
    JOHN M. WALLACE AND GLENN W. WALLACE v. THE UNITED STATES LELAND S. SWANER v. THE UNITED STATES
    No. 77-53
    No. 78-53
    [Decided December 5, 1956]
    
      
      Mr. Robert P. Smith for the plaintiffs. Miss D. A. Baker, Mr. Joseph W. Kieman, Mr. Robert V. Smith, and Messrs. Smith, Ristig & Smith were on the briefs.
    
      Mr. E. S. Fessenden, with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Mr, Andrew D. Sharpe was on the brief.
   Laramore, Judge,

delivered the opinion of the court:

This action is brought to recover income taxes allegedly improperly assessed for the year 1948 against the plaintiffs John M. Wallace and Glenn W. Wallace, jointly as husband and wife, in the amount of $52,982.54, and against the plaintiff Leland S. Swaner in the amount of $36,985.23.

Two issues are involved, only one of which is common to both plaintiffs. First: The Commissioner of Internal Eevenue determined that the plaintiffs’ 1948 income was understated due to his determination that there existed a partnership between the two plaintiffs, John M. Wallace and Leland S. Swaner, and a third party, Zion’s Cooperative Mercantile Institution (hereinafter referred to as Z. C. M. I.), for the purpose of buying and selling interests in the Eeming-ton Small Arms Plant, and that such transactions resulted in a profit to the partnership of $189,919.93, 30 percent of that amount being taxable as ordinary income to both Wallace and Swaner as their share of the partnership profits, the third party having a 40 percent interest. Defendant does not rely on the partnership theory as a basis for the additional taxes, but does contend that plaintiffs were enriched in the above amount as the result of compensation or fees charged for services rendered. Thus, the issue is to determine whether or not plaintiffs received any income from transactions relating to the Remington Small Arms Plant whether it be as the result of partnership income, or fees or compensation for services rendered.

Second: The Commissioner determined that the Wallaces’ income was further understated by reason of an exclusion from taxable income by them of 70.93668 percent of a dividend of $20,000 received by Mrs. Wallace from the Excelsior Iron Mining Company during 1948, the exclusion being made on the ground that that portion of the distribution represented dividends paid out of profits, earnings or increases in value accumulated prior to March 1, 1913, the plaintiff relying on section 115 (a) and (b) of the Internal Revenue Code of 1939. Defendant concedes that 70.93668 percent represents that portion of the dividend not earned in the current year, but argues that since plaintiff had already received under the sections of the Internal Revenue Code applicable in such situations tax exempt income in excess of the cost basis of the stock held by them, and since there was no proof of the cost of the distributing company’s property or of any increase in their value before March 1,1913, any subsequent distribution of that nature must be taxed as a capital gain according to section 115 (d) of the Internal Revenue Code of 1939, 26 U. S. C. § 115. Thus, the issue is to determine whether capital gains taxes should be assessed against 70.93668 percent, or $14,187.34, of the $20,000 distribution to taxpayers in 1948, or whether it is completely tax exempt even though tax exempt income in excess of the cost basis of the stock to plaintiffs has been recovered by them.

The issue common to both parties will be discussed first.

The facts reveal that the War Assets Administration, an instrumentality of the United States Government, had for two years, from 1946 to 1948, attempted unsuccessfully to sell one of its surplus facilities, the Kemington Small Arms Plant. Apparently the chief reason for the failure to sell was the agency's refusal to sell the property piecemeal. It was aware that various institutions were interested in acquiring parts of the property but, not desiring to be left “holding the bag” with the least desirable or valueless portions of the property, would accept bids only for the entire plant. In accordance with this policy, it suggested that all interested persons and organizations join together and submit a joint bid for the entire property. Pursuant thereto, several organizations and individuals banded together for the purpose of bidding for the plant and purchasing it if the bid was accepted. This group, namely, the Utah Wholesale Grocery Company; Associated Food Stores, Inc.; Utah Power & Light Company; Imperial Upholstering Company; Zion’s Cooperative Mercantile Institution and the plaintiffs, John M. Wallace and Leland S. Swaner, submitted on April 20,1948, a bid for the property in the amount of $1,620,000, which bid was submitted in the name of plaintiff John M. Wallace and two other Salt Lake City residents, Harold H. Bennett representing Z. C. M. I., and Leland B. Swaner, father and representative of plaintiff, Leland S. Swaner, who were selected by the group to act as their representatives.

Each of the above organizations, all of whom had previously expressed an interest in and attempted to acquire part of the plant from the War Assets Administration, orally agreed to pay for the buildings and land they had selected at prices they had fixed thereon. The plaintiffs joined the agreement for the purpose of acquiring for investment the leftover acreage, unselected parts of larger buildings, smaller buildings and other odd pieces of property not desired by the other participants. Plaintiffs, therefore, were to pay the difference between the total bid price and the values affixed by the other participants. Plaintiffs’ share ultimately worked out to $74,077, each to pay one-half. A large part of the remaining land was unimproved and the remaining building space was considered of much less value than the other improved property selected by the above organizations. The entire plant was itself in a rundown state due to the lack of maintenance for over two years.

Wallace, Swaner, and Bennett in whose names the bid was submitted, were selected as representatives of the group as the result of a suggestion by the War Assets Administration that representatives be selected. They were to handle all transactions and details incident to the bid. They were to receive title to the property if the bid was accepted and were then to convey the selected parcels of property to the other participants at the agreed prices. It was for this reason, therefore, that title to the property was eventually transferred to them by the War Assets Administration on February 1,1949, after the final installment on the purchase price was paid. Immediately thereafter title was transferred by them to the respective group members according to their previous commitments.

Previous to this, however, the group’s nominees, Wallace, Swaner, and Bennett, had entered into written sales agreements with some of the participating members conveying to that member the particular piece of property it had previously selected. These agreements when taken alone would tend to indicate that the nominees bought the property from the War Assets Administration in their own right for resale to the individual group members. The agreements, however, which listed Wallace, Swaner, and Bennett as “Sellers” and the contracting group member as “Purchaser”, were for no other purpose than to formalize the oral commitments already existing between these participating bidders. The words “Sellers” and “Purchaser” were apparently merely words of convenience since Wallace, Swaner, and Bennett were at all times in question no more than representatives of the group itself.

These agreements, plus the fact that the bid was made in the individual names of Wallace, Swaner, and Bennett and the purchase price was paid by them — though they merely forwarded the money paid them by the other participants— and the fact that the land was transferred from the War Assets Administration to them in their individual names and was thereafter transferred by them to the participating members by the usual methods of conveyancing, probably led to the mistaken impression of the Commissioner of Internal Revenue that these three representatives of the group constituted a partnership for the purpose of buying the property and then reselling it to the group members.

After assuming there existed a partnership, the Commissioner, notwithstanding the fact that the property was purchased from the War Assets Administration for $1,620,-000, placed a valuation on the property of $1,981,367 as of the date of the purchase. This was arrived at by assigning as the market value of each piece of land purchased by the participating members the price paid by that participant, except as to the property held by Wallace, Swaner, and Z. C. M. I. Plaintiffs actually paid only $74,077 for their property but a market value as of the time of the purchase of $321,710 was assigned. Z. C. M. I. actually paid $553,000 but a valuation of $695,757 was assigned. No explanation has been advanced as to how this increased market value was arrived at.

Using the total valuation of $1,981,367 as the market value of the entire plant, the Commissioner of Internal Eevenue then ascertained the percentage of that figure that the price paid by each participant represented, with the exception of the plaintiffs and Z. C. M. I. That percentage was then applied against the $1,620,000, less $29,023 paid by the Mountain States Telephone Company for telephone and telegraph facilities. The result supposedly represented the cost basis of each of the various pieces of property concerned. The difference between that allocated cost and the actual price paid by the participating member was considered by the Commissioner to be a profit to the alleged partnership. It is this profit upon which the plaintiffs have been assessed additional taxes.

We hold that, as a matter of fact, no partnership existed and that Wallace, Swaner, and Bennett, acting at all times for Z. C. M. I., were only representatives of the entire group for the purpose of submitting the bid, handling details and taking and transferring title to the property, and that the Commissioner’s computations of market value are baseless. The record establishes beyond a doubt that those are the correct facts and no further explanation is needed.

The Government itself apparently does not put much faith in the partnership theory of the Internal Eevenue Service, as in its brief and oral argument before this court it used a new theory to support the Commissioner’s assessment of additional taxes. The Government now contends that while plaintiffs only paid $74,077 for their share of the property this amount was less than the recognized market value of the property and they were allowed to pay this reduced amount to compensate them for services they rendered in handling the transactions with the War Assets Administration and the other participants of the joint enterprise.

The increased valuation now argued for by the Government was arrived at by an erroneous application of the following facts. Before the amount of plaintiffs’ participation was agreed upon on October 5,1948, the plaintiffs had leased two portions of their property with the leases containing options to buy, one in the amount of $64,250 and the other in the amount of $85,000. A third such lease was entered into on October 11,1948, six days after the final determination of plaintiffs’ participation. The option to buy in this case was in the amount of $125,000. Defendant feels that this high valuation placed on the property by the plaintiffs represents the true value of their holdings, at least as to those pieces of property, at the time of the transfer and the difference between it and the $74,077 they actually paid is compensation to them and taxable as ordinary income. Defendant also points out that there was other property besides these three parcels which would tend to make the value higher yet, and feels it is significant that options to buy for such high amounts were made before final settlement as to the price they were to pay was made. The fallacy of defendant’s argument is apparent.

The bid of $1,620,000, submitted on April 20, 1948, was accepted by the War Assets Administration on June 21,1948, and the various participants of the hid immediately took possession of their selected property as did the plaintiffs. Plaintiffs’ property/however, was relatively valueless at the time of acquisition. It became valuable only after the larger concerns participating in the bid began reconditioning their new acquisitions and the public suddenly realized that the mere presence of these concerns in the area would make the property-valúablé.. While the above option agreements were entered into in 1948, sales for the property were not consummated until 1949, and the plaintiffs willingly paid capital gains taxes in that year on the profit they made. By setting such high prices for the option to buy; the plaintiffs may have anticipated a sudden increase in value but they cannot be taxed for such. Tax cannot be assessed until the profit has been realized.

The property acquired by plaintiffs was property that no one else wanted because it had no utility to them and as far as they were concerned was valueless. It is this very property that the War Assets Administration did not want to be “stuck” with and for that reason required a bid for the entire property and not for isolated portions thereof. Nevertheless, the defendant, initially through the Internal Revenue Service and now on new grounds before this court, placed a valuation on the plaintiffs’ acquisitions greater in amount than those more desirable and more valuable pieces of property obtained by all other members of the bidding group with the exception of Z. C. M. I., the third member of the partnership alleged by the Internal Revenue. Plaintiffs’ property was in fact not that valuable.

Therefore, the plaintiffs received no compensation or profits as the result of the purchase of the Remington Small Arms Plant from the War Assets Administration by the bidding group. They, along with Bennett of Z. C. M. I., were merely conduits of title. Plaintiffs’ profits did not come until the following year when, pursuant to the option agreements, the sales were consummated. This being so, the 1948 taxable income of plaintiffs, John M. and Glenn W. Wallace, jointly, and Leland S. Swaner, individually, should not include the sum of $56,975.98 upon which-the Commissioner of Internal Revenue has previously assessed taxes which were subsequently paid by the plaintiffs.

The second issue involved in this case concerns only the Wallaces. As noted above, they reported on their joint return for the year 1948 the receipt of a $20,000 distribution from the Excelsior Iron Mining Company but, in accordance with section 115 of the Internal Revenue Code'of 1939, excluded $14,187.34 from taxable income as representing a tax freereturn of capital paid out of earnings, profits or-increases in value of property existing or accrued on March 1, 1913. The Commissioner of Internal Revenue decided that since tax exempt income of this nature had already been received in previous years in excess of the cost basis of the stock, $20,000, any amount received in excess of that cost basis must be considered a liquidation dividend and be taxed as a capital gain. Defendant now takes the position that section 115 (d) is applicable since there is no proof in the record of the cost of the company’s property to it. It would therefore, defendant continues, be impossible to determine any increase in value up to March 1,1913, if the cost of the property is not first shown.

It is the position of the court that the ruling of the Commissioner of Internal Revenue and the new contention advanced here by the defendant are unsound.

Section 115 expressly excluding from taxation any distribution of pre-March 1, 1913, values is as follows:

Section 115 (a) Definition of Dividend. — The term “dividend” when used in this chapter * * * means any distribution made by a corporation to its shareholders, whether in money or in other property, (1) out of its earnings or profits accumulated after February 28,1913, or (2) out of the earnings or profits of the taxable year * * *. [Emphasis added.]
(b) Source of Distributions. — For the purposes of this chapter every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits. Any earnings or profits accumulated, or increase in value of property accrued, before March 1,1913, may be distributed exempt from tax, after the earnings and profits accumulated after February 28, 1913, have been distributed, but any such tax-free distribution shall be applied against and reduce the adjusted basis of the stock provided in section 113. * * * [Emphasis added.]

It is apparent from a reading of these sections that the only problem is to determine whether the source of the distribution was from pre-March 1, 1913, earnings, profits or increases in value. If the source of the distribution in excess of the current year’s earnings was pre-March 1, 1913, then the distribution is tax exempt regardless of the purpose of the distribution.

Taxing the distributions in excess of the current year’s net income on the theory of a liquidation dividend as the Commissioner has done in this case is improper for two reasons: (1) The record clearly shows that the company has never been in liquidation and is still a going concern. It has never retired any stock, at least not since March 1, 1913, and the record clearly shows that the distributions made during the year in question, 1948, were not for the purpose of retiring any stock; (2) the facts conclusively indicate that the 70.93668 percent of the $20,000 distributed in 1948 represented earnings, profits or increases in value accumulated prior to March 1,1913.

Even if we assume for the purpose of argument that the 1948 distribution in excess-of current earnings was a liquidation dividend, if the source of that distribution was pre-March 1,1913, it would still be nontaxable as section 115 (a) and (b) of the 1939 Code specifically exempts from taxation any values accruing before that date. The purported liquidating dividend would be in liquidation of such accumulations and, therefore, could not be taxed. Moreover, the distribution of pre-March 1,1913, values cannot in any sense be called a “dividend.” The above referred to section of the code excludes them from dividend treatment, and section 29.115-2 of Regulations 111, promulgated under the 1939 Code, states quite definitively that such a distribution “is not a dividend.”

The defendant in its argument before this court places great stress on the cost of the property to the taxpayer as being an element in determining taxability of this type distribution when tax exempt distributions in excess of the cost basis of the taxpayer’s stock have already been received by him. This contention is settled by the same rule relating to the source of the distribution stated above and has been clearly ruled on by this court in Higginson v. United States, 113 C. Cls. 131 (1948), cited by both parties. The defendant, however, attempts to distinguish that case from the case at bar, but that distinction is without merit. The Higginson decision interprets the statute properly, expounding the theory that it is the source of the distribution that determines the taxability or nontaxability of the distribution. While the nontaxable distribution will reduce the basis of the stock in the taxpayer’s hands, section 115 (b), there is no provision taxing as capital gain the receipt of any excess over the basis as long as the source of the distribution is from pre-March 1,1913, values, earnings or profits.

The court states in Higginson, supra, as follows at 153:

* * * The test of the exemption provided for in the statute is not the basis of the stock in the hands of the stockholder. The basis of the exemption from tax is the source of the distribution. The provision that the “tax-free distribution” shall be applied against and reduce the basis of the stock “provided in section 113,” relates to a matter entirely different from the taxation of the distributions when received; i. e., gain or loss upon the sale or disposition of the stock. The two provisions in subsection (b) are entirely consistent. The statute exempts the distributions from tax because they are treated as being in the nature of distributions of capital and they are applied against the basis of the stock, until they equal such basis, for the same reason. There is no indication whatever of an intention to impose a tax on the amounts distributed in excess of the basis. We think the obvious intention is to the contrary. The application of the distributions against the cost or other basis of the stock has no effect whatever upon taxability or non-taxability of the distributions when received by the stockholder.

The defendant, nevertheless, insists that subsection (d) of section 115 is applicable because there is no proof of cost of the property in the hands of the Excelsior Mining Company and no proof of increases in value thereof before March 1, 1913. Without this, it contends, it is impossible to determine whether or not the distribution came from pre-March 1, 1913, values, profits or earnings. That subsection provides as follows:

(d) Other Distributions from Capital. — If any distribution made by a corporation to its shareholders is not out of increase in value of property accrued before March 1,1913, and is not a dividend, then the amount of such distribution shall be applied against and reduce the adjusted basis of the stock provided in section 113, and if in excess of such basis, such excess shall be taxable in the same manner as a gain from the sale or exchange of property. * * *

That section obviously does not apply if the source of the distribution is pre-March 1,1913. If the source was not pre-March 1,1913, capital gains taxes apply to the excess received over cost basis of the stock in the taxpayer’s hands.

We conclude that the source of the distribution in this case was pre-March 1,1913. Every year since 1913 the Excelsior Iron Mining Company has distributed its entire net income to its stockholders; therefore, after the entire net income for the current year had been distributed, any excess must have been from increased values or earnings that had accrued as of March 1, 1913. Since the record shows that the entire net income since March 1, 1913, has been distributed to the stockholders, that is in itself sufficient to show that any distribution in excess of the current year’s earnings must have been accrued before that date, especially since there was no liquidation or partial liquidation since that time. There is no other source from which it could have come. Therefore, the 70.93668 percent, or $14,187.34, of the 1948 distribution of $20,000 represents a return of values, earnings or profits that accrued prior to March 1,1913, and is nontaxable under section 115 (a) and (b). Thus, the sums of $7,093.67 and $1,406.46 included in taxpayers’ 1948 income as the result of the above erroneous application of the law by the Commissioner of Internal Eevenue should be excluded therefrom.

Accordingly, the court concludes that the income of plaintiffs, John M. Wallace and Glenn W. Wallace, for the year 1948 should not include the sums of $56,975.98, $7,093.67 and $1,406.46 and, therefore, judgment for the total overassessment and collection of tax and interest, which has been determined to be $50,401.42, plus interest at the rate of six percent per annum from the date of payment, will be entered in favor of these plaintiffs. The court also concludes that the income of plaintiff, Leland S. Swaner, for the year 1948 should not include the sum of $56,975.98 and that judgment will be entered in favor of this plaintiff in the amount of the total overassessment and collection of tax and interest, which has been determined to be $36,985.23, plus interest at the rate of six percent per annum from the date of payment.

It is so ordered.

Madden, Judge; Whitaker, Judge; Littleton, Judge; and Jones, Chief Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the briefs and argument of counsel, and the report of Commissioner Roald A. Hogenson, makes the following findings of fact:

1. Plaintiffs, John M. Wallace and Glenn W. Wallace, are husband and wife, citizens of the United States, and residents of Salt Lake City, Utah. They filed their j oint income tax return for the calendar year 1948 with the Collector of Internal Revenue for the collection district of Utah. The income tax of $49,571.46 disclosed on the return was duly paid.

During all pertinent times, plaintiff, John M. Wallace, was president of Walker Bank & Trust Company and was also engaged in other business activities, including among others a partnership known and operated under the trade name of Industrial Center, formed July 1,1948.

2. Plaintiff, Leland S. Swaner, a citizen of the United States and resident of Salt Lake City, Utah, also filed his income tax return for the calendar year 1948 with the Collector of Internal Revenue for the collection district of Utah. The income tax of $3,522.10 disclosed on the return was duly paid. Included in the income reported on the return was the sum of $4,278.52, which was proceeds from sale of equipment and personal property received by taxpayer as compensation for services at Industrial Center. Plaintiff, Leland S. Swaner, was associated as a partner with plaintiff, John M. Wallace, in the partnership named Industrial Center.

3. At the beginning of World War II, the defendant acquired certain unimproved land located in Salt Lake County, Utah, extending northerly from 21st South Street and westerly from Redwood Road, outside of the city limits of Salt Lake City and several miles removed from the main industrial center thereof. The defendant caused buildings and other facilities to be constructed on this land, and then proceeded to use said property in the manufacture of .30 and .50 caliber ammunition by and through the agency of Remington Small Arms Company. These operations continued throughout the war, and the entire property became commonly known as the Remington Small Arms Plant.

4. During the year 1946 the defendant’s War Assets Administration declared the Remington Small Arms Plant to be surplus property and advertised it for sale. At various times thereafter until 1948, the War Assets Administration renewed its advertisements and invitations for bids, but no satisfactory bid was submitted until April 20, 1948, when a bid was submitted in the names of plaintiff John M. Wallace, and two other Salt Lake City residents, Harold H. Bennett and Leland B. Swaner, the latter being the father of plaintiff, Leland S. Swaner. This bid was in the total sum of $1,620,000 for all of the land, buildings and facilities set forth in the invitation for bids, which was all of the property of the Remington Small Arms Plant except one building and its surrounding land reserved for Government use. At the same time, a group of bidders from Denver, Colorado, offered to buy the same property for the total sum of $900,000. Previous bids had been submitted for parts of the property offered for sale, but rejected because War Assets Administration was determined to sell the entire property in one transaction in order to avoid the circumstance of having left a residue of unsalable property.

5. From 1946 to 1948 the Salt Lake City Chamber of Commerce endeavored to find purchasers for the property, offering to obtain concessions of various tax benefits and appraisals as an inducement for new industry to come to the area. Because of its interest in the sale of power to be consumed, the Utah Power & Light Company undertook throughout the country to induce companies to acquire all or part of the property of the Remington Small Arms Plant.

During this time, the plant property was largely unoccupied and was deteriorating from lack of maintenance and repair. The War Assets Administration was aware that various institutions were interested in acquiring parts of the plant property and suggested that all interested persons and organizations join together and submit a joint bid for the entire property.

6. On or about April 1, 1948, the plaintiffs, John M. Wallace and Leland S. Swaner, joined with representatives of Utah Wholesale Grocery Company, Associated Food Stores, Inc., Utah Power & Light Company, Imperial Upholstering Company, and Zion’s Cooperative Mercantile Institution (hereinafter referred to as Z. C. M. I.), all of Salt Lake City, Utah, in an oral agreement to acquire all of the advertised land and property of the Remington Small Arms Plant. In this and subsequent negotiations and transactions, plaintiff Leland S. Swaner was represented by his father, Leland B. Swaner, and Z. C. M. I. was represented by its executive vice-president, Harold H. Bennett.

Prior to this time, each of the companies named in this finding had attempted to acquire from War Assets Administration a certain part or parcels of the entire property, and together their interests in the oral agreement covered the main buildings or parts of buildings and the major facilities of the property. It was necessary that a purchaser or purchasers be found for the remaining unimproved acreage, unselected buildings or parts of buildings and odds and ends, in order that a joint offer would cover the entire property.

Plaintiffs, John M. Wallace and Leland S. Swaner, entered into the oral agreement with the representatives of the above-named firms, for the purpose of acquiring for their own use and investment and for future development the leftover acreage, unselected parts of larger buildings, small buildings and odd pieces of property, none of which was covered by the participation of the companies in a joint bid for the entire property. This remaining property and building space were considered to be of much less value than any of the improved property selected by the companies.

7. The Remington Small Arms Plant property consisted of 1,100 acres of land and improvements consisting of 100 or more buildings and structures of varying sizes and dimensions, together with roads and necessary utilities, including power lines and sewer and water lines. Each company participating in the agreement to submit a joint bid had fixed its own price on the particular parcel of property it desired. It was understood in the oral agreement that each company would participate in the joint bid to the extent of the price it had placed on the part of the property selected by it, and that plaintiffs, John M. Wallace and Leland S. Swaner, would similarly participate to the extent of their bid price for the balance of the property. It was further understood that in the event the joint bid was accepted, each company would receive a deed for its particular piece of property, and that plaintiffs, John M. Wallace and Leland S. Swaner, would take title to all the remaining property involved in the bid.

At the suggestion of the War Assets Administration, the parties to the oral agreement for submission of a joint bid selected certain individuals in whose names the joint bid was to be submitted, to handle all necessary details in connection therewith, to receive title to all the property in their names, and to distribute by appropriate conveyances the selected parcels of property to the participating individuals and companies. The group selected John M. Wallace, Leland B. Swaner, who was acting for his son, Leland S. Swaner, and Harold H. Bennett, executive vice-president of Z. C. M. I., as their representatives for such purposes.

Sometime in 1949 this oral agreement was reduced to writing and signed by all of the participating individuals and companies.

8. The group bid dated April 20, 1948, was submitted on that date in the names of John M. Wallace, Leland B. Swaner, and Harold H. Bennett, in the total sum of $1,620,000, with 1% or $16,200 being paid as a deposit on the purchase price, the purchase price otherwise to be paid 24% on June 1,1948, and 75% balance on February 1, 1949, with possession to be given on June 1,1948.

9. In the oral agreements for submission of a group bid, later confirmed by written memorandum executed in 1949, the parties agreed to participate in the bid to the extent set out below for the acquisition of the following described parcels of property which together constituted the entire property of the Remington Small Arms Plant on which bids had been invited by the War Assets Administration:

Utah Wholesale Grocery Co. was interested in obtaining the land and Building 1, located on Tract 1, and agreed to participate in the bid to the extent of_$193,500
Associated Food Stores, Inc was interested for itself and associated companies in obtaining the land and a part of Building 2, located on Tract 2, and the land and Building located on Tract 12, and agreed to participate in the bid to the extent of_$280, 000
Utah Power & Light Company was interested in obtaining the power lines, rights of way, and all communication lines in the area and agreed to participate in the bid to the extent of_ 160, 000
Imperial Upholstering Company was interested in obtaining the land and part of Building 2, located on Tract 2, and at first agreed to participate in the bid to the extent of $135,000 which amount was later increased as related in finding 16 to the total sum of_ 180,400
Zion’s Co-operative Mercantile Institution was interested in obtaining the land and Building 3, located on Tracts 3, 6 and 13, and part of Tract 1, and John M. Wallace and L. S. Swaner were interested in obtaining the remainder of the property which was largely unimproved, for development purposes, and together the three parties agreed to participate in the bid to the extent of $851,500 which sum was reduced by the extent of the increased participation of Imperial Upholstering Company for property which was part of the residue allotted to Swaner and Wallace, so that the realized participation of these three parties was_ 806,100

The total of the above-described participations was the bid price of $1,620,000.

Of the total combination figure of $806,100 covering the participation of Z. C. M. I., John M. Wallace, and Leland S. Swaner, it was orally understood that Z. C. M. I. would participate to the extent of $703,000, Mountain States Telephone Company would pay $29,023 for the telephone and telegraph facilities, and John M. Wallace and Leland S. Swaner would pay the balance of $74,077 for all the remaining property covered by the group bid.

10. The opening of the bids was attended by John M. Wallace and Leland B. Swaner, and the Wallace-Swaner-Bennett group bid in the sum of $1,620,000 was announced, as was the Denver, Colorado, group bid in the sum of $900,000.

The Wallace-Swaner-Bennett group bid was accepted by the War Assets Administration on June 21, 1948, and the various participants in the bid immediately took possession of their respective parcels and commenced remodeling and repair of the premises, with the result that there was a great deal of activity in and considerable publicity about the new industrial center. Most of the participating companies moved into their buildings at or about Labor Day, 1948, after remodeling had been completed.

11. After the opening of the bids, and on or about July 8,-1948, the participants in the group bid agreed with the Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints, a corporation sole, that the latter would take over that part of the property covered in the $806,100 combined participation of Z. C. M. I. and John M. Wallace and Leland S. Swaner, comprising the property previously selected by Z. C. M. I. on Tract 1 for $150,000, thereby reducing the $806,100 participation to $656,100. In effect, the Z. C. M. I. relinquished part of its selected property to the church corporation, which agreed to participate in the group bid price to the extent of $150,000, and the Z. C. M. I. participation was reduced to that extent, all of which was approved by the participating individuals and companies.

12. The Mountain States Telephone Company paid the sum of $29,028, its agreed participation in the bid for the telephone and telegraph facilities, directly to the War Assets Administration, and the group bid price was credited to that extent.

Otherwise, payments were made to the War Assets Administration strictly in accordance with the requirements of the bid, and the participants delivered their agreed shares of the. installment payments to the Walker Bank & Trust Company, and the payments were made to the War Assets Administration through the ordinary facilities of that bank.

The total contribution of plaintiffs, John M. Wallace and Leland S. Swáner, to the total group bid price was in the sum of $74,077, of which sum each supplied one-half. The' total contribution of Z. C. M. I. was the sum of $553,000.

13. In accordance with the terms of the bid, War Assets Administration delivered a deed to the real property and a bill of sale for the personal property on February 1, 1-949, when the last installment payment was made, and in these instruments John M. Wallace, Leland B. Swaner and Harold H. Bennett were named as the grantees.

Immediately upon receipt of the documents of conveyance from War Assets Administration, John M. Wallace, Leland B. Swaner, and Harold H. Bennett executed and delivered to each of the participating parties a deed and bill of sale covering the particular property which it had purchased by participation in the joint bid.

14. There are several formal documents in evidence which when considered apart from all other evidence tend to raise an inference that John M. Wallace for himself, Leland B. Swaner for his son, Leland S. Swaner, and Harold H. Bennett for the use and benefit of Z. C. M. I., were the real purchasers of all of the Bemington Small Arms Plant property, and that they purchased that property for resale to the individuals and companies who participated in the joint bid.

In a formal agreement dated July 9, 1948, copy of which is in evidence as defendant’s exhibit 5, John M. Wallace, Leland B. Swaner, and Harold H. Bennett recited that the War Assets Administration had invited bids for purchase of the Remington Small Arms Plant as a unit; that prior to April 20, 1948, they had ascertained that several firms and corporations were interested in acquiring portions of said property and had secured verbal agreements from them for the acquisition of such portions,

which agreements were subsequently converted into firm written commitments as of said date, [April 20, 1948] and which commitments provided that the parties hereto would submit a bid for the purchase of said entire property, and in the event of the acceptance of such bid, said firms and corporations would pay the amounts stipulated in said several commitments in consideration of the conveyance to them respectively of the portions covered by such commitments * * *

It was further recited that the parties submitted the bid on April 20,1948, for the purchase of the entire plant property,

such bid being for the benefit of all parties who might acquire portions of said property, although at that time firm commitments had not been obtained by the parties hereto for all portions of said property which were deemed suitable by them for the creation of said industrial center; and notwithstanding the submission of such bid the parties hereto had a mutual understanding and agreement that they would continue in their efforts to obtain from other persons or corporations firm commitments for the acquisition of additional portions of said property * * *

Further recitals in this agreement were as follows:

whekeas, subsequent to the 20th of April, 1948, firm commitments were obtained for additional portions of said property, and
whereas all of the commitments obtained by the, parties hereto, both before and after April 20, 1948, with all firms and corporations desiring to acquire portions of said property expressly provided that the terms thereof could be modified by the mutual agreement of the parties thereto, and certain of said commitments were modified by mutual agreements between the parties thereto, both with respect to the amounts to be paid by the parties making such commitments and so as to enable certain of the firms and corporations who had expressed a desire so to do to acquire additional portions of said property, and
whereas the parties hereto have been endeavoring to have Salt Lake City assume the maintenance and operation of the streets, sewer system and water system located and contained within The Eemington Small Arms Plant property for the use and benefit of all parties acquiring portions of said and
whereas the parties hereto have had numerous conferences and discussions commencing long prior to the 20th day of April, 1948, pertaining to the disposition to be made of all parts and parcels of said The Eeming-ton Small Arms Plant property remaining after firm commitments had been obtained from all other firms and corporations desiring to acquire portions of said property, including the streets, roads, water and sewer systems, and railroad trackage, serving said property, and
whereas from the begimiing of said investigations above referred to, the parties hereto have contemplated that John M. Wallace and Leland B. Swaner should acquire such portions of said property as the parties hereto should ultimately mutually determine and agree upon, and at all times the parties hereto have known that in all matters pertaining to said The Eemington Small Arms Plant property, Harold H. Bennett, one of the parties hereto, has been acting for and on behalf of and as trustee for Zion’s Co-operative Mercantile Institution, and that he has no personal interest in any of said property; and some modifications of the commitment obtained from said Zion’s Co-operative Mercantile Institution have, pursuant to its terms, been agreed upon by it and the parties hereto, and the parties hereto and said Zion’s Co-operative Mercantile Institution have agreed that it will be necessary to make other modifications of said commitment in connection with the disposition of the portions of said property remaining after other definite commitments have been complied with, but a partial disposition of said remaining portions can now be made;
# * * # *

The parties agreed that subject to the making of other modifications, John M. Wallace and Leland B. Swaner would acquire certain portions of the plant property, which were described in the agreement and which in effect comprised the property not covered by the commitments of all other participants in the joint bid. This property was described as follows:

(a) The North 36,000 square feet of the main or ground floor of Building No. 1, the South boundary of which is a line running East and West through said building at a point 180 feet South of the Northeast corner of said Building No. 1 excluding, however, the freight elevator and stairway located in said 36,000 square foot portion of the North end of said Building No. 1; together with a right of way for light, air, and maintenance for the above described premises over a strip of land three feet wide adjoining the southeast portion of the above described premises and extending from the West line of “B” Street to the East wall of the portion of said Building No. 1 immediately adjoining the North 36,000 square foot area thereof on the South.
(b) The North 22,125 square feet of the main or ground floor of said Building No. 1, and the North 20,000 square feet of the mezzanine floor of said Building No. 1, both immediately adjoining on the South the North 36,-000 square foot portion of the main or ground floor of said Building No. 1, described in the preceding paragraph (a) hereof, subject to a right of way over, through and across the portion of said Building No. 1 in this paragraph (b) described, to afford ingress and egress to and from the above mentioned freight elevator and stairway for the benefit of the South part of the central portion of said Building No. 1 immediately adjoining the premises herein described on the South.
(c) That part of approximately the center portion of Building No. 2 having a frontage of 180 feet bounded on the South by the North line of the portion of said Building No. 2 to be acquired by Associated Food Stores, and bounded on the North by the South line of that portion of said Building No, 2, to be acquired by Imperial Upholstering Company, Inc., the south line of approximately the center portion of said Building being further described as 390 feet South of the North wall of the West wing of said Building No. 2, or 90 feet south of the South wall of the center wing of said Building No. 2 and containing approximately 30,700 square feet of ground floor space and 29,700 square feet of mezzanine floor space;
(d) Together with rights of ingress and egress over, upon and across all roads, alleys, and streets located within the area commonly known and described as The Remington Small Arms Plant property in Salt Lake City, Utah, and the right to use and enjoy in common with other persons or corporations who may acquire portions of said property the sewer and water systems now or hereafter located upon and within said property and serving the same, and which are necessary for the convenience, use and occupancy of each and all of the herein described and referred to buildings and property.
(e) Also together with the right to use, in common with others, the present main line railroad trackage and all extensions thereof now or hereafter serving the buildings and property herein described and referred to and other portions of The Remington Small Arms Plant property.
(f) All main line railroad trackage, subject, however, to the rights of all other persons and corporations who are to acquire portions of said The Remington Small Arms Plant property to use and enjoy the same as such rights are described m the agreements heretofore or hereafter made by any or all of the parties hereto with such other persons or corporations and as may be necessary for the convenience, use and occupation of the parts and portions of said The Remington Small Arms Plant property by the other persons or corporations who are to acquire parts or portions of said property.
(g) All and every other building, structure, facility, improvement, hereditament and appurtenance of every name, nature and description located upon, pertaining to, or used or intended to be used in connection with said The Eemington Small Arms Plant property, together with all and singular all lands and real property of every kind and character including all easements and rights of way, and all water and water rights, comprising or constituting said The Eemington Small Arms Plant property of Salt Lake City, Utah, expressly excluding, however, the following:
(1) All streets, roads, sewer and water systems located upon and within said property and serving the same.
(2) All portions of said lands and real property, together with all water and water rights usually belonging, had, enjoyed or appurtenant thereto, and all portions of said buildings and other improvements, and all easements and other rights that are described or are intended to be included in any and all agreements heretofore made by the parties hereto with other persons or corporations who are to acquire portions of said The Eemington Small Arms Plant property.
(3) All portions of said The Eemington Small Arms Plant property herein described and referred to, to be acquired by John M. Wallace and Leland B. Swaner, shall be subject to all easements and rights of way heretofore or hereafter granted by the parties hereto for the operation, maintenance, repair, alteration and replacement or removal of all electric transmission and distribution circuits and facilities used or desirable in connection therewith, and for all other purposes which are for the benefit and advantage of the various owners of other portions of said The Eemington Small Arms Plant property.

The remaining agreements were as follows:

b. The parties hereto agree that they will continue to exert their best efforts to obtain an agreement from Salt Lake City Corporation to accept, operate and maintain the streets, roads, alleys, water system and sewer system located and contained within said The Eeming-ton Small Arms Plant property; and in the event the parties hereto shall be unable to obtain such agreement, such disposition of said streets, roads, alleys, water system and sewer system will be made as the parties hereto together with the owners of buildings Nos. 1,2, and 3 of said The Eemington Small Arms Plant property may hereafter agree upon.
c. It is agreed that all roads and streets which serve or afford access to the property described and referred to in paragraph (g) above shall be owned by and be under the control of John M. Wallace and Leland B. Swaner with the exception of all main roads and streets serving or giving access to the entire area, The Remington Small Arms Plant property, over which main roads and streets the parties hereto have granted rights of ingress and egress to other firms or corporations who are to acquire parts or portions of said The Remington Small Arms Plant property.
d. That the total amount to be paid by John M. Wallace and Leland B. Swaner for transmission by the parties hereto to said War Assets Administration for the above mentioned and described portions of said property shall be such sum as the parties hereto hereafter shall mutually determine and agree upon, together with interest at the rate of four per cent per annum upon all unpaid portions thereof from July 15, 1948 until paid.

By formal agreement dated October 5,1948, the same three parties agreed that John M. Wallace and Leland B. Swaner would pay for transmission to War Assets Administration for the acquisition by them of the property described in the agreement of the parties, dated July 9, 1948, the sum of $74,077, of which it was acknowledged $22,077 had previously been paid. It was further agreed that upon receipt of a conveyance of all of the property from War Assets Administration that Harold H. Bennett and his wife would execute and deliver to John M. Wallace and Leland B. Swaner, or their nominees, such quit-claim deeds as would be necessary to cover all of the property described in the agreement of July 9, 1948.

15. Of the written commitments mentioned as being obtained on or prior to April 20,1948, the only one in evidence (defendant’s exhibit 8) is a formal agreement dated April 10, 1948, in which John M. Wallace, Leland B. Swaner and Harold H. Bennett are named as “Sellers” and Utah Power & Light Company as “Purchaser”. The parties agreed that “subject to the acceptance by War Assets Administration of Sellers’ bid for the Remington Small Arms Plant at Salt Lake City, Utah,” Sellers agreed to sell and Purchaser agreed to purchase that part of said property described and set forth on an attachment to the contract document. The property described was the power lines and poles, substation equipment, distribution circuits, border lighting circuits, transformers, and easements for maintenance and operation, for which “Purchaser” agreed to pay “Sellers” the sum of $160,000 in specified installments, which corresponded with the installment plan which was later included in the group bid.

These same parties entered into subsequent amendatory and supplemental agreements, one dated April 26, 1948, and another in July 1948, in which the relationship of the parties was designated as “Sellers” and “Purchaser”.

16. In a formal agreement dated July 10,1948, in evidence as defendant’s exhibit 4, John M. Wallace, Leland B. Swaner, and Harold H. Bennett, were designated as “Seller”, and Imperial Upholstering Company, as “Purchaser”. It was recited that the agreement of Seller and Purchaser, dated April 20, 1948, provided for the acquisition of the north 50,000 square feet of the main ground floor and the north 13,000 square feet of the mezzanine floor of Building No. 2 of the Remington Small Arms Plant, together with rights of egress and ingress over and across all roads and streets Located within the area, for the sum of $135,000. In addition to this property, the buyer agreed to purchase from seller, an additional part of the same building amounting to 15,700 square feet of ground floor, and an additional 14,000 square feet on the mezzanine floor, for an additional price over and above the $135,000, so that the total price for all parts of thel building and surrounding land selected by Imperial was increased to $180,400.

The sum of $180,400 is the actual amount which Imperial Upholstering Company paid in its participation in payment of the group bid obligation.

17. The participation of the Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints, a corporation sole, in the acquisition of part of the property selected by Z. C. M. I. to the extent of $150,000, was formalized in a written agreement dated July 8, 1948, executed by John M. Wallace, Leland B. Swaner, and Harold H. Bennett, and their wives, and by the Presiding Bishop in behalf of the church corporation. The parties recited that a bid had been submitted to purchase as a unit the property of the Remington Small Arms Plant.

said bid being for the benefit of all persons and corporations desiring to acquire portions of said property; and which said bid has been accepted by said War Assets Administration * * *

This agreement provided for payment to Wallace, Swaner and Bennett, “for transmission by them to War Assets Administration”, the sum of $150,000 in installments of $37,500 on July 10,1948, and the balance of $112,500 on February 1, 1949, for acquisition of part of Building No. 1 to the extent of 54,225 square feet of the main ground floor and 41,550 square feet of the mezzanine floor. It was agreed that the church corporation would be allowed a credit of $1,350 on the last installment payment because of the fact that part of the mezzanine floor had not been floored. It was also provided that the church corporation would pay one-half of the cost of construction of a partition across the building, with the owner of the adjoining part of the building to pay the other one-half, which other owner was known to be Z. C. M. I. but not named by the parties.

The parties agreed that Wallace, Swaner, and Bennett would obtain title to the described property and together with their wives execute conveyances to the church corporation.

18. It is found from all of the evidence in this case that the language in the above referred to documents, which refers to John M. Wallace, Leland B. Swaner, and Harold H. Bennett as “Sellers” and other participants in the group bid as “Purchasers” and which generally tends to indicate that a sales relationship existed between those three individuals and other participants, was only language of convenience. The true relationship between Wallace, Swaner and Bennett and the other participants was that they were the nominees of all participating individuals and companies to submit a group bid and carry out all transactions resulting from acceptance thereof, including transmission of the respective shares of the bid price to War Assets Administration, acquisition and distribution of title, and all details and negotiations concerned and involved in the handling of group acquisition of a large and complicated tract of improved real estate. - ....

19. After the acceptance of the group bid by War Assets Administration on June 21, 1948, and on or about July 1, 1948, plaintiffs John M. Wallace and Leland S. Swaner, entered into a partnership operating under the trade name of Industrial Center, for the purpose of entering upon, taking possession of, and managing the portions of the Remington Small Arms Plant acquired by them. The first fiscal year of this partnership expired on June 30, 1949, and the partnership filed its Federal tax returns with the Internal Revenue Service for this and each successive fiscal accounting period thereafter.

20. After the formation of the partnership, plaintiff, John M. Wallace, and Leland B. Swaner acting for plaintiff, Leland S. Swaner, entered into three separate transactions whereby portions of the property acquired by plaintiffs at the Remington Small Arms Plant were leased to three corporations, with each lease containing a provision giving lessee an option to purchase, which transactions are more particularly described as follows:

(1) Lease dated July 10, 1948, with the Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints, a corporation sole, covering some of plaintiffs’ part of Building No. 1, with option to purchase the described property for $64,250.

(2) Lease dated July 16,1948, with Imperial Upholstering Company, Inc., covering plaintiffs’ part of Building No. 2, with option to purchase described property for $85,000.

(3) Lease dated October 11, 1948, to Deseret News Publishing Company, covering the rest of plaintiffs’ part of Building No. 1, with option to purchase the described property for $125,000.

Each of the lessees exercised its option to purchase during the year 1949, resulting in income to plaintiffs which they reported in their partnership return and their 1949 individual Federal income tax returns. Settlement of the 1949 returns was made by plaintiffs with defendant on the basis that these transactions resulted in capital gains on the basis that the total cost of all their Remington Small Arms Plant property was $74,077, contributed one-half by Wallace and the rest by Swaner.

21. After consideration of the tax returns of plaintiffs, John M. Wallace and Glenn W. Wallace, and plaintiff Leland S. Swaner, the revenue agent decided that a partnership existed between John M. Wallace, Leland S. Swaner, and Z. C. M. I. during the calendar year 1948, and that John M. Wallace and Leland S. Swaner each had a 30% interest and Z. C. M. I. a 40% interest in the business of buying and selling interests in the Eemington Small Arms Plant. The revenue agent decided that this partnership received income from sales of real estate as follows:

Market value Percentage of total Allocated cost basis Property sold Gain on sale Purchasers Utah Wholesale Grocery.. Imperial Upholstery.. Associated Foods.. Certified wbse.. Utah P & L... LDS Church_ Partnership Property Wallace & Swaner_ Z. O. M. I.. $193,500 180,400 180,000 100,000 160,000 150,000 321,710 695,757 Total.. 1,981,367 9.7660 9,1048 9.0846 5.0470 8.0752 7.5705 16.2369 35,1150 $155,374.81 144,855.27 144.533.90 80,206.61 128,474.57 120.444.91 258,325.34 658,671.59 $193,500 180,400 180,000 100,000 160,000 150,000 100.0000 1,590,977.00 963,900 $38,125.19 36,644.73 35,466.10 19,703.39 31,525.43 29,555.09 189,919.93

By ascribing 30% of this alleged net income of $189,919.93 to each of them, the revenue agent decided that John M. Wallace and Leland S. Swaner had each realized $56,975.98 as income from the alleged partnership between them and Z. O. M. I.

There is no substantial evidence in this record to support these decisions, determinations and computations of the revenue agent.

22. In the determination of taxable net income of plaintiffs, John M. Wallace and Glenn W. Wallace, for the calendar year 1948, the defendant adjusted the reported net income by adding the alleged partnership profit of $56,975.98.

A further adjustment made by the defendant concerned the receipt in 1948 by plaintiff, Glenn W. Wallace, of $20,000 in dividends from Excelsior Iron Mining Company. These taxpayers had considered $14,187.34 of the dividends as a return of capital and excluded that sum from the $20,000 in their reported income. This same portion of the dividends was treated by the revenue agent as a liquidating dividend subject to capital gain tax provisions, and 50% thereof, or $7,093.67, was added as an adjustment to taxpayers’ net income.

As a result of these two adjustments, together with others, a deficiency in tax of $46,771.54 for 1948 was asserted and timely assessed against these plaintiffs, together with interest thereon of $6,211. On June 15, 1951, plaintiffs paid $43,337.53 of the assessed deficiency and interest which was the balance thereof after $9,645.01 had been satisfied by a credit on May 24,1951.

23. Upon reconsideration of the $20,000 dividend received by plaintiff, Glenn W. Wallace, from Excelsior Iron Mining Company, defendant further adjusted the Wallaces’ taxable net income for 1948 by reducing the sum of $14,187.34, which was the amount of the dividends previously determined to be subject to capital gains tax provisions, to the sum of $11,374.42, of which 50% or $5,687.21 was determined to be the correct amount to be included in net income as the taxable portion of the alleged capital gain, rather than the previously determined sum of $7,093.67, or a reduction of $1,406.46.

The portion of the $20,000 dividends above $11,374.42 was treated by defendant as ordinary income, and the net amount of this portion which had not been reported as such by taxpayers, was $2,812.92. This latter sum was offset by the above-described $1,406.46 reduction of net income which resulted in a net adjustment by addition of the remainder, or $1,406.46, to taxpayers’ taxable net income.

Defendant thereupon timely assessed a further income tax deficiency of $1,376.09 for 1948, against plaintiffs, John M. Wallace and Glenn W. Wallace, together with interest of $261.46 thereon.

On June 11, 1952, these plaintiffs paid this additional deficiency assessment and interest.

24. On May 14, 1952, plaintiffs, John M. Wallace and Glenn W. Wallace, filed a claim for refund in the amount of $46,771.54, or such greater sum as may be determined, on the grounds that the Bureau of Internal Bevenue had erroneously determined that Z. C. M. L, John M. Wallace, and Leland S. Swaner constituted a partnership for the purpose of engaging in business to buy and sell interests in the Bemington Small Arms Plant, and that the alleged partnership had income from the sale of interests in said plant during 1948 in the amount of $189,919.93, of which amount 30%, or $56,975.98, was determined to be income of John M. Wallace, on which tax was assessed and paid. Claimants asserted that no such partnership existed and no such sales took place, and that the income of John M. Wallace for 1948 was overstated by at least an amount of $56,975.98.

25. On February 26, 1953, plaintiffs, John M. Wallace, and Glenn W. Wallace, filed an amended claim for refund for 1948 of taxes overpaid in the sum of $46,771.54, or such greater amount as may be determined, which was grounded upon the same assertions set forth in the claim filed May 14, 1952, and also alleged that the “Bureau of Internal Bevenue has also erroneously included as part of income an amount of $7,093.67, representing alleged liquidating dividends from the Excelsior Iron Mining Company, the full amount of which constitutes a return of capital.”

26. In the determination of the taxable net income of Leland S. Swaner for the year 1948, the defendant included therein the sum of $56,975.98 as his share of the profits of the alleged Wallace, Swaner, Z. C. M. I. partnership derived from the purchase and sale and other disposition of the property of Bemington Small Arms Plant. This adjustment, together with others, produced a determined deficiency for the year 1948 of $32,649.55. This deficiency, together with interest thereon in the sum of $4,335.68, was timely assessed against Leland S. Swaner and was satisfied by him by credit of $10,577.16 on May 24, 1951, and payment of $26,408.07 on June 15,1951.

27. On May 14, 1952, plaintiff, Leland S. Swaner, filed a claim for refund for the year 1948 in the amount of $26,-408.07, or such greater amount as may be determined, with interest, based upon the assertion that no partnership existed between Wallace, Swaner and Z. C. M. I. and no real estate sales took place with the result that the income of Leland S. Swaner was overstated in the amount of $56,975.98.

28. Plaintiff, Glenn W. Wallace was the owner of a block of stock of the Excelsior Iron Mining Company, a Utah corporation. During the year 1948 she received dividends from Excelsior in the amount of $20,000.

29. Plaintiff, John M. Wallace, was a director and president of Excelsior, and, as such, had charge and direction over its mining operations for a number of years, including the year 1948.

30. The Excelsior company was engaged in the mining and marketing of iron ore from property owned by it located in Utah, which mining property had been acquired by it prior to March 1,1913. The parties have agreed that the minerals and the mining property had a value on March 1, 1913, of $600,000.

31. It was the policy of Excelsior annually to pay the entire amount of its net income as dividends to its stockholders for the purpose of avoiding being taxed as a personal holding company.

32. All of the earnings of Excelsior accumulated prior to January 1,1948, had been paid by it as dividends to its stockholders. Of the dividend paid in 1948, 70.93668% thereof represents a distribution out of increase in value accrued and existing on March 1,1913.

Plaintiffs, John M. Wallace and Glenn W. Wallace, in reporting the $20,000 dividend on their joint return for 1948 excluded from income 70.93668% thereof, or $14,187.34, leaving a balance of $5,812.66 which was included as income in the return. The taxable income on the dividends was increased by the defendant in the sums of $7,093.67 and $1,-406.46 as related in findings 22 and 23.

33. None of the dividends paid by Excelsior either during the year 1948 or prior thereto were made for the purpose of retiring any of the issued and outstanding stock.

34. Plaintiff, Glenn W. Wallace, continues to own all of her stock, and no part of the dividend paid by Excelsior was for the purpose of retiring any of her stock.

35. No part of the dividends paid for 1948 was for the purpose of liquidating the Excelsior Iron Mining Company, which was and is a going concern still engaged in business.

36. In the event that the court determines that the income of plaintiffs, John M. Wallace and Glenn W. Wallace, for the year 1948 should not include the sums of $56,975.98; $7,093.67 and $1,406.46, the total overassessment and collection of tax and interest for such year would be $50,401.42.

37. In the event that the court determines that the income of plaintiff, Leland S. Swaner for the year 1948 should not include the sum of $56,975.98, the total overassessment and collection for such year would be $36,985.23.

CONCLUSION OE LAW

Upon 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 it is therefore adjudged and ordered that plaintiffs John M. Wallace and Glenn W. Wallace recover of and from the United States fifty thousand four hundred and one dollars and forty-two cents ($50,401.42), and that plaintiff Leland S. Swaner recover of and from the United States thirty-six thousand nine hundred eighty-five dollars and twenty-three cents ($36,985.23), both judgments with interest at the rate of six percent per annum from the date the overassessments were paid. 
      
       Originally defendant determined that $14,187.34 of the $20,000 was subject to capital gains provisions. Subsequently, however, this amount was reduced to $11,374.42 with the balance being treated as ordinary income. This resulted in an addition to taxpayer’s taxable income of $1,406.46 upon which taxes were timely assessed. The Government now concedes that this was erroneous and contends that the entire $14,187.34 should be subject to capital gains provisions.
     