Sterrett, Judge:
By notice of deficiency dated April 20, 1978, respondent determined a deficiency in petitioner’s Federal income tax for the taxable year ended February 28, 1970, in the amount of $981,762. The issues for decision are (1) whether petitioner purchased certain intangible assets previously held by General RF Fittings, Inc. (hereinafter GRFF), upon its acquisition of the stock of GRFF or whether petitioner created such intangible assets in itself by such acquisition; (2) whether, upon liquidation of GRFF, petitioner received such intangible assets to which it must allocate the attributable portion of its basis in the GRFF stock; (3) whether petitioner transferred all assets received upon the liquidation of GRFF, including the intangible assets, to a preexisting subsidiary, Integronics, Inc. (hereinafter New GRFF); (4) assuming that the intangible assets are found to have belonged to New GRFF, whether the assets of New GRFF were transferred to petitioner at any time prior to March 1,1971; and (5) if it is found that petitioner owned the intangible assets during the fiscal year ended February 28, 1971, whether petitioner abandoned such assets during the fiscal year ended February 28,1971.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioner Solitron Devices, Inc., was at all times material herein a New York corporation having its principal place of business in Tappan, N.Y. Petitioner’s principal place of business at the time of filing the petition herein was Riviera Beach, Fla. The returns for the taxable years ended February 28, 1970, and February 28, 1971, were filed timely with the Internal Revenue Service Center, Andover, Mass. Petitioner did not file consolidated income tax returns with its subsidiaries at any time prior to its taxable year beginning March 1, 1970. Petitioner filed a consolidated income tax return for its taxable year ended February 28,1971.
At all times material herein, petitioner was engaged in the business of designing, manufacturing, and marketing electronic components, including semiconductor devices. Petitioner was very successful in this business, having experienced a growth of sales from $8.5 million in 1966 to more than $18 million in 1968. It had the image of an innovative and dynamic electronics company in the forefront of the development and marketing of semiconductors.
Early in 1968, petitioner decided to enter the microwave field, an area in which it previously had not been engaged, and to attempt to gain an immediate reputation as a microwave company. This decision was kindled by petitioner’s perception that there would be significant growth in the microwave communications business in the ensuing years.1
Petitioner believed that there would be rapid movement by other companies into the microwave field. Thus, it appeared necessary for it to gain an immediate presence or reputation as a microwave component manufacturing company in order to compete successfully. Petitioner understood that it would be unable to gain an immediate reputation or presence if it relied solely upon internal growth, for it would take anywhere from 18 months to 2 years to produce and market a newly conceived microwave connector2 and from 3 to 5 years to establish a reputation in the industry as a reliable source for the product. Therefore, it chose to enter the microwave business through the purchase of companies already engaged in that business.
Petitioner first made an unsuccessful stock tender offer for Ampherol Corp., a major electronics company which was a significant microwave component manufacturer. Petitioner realized an unexpected profit of more than $29 million as a result of this unsuccessful offer. Thus, petitioner had adequate funds to engage in a cash acquisition program. Petitioner also sought unsuccessfully to acquire Microwave Associates, one of the largest independent microwave companies, and a company with a record of $20 million in sales.
Petitioner then began to eye a number of smaller companies with the objective of entering the microwave industry by acquiring companies that collectively could offer a broad product line. This would allow petitioner to compete with such companies as Microwave Associates, a company which at that time offered the type of product mix that petitioner sought. Petitioner would have attempted to purchase any company in the microwave field that provided a product that fit within the spectrum that petitioner coveted. Conversely, petitioner would not have attempted to purchase two companies that made the identical product; the acquisition of only one would have satisfied petitioner’s needs.
After deciding to acquire a number of smaller microwave companies, petitioner became interested in General RF Fittings, Inc., a company that manufactured microwave connectors.3 GRFF’s business consisted of the manufacture of electronic connectors in limited quantities for microwave applications in missiles, satellites, avionics, and undersea use, where size, weight, and premium operating performance were required. It was considered a high-quality, job-order specialty house.
GRFF was highly regarded in the connector industry, having had substantial before-tax profits generated from sales exceeding $1 million for the previous 5 years. It had a good reputation with its customers and was known for producing quality products. It was known as a dependable supplier that delivered on time, and, because it was a pioneer in the development of the product it manufactured, occupied a somewhat unique position in the industry. Its image as a reputable microwave connector company made it attractive to petitioner.
GRFF was engaged primarily in the custom connector business. The type of connector in which it specialized represented a very small fraction of the connector market. GRFF developed its connector business in the TNC and stainless steel areas. A TNC connector is not a specific type of connector, but encompasses a broad range of types and sizes. It is a threaded, medium-sized, medium-power connector with only a limited market. GRFF had continued as a manufacturer of custom connectors and, in this respect, had deviated from the trend of the industry as a whole, which was to concentrate on the miniature and subminiature types of connectors and on the types of standardized connectors that would be covered by military specification.4
GRFF was a high-grade machine shop. It had no secret formulas or patented drawings of value. The equipment in GRFF’s plant was ordinary machinery for working metal and plating, with little specialized equipment. GRFF filled specific customer orders in small quantities with connectors made to order. It did not produce connectors in volume or by using mass production techniques. GRFF did not sell in large quantities. It did not maintain a distributor network, but sold only through its own four sales representatives.
GRFF was attractive to petitioner because its acquisition would provide an addition to the broad line of products that petitioner was attempting to assemble and would provide an immediate competitive advantage in that area. The fact that GRFF’s product was somewhat outmoded did not detract from its desirability.
Petitioner commenced negotiations for the acquisition of GRFF in July of 1968 with the shareholders of that corporation. These shareholders were members of the Potsdam family. William Kearns, then executive vice president of petitioner, contacted Jay Potsdam, who was president of GRFF, and informed him of petitioner’s interest in acquiring GRFF. Mr. Potsdam told Mr. Kearns that his family was not interested in selling the company. Subsequently, Jay and Harold A. Potsdam met with Mr. Kearns, who was again told that GRFF was not for sale. Mr. Kearns continued to press the matter until he finally was given a figure of $3 million, all payable in cash, and not subject to negotiation.
On July 23, 1968, there was a meeting between the two Potsdams and various representatives of petitioner. After a brief discussion, petitioner offered $3.5 million for GRFF, to be paid in 3 years. The Potsdams declined to accept less than $3.9 million, all cash. This amount was readily agreed to by petitioner. The purchase price was to consist of $3.3 million for the stock of GRFF and $600,000 for the real property on which the plant was located.
The acquisition of the stock and real property of GRFF closed on August 29,1968, pursuant to letter agreements and a memorandum of sale between the parties. Solitron did not seek or obtain an appraisal of GRFF before it purchased the company.
At approximately the same time petitioner purchased GRFF, it made a number of additional acquisitions in the microwave field. The other companies purchased were Fil-mohm Corp., ESCA (Electronic Standard Corp. of America), Microwave Chemical Laboratories, Plaxial, and Royal Microwave. The GRFF plant at Port Salerno, Fla., was expanded in size by 30 percent (10,000 square feet) as a result of these acquisitions. Petitioner also attempted other acquisitions, among them Microlab/FXR.
On August 28, 1968, petitioner’s board of directors directed that GRFF should be liquidated and its liabilities discharged as soon as possible. Accordingly, GRFF was liquidated on January 13, 1969, and its assets and liabilities were then transferred to petitioner.5
On January 13, 1969, petitioner transferred the assets received from GRFF to Integronics, Inc. (hereinafter Integron-ics), a wholly owned subsidiary of petitioner. On February 18, 1969, Integronics changed its name to General RF Fittings, Inc. (hereinafter New GRFF). Upon transfer to Integronics, petitioner did not retain any of the assets received from GRFF upon the liquidation of that company.6
Upon liquidation of GRFF into petitioner, petitioner allocated $958,551 of the $3.3 million stock purchase price to the tangible assets received. In making this allocation, GRFF’s machinery was written up to its original cost to reflect the value of such assets. Petitioner allocated the balance of the purchase price, $2,341,449, to an intangible asset that it described on its general ledger and general journal for its fiscal year ended February 28, 1969, as "Goodwill re: General RF Fittings” and in its annual reports as "Excess of Purchase Price over Book Value of Assets Acquired.”
The assets that had been received by petitioner upon liquidation of GRFF, and subsequently were transferred to Integronics, carried over their basis from petitioner to Inte-gronics. However, the $2,341,449 attributable to the intangible asset was not recorded on New GRFF’s books, but was retained on petitioner’s books when the assets received by petitioner from GRFF were transferred to Integronics. The latter was renamed New GRFF shortly thereafter.
No effort was made by petitioner to secure the services of the personnel of GRFF by long-term contracts, or otherwise. From the outset, petitioner planned to operate GRFF using petitioner’s key employees from its nearby Riviera Beach plant. GRFF’s president, sales manager, chief engineer, and production manager left GRFF shortly after the acquisition of GRFF by petitioner.
After purchasing GRFF, petitioner began to change the operations of that corporation. It was concluded by the sales and marketing arm of petitioner that the optimal means of enhancing its image in the microwave industry would be by implementing a "divisional” approach, rather than by maintaining a disconnected series of small companies. Thus, petitioner began to create a divisional image by developing its own logo and by phasing out the product identification that came from the individual companies acquired. However, the GRFF name was retained for corporate identification purposes. After some time, though, it was phased out and New GRFF’s products were marketed under petitioner’s name using the terminology "Solitron/Microwave.”
In accordance with this plan, the ESCA corporation was moved into the GRFF building, as eventually was the Microwave Semiconductor Division. An extension also was added to the building to house the Plaxial operation.
Petitioner had little interest in the number and quality of GRFF’s customers. The number of users of microwave companies was limited, and petitioner could readily have identified them. In the electronics industry, new contracts are based upon price, quality, and in some cases, uniqueness of product. At its acquisition, GRFF was a leader in the manufacture of a unique product, that is, TNC connectors. Nevertheless, petitioner began to direct its efforts toward a market entirely different from that in which GRFF had been engaged.
Some 3 to 5 months after the acquisition of GRFF, petitioner began the restructuring of GRFF’s product line. From its sales staff, petitioner ascertained that the specialty products manufactured by GRFF would not generate the desired level of business, that the future was in the military specification types of microwave connectors. Accordingly, New GRFF began to undergo a change in product mix and a restructuring of product line, thereby transforming its products from specialty products to a standard line of products. It added new product lines and changed the design of existing product lines. GRFF designs were discarded or updated to meet new design criteria. New GRFF turned to the filling of large orders rather than special ones, and it terminated the old GRFF sales representatives and began using distributors to market its products. This transformation took a substantial period of time, at least 1% to 2 years. By February 28, 1971, the new designs were in wide use.7
Sometime in early 1971, New GRFF was liquidated by petitioner. The minute book of New GRFF contains a document entitled "Minutes of Action of the Shareholders of General RF Fittings, Inc. Taken as of March 1, 1971,” providing as follows:
Whereas, Solitron Devices, Inc. owns all of the issued and outstanding voting stock of this Corporation; and
Whereas, Solitron Devices, Inc., as the sole shareholder, has determined it would be desirable to discontinue the operation of the Corporation and to dissolve the Corporation and transfer its assets to Solitron Devices, Inc; and
Whereas, it is necessary for this Corporation to hold an annual meeting of shareholders and to elect directors to govern the Corporation until it has been dissolved; and
Whereas, Solitron Devices, Inc. desires to waive notice of said meeting and to hold said meeting by written consent:
Now, Therefore, Be It
Resolved, that Solitron Devices, Inc. the sole voting shareholder of the Corporation, hereby waives notice of the annual meeting of shareholders of the Corporation; and be it further
Resolved, that the officers or directors of the Corporation are hereby authorized to take whatever steps are necessary to dissolve the Corporation and to transfer its assets to Solitron Devices, Inc., and to execute any documents necessary to achieve such purpose, and any steps heretofore taken with regard thereto are hereby ratified; and be it further
Resolved, that the following named persons be and they are hereby elected directors of the Corporation to serve until their successors are elected and qualified:
Charles Whorl
Joseph Friedman
Richard Trivison
IS) Beniamin Friedman Benjamin Friedman, President Solitron Devices, Inc.
Also contained therein is a document entitled "Minute of Action of the Shareholders of General RF Fittings, Inc. taken as of June 8,1971,” which states:
Whereas, Solitron Devices, Inc. owns all of the issued and outstanding voting stock of this Corporation; and
Whereas, it is necessary for this Corporation to hold an annual meeting of shareholders and to elect directors to govern the corporation for the ensuing year;
Whereas, Solitron Devices, Inc. desires to waive notice of said meeting and to hold said meeting by written consent;
Now, Therefore, Be It
Resolved, that Solitron Devices, Inc., the sole voting shareholder of the corporation, hereby waives notice of the annual meeting of shareholders of the Corporation; and, be it further
Resolved, that the following named persons be and they are hereby elected directors of the Corporation to serve until their successors are elected and qualified.
Charles Whorl Joseph Friedman Richard Trivison
IS) Benjamin Friedman Benjamin Friedman, President Solitron Devices, Inc.
Another document entitled "Minute of Action of the Shareholders of General RF Fittings, Inc. taken as of June 8, 1971” provides:
Whereas, Solitron Devices, Inc. owns all of the issued and outstanding voting stock of this Corporation; and
Whereas, Solitron Devices, Inc., as the sole shareholder, has determined it would be desirable to discontinue the operation of the Corporation and to dissolve the Corporation and transfer its assets to Solitron Devices, Inc.; and
Whereas, it is necessary for this Corporation to hold an annual meeting of shareholders and to elect directors to govern the Corporation until it has been dissolved; and
WHEREAS, Solitron Devices, Inc. desires to waive notice of said meeting and to hold said meeting by written consent;
Now, Therefore, Be It
Resolved, that Solitron Devices, Inc., the sole voting shareholder of the Corporation, hereby waives notice of the annual meeting of shareholders of the Corporation; and be it further
Resolved, that the officers or directors of the Corporation are hereby authorized to take whatever steps are necessary to dissolve the Corporation and to transfer its assets to Solitron Devices, Inc., and to execute any documents necessary to achieve such purpose, and any steps heretofore taken with regard thereto are hereby ratified; and be it further
Resolved, that the following named persons be and they are hereby elected directors of the Corporation to serve until their successors are elected and qualified.
Charles Whorl Joseph Friedman Richard Trivison
Benjamin Friedman, President Solitron Devices, Inc.
Also submitted into evidence was a document entitled "Assignment of Assets From General RF Fittings, Inc. To Solitron Devices, Inc.,” which provided as follows:
Whereas, Solitron Devices, Inc. owns all the issued and outstanding voting stock of this Corporation, and
Whereas, Solitron Devices, Inc. in February 1971 elected to liquidate this Corporation and discontinue its operations as General RF Fittings, Inc.
Whereas, in 1971 all the assets of General RF Fittings, Inc. were physically transferred to Solitron Devices, Inc., but no formal documentation of that transfer was made except on the books of the corporations,
Now Therefore, to evidence the foregoing prior transfers this Corporation hereby transfers all its rights, title and interest in all its assets to Solitron Devices, Inc.
In Witness Whereof, the parties hereto, acting through their individually authorized officers have caused this assignment to be executed as of this 1st day of March 1971.
Attest: General RF Fittings, Inc. (S) Joseph Friedman By: (S) R. J. Trivison President
Attest: (S) James S. Trager Solitron Devices, Inc. By: (SI Benjamin Friedman
This was the only executed document transferring title of New GRFF’s assets to petitioner. Petitioner failed to produce its books of account for its fiscal year that began March 1, 1971.
During the 1971 fiscal year, an ultrasonic screw machine was transferred from petitioner to New GRFF. This is recorded on petitioner’s General Ledger and on New GRFF’s "Intercompany Account.” No transfer of assets from New GRFF to petitioner was recorded on petitioner’s books for its fiscal year ended February 28, 1971. As of February 28, 1971, New GRFF had a debit balance in its "Intercompany Account,” indicating the presence of assets in that account.8
According to the Official Records of Martin County, Fla., the real property belonging to New GRFF was not transferred to petitioner until October 23,1973.
Petitioner claimed an abandonment loss for the intangible asset in the amount of $2,341,449 on its tax return for the fiscal year ended February 28, 1971. This was reflected in petitioner’s books of account. Petitioner reported a net operating loss on its tax return for its fiscal year ended February 28, 1971, resulting from the $2,341,449 deduction. This was carried back and used to offset income in that amount for petitioner’s fiscal year ended February 28,1970, a year during which it had not filed a consolidated return. Petitioner then applied for, and received, a refund of tax for the carryback year. The refund was paid in due course to petitioner. Petitioner’s returns for its fiscal years ended February 28, 1971, and February 28,1970, subsequently were audited.9
Respondent asserts that the claimed abandonment loss must be denied petitioner because the intangible asset upon which the loss deduction was based did not belong to petitioner, or, alternatively, that such asset was not, in fact, abandoned during petitioner’s fiscal year ended February 28,1971.
OPINION
The first issue we must decide is whether petitioner purchased $2,341,449 in intangible assets along with its acquisition of GRFF’s tangible assets or whether such assets were created by petitioner’s purchase of that company. If the latter is true, then there is no question but that such assets were petitioner’s to abandon during the year in issue.
A brief review of the essential facts should be helpful. In early 1968, petitioner made a decision to enter the microwave industry. In order to establish an immediate presence in this industry, it chose to gain entry by means of acquisition rather than by internal growth. Having been thwarted in its attempts at takeover of two large microwave companies, petitioner began to acquire a number of smaller companies which it hoped collectively would offer the broad product mix that petitioner desired. As part of this strategy, petitioner purchased GRFF, a reputable company which specialized in the manufacture of custom connectors. After a brief period of negotiation, petitioner agreed to pay the $3.9 million asking price of the GRFF shareholders. Of this amount, $3.3 million was paid for the stock of GRFF and $600,000 was paid for the underlying real property. The stated value of GRFF’s tangible assets was $958,551. It is the treatment of the stock consideration in excess of this stated amount that is in issue.
Petitioner contends that as a result of its haste to enter the burgeoning microwave industry, it paid a premium for GRFF’s stock that far exceeded the fair market value of that stock. By acquiring GRFF, petitioner asserts, it augmented its product mix, thereby creating a previously nonexistent intangible asset with a basis of $2,341,449. This intangible asset was alleged to be petitioner’s new image as a producer of high-performance microwave connectors custom-manufactured in limited quantities for sophisticated microwave circuits. It is argued that this asset never belonged to GRFF since it was created solely by the synergistic fit of that company into the larger unity brought together through petitioner’s efforts. In reaching this conclusion, petitioner posits that GRFF possessed no goodwill or going-concern value at the time of its purchase.
Respondent counters by arguing that GRFF possessed intangible assets in the nature of goodwill and going-concern value at the date of acquisition and that the amount paid by petitioner for GRFF’s stock in excess of the amount attributable to GRFF’s tangible assets is allocable to such intangible assets. Accordingly, when GRFF was liquidated and its assets dropped into a newly created subsidiary, petitioner transferred ownership of the intangible assets previously held by GRFF to that subsidiary.
As is evident, the underlying dispute centers on whether petitioner or New GRFF owned the intangible asset(s) at the time of the purported abandonment. If petitioner is correct in its assertion that it created an intangible asset in its own hands with its purchase of GRFF, then it follows that petitioner retained the asset upon liquidation and reincorporation of the GRFF enterprise. If respondent is correct that the intangible assets followed the tangible assets of GRFF into the newly formed corporate entity, we must still decide whether that entity, New GRFF, was liquidated during petitioner’s taxable year ended February 28, 1971, and then whether the intangible assets were abandoned by petitioner during that year.
We begin with the axiom that petitioner bears the burden of proof. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a), Tax Court Rules of Practice and Procedure. Ordinarily, upon the purchase of the stock of one corporation by another, the acquiring corporation assumes a cost basis in the purchased stock. Sec. 1012, I.R.C. 1954. The cost is the amount paid for the property received. Sec. 1.1012-1(a), Income Tax Regs. Section 334(b)(2) provides that if a subsidiary is purchased by the parent corporation and liquidated shortly thereafter, the parent’s basis in the property distributed to it is equal to the adjusted basis of the stock of the subsidiary with respect to which the distribution was made. Thus, in the case of a purchase of all the stock of a subsidiary followed by a liquidation of that subsidiary, the parent would take an aggregate basis in the distributed property equal to its cost basis in the stock. This basis must be allocated to the individual assets, both tangible and intangible, received from the liquidated subsidiary in proportion to their respective fair market values. Sec. 1.334-1(c)(4)(viii), Income Tax Regs. Application of these rules is mandatory, not elective. Broadview Lumber Co. v. United States, 561 F.2d 698, 711 (7th Cir. 1977). To complete the analysis, if the parent corporation then drops all of the recently distributed assets into a newly formed subsidiary, its basis in the stock of the subsidiary will be equal to its aggregate basis in those assets (which in turn was equal to its cost basis in the first subsidiary’s stock). Sec. 358(a).
Applying these rules to the instant case, respondent asserts that petitioner’s basis in the stock of GRFF was, pursuant to section 1012, the amount paid for that stock, that is, $3.3 million. Upon the subsequent liquidation of GRFF, petitioner’s basis in the assets was to be determined by allocating the $3.3 million in proportion to the relative fair market values of the assets. The parties apparently are in agreement that the fair market value, and consequently the allocable basis, of the tangible assets acquired upon GRFF’s liquidation was $958,551. Respondent departs from petitioner’s portrayal by insisting that the remainder of the purchase price, $2,341,449, is allocable to the intangible assets of GRFF purchased by petitioner. All assets received by petitioner from GRFF then were transferred by the general assignment of assets to the newly formed subsidiary, New GRFF.
Petitioner describes a different version. It maintains that GRFF’s fair market value was equal to the fair market value of its tangible assets, and that the excess purchase price constituted a "premium” paid by petitioner to secure an immediate image as a reputable manufacturer of custom-made connectors. This image, petitioner alleges, was an intangible asset created by petitioner upon its purchase of GRFF and held continuously by petitioner until its eventual abandonment.
Petitioner proposes a somewhat unique exception to section 1012. According to its spontaneous-creation theory, the normal cost basis rule that property obtained from the seller receives a basis equal to the consideration given by the buyer (sec. 1.1012-(a), Income Tax Regs.) is suspended, or at least extended into a new realm. Here, according to petitioner, the stock acquired from GRFF takes as a basis only a fraction of the amount paid for it, with the remainder of the purchase price forming the cost basis of petitioner’s spontaneously created intangible asset.
In order for us to uphold petitioner’s position in its entirety, we would be required to find that GRFF had no goodwill and no going-concern value at the time it was purchased. We would then have to find that, once title to the stock passed, an intangible asset was born, an immaculate conception of sorts, in the hands of the purchaser. Thus, we would have to accept the unusual concept that cost basis can be allocated to property other than the property purchased. This we refuse to do, although we compliment the attorneys for petitioner on their creative reasoning.
We first address the issue of whether GRFF possessed any goodwill at the time of its purchase. If so, petitioner acquired such goodwill with the purchase of GRFF’s stock. Winn-Dixie Montgomery, Inc. v. United States, 444 F.2d 677, 681 (5th Cir. 1971); Webster Investors, Inc. v. Commissioner, 291 F.2d 192, 195 (2d Cir. 1961), affg. a Memorandum Opinion of this Court;10 Peerless Investment Co. v. Commissioner, 58 T.C. 892, 895 (1972).11 The question of whether goodwill exists is to be resolved based upon the particular facts and circumstances. Staab v. Commissioner, 20 T.C. 834, 840 (1953).
Goodwill is an amorphous concept which consists of "the sum total of those imponderable qualities which attract the custom of a business.” Grace Bros., Inc. v. Commissioner, 173 F.2d 170, 175-176 (9th Cir. 1949). Goodwill has been defined as—
the advantage or benefit, which is acquired by an establishment beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill, or affluence, or punctuality, or from other accidental circumstances or necessity, or even from ancient partialities or prejudices. [Metropolitan Bank v. St. Louis Dispatch Co., 149 U.S. 436, 446 (1893).]