value of the properties. Respondent produced no witnesses, expert or otherwise, and repeated attempts upon cross-examination were not successful in weakening this testimony. The operating losses of Rimnik were satisfactorily explained by the fact that Rimnik operated in a falling real estate market. We think that petitioner used the proper basis in computing its loss.

3

Finally, respondent contends that section 112 (b) (6) of the code 3 operates to prevent recognition of the loss. That section provides, in substance, that no gain or loss is to be recognized upon the receipt by a corporation of property distributed in complete liquidation of a subsidiary corporation. It is applicable to a distribution which is one of a series of distributions by the liquidating corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation carried out within three years, if the parent corporation owns at least 80 per cent of the stock continuously from the adoption of the plan until completion of the liquidation. Respondent argues that there was a plan of liquidation at the time of the 1941 stock retirement; that the 1941, 1942, and 1944 stock transactions were all but steps in the series of distributions under the plan; that the sale of 25 per cent of stock in 1944 to Carpenter was for the sole purpose of breaking the affiliation between petitioner and Rimnik and was lacking in bona fides; and that therefore petitioner at all times owned more than 80 per cent of the stock in Rimnik.

It is unnecessary that we pass upon all these contentions, for if any element is lacking it is sufficient to render the statute inapplicable. We are not here directly concerned with whether petitioner suffered

SEC. 112. RECOGNITION OF GAIN OR LOSS.

(6) PROPERTY RECEIVED BY CORPORATION ON COMPLETE LIQUIDATION OF ANOTHER.—No gain or loss shall be recognized upon the receipt by a corporation of property distributed in complete liquidation of another corporation. For the purposes of this paragraph a distribution shall be considered to be in complete liquidation only if—

(A) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) possessing at least 80 per centum of the total combined voting power of all classes of stock entitled to vote and the owner of at least 80 per centum of the total number of shares of all other classes of stock (except non-voting stock which is limited and preferred as to dividends), and was at no time on or after the date of the adoption of the plan of liquidation and until the receipt of the property the owner of a greater percentage of any class of stock than the percentage of such class owned at the time of the receipt of the property; and

(D) such distribution is one of a series of distributions by such other corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within three years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that if such transfer is not completed within such period, or if the taxpayer does not continue qualified under subparagraph (A) until the completion of such transfer, no distribution under the plan shall be considered a distribution in complete liquidation.

any recognizable or deductible loss in 1942 and 1944, for those years are not before us. Only the loss upon the 1941 transaction is directly in issue.. Officers of Rimnik, as well as an officer of petitioner, testified that there was no connection whatever between the 1941 stock retirement transaction and the final liquidation in 1944; that there was no plan of liquidation in 1941; and that it was not then known when or definitely whether Rimnik would be finally liquidated. We see no reason to disregard their testimony, and we have found as a fact that there was no plan of liquidation in 1941 and no connection between the 1941 transaction and the final liquidation in 1944. Therefore, section 112 (b) (6) is not applicable.

It follows that respondent erred in disallowing the loss claimed by petitioner, and petitioner is accordingly sustained as to this issue. Petitioner's claimed overpayment of $16.73 is predicated upon the fact that in determining the deficiency respondent allowed an increased deduction for capital stock tax, which had been understated in petitioner's return. Petitioner's computation of the amount of the claimed overpayment is not shown. It is alleged in the petition that the return for the year 1941 was filed and the tax paid on March 11, 1942. Respondent, in his answer, denied the allegation and avers that the date was March 16, 1942. Petitioner produced no evidence as to the time the return was filed and the date the tax was paid. The return was not offered in evidence. The petition herein was filed May 2, 1945. Petitioner has failed to demonstrate that it comes within the provisions of section 322 (d) of the code, and accordingly as to this issue the respondent is sustained.

Decision will be entered that there is no deficiency and no overpayment.

ESTATE OF LEON N. GILLETTE, Deceased, BESSIE W. GILLETTE AND WILLIAM N. GILLETTE, EXECUTORS, PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 6745. Promulgated June 25, 1946.

Interests of donor-petitioner's wife in one trust, of which their
son was life beneficiary, and of donor's son in another trust, of
which his younger sister and her surviving issue were beneficiaries,
held to be substantial and adverse for gift tax purposes, so that the
gifts were complete in a prior year, notwithstanding that the respec-
tive interests of the wife and son were contingent upon outliving the
grantor and respective primary beneficiaries. Meyer Katz, 46
B. T. A. 187; affd. (C. C. A., 7th Cir.), 139 Fed. (2d) 107, followed.

Charles M. Kritzman, Esq., for the petitioners.
Walt Mandry, Esq., for the respondent.

OPINION.

OPPER, Judge: Respondent determined deficiencies in gift tax in the total amount of $5,748.73, as follows: 1936, $972.42, and 1941, $4,776.31.

The petition was filed by Leon N. Gillette, hereinafter sometimes referred to as decedent; and upon his death, after motion duly made, the executors of decedent's estate were substituted as petitioners and the caption of the proceeding was changed.

The issues involved are whether distributions to decedent's son in the years of 1936 and 1941, pursuant to the terms of a trust created by decedent on December 6, 1929, for the benefit of his son, constitute taxable gifts in the years of distribution, and whether the relinquishment by decedent in 1941 of the power to revoke a second trust created by him on December 6, 1929, for the benefit of his daughter, constituted a taxable gift to her in 1941.

All of the facts have been stipulated. The facts as so stipulated are hereby found. So far as material to this proceeding they can be summarized as follows:

Petitioners are the executors under the will of Leon N. Gillette, who died on May 3, 1945, a resident of Westchester County, New York. Decedent filed gift tax returns for the years 1936 and 1941 with the collector of internal revenue for the third district of New York.

On December 6, 1929, decedent created a trust by which he delivered to the Bankers Trust Co., New York, New York, (hereinafter referred to as the "Trustee") certain securities to be held by the trustee for the benefit of his son, William N. Gillette. This trust will be referred to as the "first trust."

Pursuant to the terms of the first trust, all of the net income thereof was paid to the son until he reached the age of 30 years on March 3, 1936, at which time one-half of the corpus, at a value on that date of $36,206.98, was paid over to him. He continued to receive the income on the remaining one-half until he reached the age of 35 years on March 3, 1941, at which time the remaining assets were distributed and paid over to him. The remaining property distributed had a value on that date of $32,445.27.

It was further provided in this first trust that if the son were to die before the termination of the trust the remainder of the capital and income (hereinafter referred to as the "capital residue") was to be paid to decedent, if then living; if not, to decedent's wife, Bessie W. Gillette. In the event neither was then living, then the capital residue was to be disposed of as the son should appoint in his will. In default of appointment, the capital residue was payable to the son's lawful issue, surviving him, per stirpes, in default of which to decedent's

daughter, Jeanne B. Gillette; in case of her predecease, to her lawful

issue then surviving, per stirpes.

Decedent retained the right to revoke this first trust:

by filing with the Trustee an instrument in writing duly acknowledged, expressing his intention so to do, which said instrument of revocation shall also be assented to in writing by an instrument duly executed and acknowledged by either the wife of the Donor, or by the said Beneficiary. Otherwise this instrument is to be deemed irrevocable.

Among the powers accorded the trustee was the "uncontrolled discretion" to pay to the son any part of the corpus of the first trust if it believed that such payment would be in the best interests of the son. On December 6, 1929, decedent created a second trust, under which the trustee was to pay the income to decedent's daughter during her lifetime; upon her death, the capital residue was payable to decedent, if living; if not, then to decedent's wife. In the event neither was living on the death of the daughter it was payable to the daughter's lawful issue, surviving her, per stirpes, in default of which issue, to decedent's son; and in case of his predecease to his lawful issue then surviving.

As in the first trust, the trustee had the "uncontrolled discretion" to pay to the daughter any part of the corpus if it believed such payment were in her best interests.

Decedent reserved the right to revoke this second trust:

by filing with the Trustee an instrument in writing duly acknowl edged, expressing his intention so to do, which said instrument of revocation shall also be assented to in writing by an instrument duly executed and acknowledged by either the wife of the Donor, or by the said William N. Gillette [decedent's son]. Otherwise this instrument is to be deemed irrevocable.

On June 21, 1941, an agreement was entered into between decedent, his wife, and his son whereby they renounced and released any rights of revocation granted them under the second trust, and decedent released all his rights to any property held under the second trust and irrevocably conveyed any right to receive any part of the capital or income from the second trust on the death of his daughter, and irrevocably transferred and conveyed such right and interest to his wife and to his son upon terms specified in the agreement. The principal of the second trust on that date had a value of $62,390.78.

The possibility of reverter relinquished by decedent on June 21, 1941, had a value on that date of $4,460.30.

Decedent was born on August 18, 1877; his wife, on January 3, 1875; his son, on March 3, 1906; his daughter, on February 22, 1916.

Decedent's daughter was unmarried and had no issue on December 29, 1929. She was married on May 26, 1939, and is now known as

Jeanne G. Lovejoy. Her only child was born on August 21, 1941, and is now living.

Respondent in the notice of deficiency stated:

It is determined that the distributions made to your son in the year 1936 under the trust created by you on December 6, 1929 are taxable as gifts under Section 501 of the Revenue Act of 1932, as amended.

It is determined that the surrender on June 21, 1941 of your power to revoke the trust created by you on December 6, 1929 for the benefit of Jeanne G. Lovejoy effected a gift of the total value of the trust on that date and, therefore, the total value of the assets of the trust are included as a taxable gift for the calendar year 1941 under the provisions of Section 1000 of the Internal Revenue Code. The distributions in 1941 to your son under the trust created on December 6, 1929 are determined to be taxable gifts under Section 1000 of the Internal Revenue Code.

Neither the family relationship to decedent of his wife and son nor the remoteness of their contingent remainders suffice to persuade us that their respective interests in the trusts fail to be both substantial and adverse. This is the sole question, respondent's determination of gift tax deficiencies being based upon the incompleteness of the original gifts, which in turn arises from the claim that petitioner's right of revocation was not limited by the required concurrence of a person possessing a substantial adverse interest. Burnet v. Guggenheim, 288 U. S. 280; H. Rept. 704, 73d Cong., 2d sess. (1934), p. 40; Regulations 108, sec. 86.3.

It is true that the wife's interest in the son's trust was contingent upon outliving both decedent and their son, and that the son's interest in the other trust was limited by his required survival of his mother. father, and younger sister, and the sister's death without issue. But the trusts were substantial in amount. See Commissioner v. Prouty (C. C. A., 1st Cir.), 115 Fed. (2d) 331. And in Meyer Katz, 46 B. T. A. 187; affd. (C. C. A., 7th Cir.), 139 Fed. (2d) 107, a wife's interest who "would benefit from the trust only if the minor beneficiary should predecease her and the grantor leaving no issue" was held to be a substantial adverse interest. Clair R. Savage, 4 T. C. 286, 293. Manifestly, the life expectancy of decedent's wife was not as great as that of her son, but a similar situation existed in the Katz case. And the son's chances of surviving his father and mother were so great that his contingency was virtually confined to survival of his nearly contemporary sister. We are not persuaded that in either instance the prospects of succession are sufficiently different from those in the Katz case to call for the opposite result.

Decision will be entered for the petitioners.