that year, exceeds her estimated tax of $150. She is therefore liable for the addition to tax for substantial underestimation of estimated tax in accordance with section 294 (d) (2) of the Internal Revenue Code of 1939.

Reviewed by the Court.

Decision will be entered for the respondent.

RAUM, J., concurring: We have before us a cynical transaction of highly doubtful morality. It is difficult to believe that the Illinois laws providing for the creation of the charitable organization here involved were ever intended to generate property interests in the hands of these petitioners which could be the subject of traffic for gain. The privilege of serving the charitable institution embodied in the so-called certificates of membership was not a property right susceptible of being bartered in the market place like shares of corporate stock. Such "certificates" were wholly unlike certificates of corporate stock which reflect a property interest in the corporate enterprise and an equity in its assets. Petitioners had no property rights whatever with respect to the charity, and they simply relinquished their memberships in circumstances assuring the acceptance of others as members in their place. Whether the large sums of money involved were paid merely for the privilege of obtaining lucrative association with the charity in the practice of medicine or whether the so-called purchasers intended in some undisclosed manner to benefit privately or otherwise from the assets or substantial surplus of the charity are matters upon which it is not necessary to speculate. The point is that petitioners had no property rights to sell within the meaning of the capital gains provisions.

Not everything that is "sold" is "property" within the meaning of these provisions. As was stated in this connection in Miller v. Commissioner, 299 F. 2d 706 (C.A. 2, 1962), affirming 35 T.C. 631, "many things can be sold which are not 'property' in any sense of the word. One can sell his time and experience, for instance, or, if one is dishonest, one can sell his vote; but we would suppose that no one would seriously contend that the subject matter of such sales is 'property' as that word is ordinarily understood." Similar considerations are pertinent here. No part of the profit realized in this case was attributable to the sale of a "capital asset," a term which must be "narrowly" construed. Corn Products Co. v. Commissioner, 350 U.S. 46, 52. The entire gain was ordinary income, and not capital gain. A contrary view would make sweet indeed the uses of charity.

TIETJENS and WITHEY, JJ., agree with this concurring opinion.

FORRESTER, J., dissenting: I must dissent from the holding of the majority as to the rights or property for which Stewards paid $300,000 of its own money in 1953. As to the $410,000 balance which was discharged through the issuance of a note secured by a mortgage upon Belmont real estate and then paid in later years presumably out of hospital funds or earnings, it is clear that this amounted to distributions taxable at ordinary income rates since the note was a cash equivalent.

Returning now to what was purchased for the $300,000: It seems clear to me that the rights and privileges expressly granted by each of the five membership certificates in effect constitute the "member" a trustee of a charitable organization and are really more in the nature of further definitions of the duties imposed by said certificates to serve the public within the areas outlined by the charter grant of the charitable organization. However, when all five (100 percent) of the certificates are considered collectively it becomes apparent that a new right and privilege has come into being for now the five members acting in concert can direct and control the policies and direction of the hospital.

This new right is not opposed to or in derogation of the duties imposed by the individual certificates for it cannot be assumed that the concert action of the five will be detrimental to the charitable, public purposes of the hospital. On the contrary, it must be assumed that the concert action of the five will be to the best interests of the hospital, for only that character of action will preserve and even augment those valuable intangible rights which have come into being and grown up around the certificates.

These intangible rights which have grown valuable are the rights to designate the doctor-members of the hospital staff, thus affording the doctor certificate holders with a good and desirable hospital facility for their patients and prospective patients. Obviously, if inferior or incompetent doctors were placed upon the hospital staff or if the hospital were operated in any manner other than in the best interests of the public, it would thereby become undesirable, lose its good reputation, and no longer attract unattended patients or be acceptable to the patients of the doctor certificate holders.

Thus, the interests of the five certificate holders and of the objects of the charity are identical-that the hospital be operated in a good and workmanlike manner.

We have long held that intangible property rights can exist, separate from, but in connection with definitive rights, i.e., unexpired terms of leaseholds, and that when sold they result in capital gains or losses. Walter H. Sutliff, 46 B.T.A. 446 (1942); Isadore Golonsky, 16 T.C. 1450 (1951), affd. 200 F. 2d 72 (C.A. 3), certiorari denied

345 U.S. 939; and Louis W. Ray, 18 T.C. 438 (1952), affd. 210 F. 2d 390 (C.A. 5), certiorari denied 348 U.S. 829.

We have also considered one situation in which these valuable intangible rights came into being apart from and even in spite of the written lease. In McCue Bros. & Drummond, Inc., 19 T.C. 667 (1953), affd. 210 F. 2d 752 (C.A. 2), certiorari denied 348 U.S. 829, the lease had expired under its terms on January 31, 1946, but New York rent control laws were then in effect under which the tenant had conditional rights to remain in possession. This right was surrendered and sold to lessor for $22,500, which amount tenant returned as long-term capital gain. Respondent contended for ordinary income treatment, arguing, inter alia, that tenant had no property interest in the premises, that the transaction was not a sale or exchange but an extinguishment and disappearance of any rights that might have existed, and that such rights had not grown out of and were not connected with the written lease. We and the Court of Appeals held that a right did exist and that it was a property right, allowing the longterm capital gains treatment. Judge Augustus Hand said, in part, at page 753:

Whether the property is held under a lease or by virtue of the Rent Control Laws seems immaterial; in both cases the lessee or tenant has the right to the possession and use of the premises as long as he continues to pay the rent. The Commissioner attacks the Golonsky decision on the ground that it is inconsistent with recent decisions of this court holding payments made for the release of contractual rights, such as the right to an exclusive agency, to be ordinary income. [Cases cited.] In these cases no "sale or exchange" within the meaning of the statute was found because the contractual right was not transferred, but was released and merely vanished. However, we think the right of possession under a lease or otherwise, is a more substantial property right which does not lose its existence when it is transferred. If it is sold by the tenant to a third person, the gain derived therefrom is a capital gain, * [Emphasis supplied.]

Thus in McCue and in Scharf, the rights are not an express part of the written instrument but arose surrounding it. In McCue they arose because of a new State statute. In Scharf they arose because of the good and efficient operation of Belmont Hospital through the years in serving the needs of the public.

The parallel is near perfect. It is indeed harsh to reward the taxpayer who was the lucky recipient of a property right created by an emergency wartime statute and penalize the taxpayer whose efforts (or the efforts of his predecessors in interest) created these intangible property rights surrounding the Belmont memberships by well serving the public.

FAY, J., agrees with this dissent.

DRENNEN, J., dissenting: I respectfully disagree with the majority opinion insofar as it holds that the $300,000 paid to the certificate holders by Stewards is not taxable as long-term gain on the sale or exchange of a capital asset. I agree that the remaining $410,000 received by the certificate holders which was paid out of funds of Belmont should be taxable as ordinary income.

The majority concludes that the entire amount received by petitioners was ordinary income because petitioners failed to show that what they sold to Stewards was "property" within the meaning of section 117(a), I.R.C. 1939. In my opinion the majority relies too heavily on petitioners' failure to carry their burden of proof, under the circumstances of this case. When the Commissioner in his notice of deficiency determines that petitioners received ordinary income from the transaction with the explanation that the cash or property received from Stewards is determined to be a distribution of earnings of Belmont and/or compensation for services rendered to Belmont, and then in an amended answer asserts in the alternative and for the first time that the membership certificates in Belmont did not constitute property and were therefore not capital assets, I am very doubtful that any presumption of correctness should attach to the latter assertion. If the transaction was a sale, and it would appear to be, absent any finding that it was a sham, and the $300,000 was from money of Stewards, as has been stipulated, then that amount would not be a distribution of earnings of Belmont nor compensation for services rendered to Belmont. When the Commissioner asserts what to me seems to be a new and inconsistent claim by amended answer, I do not think the allegations of the amended answer should be presumed to be correct or that the petitioners have the burden of proving them wrong.

But in any event, we have in evidence the charter and bylaws of Belmont and evidence as to what rights and duties ownership of all five certificates would provide. From this I think it is clear that by acquiring all five membership certificates Stewards acquired control of Belmont, its physical plant, and all other benefits that might attach to such control. Stewards was willing to pay $300,000 of its own funds for this, and it would appear that it got its money's worth.

I agree with Judge Forrester that the membership certificates and the intangible rights which attached to them were property within the meaning of section 117(a), and they are no less so because the use of them by petitioners in this manner and for purposes of gaining a profit therefrom might be in violation of Illinois law.

OPPER and FORRESTER, JJ., agree with this dissent.

ESTATE OF LEON HOLTZ, DECEASED, PROVIDENT TRADESMENS BANK AND TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 88457. Filed April 10, 1962.

Irrevocable transfer in trust directing corporate trustee to distribute income to settlor for life and as much of principal as trustee may think desirable for the welfare, comfort, and support of settlor, or for his hospitalization or other emergency needs, held not to be a completed gift of the remainder interest in the principal of the trust for gift tax purposes.

Harry T. Devine, Esq., for the petitioner.

Frederick A. Levy, Esq., for the respondent.

DRENNEN, Judge: Respondent determined deficiencies in gift tax against petitioner for the taxable years 1953, 1954, and 1955 in the amounts of $61,130.90, $22.05, and $8,543.82, respectively.

The issue for decision is whether the transfers in trust of certain property, made by Leon Holtz on June 12, 1953, and January 18, 1955, were completed gifts for purposes of Federal gift tax. The deficiency for 1954 is the result of a technical adjustment dependent on the decision of the issue for 1953.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found accordingly. Provident Tradesmens Bank and Trust Company is the surviving executor under the will of Leon Holtz (hereinafter referred to as Leon or settlor), who died August 18, 1955. It filed gift tax returns for the calendar years 1953–1955 on behalf of Leon with the district director of internal revenue, Philadelphia, Pennsylvania.

Sometime in late 1952 or early 1953, Leon discussed creating a trust. with a trust officer of Land Title Bank and Trust Company, now Provident Tradesmens Bank and Trust Company. The trust principal was to consist primarily of a number of small mortgages having a value of between $300,000 and $400,000. After being apprised of the charge the bank would make for handling the trust, Leon authorized the trust officer to have an attorney prepare a deed of trust which, according to the testimony of the trust officer, would provide that "he [Leon] would receive all of the [trust] income as long as he lived, and that he [Leon] would have the right to use principal, as he found necessary." A deed of trust was prepared pursuant to Leon's instructions with Leon as the settlor and the bank as sole trustee which was dated and executed by the parties on June 12, 1953. The deed of trust provided, in part, as follows: