sioner, 305 F. 2d 949 (C.A. 2), affirming 36 T.C. 22, on the basis that the statute contains no such limitation on the applicability of the collapsible corporation provisions, that the pertinent legislative history indicates that these provisions were intended to apply to some cases in which the property if sold by the shareholders would have produced capital gain, and, finally, that the addition of subsection (e) to section 341 by amendment in 1958 would have been unnecessary if the limitation on the applicability of the statute urged by petitioner is correct. We are in accord with the reasoning of the Court of Appeals for the Second Circuit in this regard.' Therefore, notwithstanding that hereinafter we hold that petitioner realized long-term capital gain from the sale of the shopping center and not ordinary income, we think that the collapsible corporation provisions are applicable to petitioner.

In a separate argument petitioner attempts to avoid being treated as a collapsible corporation on the basis of the so-called "postconstruction motive" cases. Cf. Jacobson v. Commissioner, 281 F. 2d 703 (C.A. 3), reversing 32 T.C. 893; Maxwell Temkin, 35 T.C. 906; Charles J. Riley, 35 T.C. 848, appeal dismissed (C.A. 1). Assuming that its preliminary site-purchasing, zoning, leasing, and mortgageseeking activities constituted "construction" under the statute, as we have decided above, petitioner argues that the decision to sell the shopping center was not made until after all such activities had been completed and that, therefore, the proscribed "view" did not arise or exist at any time during such "construction." We see no merit in

• These new provisions are not applicable to the instant case because the terms of the amending statute make them applicable only with respect to taxable years beginning after December 31, 1957, and then only with respect to sales, exchanges, and distributions which occur after the date of enactment, September 2, 1958. Sec. 20 (b), Pub. L. 85-866.

Although the point was never specifically discussed, the same factor appears to have been present in many of the prior cases in which a corporation was used to construct apartment buildings, housing developments, or other structures and the stock of the corporation was sold or a corporate distribution was made prior to the realization of a substantial part of the income to be derived from the project. Cf. Raymond G. Burge, 28 T.C. 246, affirmed 253 F. 2d 765 (C.A. 4) (apartment building); Edward Weil, 28 T.C. 809, affirmed per curiam 252 F. 2d 805 (C.A. 2) (shopping center); Glickman v. Commissioner, 256 F. 2d 108 (C.A. 2), affirming a Memorandum Opinion of this Court (apartment project); Elizabeth M. August, 30 T.C. 969, affirmed 267 F. 2d 829 (C.A. 3) (apartment houses); Leland D. Payne, 30 T.C. 1044, affirmed 268 F. 2d 617 (C.A. 5) (rental-housing projects); Max Mintz, 32 T.C. 723, affirmed 284 F. 2d 554 (C.A. 2) (apartment house project); O. D. Spangler, 32 T.C. 782, affirmed 278 F. 2d 665 (C.A. 4), certiorari denied 264 U.S. 825 (rental-housing projects); Ellsworth J. Sterner, 32 T.C. 1144 (apartment houses); Jesse Hartman, 34 T.C. 1085, affirmed per curiam 296 F. 2d 726 (C.A. 2) (housing projects). The fact that the buildings in these cases may have been capital assets in the hands of the corporations involved and might have been sold by the corporations at a capital gain did not make these corporations any less collapsible under the statute. The important and, indeed, the decisive facts under the statutory definition are that the corporation be availed of principally for construction with a view to a corporate distribution or the sale of its stock prior to the realization by the corporation of a substantial part of the taxable income to be derived from the property and the realization by its shareholders of gain attributable to the property. These facts were present in the cases cited above, and they are equally present here where petitioner's chief asset, a shopping center, was sold pursuant to a plan of liquidation before any income had been realized therefrom.

this attempt to isolate preliminary construction activities from actual physical construction. From its inception the "construction" undertaken by petitioner was not merely the rezoning of the shopping center site and the leasing of the intended buildings but included the actual physical construction of the shopping center and all the land improvements involved therein. Although petitioner agreed on September 21, 1956, to sell its interest in the project prior to the start of physical construction of the shopping center, the sales agreement provided that petitioner was responsible for completing such physical construction and that it would not receive the stipulated consideration for the site until such physical construction had been completed. Petitioner was in fact paid in September 1957, when the construction of the shopping center was completed. Thus, it is clear that petitioner's decision to sell the shopping center and liquidate the corporation was made almost a full year prior to the completion of the construction of the shopping center. In these circumstances, there existed the requisite "view" to a distribution to petitioner's shareholders before the completion of construction, and the Jacobson, Temkin, and Riley cases are therefore inapplicable. Sec. 1.341-2 (a) (2) and (3), Income Tax Regs.; cf. Ellsworth J. Sterner, supra at 1148; Jack Farber, supra at 1155-1158.

For the sake of completeness we should add that for purposes of decision it makes no difference that petitioner's actions in selling the shopping center and liquidating may have been motivated, in whole or in part, by its failure to obtain permanent mortgage financing for the project. Assuming that this was the sole reason for making a distribution to the shareholders, the definition contained in section 341 (b) is still applicable to petitioner. Cf. Ellsworth J. Sterner, supra at 1148.

2. Having decided that petitioner is a collapsible corporation and that the sale of the shopping center is thereby excepted from the nonrecognition provisions of section 337 of the 1954 Code, we turn next to the question of the character of the gain realized by petitioner as a result of such sale. The provisions of section 341 relating to collapsible corporations are of no assistance on this question, for they deal only with the treatment of gain to shareholders of collapsible corporations and not with gain realized by the corporation itself. The Commissioner has determined that petitioner's net gain on the sale is taxable to it as ordinary income. Petitioner contends that such gain is properly taxable as long-term capital gain. We agree with petitioner on this issue.

Based on all of the evidence of record, we have made the ultimate finding that at the time petitioner sold the shopping center to the Knights of Columbus petitioner did not hold the shopping center pri

8

marily for sale to customers in the ordinary course of its trade or business. Without attempting to recite all of the evidence upon which this finding is based, we do note that petitioner does not appear to have considered sale of the shopping center until April or May of 1956, after it had unsuccessfully attempted to obtain permanent mortgage financing for the project; that the purchase offer from the Knights of Columbus came unsolicited through the offices of Ivor B. Clark, Inc., which had been authorized by petitioner to seek permanent mortgage financing and which therefore required separate authorization from petitioner for the sales negotiations with the Knights of Columbus; that petitioner continued its efforts to seek mortgage financing during the summer of 1956 while it negotiated a possible sale to the Knights of Columbus; and that petitioner's final decision to sell the shopping center was coupled with a decision to liquidate the corporation.

The Commissioner emphasizes two aspects of the record in support of his determination that petitioner's gain constituted ordinary income. First, that some of petitioner's shareholders and, in particular, several members of the Lubin group, were actively engaged in the real estate business during the years 1955 through 1958. We have taken this element of the case into account and have made certain findings in this regard based on stipulated tax returns of the individuals involved. But in the light of the record as a whole, we think the admittedly separate business activities of several of petitioner's individual shareholders have little relevance in the determination of petitioner's purpose in holding the shopping center property at the time of its sale."

The second group of facts underscored by the Commissioner is that at least a portion of petitioner's property, the Korvette store, was offered for sale to a number of third parties before the sale of the entire property to the Knights of Columbus was completed. Our findings show that at about the time the Ivor B. Clark firm presented petitioner with an offer from the Knights of Columbus to purchase the Korvette store only, the Clark firm had a brochure prepared offering petitioner's Korvette building for sale and sent this brochure to a number of institutions, including banks, insurance companies, and one real estate brokerage firm. It is not clear from the record whether

8 Petitioner's purpose in holding the shopping center property at the time of sale is the only matter which the Commissioner put in issue at the trial and on brief. No dispute has arisen over the requisite 6-month holding period for a capital asset. Sec. 1231 (b), I.R.C. 1954.

Moreover, since there is evidence that the Lubin group had a prior interest in a shopping center adjoining petitioner's and still holds such interest as an investment, the fact that some members of the Lubin group happen to be real estate brokers and others frequently buy and sell real estate assumes even less significance for our inquiry. Also, it is noteworthy that the Lubin group objected to petitioner's sale of the shopping center and approved the sale only after petitioner's remaining shareholders offered it the greater portion of the resulting gain.

petitioner ever authorized the preparation and general distribution of this brochure or whether the Clark firm, once it had obtained one purchase offer, decided on such action on its own initiative. Since the Clark firm had to obtain special authorization by telegram from petitioner to represent it in sales negotiations for the Korvette store with the Knights of Columbus, the latter would appear to be a distinct possibility. However, even if we could conclude that petitioner authorized the distribution of this particular sales brochure, this fact would not be enough to tip the scales in favor of ordinary income treatment. Taking into account petitioner's original plans to lease the shopping center itself, its extended efforts to get permanent mortgage financing, its continued efforts along these lines even after the purchase offer from the Knights of Columbus had been received and the brochure sent out, and its decision to liquidate once its decision to sell became final, we cannot find that petitioner at any time held the shopping center primarily for sale to customers in the ordinary course of its trade or business.

At the trial and on brief the Commissioner put forward an alternative theory that the price received by petitioner represented funds from a sale plus moneys for services performed, of which at a minimum the latter portion would represent ordinary income in petitioner's hands. The Commissioner points to no evidence of record to show that such was the intent of the parties involved, and we can find none. To be sure, petitioner was not entitled under the sales agreement to any consideration for the shopping center site until it had completed the construction of the shopping center buildings and improvements and had been reimbursed for such construction costs up to a stated maximum amount by the Knights of Columbus. And it may also be assumed that the appreciation in the value of the shopping center site was related to petitioner's past efforts in regard to zoning, hiring architects, obtaining favorable leases, and the like. But there is no indication that either petitioner or the Knights of Columbus intended to segregate any portion or percentage of the agreed consideration of $390,000, stated as payable "for the Shopping Center Site," for petitioner's efforts in developing the shopping center. And we cannot conclude that any such apportionment was in fact the effect of their agreement. Thus, we must also reject the Commissioner's alternative position. We hold that the Commissioner erred in his determination that petitioner's gain on the sale of the shopping center is taxable as ordinary income and not as long-term capital gain.

Decision will be entered under Rule 50.

COMMUNIST PARTY OF THE U.S.A., PETITIONER, D. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT.

Docket No. 63763. Filed September 14, 1962.

It has not been shown that the parties who instituted, participated in the preparation and execution of, and filed the petition herein were authorized to do so. Held, that this Court does not have jurisdiction of the proceeding.

John J. Abt, Esq., for the petitioner.

Charles R. Johnston, Esq., for the respondent.

WITHEY, Judge: The respondent has determined a deficiency of $261,050.38 in petitioner's income tax for 1951 and a penalty of $65,262.60 under section 291(a) of the Internal Revenue Code of 1939 on account of the petitioner's failure to file its income tax return within the time prescribed by law. The pleadings as amended present a number of issues among which is that of whether this Court has jurisdiction of the proceeding. An order was entered severing for preliminary determination the issue of jurisdiction and pursuant thereto hearing has been had on that issue.

FINDINGS OF FACT.

An unincorporated association was organized in 1919 under the name of Communist Party of the U.S.A. and was dissolved on May 20, 1944. Thereafter, at a convention held on May 20-22, 1944, an unincorporated association was organized under the name of Communist Political Association. Subsequently and prior to July 28, 1945, that association was dissolved. Subsequent to the dissolution of the Communist Political Association and in or about July 1945 an unincorporated association was organized under the name of The Communist Party of the United States of America, sometimes hereinafter referred to as the Communist Party, and, on July 28, 1945, that association adopted a constitution. Thereafter and during 1951 and subsequently to the time of the hearing herein, the Communist Party was an active and functioning organization. It was a nationwide organization, had State and local groups and international organizations, and "did all kinds of things."

On May 18, 1956, the respondent mailed the notice of deficiency involved herein, dated May 18, 1956, and addressed to:

Communist Party of the U.S.A.

101 West 16th Street

New York 11, New York

At that time the Communist Party maintained and occupied an office at the foregoing address. Eugene Dennis, after having come into possession of the notice of deficiency, gave it to John J. Abt, the petition