OPINION.
Arundell, Judge:
The first question is the basis to the petitioner, for equity invested capital purposes, of certain properties acquired from its predecessor. The petitioner contends the properties were acquired in an exchange that was “non-taxable” under either section 112 (b) (4) or (5) of the Revenue Act of 1932,1 and therefore it takes its predecessor’s basis for the properties. Sec. 718 (a) (2) of the I. R. C., sec. 113 (a) (7) and (8) of the Revenue Act of 1932, Regs. 77, art. 598.2 The respondent denies that the transaction by which the petitioner acquired the properties was an exchange within the purview of section 112, supra. Accordingly, he contends the petitioner’s basis is cost.
The transaction may be summarized as follows: In 1932 the predecessor corporation, although solvent, was in voluntary receivership for the benefit of all interested parties, including stockholders. In 1932, pursuant to a plan set forth in a court order, the properties in question were transferred to the petitioner, a corporation then newly organized by a group of key employees of the predecessor. In return, the predecessor received 300,000 of the 1,800,000 authorized shares of common stock of $1 par value. The 300,000 shares were issued to the predecessor on or before July 30, 1932, and were the only shares outstanding at that time.3
Pursuant to the court order, the predecessor’s receivers granted to the key employees who organized the petitioner a 1-year option to purchase all or none of the 800,000 shares at $2 per share. Also, pursuant to the court order, a voting trust agreement was entered into.
In contending that this transaction came within the purview of section 112 (b) (4), the petitioner argues that the property was transferred in pursuance of a plan of reorganization as defined in section 112 (i) (1) (B), Revenue Act of 1932.4 The respondent contends that the “control” required by section 112 (i) (1) (B) was not present.
“Control” is defined in section 112 (j), Revenue Act of 1982, as “the ownership of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation.” The respondent does not question the rule that control relates to equitable ownership and is not negated by the fact that under the court order the predecessor was required to deposit the stock in a voting trust. Federal Grain Corporation, 18 B. T. A. 242; cf. Griswold Co., 33 B. T. A. 537; Peabody Hotel Co., 7 T. C. 600; G. C. M. 2177, VI-2 C. B. 112. In contending that the required control was not present, the respondent relies on cases setting forth the general rule that if the transferor relinquishes, the control as a step in the plan of reorganization, which step is inseparable from the others and essential in accomplishing the purpose of the plan, then the control requirement is not met. Banner Machine Co. v. Routzahn, 107 F. 2d 147, certiorari denied 309 U. S. 676; West Texas Refining & Development Co., 25 B. T. A. 1254, affirmed on this point 68 F. 2d 77; Ericsson Screw Machine Products Co., 14 T. C. 757; Charles Hall, 31 B. T. A. 125; Omaha Coca-Cola Bottling Co., 26 B. T. A. 1123.
It is clear from the facts as found that the conditions calling for the application of this general rule are not present here. The 300,000 shares were the only shares outstanding at the time they were issued to the predecessor’s receivers and it was not until some time later that other additional shares were issued and the predecessor lost “control.”
The predecessor’s ownership or “control” was real and lasting; it was not a momentary formality, and its subsequent relinquishment was not part of the plan of reorganization or exchange. By virtue of this ownership of the petitioner’s capital stock, the predecessor had a continuing interest in the mail order business and the property transferred and operated under the new corporate form of the petitioner.
The respondent points to the fact that from the beginning the predecessor was obligated to grant to the employee-organizers an option to purchase the 300,000 shares. We think it is significant that the predecessor was not obligated to do more than grant an option. It had not entered into a contract of sale or in any way divested itself of ownership. Cf. American Bantam Car Co., 11 T. C. 397, affd. 177 F. 2d 513, certiorari denied 339 U. S. 920, and cases cited therein. Moreover, as explained in our Findings of Fact, the employee-organizers never exercised the option or acquired the shares. Cf. Scientific Instrument Co., 17 T. C. 1253, affirmed per curiam 202 F. 2d 155. Instead, as a result of assignments and modifications, the receivers granted what in effect constituted a different option to different parties. This option was exercised and, as a result, the 300,000 shares were thereupon sold to the public. The fact that the receivers of the predecessor were able to grant and then modify the option and the further fact that the option was not exercised, even in part, for approximately a year emphasizes the real and substantial nature of the ownership and control in the predecessor through its receivers.
Nor is the requisite ownership and control negated by the fact that petitioner planned to sell its capital stock to the general public. The public sale was not part of the plan of reorganization or exchange. Under these circumstances, we need not look to the time of consummation of the public sale to determine whether the predecessor possessed the requisite “control.” Scientific Instrument Co., supra; American Bantam Car Co., supra.
Finally, although admitting the transaction was pursuant to court order and for a bona fide business purpose, the respondent contends the predecessor’s stockholders were interested in securing cash only and it was never contemplated that they would receive the petitioner’s capital stock issued to the predecessor corporation or that the predecessor would retain it.5 Even if accepted as true, this contention is of no moment here.
The intention of the stockholders is not determinative in these circumstances. In fact, it is now well settled that if the transferor plans to and in fact does dispose of the capital stock shortly after receipt, the ownership or control requirement is nonetheless complied with if the disposition was not required as part of the plan of reorganization or exchange. American Bantam Car Co., supra; Evans Products Co., 29 B. T. A. 992, affirmed per curiam 84 F. 2d 998, certiorari denied 298 U. S. 675; Samuel Insull, Jr., 32 B. T. A. 47, reversed on other issues 87 F. 2d 648; Schmieg, Hungate & Kotzian, Inc., 27 B. T. A. 337. Moreover, the important fact here is that regardless of what may have been contemplated, the predecessor corporation which transferred the property to the petitioner received all of the petitioner’s outstanding capital stock and through its receivers was in “control” of the petitioner as that term is defined in section 112 (j), immediately and for some time after the transfer. The disposition which occurred after a period of approximately a year was not in pursuance of the plan of reorganization or exchange.
From what has been said above, we think it is clear that the predecessor possessed the ownership or control required for a section 112 (i) (1) (B) exchange.
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OPINION.
Arundell, Judge:
The first question is the basis to the petitioner, for equity invested capital purposes, of certain properties acquired from its predecessor. The petitioner contends the properties were acquired in an exchange that was “non-taxable” under either section 112 (b) (4) or (5) of the Revenue Act of 1932,1 and therefore it takes its predecessor’s basis for the properties. Sec. 718 (a) (2) of the I. R. C., sec. 113 (a) (7) and (8) of the Revenue Act of 1932, Regs. 77, art. 598.2 The respondent denies that the transaction by which the petitioner acquired the properties was an exchange within the purview of section 112, supra. Accordingly, he contends the petitioner’s basis is cost.
The transaction may be summarized as follows: In 1932 the predecessor corporation, although solvent, was in voluntary receivership for the benefit of all interested parties, including stockholders. In 1932, pursuant to a plan set forth in a court order, the properties in question were transferred to the petitioner, a corporation then newly organized by a group of key employees of the predecessor. In return, the predecessor received 300,000 of the 1,800,000 authorized shares of common stock of $1 par value. The 300,000 shares were issued to the predecessor on or before July 30, 1932, and were the only shares outstanding at that time.3
Pursuant to the court order, the predecessor’s receivers granted to the key employees who organized the petitioner a 1-year option to purchase all or none of the 800,000 shares at $2 per share. Also, pursuant to the court order, a voting trust agreement was entered into.
In contending that this transaction came within the purview of section 112 (b) (4), the petitioner argues that the property was transferred in pursuance of a plan of reorganization as defined in section 112 (i) (1) (B), Revenue Act of 1932.4 The respondent contends that the “control” required by section 112 (i) (1) (B) was not present.
“Control” is defined in section 112 (j), Revenue Act of 1982, as “the ownership of at least 80 per centum of the voting stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation.” The respondent does not question the rule that control relates to equitable ownership and is not negated by the fact that under the court order the predecessor was required to deposit the stock in a voting trust. Federal Grain Corporation, 18 B. T. A. 242; cf. Griswold Co., 33 B. T. A. 537; Peabody Hotel Co., 7 T. C. 600; G. C. M. 2177, VI-2 C. B. 112. In contending that the required control was not present, the respondent relies on cases setting forth the general rule that if the transferor relinquishes, the control as a step in the plan of reorganization, which step is inseparable from the others and essential in accomplishing the purpose of the plan, then the control requirement is not met. Banner Machine Co. v. Routzahn, 107 F. 2d 147, certiorari denied 309 U. S. 676; West Texas Refining & Development Co., 25 B. T. A. 1254, affirmed on this point 68 F. 2d 77; Ericsson Screw Machine Products Co., 14 T. C. 757; Charles Hall, 31 B. T. A. 125; Omaha Coca-Cola Bottling Co., 26 B. T. A. 1123.
It is clear from the facts as found that the conditions calling for the application of this general rule are not present here. The 300,000 shares were the only shares outstanding at the time they were issued to the predecessor’s receivers and it was not until some time later that other additional shares were issued and the predecessor lost “control.”
The predecessor’s ownership or “control” was real and lasting; it was not a momentary formality, and its subsequent relinquishment was not part of the plan of reorganization or exchange. By virtue of this ownership of the petitioner’s capital stock, the predecessor had a continuing interest in the mail order business and the property transferred and operated under the new corporate form of the petitioner.
The respondent points to the fact that from the beginning the predecessor was obligated to grant to the employee-organizers an option to purchase the 300,000 shares. We think it is significant that the predecessor was not obligated to do more than grant an option. It had not entered into a contract of sale or in any way divested itself of ownership. Cf. American Bantam Car Co., 11 T. C. 397, affd. 177 F. 2d 513, certiorari denied 339 U. S. 920, and cases cited therein. Moreover, as explained in our Findings of Fact, the employee-organizers never exercised the option or acquired the shares. Cf. Scientific Instrument Co., 17 T. C. 1253, affirmed per curiam 202 F. 2d 155. Instead, as a result of assignments and modifications, the receivers granted what in effect constituted a different option to different parties. This option was exercised and, as a result, the 300,000 shares were thereupon sold to the public. The fact that the receivers of the predecessor were able to grant and then modify the option and the further fact that the option was not exercised, even in part, for approximately a year emphasizes the real and substantial nature of the ownership and control in the predecessor through its receivers.
Nor is the requisite ownership and control negated by the fact that petitioner planned to sell its capital stock to the general public. The public sale was not part of the plan of reorganization or exchange. Under these circumstances, we need not look to the time of consummation of the public sale to determine whether the predecessor possessed the requisite “control.” Scientific Instrument Co., supra; American Bantam Car Co., supra.
Finally, although admitting the transaction was pursuant to court order and for a bona fide business purpose, the respondent contends the predecessor’s stockholders were interested in securing cash only and it was never contemplated that they would receive the petitioner’s capital stock issued to the predecessor corporation or that the predecessor would retain it.5 Even if accepted as true, this contention is of no moment here.
The intention of the stockholders is not determinative in these circumstances. In fact, it is now well settled that if the transferor plans to and in fact does dispose of the capital stock shortly after receipt, the ownership or control requirement is nonetheless complied with if the disposition was not required as part of the plan of reorganization or exchange. American Bantam Car Co., supra; Evans Products Co., 29 B. T. A. 992, affirmed per curiam 84 F. 2d 998, certiorari denied 298 U. S. 675; Samuel Insull, Jr., 32 B. T. A. 47, reversed on other issues 87 F. 2d 648; Schmieg, Hungate & Kotzian, Inc., 27 B. T. A. 337. Moreover, the important fact here is that regardless of what may have been contemplated, the predecessor corporation which transferred the property to the petitioner received all of the petitioner’s outstanding capital stock and through its receivers was in “control” of the petitioner as that term is defined in section 112 (j), immediately and for some time after the transfer. The disposition which occurred after a period of approximately a year was not in pursuance of the plan of reorganization or exchange.
From what has been said above, we think it is clear that the predecessor possessed the ownership or control required for a section 112 (i) (1) (B) exchange. For the reasons discussed, we conclude that the petitioner received the properties in question from its predecessor in a nontaxable exchange under section 112 (b) (4) pursuant to a reorganization as defined in section 112 (i) (1) (B). Therefore, the basis of the properties to the petitioner for equity invested capital purposes is the predecessor’s basis. Sec. 718 (a) (2), I. R. C.; sec. 113 (a) (7) and (8) of the Revenue Act of 1932; Regs. 77, art. 598. The parties have stipulated that the basis of the good will of the predecessor company for equity invested capital purposes was $5,040,000.
The next issue is whether the petitionei may deduct the fair market value rather than the par value of its own capital stock distributed to its employees during the taxable years 1943 and 1944 as compensation. The stock was distributed in accordance with the plan in the court order which provided that the petitioner could pay its employees up to 25 per cent of its annual net profits, but provided further that the percentage of profits was not to be paid in cash. Instead it was to be applied to the purchase of capital stock of the petitioner corporation at the price of $1 per share (the par value).
This provision is similar to the corporate resolution pursuant to which stock was distributed to officers in Package Machinery Co., 28 B. T. A. 980, and the decision in that case is controlling here. In the instant case, as in Package Machinery Co., supra, the effect of the provision was not to authorize the payment of a specific monetary sum, but to authorize the payment of a number of shares of an aggregate par value equal to a certain percentage of profits. That is, the 25 per cent of profits was not the sum to be paid but merely the measure of the number of shares to be issued.
Of course, these shares must be translated into a monetary sum; and this translation must be based upon a fair market value of the stock when distributed. Package Machinery Co., supra, and cases cited therein. The total fair market value of the shares distributed to employees during the taxable years 1943 and 1944 is $265,625 and $93,758.35, respectively. The petitioner may deduct these sums for these years as compensation paid to its employees.
Decision will be entered under Rule 50.