OPINION.
MaRQuette: These proceedings were consolidated for hearing. The respondent has determined the following - deficiencies in income tax:
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The deficiencies for 1924 against the petitioners William H. Crocker and William W. Crocker are not contested. Since the re[774]*774spondent has determined no deficiencies against petitioner Ethel W. Crocker for 1924 and petitioner Helen Crocker Russell for 1928, we do not have jurisdiction to determine the deficiencies against these petitioners for these years.
These proceedings were submitted on the pleadings and on the following stipulation:
1. Universal Consolidated Oil Company was incorporated under the laws of the State of California on May 9, 1922, with an authorized capital stock of Ten Million Dollars ($10,000,000), divided into ten million (10,00,000) shares of the par value of One Dollar ($1) each.
2. Universal Oil Company was incorporated under the laws of the State of California on April 27, 1911, and on May 9, 1922, it had outstanding six hundred thousand (600,000) shares of capital stock of the par value of Ten Dollars ($10) per share. Its business consisted in owning and leasing oil properties and mining thereon for oil.
3. Devils Den Consolidated Oil Company was incorporated under the laws of the State of California on February 2, 1900, and on May 9, 1922, it had outstanding seventy-three thousand seven hundred sixty-two (73,762) shares of the par value of Ten Dollars ($10) per share. Its business consisted in owning and leasing oil properties and mining thereon for oil.
4. Under date of May 91, 1922, Universal Consolidated Oil Company—
(a) Acquired all of the business and assets and assumed all of the liabilities of Universal Oil Company by issuing to Universal Oil Company in payment therefor two million three hundred fifty-seven thousand eight hundred eighty-four (2,357,884) shares of the capital stock of Universal Consolidated Oil Company; and
(b) Acquired all of the business and assets and assumed all of the liabilities of Devils Den Consolidated Oil Company by issuing to Devils Den Consolidated Oil Company eight hundred eleven thousand three hundred eighty-two (811,382) shares of the capital stock of Universal Consolidated Oil Company.
5. The opening entries on the books of Universal Consolidated Oil Company showed:
Capital stock-$3,169,266
this being the aggregate par value of shares issued to Universal Oil Company and Devils Den Consolidated Oil Company in payment for their assets (subject to their liabilities). On December 31, 1923, a surplus of One Hundred Seventy-three Thousand Eight Hundred Seventy-three and ll/100th Dollars ($173,873.11) was recorded on the books as of May 9, 1922, as the result of a revaluation of certain properties. Said surplus constituted the only surplus recorded on the books of the new company as of the last named date. The only shares in addition to the above which were issued by Universal Consolidated Oil Company, at or prior to the acquisition of the properties and assets of the Universal Oil Company and Devils Den Consolidated Oil Company, were nine hundred (900) shares, being one hundred (100) shares issued to each of the nine (9) incorporators of the company at par for cash.
6. Sauer Doush Oil Company was incorporated under the laws of the State of California. On September 29, 1922, it had in its treasury five hundred fifty-eight thousand one hundred seventy-three (558,173) shares of the capital stock of Universal Consolidated Oil Company, which constituted substantially all its assets. On that date Universal Consolidated Oil Company offered to exchange 1.42 of its shares for each share of Sauer Dough Oil Company outstanding. As a result of this offer Universal Consolidated Oil Company issued five hun[775]*775dred sixty-one thousand three hundred ninety-seven (561,397) shares of its stock to stockholders of Sauer Dough Oil Company in exchange for their stock in Sauer Dough Oil Company, and later took over the assets of Sauer Dough Oil Company which consisted of stock of Universal Consolidated Oil Company.
7. The predecessor companies had an undistributed surplus as of May 9, 1922, and earned since March 1, 1913, of an amount in excess of all dividends paid by the Universal Consolidated Oil Company from the time of its organization (May 9,1922) to and including December 31, 1927.
8. Charles Crocker received dividends from Universal Consolidated Oil Company during the year 1924 amounting to Seventeen Thousand Six Hundred Sixty-three and 4/lOOtli Dollars ($17,663.04) and no more, and said Charles Crocker returned all of said dividends in his income tax return for the year 1924, and paid income tax thereon.
9. The following named petitioners received dividends or distributions from Universal Consolidated Oil Company during the following years, in the following amounts, and no more, and returned and paid income tax on the following amounts out of said dividends, and no more:
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10.For the purpose of determining the taxability of dividends or distributions made by Universal Consolidated Oil Company during the years 1925, 1926 and 1927, it is stipulated that said corporation, since its incorporation on May 9, 1922, has had earnings or profits available for dividends, or losses, and has paid dividends or made distributions as follows:
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provided, however, that the earnings above set forth should be reduced by the following amounts:
May 9, 1922, to Dec. 31, 1922_$3, 072. 35
1923_ 25, 891. 39
1924- 5,461. 66
if the court shall determine that the said amounts were not available for the payment of dividends under the following state of facts, which are hereby stipulated to:
During the year 1923 Universal Consolidated Oil Company paid the snm of Thirteen Thousand Three Hundred Ninety and 12/100th Dollars ($13,390.12) on account of income taxes for the period from May 9, 1922 to December 31, 1922. During the year 1924 Universal Consolidated Oil Company paid the sum of [776]*776Twenty-eight Thousand Sis Hundred Seven and 83/100th Dollars ($28,607.83) on account of income tases for the year 1923. During the year 1925 Universal Consolidated Oil Company paid the sum of Five Thousand Four Hundred Sisty-one and 66/100th Dollars ($5,461.66) on account of income taxes for the year 1924. By a letter addressed by the Bureau of Internal Revenue to said Universal Consolidated Oil Company under date of July 16, 1931, the Bureau of Internal Revenue determined that said Universal Consolidated Oil Company had made an overpayment of income tases for the period from May 9, 1922 to December 31, 1922 amounting to Three Thousand Seventy-two and 35/100th Dollars ($3,072.35), and that Universal Consolidated Oil Company had made an overpayment of income taxes for the year 1923 amounting to Twenty-five Thousand Eight Hundred Ninety-one and 39/100th Dollars ($25,891.39). By Certificate of Overassessment No.
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OPINION.
MaRQuette: These proceedings were consolidated for hearing. The respondent has determined the following - deficiencies in income tax:
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The deficiencies for 1924 against the petitioners William H. Crocker and William W. Crocker are not contested. Since the re[774]*774spondent has determined no deficiencies against petitioner Ethel W. Crocker for 1924 and petitioner Helen Crocker Russell for 1928, we do not have jurisdiction to determine the deficiencies against these petitioners for these years.
These proceedings were submitted on the pleadings and on the following stipulation:
1. Universal Consolidated Oil Company was incorporated under the laws of the State of California on May 9, 1922, with an authorized capital stock of Ten Million Dollars ($10,000,000), divided into ten million (10,00,000) shares of the par value of One Dollar ($1) each.
2. Universal Oil Company was incorporated under the laws of the State of California on April 27, 1911, and on May 9, 1922, it had outstanding six hundred thousand (600,000) shares of capital stock of the par value of Ten Dollars ($10) per share. Its business consisted in owning and leasing oil properties and mining thereon for oil.
3. Devils Den Consolidated Oil Company was incorporated under the laws of the State of California on February 2, 1900, and on May 9, 1922, it had outstanding seventy-three thousand seven hundred sixty-two (73,762) shares of the par value of Ten Dollars ($10) per share. Its business consisted in owning and leasing oil properties and mining thereon for oil.
4. Under date of May 91, 1922, Universal Consolidated Oil Company—
(a) Acquired all of the business and assets and assumed all of the liabilities of Universal Oil Company by issuing to Universal Oil Company in payment therefor two million three hundred fifty-seven thousand eight hundred eighty-four (2,357,884) shares of the capital stock of Universal Consolidated Oil Company; and
(b) Acquired all of the business and assets and assumed all of the liabilities of Devils Den Consolidated Oil Company by issuing to Devils Den Consolidated Oil Company eight hundred eleven thousand three hundred eighty-two (811,382) shares of the capital stock of Universal Consolidated Oil Company.
5. The opening entries on the books of Universal Consolidated Oil Company showed:
Capital stock-$3,169,266
this being the aggregate par value of shares issued to Universal Oil Company and Devils Den Consolidated Oil Company in payment for their assets (subject to their liabilities). On December 31, 1923, a surplus of One Hundred Seventy-three Thousand Eight Hundred Seventy-three and ll/100th Dollars ($173,873.11) was recorded on the books as of May 9, 1922, as the result of a revaluation of certain properties. Said surplus constituted the only surplus recorded on the books of the new company as of the last named date. The only shares in addition to the above which were issued by Universal Consolidated Oil Company, at or prior to the acquisition of the properties and assets of the Universal Oil Company and Devils Den Consolidated Oil Company, were nine hundred (900) shares, being one hundred (100) shares issued to each of the nine (9) incorporators of the company at par for cash.
6. Sauer Doush Oil Company was incorporated under the laws of the State of California. On September 29, 1922, it had in its treasury five hundred fifty-eight thousand one hundred seventy-three (558,173) shares of the capital stock of Universal Consolidated Oil Company, which constituted substantially all its assets. On that date Universal Consolidated Oil Company offered to exchange 1.42 of its shares for each share of Sauer Dough Oil Company outstanding. As a result of this offer Universal Consolidated Oil Company issued five hun[775]*775dred sixty-one thousand three hundred ninety-seven (561,397) shares of its stock to stockholders of Sauer Dough Oil Company in exchange for their stock in Sauer Dough Oil Company, and later took over the assets of Sauer Dough Oil Company which consisted of stock of Universal Consolidated Oil Company.
7. The predecessor companies had an undistributed surplus as of May 9, 1922, and earned since March 1, 1913, of an amount in excess of all dividends paid by the Universal Consolidated Oil Company from the time of its organization (May 9,1922) to and including December 31, 1927.
8. Charles Crocker received dividends from Universal Consolidated Oil Company during the year 1924 amounting to Seventeen Thousand Six Hundred Sixty-three and 4/lOOtli Dollars ($17,663.04) and no more, and said Charles Crocker returned all of said dividends in his income tax return for the year 1924, and paid income tax thereon.
9. The following named petitioners received dividends or distributions from Universal Consolidated Oil Company during the following years, in the following amounts, and no more, and returned and paid income tax on the following amounts out of said dividends, and no more:
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10.For the purpose of determining the taxability of dividends or distributions made by Universal Consolidated Oil Company during the years 1925, 1926 and 1927, it is stipulated that said corporation, since its incorporation on May 9, 1922, has had earnings or profits available for dividends, or losses, and has paid dividends or made distributions as follows:
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provided, however, that the earnings above set forth should be reduced by the following amounts:
May 9, 1922, to Dec. 31, 1922_$3, 072. 35
1923_ 25, 891. 39
1924- 5,461. 66
if the court shall determine that the said amounts were not available for the payment of dividends under the following state of facts, which are hereby stipulated to:
During the year 1923 Universal Consolidated Oil Company paid the snm of Thirteen Thousand Three Hundred Ninety and 12/100th Dollars ($13,390.12) on account of income taxes for the period from May 9, 1922 to December 31, 1922. During the year 1924 Universal Consolidated Oil Company paid the sum of [776]*776Twenty-eight Thousand Sis Hundred Seven and 83/100th Dollars ($28,607.83) on account of income tases for the year 1923. During the year 1925 Universal Consolidated Oil Company paid the sum of Five Thousand Four Hundred Sisty-one and 66/100th Dollars ($5,461.66) on account of income taxes for the year 1924. By a letter addressed by the Bureau of Internal Revenue to said Universal Consolidated Oil Company under date of July 16, 1931, the Bureau of Internal Revenue determined that said Universal Consolidated Oil Company had made an overpayment of income tases for the period from May 9, 1922 to December 31, 1922 amounting to Three Thousand Seventy-two and 35/100th Dollars ($3,072.35), and that Universal Consolidated Oil Company had made an overpayment of income taxes for the year 1923 amounting to Twenty-five Thousand Eight Hundred Ninety-one and 39/100th Dollars ($25,891.39). By Certificate of Overassessment No. 1097547, addressed by the Bureau of Internal Revenue to said Universal Consolidated Oil Company during the year 1928, the Bureau of Internal Revenue determined that said Universal Consolidated Oil Company had made an overpayment of income taxes for the year 1924 amounting to Five Thousand Four Hundred Sixty-one and 66/100th Dollars ($5,461.66). Said overpayment of Three Thousand Seventy-two and 35/100th Dollars ($3,072.35) for the period from May 9, 1922 to December 31, 1922 was refunded to said Universal Consolidated Oil Company during the year 1931. Said overpayment of Twenty-five Thousand Eight Hundred Ninety-one and 39/100th Dollars ($25,891.39) for the year 1923 has never been refunded or credited to said- Universal Consolidated Oil Company, and the time for filing of a claim for refund thereof has expired, and no claim for refund thereof or petition to the Board of Tax Appeals for the year 1923 has been filed by said Universal Consolidated Oil Company. Said overpayment of Five Thousand Four Hundred Sixty-one and 66/100th Dollars ($5,461.66) for the year 1924 was refunded to said Universal Consolidated Oil Company during the year 1928.
11. The facts and figures hereinabove set forth have been stipulated to solely for the purpose of disposition of the above-entitled appeals and for the taxable years involved therein, and shall not be binding upon any of the parties hereto and/or upon Universal Consolidated Oil Company in any other proceeding.
From the pleadings we find that, in addition to the amounts of dividends or distributions stipulated in paragraph 9 of the stipulation, the following petitioners received in the respective years dividends or distributions from the Universal Consolidated Oil Co., no part of which has been returned for income tax:
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Each of the petitions alleges that the Universal Oil' Co. and Devils Den Consolidated Oil Co. distributed to their stockholders the capital stock of the Universal Consolidated Oil Co. received by them as set forth in the stipulation. This allegation was denied by [777]*777certain of the answers and admitted in others. Counsel for respondent in its brief now admits its truth.
The only issue submitted to us for decision is whether all the dividends above set forth constitute taxable income. It is stipulated that the predecessor companies had as of May 9, 1922, an undistributed surplus earned since March 1, 1913, in an amount in excess of all the dividends paid by the Universal Consolidated Oil Co. from its organization to and including December 31,1927. The petitioners contend that the Universal was a new corporation, distinct from its predecessors, with the result that what was a surplus to the old corporations was capital to the new, or, to put it otherwise, that the distributions here involved, except to the extent that they included earnings made by Universal itself, did not constitute dividends as that term is defined in section 201 (a) of the Revenue Acts of 1921, 1924, and 1926.
The petitioners rely on Irving S. Robeson, 18 B.T.A. 323. Since the decision in that case, the Circuit Court of Appeals for the Second Circuit has decided Commissioner v. Sansome, 60 Fed. (2d) 931, and the Circuit Court of Appeals for the Ninth Circuit has decided United States v. Kauffmann, 62 Fed. (2d) 1045. These cases hold that, where there has been a reorganization in which the stockholders of an old company have received stock in the new corporation in exchange for their stock in the old, and where under the Revenue Act of 1921 the transaction was tax-free, the earnings of the old corporation continue to be earnings in the hands of the new, the distribution of which constitutes a taxable dividend. It is true that in the above cases there was only one predecessor corporation, while here there were three. It is also true that it is merely stipulated that the surplus of the three was sufficient to pay the dividends so that it may be that one of them had a deficit. If so, petitioners have failed to this extent in their proof. But we do not think that such a fact, even if true, makes any difference. If the successor corporation had a surplus inherited from all its predecessors sufficient to pay the dividends, it matters not in what proportions it was contributed. Such is the effect of our decision in George F. Baker, Jr., Executor, 28 B.T.A. 704. In the latter case the available earnings, the distribution of which by the successor corporation we held to constitute a taxable dividend, were composed largely of earnings of five predecessor corporations which varied greatly in amount. On the authority of the above cases we approve the ruling of the respondent. Having reached this conclusion, we find it unnecessary to decide the question raised by paragraph 10 of the stipulation.
Reviewed by the Board.
Decision will be entered under Rule 50.
Muedock, McMahon, and GoodRich dissent.