may obtain the general intent of the parties to the writing from the language employed in the entire instrument, as applied to its subject matter, even if such intent is apparently in conflict with some word or clause in the writing. Green County, Ky. v. Quinlan, 211 U. S. 582; Uinta Tunnel Mining & Transportation Co. v. Ajax Gold Mining Co., 141 Fed. 563. In proceeding to such a determination, the interpretation placed on the contract in question by the parties thereto, evidenced by what they actually did thereunder, is important, if not controlling: Lowrey v. Hawaii, 206 U. S. 206; District of Columbia v. Gallagher, 124 U. S. 505; Insurance Co. v. Dutcher, 95 U. S. 269. Taxation is a highly practical matter, and, in any event, what we are called upon to decide is not an intention, upon which no tax is imposed, but the legal status of what actually occurred: Doyle v. Mitchell Bros. Co., 247 U. S. 179; United States v. Phellis, 257 U. S. 156; Anna M. Harkness, 1 B. T. A. 127; Gladys Bilicke, 20 B. T. A. 784. What does the record disclose actually occurred here? Immediately following the assignment by petitioner to his wife, the petitioner notified officials of the company and others that he had transferred his entire interest in the stock to his wife. Nobody, including petitioner, ever thereafter asserted by word or act any claim or right to ownership in the stock or the dividends therefrom, except the wife of the petitioner. The minute book of the company proclaimed her the owner. The stock was voted on her proxynot by petitioner alone, but by three individuals, including petitioner, who actively directed the affairs of the company. The dividends were actually paid to the wife in every instance.

The contract of assignment of November 15 by Gerlach to his wife was certainly sufficient to vest in her all his transferable "right, title and interest in the contract (with Lambert and Thompson) and the stock," itself, which carried with it the right to dividends thereon, unless reserved. Long v. United States, supra. The stock was encumbered with the balance due on the purchase price, evidenced by the petitioner's notes and the escrow agreement of November 11. Although Gerlach could not assign his personal liability on the notes without the acquiescence of Lambert and Thompson, he could assign his interest in the stock subject to the encumbrance thereon, effective as between him and his assignee, Mrs. Gerlach, in passing this obligation to her. We conclude that this was accomplished, as to a part of the encumbrance, by his assignment on November 15 of "all his right, title and interest in and to the contracts above mentioned and the shares of stock" to Mrs. Gerlach. In accepting this assignment and signing the contract, she assumed, as between the petitioner and herself, the obligation of paying the amount of the dividends she received on the stock on account of the balance

due on the original purchase price, during the period covered by the contract.

Mrs. Gerlach actually received all the dividends in question. She applied them to the payment of the encumbrance on the stock. Her primary interest was to pay the obligation she assumed in the contract of November 15 and such dividends were therefore income to Mrs. Gerlach within the definition of the court in Bettendorff v. Commissioner, 49 Fed. (2d) 173.

It can not be said that petitioner's wife was a purchaser from him of the stock in question in consideration of the dividends to be received and that these dividends represented income first to her and, then were taxable again to petitioner when paid over to him as part of the purchase price. Such theory could be based only upon the premise that the transaction was one giving rise to gain, whereas, in fact, it was one from which no gain could possibly accrue to petitioner. If the dividends, when paid, represented income to petitioner's wife, they could in no event be taxable income to petitioner when paid by her to him, as they would represent merely a return of petitioner's capital outlay to that extent, and this, being in excess of any possible payment to be received from his wife, no portion of any of such payment could represent gain to him.

We can not agree that, because petitioner had executed his promissory notes for the unpaid portion of the purchase price, the use of the dividends in payment of these notes was one primarily in his interest as reducing his obligation, for the evidence shows that a failure to pay the notes would have resulted in liability of the stock to sale. This stock was the property of his wife and its fair market value was at no time less than the amount of the notes. In fact, in 1923, when the first of the dividends here in question was paid to petitioner's wife, 60 per cent of the purchase price of the stock had been paid and the stock had a substantially higher market value at that time than its cost to petitioner. Petitioner's wife, and not petitioner, would have been the loser had the notes not been paid. The application of the dividends for their payment was a use of them in her interest, and they were income to her. Cf. Bettendorff v. Commissioner, supra; Paul Akers Bowden, 26 B. T. A. 1410.

Respondent cites Bettendorff v. Commissioner, supra, as controlling. That case is clearly distinguishable upon the facts, for there title to stock was transferred by a mother to her son, with reservation of the income to her for life for her personal and unrestricted use. However, the reasoning of the court as to the situation presented in that case seems to sustain our present conclusion upon the facts presented here.

We hold that the dividends of $15,184 paid in each of the years 1923 and 1924 to petitioner's wife represented income to Mrs. Gerlach and not to petitioner.

Reviewed by the Board.

Judgment will be entered under Rule 50. MURDOCK, dissenting: The petitioner retained the right to collect and receive the dividends pending the payment of his notes. The dividends were actually used to pay the petitioner's notes. There fore, the dividends were income to him.

SMITH and VAN FOSSAN agree with this dissent.

LOUISA COUNTY NATIONAL BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 47273.

Promulgated January 31, 1933.

M. J. Holland, Esq., for the petitioner.
J. R. Johnston, Esq., for the respondent.

OPINION.

LANSDON: The respondent has asserted a deficiency of $921.91 in income tax against the petitioner for the year 1927. The only issue involved in this appeal from that determination is whether or not the petitioner sustained a deductible loss through an enforced liquidation of its assets and capital stock in that year.

The petitioner is a national banking corporation located at Columbus Junction, Iowa. The par value of its capital stock is $50,000, divided into 500 shares. On June 9, 1927, petitioner's board of directors, through proper corporate action, suspended its business and turned all of its assets over to a national bank examiner for liquidation. At the time of the taking over by the examiner the book value of petitioner's assets was $88,569.68, but only the cash included therein, amounting to $10,800, was considered by the examiner to be bankable assets. After a thorough examination the examiner determined that petitioner's bank might be reopened under certain conditions. These conditions required the stockholders to surrender for cancellation all of their stock certificates, in consideration of the distribution to them of the assets of the bank, and the reissuance and sale of said stock for $125 per share, payable in cash.

Surrender, reissue and sale of the 500 shares of the bank stock were accomplished in accordance with the receiver's plan, and on July 7, 1927, a meeting was held by the new stockholders, at which they elected a new board of directors for the corporation. On July 8, following their election, petitioner's new board of directors held

a special meeting and took action to reopen the bank. Among other things the board adopted a resolution which provided for the elimination of all of the petitioner's nonbankable assets and their liquidation and distribution among the old stockholders. For this purpose the assets were transferred to three of their number under a trust agreement executed by them as parties of the first part, representing the so-called "new bank," certain of the members of the former board representing interests referred to as the "old bank," as parties of the second part, and the trustees, parties of the third part. This instrument recited by way of inducement that the shareholders had voluntarily surrendered their stock in the "old bank" for resale in lieu of paying an assessment of 100 per cent on the same, and that in consideration of such surrender it was desired to convey to said shareholders certain assets formerly a part of the total assets of the "old bank" as at the close of business June 9, 1927. It then recited that the first party had assigned, etc., to the parties of the third part, certain assets of the "old bank" (as per list attached); but, under conditions which gave to the "new bank" the right, at its election, for a period of two years, to withdraw any assets it might select and substitute in their stead an "equal amount" of assets of the "old bank," that it had theretofore withheld and taken into its capital at the time of its recapitalization. The assets were to be so held for a two-year period, at the end of which the trustees were to liquidate the trust assets; and, after first paying all costs, including the taxes, current expenses, salaries and examiner's fees of the "old bank," distribute the net proceeds ratably among the old stockholders. The trust estate was still in administration at the date of the trial of this cause, but cash dividends representing 30 per cent of the par value of their stock had been paid to the old stockholders by the trustees from receipts of assets collected or sold thus by them. The petitioner contends that the process followed was in effect a sale of its assets to its old stockholders in consideration for their surrender of their stock for cancellation and reissue. There is nothing in the record here to support this theory, or to show that it sustained a loss through the process followed in the taxable year. In the situation which prevailed in petitioner's affairs, after the bank examiner took charge on June 9, 1927, there was no opportunity of election left either to it or its stockholders to barter or sell its stock or assets. The examiner was in full charge and complete control of its affairs. Neither the conditions he imposed for reopening the bank nor the methods adopted by the board contemplated an immediate passing either of title to or beneficial interest in the assets to the old stockholders. Although the declaration of trust stated, by way of inducement, that it was "desired" to convey to the old

shareholders the "old bank" assets, the condition which provided that the trust to be established "shall be in the nature of a revolving fund" over which, for a period of two years, the "new bank " should have the unrestricted right to take out and put back any assets that it desired in working out its recapitalization needs, prevented any present transfer other than to the trust, with contingent remainder to the stockholders.

The old stockholders, so far as the record shows, were not consulted in the arrangement made to liquidate their stock and reorganize their corporation. That was all done by the board of directors, acting under the mandates of the bank examiner. The trust scheme as devised was accepted by them to serve the single purpose of reorganization. It provided a vehicle through which the nonbankable assets could be eliminated from the bank's capital and held in suspense for a period of two years, during which time any part or parcel of it could be returned through substitution. The trust was primarily intended to serve the interests of the bank and not the stockholders. In no event could the stockholders receive any benefits from the trust before two years after the execution of the trust instrument.

The petitioner argues that the bank "disposed of property that cost it $98,569.68, receiving therefor $62,500" through which it sustained a loss of $36,069.60 in 1927. Whatever else may be said of the transaction we have discussed, it is clear, as pointed out, that the power of control over the assets which the petitioner reserved to itself through the "revolving fund" clause in the trust agreement, and the withholding of any benefits from the stockholders for a period of two years, are inconsistent with any theory of a sale of them to the stockholders. It is therefore erroneous to say that the petitioner disposed of its interests in such property at the instant the trust was created.

The trust agreement also provided that the taxes, current expenses, salaries and examiner's fees of the "old bank " should be a first charge against the assets of the trust and that their prior payment was a condition to any distribution of the assets to the stockholders. There is no evidence as to the amount of these charges, but whatever they were they constituted debts of the petitioner which, when paid, pro tanto increased the sum realized by it in the liquidation of its assets. We therefore are unable to say, even should we hold the transaction to be a sale, that the petitioner sustained a loss as alleged.

The petitioner has wholly failed to prove that it sustained the loss contended for in the taxable year and the determinations of the respondent are therefore approved.

Decision will be entered for the respondent.