necessary to discuss, but certainly it is broad enough to cover the instant case. The facts show that oil was being produced in the some township and in the same oil field. This brings the petitioner squarely within the first of the four situations referred to in the memorandum. The prevailing opinion dismisses the matter on the basis of failure of proof.

In my opinion the majority of the Board throughout this opinion have grasped at a shadow of diction and allowed the substance of the thought and intention of Congress and the Supreme Court to escape them.

LANSDON and LEECH agree with this dissent.

AMERICAN PRINTING COMPANY, PETITIONER, D. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 39721. Promulgated April 26, 1933.

Under date of December 31, 1917, petitioner acquired all the assets of its wholly owned subsidiary in liquidation and thereby realized a profit on the disposition of its stock in the subsidiary in an amount equal to the difference between the March 1, 1913, value of the stock and the fair market value of the assets at the date they were acquired by the petitioner. Held, under the principles enunciated in Burnet v. Aluminum Goods Mfg. Co. 287 U. S. 544, affiliation was not necessarily terminated by liquidation of the subsidiary in 1917, and, in any event, the liquidation of the subsidiary in 1917 was not such an "intercompany" transaction under either the regulations or statutes then in force or under section 1331 of the Revenue Act of 1921, as was required to be eliminated from the consolidated return required to be filed for excess profits tax purposes. Therefore, the cost to the petitioner of the assets thus acquired from its subsidiary was their fair market value as of December 31, 1917, and such cost is the basis to be used in determining the allowance for depreciation of the assets in 1918 and for valuing the petitioner's opening inventory for 1918.

James F. Jackson, Esq., Charles W. Mulcahy, Esq., and Robert N. Miller, Esq., for the petitioner.

F. L. Van Haaften, Esq., and A. H. Fast, Esq., for the respondent.

This is a proceeding for a redetermination of a deficiency in income and profits tax for the year 1918 in the amount of $954,824.99, not all of which is in controversy.

The issues giving rise to the deficiency in controversy involve the correct basis to be used by the petitioner in determining the amount of the depreciation deduction upon assets acquired from the Fall

River Iron Works Company, and the basis to be used in determining the opening inventory. There is also an issue involving the correct closing inventory for 1918 which has been settled by stipulation. The parties have filed a stipulation of facts with accompanying exhibits, which form the basis for our findings of fact.

FINDINGS OF FACT.

The petitioner, the American Printing Company, is a corporation organized and existing under the laws of the State of Massachusetts, with its principal office in Fall River. It was incorporated in 1890 for the purpose of printing, dyeing and finishing textile fabrics, and later, in December 1917, its purposes were enlarged so as to include the manufacture of such fabrics.

The Fall River Iron Works Company, hereinafter referred to as the Fall River Company, was incorporated under the laws of Massachusetts in 1825 and was engaged in the manufacture of cotton cloth, with its principal place of business at Fall River.

For some time prior to the calendar year 1913 and at all times prior to the dissolution of the Fall River Iron Works Company, the petitioner was the owner of all of the outstanding shares of stock of the Fall River Iron Works Company. Prior to December 31, 1917, all of the stock certificates of the Fall River Iron Works Company, with the exception of the qualifying shares held by directors, were issued in the name of petitioner. During the period from December 31, 1917, until the dissolution of the Fall River Iron Works Company, the 10 shares of stock then outstanding were held by nominees of the petitioner.

Prior to the latter part of December 1917, the total outstanding stock of the Fall River Iron Works Company was 20,000 shares of a par value of $100 a share. On December 20, 1917, corporate resolutions were adopted (see infra) to reduce the number of such outstanding shares from 20,000 to 10. The new issue was to be of a par value of $100 per share. The article of amendment so reducing the number of shares to 10 was filed with the Secretary of the Commonwealth of Massachusetts on December 28, 1917, and approved by the Commissioner of Corporations on the same date. The old stock certificates were surrendered and canceled on December 31, 1917, and the new certificates were thereupon issued pursuant to the resolutions and article of amendment mentioned above.

The petitioner and the Fall River Company originally filed separate income and excess profits tax returns for the year 1917. The respondent thereafter required these companies to file a consolidated return of their net incomes for 1917 for excess profits tax purposes.

He computed and assessed the income tax of each of said companies upon the basis of their separate returns.

The income and excess profits tax liability of the Fall River Company for 1917, as disclosed by its original return filed in March or April 1918, was $481,378.79, which amount was paid by check of the petitioner on June 15, 1918. The remainder of the tax liabil ity as finally determined by the respondent was paid from the funds of the petitioner after the dissolution of the Fall River Company. On November 28, 1917, the stockholders of the Fall River Company held a special meeting for the purpose of considering and acting upon the sale and conveyance by the Fall River Company of all its property and assets to the American Printing Company. At this meeting it was unanimously voted by ballot :

That this corporation sell, transfer and convey to the American Printing Company all of its real and personal property, easements, rights, privileges and assets of every description in consideration of the payment therefor of the valuation of the same as it appears this day upon the books of this Company with such adjustment of personal assets and liabilities as shall become neces sary by reason of transactions in the usual course of business between this day and the thirty first day of December, 1917, on or before which day said sale is to be perfected by completed deliveries, and in further consideration of the payment or assumption by the American Printing Company in connection therewith of all liabilities and obligations of this Company as they shall exist on the said thirty first of December, a deed of the said real estate of this corporation with all easements, rights and privileges appurtenant thereto, machinery and mill equipment to be executed and delivered by the President to the American Printing Company on or before the Thirtieth day of this month with the understanding that until said Thirty-first day of December this Corporation shall have the right to use all real estate, buildings, machinery and mill equipment conveyed by said deed in connection with the continuation of its usual business.

And further voted that the Directors be hereby authorized to prepare a deed of all the real estate, machinery and mill equipment of this Corporation for immediate execution by the President in its behalf: to arrange for transfer and delivery of the remaining assets of the Company; and to take all necessary and proper steps for carrying into effect the provisions of the foregoing vote; and for winding up the business of the Corporation as of the day above named. At a directors' meeting of the Fall River Company held on the same date it was voted to convey, pursuant to the above stockholders' vote, all of its real estate, buildings, machinery and mill equipment to the petitioner. Pursuant to the votes, the Fall River Company conveyed on March 28, 1918, to the petitioner, all of its real estate, buildings, machinery and mill equipment by deed.

On the same day, November 28, 1917, at a meeting of the stockholders of petitioner, it was voted to purchase all of the property and assets of the Fall River Company, said vote containing the following provision:

it being understood that until said thirty-first day of December [1917] the Fall River Iron Works Company shall have the right to use in connection with the continuation of its usual business all real estate, buildings, machinery and mill equipment which shall have been conveyed to this corporation in accordance with this vote.

The directors of petitioner also met on November 28, 1917, and took the necessary action to carry out the provisions of the resolution passed at the stockholders' meeting held on the same date.

On December 20, 1917, the stockholders of the Fall River Company held a meeting for the purpose of taking action upon the reduction of the capital stock of the corporation. At this meeting all the capital stock of the corporation was represented and it was unanimously voted:

That in view of the transfer of the assets of this Corporation to the American Printing Company and assumption by that Corporation of all outstanding indebtedness of this Corporation and of the distribution of all assets except the franchise right to do business, the capital stock of this Corporation be and the same is hereby reduced from two million dollars ($2.000.000) at par value, the amount now outstanding, to one thousand dollars ($1,000) at par value and the number of shares from twenty thousand (20,000) to ten (10), and that all proper steps be taken to carry into effect this reduction of capital stock in accordance with law.

On December 20, 1917, the directors of the Fall River Company voted to authorize the president to execute in behalf of the corporation a bill of sale conveying to the petitioner all of the assets of the Fall River Company not theretofore conveyed by said deed of November 28, 1917, " including cotton, cotton goods, stock in process, materials, supplies and personal property of every kind;

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the grantor hereby meaning to complete and hereby completing the sale and delivery to the American Printing Company of all of its property of whatsoever name and nature, except the franchise right. to be and remain a business corporation." It was voted at that meeting that, notwithstanding the execution of the bill of sale and transfer thereby of the assets of the Fall River Company to the petitioner, the Fall River Company should have the full use and benefit of the assets therein described in connection with the continuation of its business until and upon the 31st day of December, 1917. It was also voted that "a distribution be made among the stockholders of this corporation in proportion to their respective rights of the proceeds of the sale of the corporate property to the American Printing Company and that upon surrender of the old certificates new certificates be issued in accordance with the rights of parties in the reduced capital stock of this corporation."

On December 20, 1917, the Fall River Company, pursuant to the foregoing vote, conveyed to the petitioner, by bill of sale, all of its property and assets as therein referred to.

On December 20, 1917, the directors of the American Printing Company voted to accept the conveyance from the Fall River Company, "with the understanding that the company [Fall River Company] have the use and benefit of the property described in it until and upon the thirty-first day of December 1917, and that in connection with the transfer of assets and the reduction of the capital stock of the Fall River Company and issue by it of shares of the reduced capital stock the certificates of shares of that corporation. now held by this corporation be duly transferred and surrendered." Notwithstanding the recital in the foregoing votes with reference to the consideration payable, no consideration was in fact paid by the petitioner to the Fall River Company for the transfer and conveyance of any of the assets except the surrender for cancellation of the capital stock of the Fall River Company owned by petitioner and the assumption by petitioner of all liabilities and obligations of the Fall River Company.

The Fall River Company, in accordance with the right reserved to it by the foregoing votes, continued to use all of the property in the conduct of its usual business until the close of business on December 31, 1917, at which time possession of the same was delivered to the petitioner.

After December 31, 1917, Fall River Company had no property or assets except its corporate franchise, and did no further business unless the acts set forth in these facts be construed as doing business after that date.

On March 5, 1918, the stockholders of Fall River Company held a meeting at which the minutes of the last meeting were read and approved, the report of the board of directors for the twelve months ending December 29, 1917, accepted and officers elected. On that same date the directors of Fall River Company met and elected officers, no other business being transacted.

On March 20, 1918, the directors held another meeting, at which it was unanimously voted:

That whereas pursuant to the votes of stockholders the affairs of this corporation have been closed and the title to all of its property passed to and all its obligations assumed by the American Printing Company, the same taking effect at the close of the year 1917, it is appropriate that proceedings be now taken for the dissolution of the corporation and that counsel be hereby directed to take the necessary and proper steps to that end.

On March 28, 1918, at a meeting of the stockholders, it was voted that pursuant to the recommendation of the directors quoted above the general counsel of the corporation be directed to execute and present to the proper court a petition for the dissolution of the corporation.