦Ships accidents ¦5,355.00 ¦ ¦ +------------------------------+---------+----------¦ ¦Personal injuries ¦3,933.15 ¦ ¦ +------------------------------+---------+----------¦ ¦Social security ¦251.54 ¦ ¦ +------------------------------+---------+----------¦ ¦Insurance ¦3,882.57 ¦ ¦ +------------------------------+---------+----------¦ ¦Miscellaneous ¦480.55 ¦ ¦ +------------------------------+---------+----------¦ ¦Total ¦ ¦31,683.75 ¦ +------------------------------+---------+----------¦ ¦Net income ¦ ¦6,388.57 ¦ +---------------------------------------------------+

The amount representing charter hire was received in two payments, one by check in the amount of $21,697.50, covering the first half of April. This check, payable to the Seekonk Corporation, was deposited in the personal account of Williams. The balance of the amount, covering the charter hire for the period April 15-22, was paid some months later, and deposited in Williams' account. ‘Insurance recovered‘ represents an amount recovered from the insurance company by reason of repairs made to the ship after it returned to New York. The amount was paid by check to Seekonk, and endorsed to Williams, who deposited it in his personal account on December 26, 1941. The item of $3,048.66 represents the proceeds of foodstuffs and ship supplies sold separately.

Due to difficulties in securing the necessary documents, the formal bill of sale evidencing the transfer of title of the Willmoto from the corporation to Williams was not executed until April 21, 1941. The formal bill of sale so executed could not be recorded until the vessel returned and the certificate of registry required to be carried by the vessel was obtained from the captain. Accordingly, the bill of sale was recorded by Boal with the Collector of Customs of the Port of Newark, New Jersey, on April 23, 1941.

On Saturday, March 29, 1941, and Monday, March 31, 1941, A. F. Pillsbury, of the firm of Pillsbury & Martignoni, consulting engineers and ship appraisers, wired Williams from New York stating that he had a prospective American buyer for the Willmoto and asking Williams for the terms upon which he would sell the vessel. Both telegrams were opened in Williams' office on the morning of March 31, 1941. Both were ignored and never answered.

Although not disclosed at the time, Pillsbury was acting in conjunction with American Ship Brokerage Corporation, ship brokers with offices in New York City, for the purpose of acquiring a vessel for National Gypsum Co. National Gypsum Co. was anxious to obtain a vessel immediately.

On Monday, March 31, 1941, Pillsbury, having heard nothing from Williams, telegraphed his partner, Walter Martignoni, at their office in San Francisco, stating that he had wired Williams the preceding Saturday, but had received no reply and requested Martignoni to ascertain from Williams whether he would be interested in selling the Willmoto. Later during the same day Pillsbury again wired Martignoni urging that he attempt to obtain a quick decision from Williams. Martignoni first discussed with Williams the purchase of the Willmoto in a telephone conversation on the evening of April 1. In that conversation Martignoni offered $655,000, Williams accepted, and the two agreed to meet the following day to draw up the necessary papers. The agreement then entered into was between Pillsbury and Martignoni, representing an undisclosed principal, and Williams, acting in his individual capacity and not as the agent of Seekonk. At the conclusion of the conversation Williams advised Martignoni that he would find the Willmoto listed in Lloyd's Register as owned by the Seekonk Corporation; that the corporation was in process of dissolution; and that the purchaser would get a good title.

On the following morning, April 2, 1941, Williams went to his office and in the margin of the telegram of April 1 from Pillsbury, wrote the points agreed upon in the conversation of the preceding evening as follows: ‘Price $655,000, net to seller George T. Williams, delivery before May 10, 1941, as is, class maintained Lloyd's 100-A etc.‘

Williams and Craig then went to the law office of Graham and Morse and were joined by Martignoni for the purpose of drawing up a letter evidencing the agreement of the preceding evening. In Williams' presence a letter to Pillsbury & Martignoni was dictated by Williams' counsel, reading in part as follows:

Gentlemen:

We confirm sale through you as brokers of the MS WILLMOTO, as is, for the sum of $655,000.00 cash net to us. Formal agreement for the purchase of the vessel is to be drafted, but shall include the following provisions:

Among the provisions set forth were the following: Delivery before May 10, 1941; the buyer to inspect the vessel afloat and in dry dock, and if the bottom was found damaged the seller to have the option to effect repairs to such damaged underwater parts; the bill of sale to be signed either by Williams or by the Seekonk Corporation. This latter provision was inserted by reason of the fact that title to the Willmoto stood in the name of Seekonk, and Williams desired to give assurance to the purchaser that he would receive good title to the ship. Nowhere in the letter did there appear the name of the prospective purchaser.

This letter as prepared by counsel was typed for Williams' individual signature and was signed by him individually. Then, at Williams' direction, Craig wrote the words ‘Seekonk Corporation‘ on the letter and Williams signed ‘George T. Williams, President.‘ The letter was given to Martignoni and retained by him. Copies were immediately made by him, one of which was forwarded to Pillsbury. In making copies Martignoni's secretary omitted the words ‘Seekonk Corporation, George T. Williams, President,‘ and the copy sent Pillsbury disclosed only Williams' individual signature. At no time did Pillsbury know that the letter had been signed otherwise.

On the next day, April 3, 1941, Graham prepared a draft of the proposed agreement for the purchase and sale of the vessel and forwarded it to Boal in New York for presentation to the prospective purchaser. In the letter accompanying the proposed draft Graham said: ‘In view of the fact that the Willmoto on dissolution of the corporation goes from Seekonk Corporation to Williams and then from Williams to the new buyers on the sale from him, will you please send me immediately a copy of the Consolidated Certificate of Enrollment and Licenses so that I can prepare here a bill of sale from Seekonk Corporation to Williams upon the dissolution and send it on to you for recording and then you can prepare a bill of sale there from Williams to the new buyers and sign it as attorney in fact for Williams.‘ On the same date Williams, individually, executed and forwarded with the proposed contract of sale a power of attorney appointing Boal his attorney in fact to sell the Willmoto. On April 4 Graham, by telegram, instructed Boal that the corporation was not to be brought into the sale at all. On April 5, 1941 the papers mailed on April 3 not having been received, a further telegraphic power of attorney was sent to Boal appointing his attorney in fact for Williams, individually.

On April 5, 1941, Boal conferred with the attorney for the National Gypsum Co.with respect to the drafting of the contract of purchase and sale. On April 7, 1941, the form of the contract was agreed to by both parties and was actually signed in New Jersey on April 8, 1941, by George T. Williams, individually, and National Gypsum Co., by their respective attorneys in fact. The contract of sale, although actually signed on April 8, 1941, was dated April 7, 1941.

Under this contract Williams agreed to sell and National Gypsum Co. agreed to buy the Willmoto for a price of $655,000 net cash, to be paid by the buyer as follows: On signing and delivery of the agreement the buyer was to deposit with the First National Bank of Jersey City, Jersey City, New Jersey, the sum of $155,000 on account of the purchase price, together with a copy of the contract of sale, said amount to be paid to George T. Williams upon acceptance of the vessel by the buyer. The balance of the purchase price was to be paid by certified check on delivery of the vessel. The remaining terms and conditions were substantially in accord with those outlined in the letter of April 2, 1941, with one exception. In the letter it was stated that the contract of sale was to include a provision that, if on drydocking the vessel damage to the underwater parts was discovered, the seller was to have the option to effect repairs. Under the contract of April 8 the option provision was deleted and the seller agreed to repair whatever damage might be disclosed.

The agreement of April 8, 1941, recited that the seller had agreed to sell and the buyer had agreed to purchase title to the vessel; that the seller desired to retain title and control of the vessel and to enjoy the fruits and avails of the existing charter until the charter had been completed; that the buyer desired to be relieved of the management, direction, and operation of the vessel so long as it was subject to the provisions of the time charter; and that the provisions of the contract should be carried out after the completion of the charter, at which time the vessel was to be placed in drydock and examined by the purchaser.

On April 14, 1941, in anticipation of the return of the vessel, Craig was sent to New York with $15,000, drawn from the personal account of Williams, to cover the expenses of the vessel upon its return and any expenses in connection with its transfer.

The Willmoto arrived in New York April 19 or 20 and was placed in drydock April 23, 1941. Upon examination, damage to the underwater parts was found, which the Bethlehem Steel Co. agreed to repair for approximately $5,100. The repairs were completed on May 5, 1941, and Williams, individually, paid the cost thereof to the Bethlehem Steel Co.

The purchaser refused to accept the vessel until the repairs were entirely completed. Accordingly, after completion of the repair work, on the morning of May 5, 1941, Boal, Craig, and two attorneys representing the National Gypsum Co. met at the customs house in Newark, New Jersey, at which time the sale was completed. Boal delivered the bill of sale and received from the escrow holder the check for $155,000 and two additional checks in the total amount of $500,000. The three checks representing the purchase price were deposited on the same day in the personal account of George T. Williams with Laidlaw & Co. in New York City.

The charterer, American South African Lines, was not notified of any change in the ownership of the vessel until the charter period had been fully completed. Norton Lilly, New York agent for Seekonk Corporation in the operation of the Willmoto, was not notified of any change in ownership until after Craig arrived in New York on April 20.

The Seekonk Corporation was dissolved on April 14, 1941. Title to the Willmoto was transferred to Williams as a distribution in liquidation on April 21, 1941. Title to the Willmoto was transferred by Williams, individually, to the National Gypsum Co. on May 5, 1941. Williams did not act as agent of the Seekonk Corporation in the sale of the Willmoto to the National Gypsum Co.

OPINION.

ARUNDELL, Judge:

The fundamental question we are called upon to determine is whether the sale of the Willmoto was made by Williams acting in his individual capacity, or whether he may be said to have acted as agent of the Seekonk Corporation. The respondent seeks to sustain his determination that the sale was that of Seekonk upon two grounds: First, that Williams, in contracting to sell the Willmoto before actually taking title in himself, could only have acted as agent of the corporation; second, that, in any event, the corporation was bound by contract to sell the Willmoto by virtue of the memorandum of April 2, and Williams served as a mere conduit of title.

The first controverted point in the chain of events leading up to the ultimate sale of the Willmoto is the question of when title to the ship was transferred by the corporation to Williams. Several circumstances convince us, and we have so found, that this transfer did not occur until April 21, when title was formally conveyed to Williams by bill of sale. In the first place, there is nothing in the record to indicate the prior transfer. Resolutions to dissolve were adopted, but, in so far as the record shows, no liquidating dividend was declared, nor was there any authorization to transfer the ship to Williams. In the application for consent to dissolution filed with the proper authorities in New York on or shortly after April 2 it was recited that none of the assets had then been transferred to the sole stockholder; that he would acquire the assets upon dissolution; and that no liquidating dividends had been made up to that time. In the balance sheet attached to the form the Willmoto appeared as an asset of the corporation. Although this document was executed on March 31, it may properly be taken to indicate the status of the corporation on the date of filing. These statements contradict an alleged transfer of the Willmoto to Williams on March 31.

Further, the charterer was never notified of any change of ownership until the charter party had been fully completed. Norton Lilly, New York agent for Seekonk in the operation of the Willmoto, was not notified of any change of ownership until after Craig arrived in New York on April 20. Finally, the memorandum of April 2, confirming the offer and acceptance of April 1, provided that the bill of sale was to be signed by either Seekonk Corporation or by Williams individually. For all of these reasons we think the petitioner has failed to establish that title was transferred to him on March 31, or on any date prior to the execution of the bill of sale on April 21.

From this fact the respondent argues that Williams, in contracting to sell the Willmoto on April 1, must be held to have acted as agent of the Seekonk Corporation. In this contention he relies upon Trippett v. Commissioner, 118 Fed.(2d) 764, affirming 41 B.T.A. 1254; certiorari denied, 314 U.S. 644. The decision in that case, however, was based upon the fact that the corporate assets which the stockholders had contracted to sell ‘had not been distributed to the stockholders when the contract of sale was entered into or when it was consummated * * * .‘ As a pure proposition of law, we think it can not be said that a stockholder can in no circumstances contract as an individual to sell property which he expects to acquire from the corporation. Suppose, for example, that one of a number of stockholders independently contracts to sell the share of the corporate assets which he expects to receive the following month as a distribution in liquidation. Is there any reason why he should be held to have acted as agent of the corporation in so contracting? Any agency relationship must find its basis in some fact other than a mere contract to sell after-acquired assets. See Motter v. Patterson, 68 Fed.(2d) 252.

The crucial question involved herein, as we see it, is whether the gain upon the sale of the Willmoto is taxable to the corporation by reason of the memorandum of April 2. It is clear that, where a corporation has negotiated a sale and actually entered into the contract in its own name and then at the last moment transferred the property in question to its stockholders, who consummated the transaction, the sale is that of the corporation and the stockholders are mere conduits of title. Nace Realty Co., 28 B.T.A. 467; affirmed without written opinion Apr. 13, 1935 (C.C.A., 6th Cir.); James Duggan, 18 B.T.A. 608. The intermediate transfer is disregarded as a ‘formal device‘ unnecessary to the consummation of the transaction. Court Holding Co., 2 T.C. 531. The rationale of those cases is that the stockholders taking title after the corporation has bound itself to sell the property can do nothing other than carry out the corporate obligation.

In this case, however, we have a different situation. The record, as a whole, is exceedingly clear that Williams at all times intended to make the sale to the National Gypsum Co. as an individual, for the reason that all necessary steps to dissolve the corporation had already been taken. The board of directors and the sole stockholder had adopted resolutions to dissolve on March 25, and on March 31 all documents required for the dissolution of the corporation were executed and mailed to New York to be filed with the proper authorities. Up to that time there had been no negotiations for the sale of the Willmoto. No sale was even contemplated. On the evening of April 1 Williams orally agreed to sell the Willmoto to Pillsbury & Martignoni's undisclosed principal. It is evident that he intended to act as an individual in so contracting and not as an agent of the corporation, which was already in process of dissolution. Strong testimony to this effect is buttressed by the following notation made by Williams the next morning upon the telegram received earlier from Pillsbury: ‘Price $655,000, net to seller George T. Williams.‘

From the testimony it is apparent that Seekonk was included in the memorandum of April 2 merely as an assurance to the purchasers that good title would be forthcoming from either the corporation or Williams, although Williams himself had no doubt in this matter. This is evidenced by the letter of April 3 from Graham to Boal in which the proposed transfer to National Gypsum Co. was described as a sale by Williams, individually, and by the telegram of April 4 to Boal in which Boal was instructed that the corporation was not to be brought into the transaction at all. The formal contract of sale, executed on April 8, made no mention of Seekonk, but was the individual undertaking of Williams to sell the ship. Title was, transferred from the corporation to Williams on April 21, and on May 5, Williams, pursuant to his contract of April 8, transferred title to the National Gypsum Co. The purchase price was paid by three checks made payable to Williams and deposited in his personal account. Thus, it may be said that Williams was carrying out his own primary obligation in consummating the sale. In this, we think, the case is basically distinguishable from those cases where the stockholder merely serves as a conduit in consummating the corporate obligation. The transfer to Williams was not unreal or sham, for it was a natural culmination of steps taken prior to any negotiation to sell and divorced from any purpose to sell. The reason for the rule in the cases relied upon by the respondent is absent from this record and, in our opinion, the sale must be held to be the sale of Williams, individually, and the gain thereon not income to the corporation.

The second issue has to do with the determination of the Commissioner that the net income realized from the operation of the vessel after March 31 was realized by and taxable to the Seekonk Corporation. The items of income have been specifically set forth in our findings of fact. The petitioner contends that all items of income accruing after March 31 were properly taxable to Williams, individually, for the reason that title to the ship vested in him on that date. We have found, as a fact, that title to the ship was not transferred to Williams until April 21, 1941. The items of income from the operation of the ship are, therefore, properly taxable to the corporation. There is no evidence that the ‘ships stores,‘ which were sold at a somewhat later date, were in fact ever transferred to Williams prior to their sale and, consequently, the sale must be held to be the sale of the corporation through Williams as president. Trippett v. Commissioner, supra. The respondent in his determination of the deficiency has allowed the deduction by the corporation of the various items of expense set forth in our findings of fact. On this point the respondent is sustained.

Decision will be entered under Rule 50.