
    406 F. 2d 1346
    MARY CATHERINE WILLETT v. THE UNITED STATES JOSEPH WILLIAM AND MARY GRACE WILLETT v. THE UNITED STATES ROBERT E. AND ANNE T. WILLETT v. THE UNITED STATES CHARLES D. WILLETT v. THE UNITED STATES PAUL A. AND ELIZABETH H. WILLETT v. THE UNITED STATES
    No. 83-64
    No. 84-64
    No. 85-64
    No. 86-64
    No. 87-64
    [Decided February 14, 1969]
    
      
      Louis Lus/cy for plaintiffs. James E. Fahey, attorney of record. Dmid W. Gray and Robert E. WiTlett, of counsel.
    
      Richard J. Boyle, with whom was Assistant Attorney General Mitchell Rogovin, for defendant. Philip R. Miller and Theodore D. Peyser, Jr., of counsel.
    Before Cowen, Chief Judge, Jones, Senior Judge, Lara-more, Dtdreee, Collins, Skelton and Nichols, Judges.
    
   Cowen, GMef Judge,

delivered the opinion of the court:

These five cases, having identical factual and legal questions, involve plaintiffs’ claims for refunds for income taxes illegally collected. The plaintiffs are brothers and a sister who, as partners in the Willett Brokerage Company, engaged for a period of time prior to 1947 in the business of selling warehouse receipts for barrels of whiskey they owned. In 1947, the partners caused the Wildwood Corporation to be created under Kentucky law, and transferred substantially all the assets of the brokerage company in return for stock in the corporation. Within a short time after the formation of Wildwood, the plaintiffs negotiated a sale of their stock in Wildwood, and reported on each of their respective returns for 1947 the income received as capital gains. The District Director of Internal Bevenue for the District of Kentucky at Louisville (and for the District of Virginia at Richmond in the case of one plaintiff) disallowed capital gains treatment on the sale of the Wildwood stock. This was based on the determination that Wildwood was merely a “conduit” through which the partners transferred their whiskey inventory to the purchasers. In addition, the Revenue Service treated the sale of certain warehouse receipts as having been made by the brokerage company, and not by Wildwood, as claimed. Accordingly, the individual plaintiffs were assessed deficiencies in the amount of their respective shares of the profits from the sale of these receipts. Each plaintiff paid his deficiency (see finding 3 for the exact amounts involved), and then filed timely claims for refund, which were all denied. Suit in this court followed. Stipulated as part of the record in this case was the transcript of testimony in a case in the Tax Court in a related matter. In addition, our trial commissioner heard additional testimony which was not before the Tax Court. On the basis of all the evidence before the court in these cases we find for the reasons set out in this opinion that plaintiffs are entitled to recover.

I

The following is a summary of the facts, but we refer to the detailed findings of fact which follow this opinion for a complete statement.

Plaintiffs are “second generation” Willetts, the children of Lambert Willett, who with some of his children and his wife, Mary T. Willett, founded the Willett Distilling Corporation in 1936. The Distilling corporation was and is in the business of operating a whiskey distillery and a bonded warehouse in Bardstown, Kentucky. However, until 1941, the Distilling corporation did not have its own bottling plant, so that all of its whiskey was sold in bulk. Some of plaintiffs owned stock in the Distilling corporation, and some did not.

Between December 1943 and May 2,1946, plaintiffs as partners in the Willett Brokerage Company and its predecessor partnership, acquired by purchase from the Distilling corporation warehouse receipts for whiskey distilled by the corporation. Plaintiffs carried on a wholesale whiskey business in partnership form, selling warehouse receipts the partnership had acquired from the Distilling corporation. During most of the life of the Willett Brokerage Company (the partnership), the Emergency Price Control Act, approved January 30, 1942, 56 Stat. 23, was in effect. During that period, the brokerage bought whiskey warehouse receipts from the Distilling corporation at the regulated price, so there was no problem from the Distilling corporation’s viewpoint about what was a fair arms’ length price for sales to the brokerage company. However, in early 1946 the status of price controls on whiskey was in doubt, with rumors circulating in the industry that the controls would be lifted in the near future. In fact, the Office of Price Administration was empowered to decontrol whiskey in July 1946, and did so, effective October 24, 1946. The plaintiffs made a decision that they would no longer make any purchases from the distillery after May 1946, because dealing with the distillery at arms’ length once price controls were in doubt became a problem, especially in view of the fact that some of plaintiffs did not own stock in the distillery, and some of the stockholders of the Distilling corporation were not partners in the brokerage company.

Thus, after May 1946, the partners were left in possession of a considerable stock of whiskey. With the impending removal of price controls, it was expected that the whiskey would substantially appreciate in value due to the severe shortage of aged whiskey available at that time. So the partners began to consider what they should do with their inventory. Inquiries were made by some of the plaintiffs whether the partnership could receive capital gains treatment if it chose to sell its assets. The plaintiffs’ tax attorney in the fall of 1946 assured them that if the partnership interests were sold, the profit would be a capital gain; that opinion was repeated by the attorney in early 1947. On the basis of such advice from counsel, the Willetts considered the sale of their interests in the business.

On the other hand, the partners in late 1946 also were contemplating the incorporation of their partnership for the purpose of carrying on a “case goods” business, that is, bottling their inventory of whiskey under the Willett label, and selling the bottled liquor. That course of action would dovetail with, another development which one of the Willett enterprises had begun in Janaury 1946. In that month, the officers and directors of the Distilling corporation decided to construct a bottling plant at the corporation’s premises in Bards-town. This plant, which was begun in September 1946 and was to be completed in the fall of 1947, was designed to bottle whiskey the distillery produced. The bottling plant would not only save bottling costs, but would also allow the corporation to show on the label that the whiskey was bottled at the distillery, a showing which is important to the success of the whiskey business.

The oldest whiskey owned by the Distilling corporation had been distilled in May 1946, and. there was no demand for new whiskey in bottles. Because of market conditions, there was no known source of mature whiskey for bottling at the Distilling corporation plant other than the bulk inventory owned by the partnership, which consisted of about 3,000 barrels of bulk whiskey. If the bottling plant was not to stand idle until the distillery could produce enough whiskey to bottle, the partnership whiskey was the logical choice to become the first Willett brand case goods bottled by the new plant. For these reasons, throughout the latter part of 1946 and the early part of 1947, the partners began to consider, among themselves, the incorporation of the business and the conduct of a case goods business by having their whiskey bottled at the new bottling plant. The Willetts were advised by their attorneys that if a case goods business emphasizing the Willett brand name was to be conducted, it would be best to carry on the business in corporate form. The corporate form was considered very desirable for a number of reasons apart from the fact that the excess profits tax had been repealed. The corporate form of ownership would provide more efficient management of the company affairs, because the partners resided in widely scattered locations; the second generation of Willetts had produced a rapidly growing third generation, and the corporate form would provide greater ease in estate planning. Moreover, it was felt that operation of the business by a corporation would facilitate dealings with financiers and would insulate the partners from personal liabilities for tort actions arising out of the bottling and marketing of consumer items.

During the fall of 1946 and continuing throughout the early part of 1947, the partnership received several inquiries regarding the purchase of the whiskey inventory or the sale of the partnership business, but there were no definitive offers or negotiations.

Sometime prior to June 1947, the partners decided to engage in the case goods business and to organize a corporation for that purpose. Therefore, early in June 1947, they instructed their attorneys to organize a corporation to succeed the partnership and to conduct a case goods business, as distinguished from the sale of warehouse receipts for bulk whiskey. Among the compelling reasons for this decision was the desire of the individual partners who would become stockholders to acquire property they could give to their children. To meet this problem, their attorney proposed that the corporation should, in addition to the issuance of common stock, issue preferred stock of a fixed value which could be redeemed to provide cash for such gifts. In anticipation of the completion of the bottling plant, the articles of incorporation of the Wildwood Corporation were filed on July 30, 1947, and on July 31, 1947, the assets and liabilities of the partnership were transferred to Wildwood in exchange for stock of that corporation. The assets transferred included substantially all of the whiskey inventory, except for a small amount of bulk whiskey retained to fulfill a commitment previously made by the partnership to a Chicago dealer. The partners also retained 200 cases of whiskey, which they felt might be needed to fulfill other short-term commitments that had been overlooked or, in the absence of such commitments, would be kept for their personal use. The partnership also retained notes receivable, payable to the partners individually, as well as about $40,000 in cash. Ten thousand dollars in cash was transferred to Wildwood, the partners having decided that this would be sufficient for the operating needs of the corporation.

After it was incorporated, Wildwood itself made preparations to enter actively into the case goods business. A corporate seal was adopted. Corporate books and records were set up, and a wholesaler’s permit was obtained from the Internal Revenue Service. Advertisements were taken in the local papers to promote the new “Willett” brand name. Tentative arrangements were made with a whiskey broker for Wildwood. Approval from the Internal Revenue Service was sought for “Willett” brand labels, which would show that the whiskey was distilled and bottled at the same site by the Distilling corporation. The Distilling corporation purchased about 8,000 cases of glass bottles and ordered sealing caps. Since the only whiskey available to immediately fill these bottles was the whiskey held by Wildwood, it is apparent ■that the Distilling corporation’s purchase was with a view to bottling the Wildwood whiskey specifically. The insurance policies of the partnership were endorsed to substitute the Wildwood Corporation for the partnership as the insured party.

Early in July, Mr. Fred Metzger, a whiskey broker from Newark, New Jersey, got in touch with the Vice President and. Treasurer of Joseph E. Seagram, and advised him that the brokerage company wished to sell the partnership business with all the whiskey it owned. Seagram did not indicate an interest in acquiring the whiskey, so Metzger went on a vacation and negotiations were not resumed until August 4, 1947. At that time, Metzger was informed by Thompson Wil-lett, a family member who served as a “managing” partner of the partnership, that the corporation had been created to take over the partnership business, that the whiskey inventory had been transferred to the corporation, and that any sale made to Metzger’s clients would have to be in the form of the sale of the corporate stock — all subject to the approval of the stockholders and subject to their being assured that the sale would qualify for capital gains treatment.

On August 4, 1947, Metzger told Thompson Willett that he had a prospective unnamed purchaser who would be willing to purchase the capital stock of Wildwood. After discussing the matter among themselves, the stockholders agreed that the details of Metzger’s overture should be ascertained. The stockholders also consulted with their tax attorney and received Ms assurance tbat the sale of tbe stock would b8 accorded capital gains treatment. In the meantime, Wild-wood went forward with its preparations to engage in the case goods business. On August 6, 1947, tentative arrangements were made to supply case goods to an association of retail liquor dealers in Chicago. Discussions were also had with a wMskey broker in CMcago concerning his brokering of the Wildwood wMskey. Arrangements were made with a wholesale wMskey company to be exclusive distributors of the case goods in Kentucky.

On August 11,1947, Metzger and Thompson Willett made arrangements by telephone for a meeting in New York on August 19,1947, to further discuss Metzger’s offer.

On the Mght of August 14, 1947, a fire in the Distilling corporation plant badly damaged the distillery, and it was soon evident that the damage would not be covered by insurance. The occurrence of this disaster is a crucial factor in this case. After the fire, the partners all realized that their proposed case goods business was seriously threatened. In order to promote and sell the wMskey under the Willett brand name, Wildwood needed an assured supply of uniform whiskey. With the distillery out of commission, such a supply would not be available, because there is a lapse between the time whiskey is produced and the time it can be sold. It was realized that when Wildwood’s inventory was exhausted, the corporation would have to wait a year or more before Willett’s whiskey would be available for bottling. It was also felt that during such a Matus, any brand identification Wild-wood would have achieved would likely be lost as customers turned to other brands. Thus, after the fire, the future of the case goods business which theretofore had looked fair indeed was seriously in doubt. The Distilling corporation was the heart of the Willett enterprises, and without it, it was obvious that the case goods business plans for the near future would be of very short duration.

Under the circumstances described above, representatives of Wildwood attended the New York meeting with Metzger, where they learned for the first time that Seagram was the prospective purchaser. After a tentative agreement had been made for the purchase of the stock by Seagram, a temporary impasse over the terms of the sale interrupted negotiations. However, on August 20, 1947, a tentative agreement for the sale of the Wildwood stock was made.

The decision to sell was not made until after extensive conferences among the stockholders of Wildwood. Some of them were reluctant to abandon the development of the case goods business or the sale of whiskey under the Willett label. In particular, this was the position of those stockholders who owned no stock in the Distilling corporation and who realized that the sale would require them to abandon the liquor business. Thompson Willett was not pleased with the sale, because he had hoped that the purchaser would be one that would benefit the Distilling corporation by utilizing the new bottling facilities. Nevertheless, on September 26, 1947, a decision was made to sell the stock of Wildwood Corporation, and the transaction was consummated on October 23,1947.

We have adopted the trial commissioner’s conclusion to the extent that he decided Wildwood was not incorporated to serve as a mere conduit for the sale of the whiskey warehouse receipts by the partnership. It is absolutely clear from the record before us that Wildwood was in no sense a sham corporation that was created to provide the vehicle for a tax evasion scheme. On the contrary, it is unchallenged that it was the successor to a partnership which had operated profitably for two years. Moreover, Wildwood acquired scarce and valuable assets which, with the prevailing market conditions, provided a high potential for the successful operation of the case goods business in the future.

In the related case in which it found that Wildwood was a mere conduit, the Tax Court determined in effect that Wild-wood was created in furtherance of a pre-arranged plan to sell the whiskey inventory to Seagram and the West Shore Wine and Liquor Company, which acquired 22.7 percent of the stock of Wildwood. The additional and undisputed evidence presented in this court persuades us to find directly to the contrary. In his testimony in these cases, Mr. Frederick J. Lind, Vice President and General Counsel of Seagram, made it very plain that Seagram had absolutely nothing to do with tbe incorporation of Wildwood. The proposal to incorporate the business had been under consideration since the fall of 1946, and a definite decision to organize Wildwood was made early in June 1947. It was not until August 4, 1947, that Metzger, who negotiated the sale with Seagram, knew that the Wildwood Corporation had been created and that was the first date on which Seagram’s representative expressed interest in the purchase of the whiskey. Nor did the corporate form in any way facilitate the sale of Wildwood and its assets. In the fall of 1946, the Willetts had been informed by counsel that the sale of their interest in the partnership would be accorded capital gains treatment, so that adoption of the corporate form for doing business was not a prerequisite for advantageous tax treatment. Seagram was not interested in how the whiskey was owned. Indeed its only concern about the ownership was that for tax reasons it would be unprofitable for Seagram to buy as much as 80 percent of the Wild-wood stock. In view of the tax problem, Seagram was therefore compelled to see one of its competitors acquire more than 20 percent of the Wildwood Stock and of the whiskey inventory.

When the record as a whole is viewed in the light of the events that have occurred, what we have left is the picture of a corporation which was formed for the purpose of carrying on a case goods business but which, because of an unforeseen disaster, conducted only a limited amount of business. The reasons for incorporating were the usual and normal reasons which induce businessmen to adopt the corporate form. The action was taken on the advice of counsel 'and the testimony as to the numerous reasons for the creation of Wildwood is consistent and plausible. We are not persuaded that it is unreliable.

The greater weight of the evidence shows that the activities of the Willetts, at least until the fire occurred, were more indicative of an intention to engage in the case goods business than to sell the inventory. We hold, therefore, that these activities meet the test of Moline Properties, Inc. v. Comm’r, 319 U.S. 436, 438-439 (1943), and prove that Wildwood was organized with an intent in good faith to conduct the case goods business and that the new corporation 'had begun the “equivalent of business 'activity.”

Since it is 'an established fact that Wildwood was not created to serve as a conduit for the transfer of 'all inventory, we think undue weight was given by the trial commissioner to the fact that at various times prior to incorporation of Wild-wood, the members of the partnership had seriously considered the sale of their partnership interest in the whiskey, provided that their gain on the sale would be treated as a long-term gain on the sale of capital assets. The fact that the Willetts did not discourage inquiries about the purchase of their interests in the partnership during the period they were preparing to incorporate and begin the case goods business seems to us clearly outweighed by the reasons for incorporating 'and by the 'actual steps which were taken to begin the case goods business. It seems highly unrealistic to maintain that prudent businessmen must never consider abandoning a course once considered, even if 'a change appears to be more beneficial than the retention of a former mode of doing business. At the very least, businessmen in such circumstances should be allowed to consider the alternatives, even during the time they are fairly certain they have chosen a course of action. We know that in a somewhat related area of tax law “primary intent” does not mean that the intent must be to the absolute exclusion of every other thought or course of action. See Malat v. Riddell, 383 U.S. 569 (1966); R. A. Bernstein, “Primarily for Sale": A Semantic Snare, 20 Stan. L. Rev. 1093 (1968); S. S. Surrey, Definitional Problems in Capital Gains Taxation, 69 Harv. L. Rev. 985 (1956). We think that the record shows that all that was done prior to the fire indicated an intent to conduct a case goods business in corporate form, and that but for the fire, that intention would reasonably have been expected to be carried to fruition.

If Wildwood was not created to serve as a mere conduit for the sale of the whiskey warehouse receipts — as we have found — the only reasonable alternative left by the record before us is to conclude that the corporation was organized for the purpose and with the intention, in good faith, of engaging in the case goods business. In the light of all the evidence, we find no basis for inferring that rational businessmen, regularly advised by their attorneys, would spend the time and expense of incorporating and preparing to undertake the case goods business merely to gain a tax advantage in the sale of their inventory, when the same tax advantage would have been available to them through the sale of their interests in the partnership. On the contrary, we find that the events and transactions which led to the creation of Wildwood resulted from a business decision by the Willetts, and particularly the younger partners, to expand the family enterprises and to strike out in a new direction at an opportune time. Their hopes and expectations were disrupted by the disastrous fire, which caused them to abandon, with much reluctance, their plans to go forward with the case goods business.

Finally, we agree with Chief Judge Weick’s dissenting opinion in Willett v. Comm'r, supra, that the retention by the partners of a large amount of liquid assets is of little significance in this case. A complete explanation of the reasons why these assets were not transferred to Wildwood is contained in finding 24. There is no showing that the operating capital of $10,000 was insufficient to begin the business and the controlling factor in the transaction is that the partnership transferred 99 percent of the whiskey to the Tfildwood Corporation. This was the asset which was most essential and important to the operation of the case goods business in which the new corporation was to engage.

II

Plaintiffs have also established that Wildwood “did some business in the ordinary meaning.” National Investors Corp. v. Hoey, 144 F. 2d 466, 468 (2d Cir. 1944). On August 6,1947, Wildwood sold 50 barrels of whiskey to B,. L. Buse Company, and again on August 11, 1947, the corporation sold 10 barrels of whiskey to the same whiskey broker. We do not agree with the trial commissioner’s conclusion that the sales of the warehouse receipts in these two instances were negotiated prior to the formation of Wildwood, because we find that the greater weight of the evidence is to the contrary. Bringwald, Inc. v. United States, 167 Ct. Cl. 341, 334 F. 2d 639 (1964); William J. Miller v. United States, 168 Ct. Cl. 498, 339 F. 2d 661 (1964). The commissioner’s determination in this regard was apparently based on the testimony of Thompson Willett — testimony given 20 years after these transactions — that he could not recall when he was contacted by the Buse Company. For this reason, he could not state specifically whether it was a day, a week, or two weeks before the dates of the invoices, but he made it clear that he would defer to any documentary records. It seems clear from these documentary records, plus other corroborating circumstances, that the sales were transactions involving the assets of the new corporation and should be attributed to it. The invoices were issued on paper which had the legend, “Wildwood Corporation, Successor to” typed over the printed heading “Willett Brokerage Company.” The documents also provided that the seller assumed the storage charges and taxes to the respective dates of sale, which were the dates of the invoices. The goods were already on hand and there is no sensible reason why the seller would have delayed the consummation of the sales for a period of two weeks and thereby reduced its profit by the payment of additional storage charges and taxes. Moreover, there were two sales, and if the deals had already been made final before July 31,1947, there would have been no necessity for the issuance of two separate invoices, almost a week apart. Transactions consummated two weeks prior thereto would, in all probability, have been handled by one invoice, since all of the whiskey was of the same quality and came from the same warehouse.

Further, we have found (finding 24) that the partnership retained four barrels of whiskey to fulfill a preexisting commitment to an association of liquor dealers in Chicago, plus 200 cases of whiskey, which the partners felt should be retained to fulfill any other short-term commitment which they may have overlooked, or, in the absence of such commitments, for their personal use. All of this demonstrates that the partners certainly attempted to retain enough stock on hand to fulfill any commitments or sales previously negotiated by tbe partnership, and there is nothing in the record to indicate that they would not have done the same with respect to any sales to the Buse Company by the partnership. Accordingly, we have found that the sale of the warehouse receipts to Buse Company were sales made by Wildwood and not by the partnership.

Ill

In summary, we hold that plaintiffs are entitled to recover on the ground that they are entitled to treat the gain from the sale of their Wildwood stock as long-term capital gain pursuant to Section 117 of the Internal Bevenue Code of 1939. Plaintiffs are also entitled to recover on the ground that the sales by the warehouse receipts to the Buse Company were sales by the Wildwood Corporation and did not result in income to the Willett Brokerage Company. The cases are remanded to the trial commissioner for determination of the amount for which judgment is to be entered under Buie 47(c).

Laramore, Judge,

dissenting:

I respectfully dissent for the following reasons: On my analysis of the proof presented by plaintiffs, I cannot conclude that plaintiffs have fulfilled their burden to prove that the corporation was formed to operate the case goods business, or that the corporation engaged in sufficient independent activities to establish that it was an active business in the ordinary meaning of that term.

Accordingly, I would conclude that this transaction was a sale of inventory and not taxable as capital gains. I would deny plaintiffs relief and dismiss the petitions.

Nichols, Judge,

dissenting:

Plaintiffs here seek to “make a new case”, that is, they wish to obtain for the same transaction different tax consequences than were meted ’out by the Tax Court, and on appeal, by the Sixth Circuit, to other copartners who sought judicial review by different route. Willett v. Commissioner, 16 CCH Tax Ct. Mem. 840 (1957), supp. opinion, 17 CCH Tax Ct. Mem. 93 (1958), aff'd, 277 F. 2d 586 (6th. Cir.), cert. denied, 364 U.S. 914 (1960). Naturally, those decisions are entitled to a high degree of respect as stare decisis here except insofar as new evidence destroys some of their factual underpinning, and it is on this that attention must focus. Our commissioner said this did occur inasmuch as he could not find, as the Tax Court did, that Wildwood Corporation was used as a mere conduit to transfer whiskey warehouse receipts from the partnership to Seagram’s, and that the formation of Wildwood, the transfer of the warehouse receipts to it, and the sale of its stock to Seagram’s were but steps in a single transaction. However, he reached the same result via his findings that Wildwood did not carry on a business “in the ordinary meaning” and was formed with no bona fide intention that it do so. Our majority take issue with this and hold that such an intent did exist, and moreover Wildwood did do some business, they say. I agree with our commissioner, and think it my duty to publish the reasons why, particularly since the commissioner submits no recommended opinion to speak for itself.

The issue is whether gains from the stock sale are includable as gross income under Sec. 22, I.K.C. of 1939 or are taxable only as a capital gains in view of the definition of a Capital Asset in Sec. 117 (a) (1) of such Code. To avoid encumbering the record with another lengthy recital of facts, I refer the reader to the majority opinion, to the Tax Court and Court of Appeals decisions, cit. supra, and to our commissioner’s findings, but from my search of the trial transcript I draw certain inferences which I would add to his findings, 'as below.

Willett Distilling Company having been organized only in 1936, had apparently no history of marketing under its own label, and sold its manufactured product, Kentucky Bourbon, normally in bulk, after proper aging, except for small lots. It was a closely held family corporation. In 1943 its 'stockholders embarked on a policy of buying from the corporation at wartime OPA ceiling prices warehouse receipts representing a major part of Distilling’s stock of manufactured whiskey 'held 'in barrels for aging, or in bottles. They formed in the first instance a joint venture, later transformed into a partnership. They sold to some extent but had accumulated a total 'of 7,642 barrels by the end of price controls.

Whiskey ceases to age, legally and practically, when bottled. Normally, 'and evidently here, bulk whiskey is non-tax-paid, and kept in bond under close Government supervision. Whoever exercises his rights to withdraw, under a warehouse receipt, must be prepared to pay the Federal excise taxes (I.E.C. of 1954, § 5006(a) (1)) which at all times here relevant have greatly exceeded, as to any given quantity of whiskey, the non-tax-paid value thereof. Whiskey can be bottled in the warehouse, still under bond, but not below 100 proof, i.e., not below 50% alcohol, except for export. (I.R.C. of 1954 § 5048(b)). The growing public taste for light, mild whiskeys must be satisfied by bottling whiskey that is already withdrawn and tax-paid. It was stipulated in a recent Customs case that over 90% of domestic distilled spirits are withdrawn at or above proof (50% alcohol) and over 90% of distilled spirits sold at retail are bottled below proof. The water to reduce the proof is added after withdrawal. Schieffelin & Co. v. United States, C. D. 3640, decided December 11, 1968 (Slip op., Customs Bulletin, January 1, 1969). Thus it would seem to follow that the bottling, distributing, and marketing of domestic whiskey is an undertaking requiring financial resources, and was so admitted to be by the witness Thompson Willett in this case. (See below.)

Some of the bottled whiskey in the partnership inventory was stated to be tax-paid. I conclude that the part stated to have been bottled in bond and the major portion that was in barrels was not tax-paid.

The partners waited out the end of OPA price controls, and then started to dispose of their accumulation. When they formed the Wildwood Corporation, in August, 1947, they turned over to it nearly all the large remaining stock they had acquired under OPA ceilings and still had. Whatever feelers they may have received from agent Metzger on behalf of Seagram, if is now established that they did not form the corporation to function as a conduit to Seagram. It seems obvious, however, that their intent, as they allege, to use the corporation to carry on a case goods business, is not completely established by this.

If they had intended the corporation to play the role of holding warehouse receipts, and no other, and it was so employed up to the time of the Seagram sale, it would be clear to me that sale of the corporate stocks would be so indistinguishable from sale of the receipts, for all practical purposes, that legally we would have to hold them to be the same. The corporation would have had no plant, have performed no manufacturing or selling operation, had no consumer acceptance, and no goodwill or going concern value. It would have consisted of a bunch of warehouse receipts and no more, and whether one sold them directly or by sale of stock would have been the kind of paper difference the tax laws disregard. The corporation would be actually used in a step transaction, whatever the intent of its organizers, the transaction as a whole being a sale of warehouse receipts.

The proposed case goods business would have been a different kettle of fish entirely, if once set to boil. It would have required farfiung operations and licenses, state and Federal, an advertising program to obtain consumer acceptance of the brand, working capital to pay the taxes and get the whiskey out of warehouse and into bottles. Once the brand was known, there would have been goodwill values. Even if one buying stock in such a business did so to get the whiskey, the seller would have had indeed a formidable case that he was selling a going business, not an inventory alone.

The difficulty here is that, as I see it, the Willett family at the time of sale to Seagram were still hesitating whether to enter the case goods business or not. Mr. Willett testified that the corporation might have continued to hold bulk whiskey “as a speculation”; that they might use the corporation as “a holding company” (R 99). That they were immediately embarking on the program is not proved by the Buse sale: that was a sale of warehouse receipts for bulk whiskey, not case goods. It was just what they had been doing all along. The $10,000 cash paid into the corporation would seem a mere pittance compared to what was wanted for the case goods 'business. Mr. Willett testified there was no need then for the whole $39,000 of cash the partnership had because:

The Wildwood didn’t need it, it had access to money and whatever it needed. (E116).

He did not say $10,000 was itself enough. As already noted, he said:

It takes money to finance a case goods program, tax, wait for your money to get back from your customers and so forth. (E 143).

The fire was an important factor in the decision to give up the case goods program because the loss was not fully covered by insurance (E 143) and thus the restoration of the distillery and the case goods program would have competed for available funds.

It is therefore clear the corporation was not financed for an immediate start on the case goods program. The things that were done, securing permits, licenses, Government approval of labels, running newspaper advertising, etc., did not involve large expenditures, and constituted mere preliminary staff work. The Distilling Company bought the bottles, not Wildwood, and ultimately it used them.

As a matter of semantics, it seems to me if an intent to do a thing exists, that means the decision to do it has been made and alternatives have been rejected. That was not the situation here. If the sale to Seagram was the preferred alternative only after the fire, it was an open alternative before, and a sale to someone had 'been considered for a long time. The meeting with Seagram’s people in New York to discuss that sale took place after the fire, but had been arranged before it. (E 138). Thus at the time of the transaction the Wild-wood Corporation was not engaged in actually carrying on a case goods business and was not truly a “going concern”, nor had a valid intent emerged to carry on a business or become a going concern. What was to be made of the corporation was uncertain until the sale and was decided by the sale.

I do not agree with the implications of our commissioner’s Finding 51 that sale was all along the preferred alternative and would modify that finding. I agres with the Chief Judge in his amended Finding 13, but would add “The corporation was also seen as useful in case the stockholders should decide to use it as a holding company, as they had the partnership.”! would add to the end of the first paragraph of Finding 15: “Unless they decided otherwise.” I do not agree that Finding 16 should be amended. Without the first sentence it is as our commissioner submitted it. The nature of my disagreement with the “Ultimate Findings” 50 'and f .fdoes not need to be elaborated.

In analysing a step transaction, what is important is not the intent with which a corporation is formed but how it is used. We held this, in effect, in Ross Michael Simon Trust v. United States, 185 Ct. Cl. 291, 402 F. 2d 272 (1968). Our commissioner there, in his proposed opinion, held it was conclusive that a corporation, the alleged transferee, had not been formed to effectuate the alleged reorganization. We dropped that part of the opinion because we thought such a reorganization could make use of an existing corporation which had been formed for other purposes. We reached the same result on other grounds. So here. Whatever the intent of the Willetts in forming Wildwood, so long as it continued a mere inert holding company the Tax Court view of the passage of the warehouse receipts through it to Seagram as a step transaction remains essentially valid.

BINDINGS OF FACT

The court having considered the evidence, the report of Trial Commissioner Roald A. Hogenson, and the briefs and arguments of counsel, makes findings of fact as follows:

1. Plaintiffs, Mary C., Joseph, Robert, Charles, and Paul Willett are and were adult children of Lambert and Mary T. Willett. They filed separate federal income tax returns for the year 1947 with the District Director of Internal Revenue for the District of Kentucky at Louisville, Kentucky, except for Robert, who ñled with, the District Director of Internal Revenue for the District of Virginia at Richmond, Virginia.

2. As hereinafter detailed, plaintiffs and their parents and three other adult brothers, Norman, Thompson, and John, were members of a family partnership, Willett Brokerage Company, engaged in the business of sale of bulk (in barrels) and case goods (bottles) whiskey. The partners caused Wild-wood Corporation to be created under the laws of Kentucky, purportedly to carry on the business of the partnership, and held stock in that corporation in the same proportion as their respective partnership interests. They subsequently sold their respective Wildwood common stock holdings, and each claimed entitlement to capital gains treatment on such transaction. With the exception of Norman, the partners other than plaintiffs herein (Lambert, Mary T., Thompson, and John) contested unsuccessfully in the Tax Court the Internal Revenue Service determinations which were made against them individually on their respective federal income tax returns for 1947, which same determinations were made individually against plaintiffs herein.

3= In computing taxable income for the calendar year 1947, each plaintiff reported gain on the sale of his (her) common stock of Wildwood Corporation as a long-term capital gain.

The Internal Revenue Service disallowed capital gains treatment, determining that Wildwood Corporation was a mere conduit through which the partnership, Willett Brokerage Company, in fact sold whiskey warehouse receipts, that the partnership realized after deduction of inventory cost and expenses of sale, a net profit of $299,449.84, which was charged as ordinary income to the individual partners in proportion to their respective partnership shares. For the same reason, the IRS treated two sales of warehouse receipts, purportedly made by Wildwood Corporation, as sales by the partnership, and charged the individual partners with their respective shares of the net profit of $4,226 attributed to the partnership. Tax deficiencies were assessed accordingly, and paid bj the individual plaintiffs, together with interest thereon, as follows:

Timely administrative claims for refund were Sled and denied, and timely petitions were filed herein, alleging the same grounds for recovery as were asserted in the administrative claims.

4. At the pretrial conference herein, the parties agreed, with the approval of the trial commissioner, that the joint trial of these cases was limited pursuant to Buie 47(c) to the issues of law and fact relating to the right of plaintiffs to recover, reserving the determination of amounts of recovery, if any, for further proceedings.

5. Willett Distilling Company (hereinafter called the Distilling corporation) was organized in 1936 and ever since has been a Kentucky corporation, engaged in the business of owning and operating at Bardstown, Nelson County, Kentucky, a whiskey distillery and an Internal Bevenue bonded warehouse to age and store bourbon whiskey produced by it. Its original stockholders were plaintiffs’ parents, Lambert and Mary T. Willett, and plaintiffs’ brothers, Thompson and John. Lambert and Thompson had previously worked as employees of another distilling company at Louisville, Kentucky. On or before December 3, 1943, two of the plaintiffs, Mary C. and Paul, acquired stock in the Distilling corporation, in part by purchase, and in part by gift from their parents, and as of that date, and at all subsequent times herein material, the stockholders of the Willett Distilling Company, and the shares owned by each were as follows: Of the 5,000 outstanding shares, Lambert, 2,196; Mary T., 953; Thompson, 850; John, 503; Mary C., 249; and Paul, 250.

6. Commencing in 1937, and thereafter through all times herein material, the Distilling corporation manufactured, warehoused, and sold whiskey in bulk. Until mid-1947, it had no bottling facilities. During 1943 and 1944, it was engaged in the manufacture of alcohol for the United States Government, and not in 1943 and only occasionally in 1944 for a few days at a time did it produce whiskey.

7. On December 3, 1943, the Distilling corporation sold warehouse receipts for 921 barrels of whiskey, distilled by it and stored in its warehouse, to its six stockholders for $27,920.06. These persons then entered into a joint venture agreement as the owners of such whiskey.

8= On January 1,1945, the six members of the joint venture by agreement formed the Willett Brokerage Company, a partnership, to which they contributed their undivided interests in the 921 barrels of whiskey. They had considered conducting an active whiskey brokerage business in corporate form, but formed a partnership on the advice of their lawyers that the federal excess profits tax on corporate earnings then in effect made it disadvantageous to carry on the enterprise as a corporation. When the partnership was formed, there was an agreement reached between the partnership and the Distilling corporation that the partnership would have the option to purchase and would purchase the whiskey distilled by the corporation, evidenced by warehouse receipts. The parents, Lambert and Mary T., then gave part of their partnership shares to each of four plaintiffs, Mary C., Joseph, Soberfc, and Paul, and to each of Norman, Thompson, and John, and in June 1946, a like gift to plaintiff Charles.

9. On June 25, 1946, a new partnership, with the same name, Willett Brokerage Company, was formed by the same partners to continue the business of sale of bulk and case goods whiskey. Thereafter plaintiffs owned fractional interests in the partnership as follows:

Mary 0. 535/5000
Joseph . 286/5000
Robert . 286/5000
Charles 286/5000
Paul_ 536/5000

The other partners retained their respective fractional interests. The variation hi size of the partnership shares was from the largest at 1186/5000 (Thompson) to the smallest at 286/5000 (held each by four partners).

10, During 1945, 1946, and 1947, Willett Brokerage Company carried on at Bardstown, Kentucky, a wholesale whiskey business, selling to various persons and firms warehouse receipts, evidencing bulk and case goods whiskey, which had been distilled and warehoused by the Distilling corporation. Between January 30, 1945, and May 2, 1946, the partnership purchased 6,721 barrels of whiskey from the Distilling corporation, and thus acquired a total of 7,842 barrels (including the 921 contributed by the joint venture) at a total net price of $326,864.76. The partnership made no purchases from any other vendor, and none from any source after May 2, 1946. Case goods sold by the partnership, bearing Willett labels, were bottled at either of two independent Kentucky bottling plants. Neither the partnership nor the Distilling corporation owned or operated bottling facilities. Generally, a distilling company has its own bottling plant.

11. On January 7, 1946, the officers and directors of the Distilling corporation decided to construct a bottling plant on the corporation’s premises at Bardstown. Construction commenced in September 1946, and was completed at a cost of $40,000 by mid-1947, prior to the transactions in question herein.

12» The Emergency Price Control Act, approved January 30, 1942, 56 Stat. 23, was in effect until January 30,1947, 59 Stat. 306, 60 Stat. 664, except for a lapse of 25 days in July 1946. During that time maximum prices on whiskey and many other commodities were fixed by the Office of Price Administration. The whiskey obtained by the partnership from the Distilling corporation was purchased at such prices. In July 1946, the OPA was empowered to decontrol whiskey and other items, and whiskey was removed from OPA price control regulations effective October 24,1946.

13. Commencing in the fall of 1946, the members of the partnership were considering two courses of action. They contemplated the possibility of incorporating their enterprise and developing a case goods business, utilizing when ready the Distilling corporation’s bottling plant under construction. Alternatively, the partners were considering a sale of the partnership or its entire inventory of whiskey. The partners were receiving, and expected to continue to receive, inquiries concerning purchase of the partnership’s whiskey inventory. There was a severe shortage of whiskey, with a seller’s market in existence. The partners reasonably believed in 1946 that once price controls on whiskey were lifted, the market prices of wholesale and retail whiskey would rise substantially above maximum OPA prices. They anticipated that a large profit would be realized in the sale of the partnership’s whiskey inventory purchased under price controls. In fact, one reason why the partnership stopped purchasing whiskey from the Distilling corporation in May 1946 was that any such purchases would be at maximum OPA prices, and the large profits realized by the partnership on resale after removal of price controls would be to the advantage of the partners who were not stockholders in the Distilling corporation and to the disadvantage of the six partners who were the stockholders of that corporation. Of course, the Distilling corporation had good reason to start to accumulate a whiskey inventory after it had decided in January 1946 to build a bottling plant, especially with the prospect of a rising market.

In the fall of 1946, Lambert and Thompson, representing the partnership, conferred with their tax attorney, B. H. Barnett, and asked whether the partners could make a sale of the partnership assets and realize capital gains on the transaction. After studying the problem, and following conferences with two other attorneys in the law firm involved, and also with the accountant retained by the partnership, Barnett advised the partners that the sale of a partnership interest would be afforded capital gains treatment; that the sale of a partnership interest did not involve sale of specific assets; and that even though the sale of a partnership interest might include assets held primarily for sale, the sale of the partnership interest itself created a capital gain. In January or February 1947, Lambert and Thompson again visited Barnett, explained that they were still considering sale of their partnership interest, stated that they were negotiating with prospective buyers, and were reassured by Barnett that a sale of their partnership interest would result in capital gain. At some time during these conferences, Lambert and Thompson mentioned that they had been giving consideration to developing a case goods business, and there was discussion about operation of such a business as a corporation. Barnett advised them that the corporation excess profits tax had been repealed. However, this discussion was ancillary to the main question of realizing capital gain on sale of partnership interests, and Barnett suggested that there was no need to organize a corporation if the partners intended to sell the business.

At or about the same time, Barnett advised the Willetts that if they decided to conduct a case goods business, a corporation should be organized for that purpose. The corporate form was considered very desirable for a number of reasons apart from the fact that the excess profits tax had been repealed. The corporate form of ownership would provide more efficient management of the company affairs, because the partners resided in widely scattered locations; the second generation of Willetts had produced a rapidly growing third generation, and the corporate form would provide greater ease in estate planning. Moreover, it was felt that operation of the business by a corporation would facilitate dealings with financiers and would insulate the partners from personal liabilities for tort actions arising out of the bottling and marketing of consumer items.

14. As of June 30,1947, the Distilling corporation had no mature whiskey in bulk inventory suitable for bottling. To be marketable as case goods, whiskey had to be aged for at least two years, and preferably for four years. There was no demand for new whiskey in bottles. The oldest whiskey owned by the Distilling corporation had been distilled in May 1946. Because of market conditions, there was no known source of mature whiskey in the summer of 1947 for bottling at the new Distilling corporation plant other than the bulk inventory owned by the partnership and warehoused by the Distilling corporation.

15. As of June 30,1947, the partnership had an inventory of aibout 3,000 barrels of hulk whiskey, all of which had been acquired from the Distilling corporation by May 2, 1946. The Willetts were planning to bottle this inventory in the new bottling plant of the Distilling corporation.

During the years 1945, 1946, and 1947, the partnership made sales of whiskey (mostly in bulk) in the total sum of $1,410,082.29, not including any of the whiskey inventory involved in the sale of the Wildwood Corporation stock or the two sales of bulk whiskey purportedly made by that corporation. Of such total sales, those for the period from July 1,1946, to December 1947, were as follows:

July 1, to October 31,1946:
July-$209,223. 02
August _ 5, 810.47
September _ 106, 589. 36
- $321,622. 85
November 1,1946 to October 31,1947:
November 1946_ $33,412. 60
December _ 48, 324. 04
January 1947_ February _ 20,019. 74 34,144.38
March _ 6,882. 01
May-1,055.62
June_ 2,651.25
October_ 2, 814.20
-- $149,303. 84
December 1947_ _ 2,459.13
Total_ 473,385.82

During the months March through June 1947, substantially less whiskey was sold to reserve the inventory for use in the contemplated case goods program, if the decision was made to convert to that business.

16. Sometime prior to June 1947, the partners had, in reliance on the advice previously given to them by counsel, decided to engage in the case goods business and to organize a corporation to succeed the partnership.

In June 1941, when the Distilling corporation’s bottling-plant was nearing completion, Lambert and Thompson and two other partners conferred with their attorneys, particularly Barnett, and advised that they wanted to create a corporation to succeed the partnership and to carry on a case goods business, as distinguished from sale of warehouse receipts for bulk whiskey. Barnett was requested to develop a plan whereby the individual partners who were to become stockholders would have property that they in turn could give to their children so that in time such children could realize cash and have a beginning stake in life, the same as Lambert had provided for his children. Barnett had several conferences with the partnership’s accountant concerning qualifying the transaction as a tax-free reorganization, and concerning the necessary financial data with which to determine how to capitalize the corporation. This data, it was decided, had to be prepared as of the close of a month, as quickly as the figures were available, and the closing date used was July 31,1947. The data used was obviously available somewhat before that date, because Barnett in the meantime submitted a plan of reorganization and succession to his associate attorneys. To meet the problem of future gifts by a partner to his children, Barnett proposed that in addition to common stock, the corporation issue preferred stock of a fixed value, which could be redeemed to provide cash for such gifts.

17. From the fall of 1946 to the formation of the Wild-wood Corporation, the partnership received several inquiries concerning the purchase of its whiskey inventory or the sale of the partnership business, concerning which the record herein speaks in generalities and discloses no definitive oilers or negotiations, except for the contacts with Mr. Fred Metzger, hereinafter related.

During this same period, the partners were considering the above-mentioned alternatives of converting their partnership business of sale of bulk and case goods whiskey into a business of sale primarily of case goods whiskey, with bottling of their bulk inventory to be accomplished at the Distilling corporation’s bottling plant, or the possibility of sale of the whiskey inventory on a capital gains basis, i.e., sale of the partnership interests.

18. On June 30, 1947, Fred Metzger, a whiskey broker of Newark, New Jersey, telephoned Thompson Willett to inquire about whiskey which might be for sale. Metzger’s business was earning commissions on the sale of bulk whiskey. He had previously done business with Thompson, and on occasions had talked to Lambert. On July 1, 1947, Thompson telephoned Metzger and stated that he was interested in disposing of all of the partnership inventory of whiskey by sale of the partnership business or in individual sales of smaller lots of the whiskey. This was the first time that Metzger realized that the Willetts were doing business as a partnership. On Ju'ly 2,1947, Metzger telephoned Thompson and requested an inventory of the partnership whiskey. By letter to Metz-ger, dated July 3,1947, Thompson advised as follows:

Willett Brokerage Company has the following inventory:
BOTTLED IN BOND-WILLETT
2,013 cases, Fifths.
721 cases, Pints.
4 XGAES OLD TAXPAID — 90 PROOF — WILLETT
200 cases, Pints.
224 cases, Fifths.
bulk; goods
Spring 1942 — Bourbon, 266 barrels.
Fall 1942 — Bourbon, 120 barrels.
Spring 1945 — Bourbon, 127 barrels.
Fall 1945 — Bourbon 1,613 barrels.
Fall 1945 — -Whiskey, 163 barrels (New Cooperage).
Fall 1945 — Whiskey, 48 barrels (Used Cooperage).
Spring 1946 — Bourbon, 400 barrels.
The above can be supplemented by the addition of 1,000 barrels or more of 1946’s and 1947’s.
If the above is of interest along the lines we discussed on the telephone, we shall be glad to go further into detail.

The supplementary 1,000 or more barrels meant whiskey of the Distilling corporation.

19. After receipt of the above-quoted letter, Metzger telephoned Mr. James E. Eriel, vice president and treasurer of Joseph E. Seagram & Sons Company, a large distilling and liquor merchandising company, in New York, N.Y., and advised Friel that the partnership business and its whiskey inventory were available for sale. Seagram had a wholly owned corporate subsidiary, Distillers Distributing Corporation, used to purchase whiskey. Metzger had done business with Friel on prior occasions and was acquainted with Friel’s practice of referring any whiskey offering to Seagram’s whiskey production personnel for investigation of the quality of the whiskey involved.

On July 7,1947, Metzger sent a letter to Friel, which provided a list of the whiskey holdings of another prospective seller and with respect to the Willett whiskey stated:

I also mentioned to you on Friday that a partnership, the Willett Brokerage Company, wants to sell the partnership with all the whiskey which it owns. There are no other assets. You will find a list of these holdings.

The enclosed list of the Willett whiskey was like that provided to Metzger by Thompson as of July 3,1947, except that it showed the month rather than the season of the year of production and there were 220 more barrels of 1946 whiskey. Obviously Metzger had again contacted Thompson. In his letter to Friel, Metzger mentioned that he would talk to Friel as soon as he came back from a vacation. Friel had not indicated an interest in acquiring the Willett whiskey, and on July 11, 1947, Metzger went on his vacation, which lasted until late July or early August.

20. On July 30,1947, Wildwood Corporation (hereinafter Wildwood) was duly organized as a Kentucky corporation by the filing of articles of incorporation in the office of the Secretary of State of Kentucky. These articles had been executed on the previous day by the three incorporators, being two of the Willetts’ attorneys and their accountant. The articles named Thompson Willett as the registered agent of Wildwood.

21. On July 31, 1947, Wildwood and the members of the partnership executed a written agreement, by which certain assets and liabilities of the partnership were transferred to Wildwood in exchange for stock of that corporation. Each partner received shares of both common and preferred stock of Wildwood, with a par valne of $100 per share of each class, with the shares in each class issued in proportion to each partner’s fractional interest in the partnership. Wildwood issued in this manner 330 shares of common and 675 shares of preferred stock, of which each plaintiff received of the respective classes the following numbers of shares: Mary C., 35 and 72; Joseph, 19 and 39; Robert, 19 and 39; Charles, 19 and 39; and Paul, 35 and 72. Each of the other partners received shares of each class of stock, readily computable as to numbers from the opening Wildwood balance sheet hereinafter set forth. Thompson’s holdings of 75 shares of common and 153 shares of preferred were the largest. For the preferred stock, each partner gave his promissory note to Wildwood in the amount of the par value of such stock received.

Lambert, Paul, and Joseph were then elected as directors of Wildwood and respectively as its president, vice president, and secretary-treasurer.

22. On July 31, 1947, prior to the transfer to Wildwood, the partnership had the following assets, liabilities and net worth:

BALANCE SHEET
Assets
Current Assets:
Cash in bank_ $49, 253. 47
Inventory:
Warehouse Receipts — Bulk Whiskey_ $139, 877. 52
Warehouse Receipts — Case Goods.__ 25, 725. 23
Total Inventory 165, 602. 75
Cooperage_ 12, 539. 74
Total Current Assets_ 227, 395. 96
Fixed Assets:
Office Equipment_ 635. 53
Less-Reserve for depreciation_ 23. 83
Total Fixed Assets 611. 70
Other Assets:
Notes Receivable_ $75, 000. 00
Accrued Interest Receivable_ 950. 00
Prepaid Insurance_ 4, 045. 87
Total Other Assets_ $79, 995. 87
Total Assets_ 308, 003. 53
Liabilities & Net Worth
Current Liabilities:
Accounts Payable- 314. 11
Taxes Payable_ ■ 1. 90
Notes Payable_ 144, 480. 00
Total Current Liabilities- 144, 796. 01
Net Worth:
Lambert Willett_■ 9, 257. 49
Mary T. Willett_ 11, 453. 46
Thompson Willett- 27, 661. 80
Norman L. Willett_ 9, 654. 26
John L. Willett_ 33, 974. 45
Mary C. Willett_ 13, 961. 62
Paul A. Willett___ 22,490. 69
Joseph W, Willett_ 12,196. 22
Robert E. Willett___ 11, 758. 01
Charles D. Willett_ 10, 799. 52
Total Net Worth. — __ 163, 207. 52
Total Liabilities & Net Worth_ 308, 003. 53

23. Immediately after the transfer, the balance sheets of Wildwood and the partnership were as follows:

Partnership Wildwood
ASSETS —- -
Current Assets:
Cash in bank-...-. $39,332.14 $9,921.33
Inventory:
warehouse Receipts—
Bulk — -- $209.70 -- $139,667.82(a)
warehouse Receipts— Case goods_ 1,240.30 - 24,484.93(b)
Total Inventory- 1,460.00 164,162.76
Cooperage. — .-.— 12,639.74 0
Total Current Assets. 63,321.88 174,074.08
Partnership Wildwood
ASSETS--
Fixed Assets:
Office Equipment. $635.63
Less: Eeserve for depreciation.. 23.83
Total Fixed Assets. — .. . $611.70
Other Assets:
Notes Receivable--$75,000.00 67,500.00
Accrued Interest Receivable — - 950.00 0
Prepaid Insurance_ 1,355.64 2,690.23
Total Other Assets..-. 77,305.64 70,190.23
Total Assets.-. 130,627.52 244,876.01
LIABILITIES & NET WORTH
Current Liabilities:
Accounts Payable_ _ 314.11
Taxes Payable___ _ 1.90
Notes Payable_ 420.00 - 144,060.00
Total Current Liabilities. 420.00 . 144,376.01
Net Worth: Preferred Common
Lambert Willett_ 5,957.49 .. 6,700.00 3,300.00
Mary T. Willett-__ 9,053.46 _ 4,900.00 2,400.00
Thompson Willett... 20,161.80 - 15,300.00 7,500.00
Norman L. Willett-- 7,764.26 _ 3,900.00 1,500.00
John L. Willett— .- 28,774.45 - 10,600.00 5,200.00
Mary C. Willett-- 10,461.62 - 7,200.00 3,500.00
Paul A. Willett-.- 18,990.69 . 7,200.00 3,500.00
Joseph W. Willett.-.- 10,296.22 - 3,900.00 1,900.00
Robert E. Willett — -- 9,858.01 .. 3,900.00 1,900.00
Charles D. Willett. 8,899.52 . 3,900.00 1,900.00
Total Net Worth. 130,207.52 67,500.00 33,000.00 100,50000.
Total Liabilities & Net Worth.. 130,627.52. 244,876.01
(a) The bulk whiskey consisted of 2,933 barrels of whiskey.
(b) The case goods whiskey consisted of 2,187 7/12ths cases of fifths and 764 cases of pints of whiskey.

24. The assigned reasons for retention of assets and liabilities by the partnership, as such are listed in finding 23, were as follows: (a) Gash in the amount of $39,332.14- The partners decided that about $10,000 would be sufficient for the operating needs of Wildwood, and retained $39,332.14 in the partnership, with the intention of distributing same to themselves as fruits of the partnership business, (b) Bulle whiskey (4 'barrels') at a cost of $209.70. The partnership retained this for the purpose of fulfilling a preexisting, short-term commitment of the partnership to furnish case goods to an association of liquor dealers in Chicago, under the labels of that organization. Preparations to perform had already been commenced by the partnership by obtaining a permit from the State of Illinois, which had required submission of a partnership application, and thereafter issuance of Illinois stamps pursuant to such application and permit, to be affixed to the bottles. It was believed that to assume such commitment, Wildwood might have to go through the same procedures, which would possibly involve cancellation and reissuance of stamps, (c) Case goods at a cost of $1 $40.30. This constituted about 200 cases of whiskey which the partners felt should be retained to fulfill any other short-term commitment which they may have overlooked, or in the absence of that, for their personal use. (d) Cooperage at a cost of $1H.]589.7J¡,. This asset was 1,000 whiskey barrels which the partnership had acquired in part payment for whiskey sold by it at some previous time. The Distilling corporation had filled these barrels with whiskey distilled in 1946 and 1947, and as of July 31, 1947, owned the whiskey. The partners considered that the Distilling corporation owed them for these barrels, and decided to leave title to the barrels in the partnership pending payment therefor by the Distilling corporation to the partners, (e) Notes receivable in the amount of $75,000. These were obligations of the Distilling corporation to the individual partners for money loaned by them to such corporation in proportion to their partnership interests. No need for the notes, or the proceeds therefrom, was anticipated for Wildwood, (f) Accrued interest of $950. This was accrued interest on the aforementioned notes receivable, (g) Prepaid insura/me in the sv/m of $1 $55.64-. This amount of the partnership’s prepaid insurance account represented a refund due of premiums overpaid on a partnership insurance policy. It was regarded as the equivalent of cash, (h) Partnership notes payable in the sum of $J$0 (of a total of $144,480) were not assumed by Wildwood because they were secured by the four barrels of whiskey retained by the partnership.

25. Wildwood set up and maintained accounting records as follows: General ledger, cash journal, sales journal, purchase journal, accounts for employees for preparation of social security and unemployment tax returns, petty cash record, bank account and check book, minute book, and a stock certificate book. Wildwood adopted and purchased a corporate seal.

26. On July 29, 1947 (which was the day of execution of the Wildwood articles by its incorporators) the Distilling corporation ordered from Foster-Forbes Glass Co., 2,900 cases (amounting to two carloads) of whiskey bottles at a cost of $2,860.16 for use in its new bottling plant. These bottles were received by the Distilling corporation in two shipments arriving August 11 and 25, 1947. As of those dates, Thompson Willett signed receipts for such shipments as president of the Distilling corporation. On July 30, 1947, the Distilling corporation ordered 150,000 sealing caps for bottles at a cost of $279.85, which were received on September 3, 1947. Most of the bottles were not used by the Distilling corporation until 1950, by which time some of them had become cloudy, but nevertheless were used.

27. On August 1, 1947, endorsements were added to two insurance policies of the partnership, which substituted Wild-wood for the partnership as the insured party, executed as of that date by the agent for the respective insurance-companies.

28. On August 4, 1947, Metzger (having returned from vacation) telephoned Thompson and discussed the same matters concerning which they had had contacts during July. Thompson advised that a corporation had just been created to take over the partnership business, that the Willett whiskey inventory had been transferred to the corporation, that any deal for such whiskey would have to bs in the form of sale of the corporation’s stock, which would be subject to the approval of all stockholders, and that there was the problem as to how long the stock had to be held by them before sals to qualify for capital gains treatment.

On August 4, 1947, Metzger telephoned Friel who expressed an interest in negotiating for acquisition of the Wil-lett whiskey inventory by the Seagram organization. The next day Metzger unsuccessfully tried to call Thompson. On August 6, 194T, Metzger located Thompson at a restaurant in Chicago and advised him by telephone that he had a prospective purchaser (which he did not name). In connection with capital gains treatment on the sale of Wildwood stock, Thompson explained that he had been advised that the holding period of the partnership business could be tacked onto the holding period of the stock, but that the stockholders would have to be sure that such could be done before they would negotiate for a sale. Following this telephone conversation, Metzger on the same day sent the following letter to Thompson:

I was glad to talk to you today in Chicago and like to repeat that I discussed the purchase of the stock of the Willett Brokerage Company with clients of ours, a large company with which we have had many dealings and who are very good people to do business with. I explained the situation properly.
They expressed willingness (of course subject to final confirmation) to now make a contract for the purchase of the capital stock of your corporation. However, it would be understood that the sale would be effective, and the closing date take place, either now or in six months, at your option. If the Treasury Decision for which you applied makes it possible for you to make the deal effective now, it would be completed now. If the Decision requires six months wait, the deal would be completed in six months.
I feel that the suggestion of our client is worth serious consideration because it takes the speculative element out of the deal and you would know now exactly what the corporate stock will yield you whether the sale is effective now or in six months.
As mentioned on the telephone, it is my opinion that the value of whiskey is much less dependent on economic developments than on the policy of the few nationally-known large distilleries. If they decide to stop buying, or consistently offer lower prices, I believe the prices would go down just as they were until about a month ago. The change at that time was brought about by National Distillers going into the market. The slight firming of bulk whiskey prices which resulted extended only to whiskey distilled in 1942 and earlier.
Just as no-one can accurately predict the fluctuations of the stock exchange, I would not undertake to make any long term predictions oyer six months or more as to whether the whiskey market may go np or down, but I believe you agree with me that once your mind is made up to make a deal, it should be completed without worrying for six months whether the values are going up or down.
We discussed on the telephone the approximate value of the stock, which I submitted to the prospective buyer and to which he in principle agreed.
I do not expect you will encounter any legal difficulties in following our suggestion, and I trust I will hear from you as soon as you have discussed the matter with your attornies [sic]. If they approve of the plan, the best way would probably be for you and your father to come here with your attorney, and we will probably be able to write up the contract very quickly.

Metzger’s use of the name “Willett Brokerage Company” in the first paragraph of the above-quoted letter was due to his lack of knowledge that the new corporation was called Wild-wood. On August 6, 1947, the inventory of Willett whiskey was substantially the same as it was in early July.

29. At the time of Metzger’s telephone conversation with Thompson on August 6, 1947, Lambert and Thompson were conferring in Chicago with representatives of an association of retail liquor dealers (the same organization involved in the partnership commitment mentioned in finding 24). No commitment was made by Wildwood, but tentative arrangements were made to continue the program of supplying case goods under various private labels of members of that association. Proposed labels were discussed, and various labels were to be made after approval by the Federal Government and the State of Illinois. These representatives of the retail liquor dealers association had previously contacted the Willetts at Bardstown, Kentucky, as early as May 1947, concerning bottling .of Willett whiskey under their labels, which prior negotiations obviously resulted in the partnership commitment previously mentioned.

On the same day in Chicago, Lambert and Thompson conferred with Herbert Oberfelder, a whiskey broker, concerning the possibility of his brokering whiskey of Wildwood.

30. Wildwood arranged with George H. Gould Company, Inc., a wholesale whiskey company, to be exclusive distributor of case goods in Kentucky. There is no evidence that any transactions were had between Wildwood and Gould.

31. In August 1947, a newspaper advertisement was run in 8 spaced issues of the Courier-Journal, Louisville, Kentucky, from August 7 to 30, and the same ad in 8 spaced issues of the Kentucky Standard, Bardstown, Kentucky, from August 4 to 27. This ad was one-column wide by about 5 inches long, and with appropriately spaced wording and varying casing or script of letters, stated: Here’s Old Fashioned Flavor at a Price You Will Favor. Willett’s Kentucky Straight Bourbon Whiskey Bottled in Bond, 100 Proof. The Willett Distilling Company, one of Nelson County’s oldest family distillers. Distributed by Geo. H. Gould Company, Inc.

The ad carried a pictorial representation of a whiskey bottle bearing a label marked Willett’s Kentucky Straight Bourbon Whiskey, and the ad was obviously designed to promote sales of case goods of Willett whiskey.

On September 5, 1947, the advertising agency involved billed the “Wildwood Distilling Corporation” for these ads in both newspapers, although it had been told by Thompson when he placed the ads prior to July 30, 1947, that there would be a Wildwood Corporation which was to be billed. The bill was paid in the sum of $359.60 by the partnership by its check issued September 15,1947. Payment by the partnership was made, if for no other reason, 'because in the meantime an oral agreement had been tentatively reached between the Willets and the purchasers of the Wildwood stock, based upon the balance sheet of Wildwood as of August 15,1947, and it was desirable to leave the financial condition of Wild-wood unchanged after that date. Thompson was aware that the running of the ads could have been canceled for the balance of the month, and there is no explanation as to why no cancellation took place.

32. On August 6,1947, and again on August 11,1947, Wild-wood issued separate invoices (numbered 1 and 2) to B. L. Buse Company, a whiskey broker of Cincinnati, Ohio, covering respectively three warehouse receipts for 50 barrels and one warehouse receipt for 10 barrels of whiskey, all part of the whiskey inventory transferred from the partnership to Wildwood, and for which the Distilling corporation had reissued to Wildwood the warehouse receipts. Each invoice was on a printed form from the supply of the partnership, and on each the words “Wildwood Corporation, Successor to” had been typed over the printed heading “Willett Brokerage Company.” Each of the warehouse receipts was endorsed by Wildwood and supplied to E. L. Buse Company with one of the invoices. The invoices showed sales prices respectively of $7,621.74 and $1,521.48, less sales commissions allowed to Buse, for net billings of $7,494.21 and $1,496.12. E. L. Buse Company remitted payment to Wildwood.

The sales documents provided that the seller assumed the storage charges and taxes to the respective dates of sale, which were the dates of the invoices. The goods were on hand, and it was in the seller’s interest to consummate the sale quickly and thereby avoid reduction of its profit by payment of additional storage charges and taxes. As shown in finding 24, the partnership retained four barrels of whiskey to fulfill a preexisting commitment to an association of liquor dealers in Chicago and 200 cases of whiskey to fulfill any other short-term commitments that had been overlooked at the time .Wildwood was incorporated. If the sales to Buse Company had been made prior to the incorporation of Wildwood, the partnership would have retained an additional quantity of whiskey necessary to fulfill the commitment to the Buse Company. It is concluded that the two sales to the Buse Company were made by Wildwood and that the amount received therefrom was income to Wildwood rather than to the partnership.

33. Pursuant to a resolution of the board of directors of Wildwood, carried on August 1, 1947, Lambert Willett, as president, was authorized to make application on 'behalf of Wildwood for a wholesaler’s basic permit under the Federal Alcohol Administration Act. Such application was executed by Lambert, as president, for Wildwood on August 13,1947, filed with the Louisville office of the Internal Eevenue Service on August 14, 1947, and approved by IES on August 22, 1947. The following sworn statements were contained in such application:

Hi * # ❖ #
E. The Corporation has just been formed to take over the business of the Willett Brokerage Company, a partnership, and the transaction merely involves _ a change in the form of doing business from a partnership to a corporation, but under a change of name.
* s¡¡ * * *
H. The Corporation has no sales organization and is connected with none, but contemplates making its own sales by and through Lambert Willett, President and Managing Agent.
I. The applicant is not now engaged in the business covered by this application, but is taking oyer the business of the Willett Brokerage Company, which is now so engaged.
^
K. The Corporation proposes ito sell Warehouse Receipts, at wholesale, to wholesalers, retailers and individuals, insofar as permitted by Federal and State Laws.

The Willetts were familiar with the existing statutory rule that the successor in interest of a holder of such a basic permit could operate for 30 days thereunder.

On or about August 14,1947, Willett Distilling Company applied to the Internal Revenue Service for approval of two sets of whiskey bottle labels bearing the “Willett’s” brand. The applications included commercially printed samples of the labels, both of which carried the legend “Distilled and Bottled by the Willett Distilling Company.” These applications were approved on August 22, 1947.

34. Upon their return to Bardstown from their August 6, 1947, trip to Chicago, Lambert and Thompson conferred with other stockholders concerning the subject matter of Thompson’s telephone conversation with Metzger while he was there. They agreed that further details of Metzger’s overture should be ascertained. They consulted with their tax attorney, Barnett, who advised them that long-term capital gains treatment could be realized on the sale of the Wildwood stock if the holding period of the partnership could be tacked onto the holding period of the stock, and that in view of the recent bolding in Gracey v. Commissioner (5 T.C. 296 (1945), aff'd, 159 F. 2d 324 (9th Cir. 1947)) he believed such tacking would be permissible, but that an advance ruling by the Internal Revenue Service should be requested, inasmuch as IRS had not acquiesced in the holding of the Graoey case.

35. On August 11, 1947, Metzger telephoned Thompson Willett and made arrangements for a New York meeting between representatives of the Wildwood stockholders and the prospective purchasers who remained unnamed. Metzger had, of course, obtained Friel’s consent for such a meeting. By this time Metzger knew that his prospective sellers and buyers were placing generally the same value on the whiskey inventory, and the Willetts were willing to sell, provided the terms of the sale were satisfactory to them.

36. On August 12, 1947, Mr. Oberfelder, the Chicago whiskey broker, telephoned Lambert Willett and advised him that he had a customer who would buy about 500 barrels of 1942 Willett whiskey. Lambert told Oberfelder that he would respond to the offer later, and inquired as to the approximate market value for various 1945 lots of such whiskey, which Oberfelder furnished in a letter written the following day.

37. During the night of August 14, 1947, the Distilling corporation’s distillery plant was badly damaged by a fire. The Willetts estimated the physical damage at $40,000 to $50,000. Casualty insurance proceeds were insufficient to rebuild the plant and equipment. The shareholders in Wild-wood saw their stock as one possible source of funds to rebuild the distillery. The shareholders were confronted with the situation that if the planned case goods business were begun with Wildwood’s existing inventory and supplemented later with the Distilling corporation’s existing inventory of whiskey made in 1946 and 1947, there would be a break in the continuity of whiskey available for bottling under the Willett brands some 2 to 4 years later, when the whiskey which ordinarily would have been made during the coming months, but which would not be made because of the fire, would have matured.

38. On August 18, 1947, Willetts’ tax attorney, Barnett, and their accountant went to Washington, D.C., and conferred with, a Mr. Clayton at the offices of the Internal Revenue Service. They had prepared a letter requesting the Commissioner of Internal Revenue to rule that he acquiesced in the above-mentioned case of Gracey v. Commissioner, but they were advised that the Commissioner had recently announced his acquiescence in that case (1947-2 Cum. Bull. 2). Barnett then telephoned Lambert and Thompson who were waiting at Bardstown to make the trip to New York if the ruling was favorable.

39. Lambert and Thompson were authorized by the other Wildwood stockholders to attend the New York meeting, ascertain the identity of Metzger’s client, obtain an offer and return so that all stockholders could discuss the offer. Upon meeting Metzger in New York, they learned that Seagram, and particularly a subsidiary thereof, was the1 prospective purchaser. With Barnett and their accountant, they went with Metzger on August 19,1947, to the Seagram offices and conferred with Mr. Friel and Mr. Frederick Lind, general counsel of that company.

40. At the August 19, 1947, meeting, the negotiations centered around the value of the Wildwood whiskey inventory. The Willetts made it plain that they would sell only the Wildwood stock, and Seagram was equally firm that it was interested in acquiring no other property but the whiskey inventory. Seagram’s only expressed concern about the form of ownership of the whiskey was that for tax reasons it had to purchase less than 80 percent of the Wildwood stock, whereas it otherwise would have been interested in purchasing the entire inventory. After a tentative verbal agreement had been reached as to price to be paid, based upon the value of the whiskey, as adjusted by other assets and the liabilities involved, as reflected by the balance sheet of Wildwood as of August 15, 1947, Seagram’s attorney prepared a draft of a stock sales agreement, which was delivered to the Willetts at their hotel. This proposed agreement was unsatisfactory in that it required the Willetts (by guaranteeing the balance sheet involved) to assume the accrued but unpaid state, county, and municipal ad valorem taxes on the whiskey inventory, and also the accrued but unpaid storage charges of the Distilling corporation as warehouseman. These liabilities were not shown on the August 15,1947, balance sheet of Wild-wood, nor were they recorded in the corporation books, because it was customary in the trade for purchasers of warehoused whiskey to pay such charges upon release from storage. The assumption of such liability by the Willetts involved about $50,000, which would have reduced the net price for the Wildwood stock to about $300,000. After an exchange of views, all persons involved (except Metzger) believed that they had reached an impasse. Lambert therefore left for home by train, and Thompson, Barnett, and the accountant arranged to travel the next morning by airplane. Early the next morning, Metzger contacted both parties, and another conference between the parties occurred at which a compromise was effected, by which it was agreed that the purchasers would assume about $44,000 of the $50,000 of accrued but unpaid taxes and storage charges on the whiskey. Thus, a tentative agreement for sale of the Wildwood stock was reached on August 20, 1947, effective as of August 15, 1947, subject to approval of the Wildwood stockholders, and thereafter the execution of a written sales agreement, embodying the terms of the oral agreement.

41. The representatives of the Willetts returned to Bards-town and within a few days received from Seagram a draft of the sales agreement tentatively reached. The Willett family then had extensive conferences concerning whether they should enter into such agreement. They agreed the price was fair, but debated whether a sale should be made. Some were reluctant to abandon the development of the case-goods program of sale of whiskey under the Willett labels, particularly those stockholders who held no stock in the Distilling corporation and who would be selling themselves out of the liquor business. Thompson was somewhat reluctant about making the sale to Seagram because he realized that that organization, would do its own bottling, whereas he had entertained the notion that the prospective purchaser might be one which would benefit the Distilling corporation by use of the latter’s new bottling facilities. Finally, however, all agreed to sell, and after an exchange of drafts of an agreement, a contract was executed on September 26, 1947, between Seagram’s subsidiary, Distillers Distributing Corporation, and all of the Wildwood stockholders, except Thompson. The contract was dated August 15, 1947, to correspond to the balance sheet upon which the contract was based.

42. The contract called for Seagram’s subsidiary to purchase 255 of the 330 outstanding shares (about 77.3 percent) of the Wildwood common stock, the remaining 75 being those held by Thompson. As was plainly expressed during the negotiations, Seagram intended to liquidate and dissolve Wild-wood, and for tax reasons limited its purchase to less than 80 percent of the stock.

In the meantime, Metzger found another purchaser, West Shore Wine & Liquor Company, Inc., New York, N.Y., for Thompson’s Wildwood common stock (75 shares, or about 22.7 percent), and these parties executed a contract with terms like the other contract and at about the same time. There was no relationship between Seagram (or its subsidiary) and West Shore, nor did one of them participate in the other’s negotiations with the Willetts.

43. All of the Wildwood common stock was transferred to the respective purchasers and the purchase prices under the respective contracts paid on October 23, 1947. The purchasers did not want to acquire the Wildwood preferred stock, and pursuant to a provision in the respective sales agreements, and prior to consummation of the sale of the common stock, all of the preferred stock was retired and canceled by Wild-wood in exchange for and by return to the stockholders of their individual notes with which they had paid for such stock, none of the notes having been paid.

44. The total amount paid by Seagram’s subsidiary and West Shore for the 330 shares of Wildwood common stock was $344,650.05. The total selling expenses on such sales were $12,200.16. Each of the Willetts received an individual check for bis proportionate share of the overall price, and each contributed his share of the selling expenses. As to each of the plaintiffs herein, such receipts and disbursements were as follows:

45. As provided by the contract with Seagram’s subsidiary, the officers and directors of Wildwood submitted their resignations at the closing on October 23,1947, and the new stockholders immediately elected new officers who caused Wild-wood to be liquidated and dissolved as of October 31, 1947. Shortly after the stock sales transactions were closed, the Willetts delivered Wildwood’s books and records to Seagram, as well as the limited office furniture and equipment involved.

46. The August 15, 1947, balance sheet of Wildwood, guaranteed by the Willetts in the stock sales agreements, which balance sheet was attached to the sales agreement, and upon which the sales negotiations were based, was as follows:

Assets
Current Assets:
Casli in bank_ $14,483. 93
Petty cask_ 5.00
Accounts receivable_ 1,496.12
Inventory:
Warehouse Receipts — Bulk Whiskey _ $144, 680.29
Warehouse Receipts — Case Goods- 26,109. 08
Total Inventory_ 170, 789.37
Total Current Assets_ 186, 774.42
Fixed Assets:
Office Equipment_ 635.53
Less-Reserve for depreciation_ 26.48
Total Fixed Assets. 609.05
Other Assets:
Prepaid Insurance_ $2, 558.29
Prepaid Licenses- 96.26
Notes Receivable (Stockholders)- 67,500.00
Organization Expense_ 990.00
Total Other Assets_ $71,144. 55
Total Assets_ 258, 528.02
Liabilities & Net Worth
Current Liabilities:
Accounts Payable- 10, 836.44
Taxes Payable_ 46. 05
Accrued Interest Payable- 262. 86
Accrued Salaries Payable- 188.15
Notes Payable_ 141, 660.00
Total Current Liabilities- 152,493. 50
Reserve for Income Taxes:
Federal Income Tax_ $1,132.44
Kentucky Income Tax- 176.08
Total Reserve for Income Taxes- $1,308. 52
Net Worth:
Preferred Stock_ 67, 500. 00
Common Stock_ 33, 000. 00
Earned Surplus- 4, 226.00
Total Net Worth_ 104, 726. 00
Total Liabilities & Net Worth-- 258,528.02

47. Also attached to the sales agreements was a statement of the sales value of the Wildwood common stock, as of August 15, 1947, as follows:

Outstanding Common Stock at Par Value_ $33, 000. 00
Add-Earned Surplus_ 4,226. 00
Add— -
Market Value of Warehouse Receipts— Bulk Whiskey_ $424,405. 32
Market Value of Warehouse Receipts— Case Goods_ 53, 808.10
Total Market Value_ 478,213.42
Deduct-Book Value of Receipts— Bulk & Case Goods_ 170, 789.37
Increase in Value_ 307,424.05
Market Value of 330 Shares ($1,044.39 per share) of Outstanding Common Stock_ 344, 650.05

48. On or about December 11, 1947, the then officers of Wildwood (being employees of Seagram) prepared and filed with the Internal Revenue Service a first and final corporation income tax return for Wildwood for the period beginning July 30, 1947, and ending October 31, 1947, showing gross sales of $9,143.22, less $2,803.58 for cost of goods sold, for total income of $6,339.64. After showing various deductions which totaled $4,435.36, net income (normal-tax income) was stated as $1,904.28, on which a tax of $399.90 was reported.

49. Willett Brokerage Company, the partnership, was not dissolved until May 31,1948. The sales made by the partnership in October 1947 (see finding 15) are reasonably to be explained in terms of the partnership commitment to the Chicago association of retail liquor dealers (see finding 24).

ultimate findings and conclusions

50. Prior to the incorporation of Wildwood, the members of the partnership had formed the intention of selling their interests in the partnership upon the advice of their attorneys that the sale of the partnership interests would entitle them to treat the gain as a capital gain.

51. Wildwood was not incorporated by the partners as a successor to the partnership to serve as a mere conduit for the sale of the whiskey warehouse receipts by the partnership but rather to succeed to the partnership and to conduct a case goods business in the corporate form.

52. Wildwood was incorporated with a bona fide intention that the corporation would conduct a case goods business in the ordinary meaning.

53. The sales of the common stock of Wildwood were sales of capital 'assets. After it was incorporated Wildwood did some business in the ordinary meaning. Included in such business were the two sales made to the Buse Company as set forth in finding 32.

CONCLUSION OE LAW

On the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiffs are entitled to recover and judgment is entered to that effect. Determination of the amount of recovery will be made in further proceedings pursuant to Rule 47(c). 
      
      Although we have disagreed with the result he reached, the court acknowledges the assistance It has received from the report of Commissioner Roald A. Hogenson. We have adopted most of his findings of fact.
     
      
      
         Willett v. Comm’r, T.C. Memo. 1957-189, 16 T.C.M. 840 (1957), supp. opinion, T.C. Memo. 1958-20, 17 T.C.M. 93 (1958), aff’d. 277 F.2d 586 (6th Cir. 1960), cert. denied, 364 U.S. 914 (1960).
     
      
       Plaintiffs Mary Grace, Anne T. and Elizabeth H. Willett are tlie respective wives of Joseph, Robert, and Pan! Willett, and are parties hereto only because they filed joint returns witn their respective husbands for the taxable year involved. Hereafter the words, “partners” and “stockholders” do not refer to them.
     
      
       The figures involved in finding 40 apply to sale of all of the Wildwood common stock. Since it was plain that Seagram contemplated purchase of somewhat less than 80 percent of such stock, it must be inferred that the parties were negotiating on the assumption that another purchaser would be found to buy the balance of such stock (somewhat more than 20 percent) on like terms.
     