at once. The option payments, averaging little more than one cent a share for stock costing $20, were so insignificant as to be negligible. And even the transfer taxes claimed as a part of the cost of the options* were in reality attributable rather to the stock to which the options applied, sec. 1802 (b), I. R. C.; New York Tax Law, secs. 270, 270 (a), and in fact dispensed with further taxes when the stock itself was transferred. Regulations 71, sec. 113.36 (b); New York Tax Law, ibid. We conclude that there is a clear demonstration that everything that occurred was in reality a single transaction constituting a purchase, and that under these circumstances there is no justification for attributing to the stock of the New York corporation any basis other than its cost, considering the payment for the options, the transfer taxes, and the purchase price itself as all included in that figure. Reviewed by the Court. Decision will be entered for the respondent. CRAMP SHIPBUILDING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket Nos. 12673, 16347. Promulgated January 13, 1950. CLOSING AGREEMENT-SECTION 3760, I. R. C.-BINDING EFFECT.— The taxpayer is entitled to accelerated amortization of emergency plant facilities in accordance with an election under section 124, I. R. C., where the taxpayer and the Commissioner entered into a closing agreement under section 3760 providing that the taxpayer could take amortization deductions under section 124, and where the parties stipulated facts satisfying the requirements of section 124 and showing the amount of deductions to which the taxpayer is entitled. Thomas Reath, Esq., Frederick E. S. Morrison, Esq., and Calvin H. Rankin, Esq., for the petitioner. Brooks Fullerton, Esq., for the respondent. OPINION. MURDOCK, Judge: The Commissioner determined deficiencies in the income and excess profits tax of the petitioner as follows: The "cost" of the options was computed by adding to the purchase price, $135, the cost of transfer stamps, $673.28. Section 124 provided that every person at his election would be entitled to a deduction with respect to the amortization of the adjusted basis of any emergency facility based on a period of 60 months in lieu of the deduction with respect to such facility provided by section 23 (1), relating to depreciation. It further provided that, if the President proclaimed the ending of the emergency period within the 60 months, then the taxpayer could elect to terminate the amortization period with respect to the emergency facility as of the end of the month in which the proclamation was issued, and in that case the amortization period with respect to the facility would end with the end of that. month instead of at the end of the 60-month period. The President proclaimed the ending of the emergency period on September 29, 1945, and Cramp on December 26, 1945, filed an election under section 124 (d) to terminate the amortization period of its emergency facilities as of the end of September, 1945. The stipulation shows that it had a right at that time to make the election. Cramp also filed within the time prescribed by section 124 (j) an application for tentative adjustment with respect to its taxes paid for the years 1942, 1943, and 1944, claiming for each of the years 1943 and 1944 an amortization deduction of $4,346,805.36 on the basis of a period of 33 months beginning January 1, 1943, and ending September 30, 1945. It claimed on its 1945 return $3,260,104.07 as a deduction for amortization of its emergency facilities constructed under contract NOd-1550. The Commissioner, in determining the deficiencies, included in income and allowed as a deduction for amortization of the emergency facilities under contract NOd-1550 the exact amount which the Government paid for the benefit of Cramp in each year under that contract. The following table shows the amortization deductions on facilities under contract NOd-1550 as claimed by the petitioner and as allowed by the Commissioner in determining the deficiency: The Commissioner does not contend that the petitioner has failed to comply with any of the formal steps required by section 124 in order to obtain the amortization deductions over the shorter period. Section 3760 of the code authorized the Commissioner to enter into an agreement in writing with any person relating to the liability of such person in respect of any internal revenue tax for any taxable period, and further provided that, after such an agreement has been * * entered into and approved by the Secretary, "such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact in any suit, action, or proceeding, such agreement shall not be annulled, modified, set aside, or disregarded." No claim is made in this proceeding that there was any fraud, malfeasance, misrepresentation of a material fact, or any failure to comply with section 3760 upon which the Commissioner might rely to set aside the closing agreement. Closing agreements are binding upon the parties and final unless set aside for one of the reasons mentioned. Aetna Life Insurance Co. v. Eaton, 43 Fed. (2d) 711; certiorari denied, 282 U. S. 887; Wolverine Petroleum Corporation v. Commissioner, 75 Fed. (2d) 593; certiorari denied, 295 U. S. 743; Hering v. Tait, 65 Fed. (2d) 703; B. D. Phillips, 8 T. C. 1286, 1294; Bankers' Reserve Life Co. v. United States, 42 Fed. (2d) 313; certiorari denied, 282 U. S. 871. The petitioner has complied in every respect with the provisions of section 124. The closing agreement provided that it could take deductions under that section, and it may have had that right in any event, provided the reimbursements were to be treated as income. The stipulated facts show that the amounts now claimed by the petitioner are the correct amounts. The conclusion is inescapable that the petitioner is entitled to those deductions, and the Commissioner erred in failing to allow them. The Commissioner argues at length in his brief that the reimbursements were not income to the petitioner and "the petitioner had no amortizable investment or interest in the facilities." This argument is not based upon any fact which he did not know or anticipate at the time that he entered into the closing agreement. If his present argument is sound, perhaps he should not have entered into the agreement, but, having entered into it, he is bound by it and it is directly contrary to this contention. He also argues that the closing agreement was not intended to allow amortization deductions, since it merely stated that such deductions would be allowed under section 124, "provided all of the requirements of that section are satisfied," and the petitioner's factual situation is not within those requirements. Each of these arguments is inconsistent with the determination of the Commissioner upon which the present proceeding is based allowing amortization deductions. Each is also inconsistent with the stipulation of facts submitted in the case by the parties, in which they stipulated the cost of the facilities to the petitioner and the adjusted basis of the facilities for computing the amortization deductions under section 124. The Commissioner argues that the amortization deduction for each year must be equivalent to the amount of reimbursements included in income in that year. The petitioner asked to have such a provision incorporated in the closing agreement, but the Commissioner did not accede to that request. Furthermore, he substituted instead a different provision of his own choice, under which his present argument is untenable. The Commissioner argues further in this same connection that income will be distorted if the deductions in any year exceed the reimbursements included in income. However, even if this were so, it would not be a sufficient reason in law for avoiding the clear terms. of a closing agreement and the deductions allowed by section 124. The parties are directed to file recomputations under Rule 50, in accordance with this opinion, or otherwise move with respect to further proceedings in the case on or before February 15, 1950. HOPAG S. A. HOLDING DE PARTICIPATION ET DE GESTION DE BREVETS INDUSTRIELS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 17170. Promulgated January 13, 1950. Credits at a New York bank to the account of petitioner, a Swiss corporation, made pursuant to a contract between it and the foreign owner of patents to pay a percentage of United States license fees for use of the patents, in which petitioner had no interest, held not to constitute petitioner a holding company as "royalty" income from United States sources. Arthur H. Barker, Esq., for the petitioner. Clay C. Holmes, Esq., and Pershing W. Burgard, Esq., for the respondent. This proceeding is brought for a redetermination of deficiencies in income and personal holding company taxes as follows: Also a 25 per cent penalty for 1940 of $872.58. No explanation is offered as to why this antedates the formation of petitioner. The only question is whether amounts credited to petitioner, a foreign corporation, on the books of a New York bank were "gross income from sources within the United States" and taxable to it as personal holding company income. The parties have filed a stipulation of facts. FINDINGS OF FACT. The stipulated facts are hereby found accordingly. Petitioner, a Swiss corporation, was organized on January 20, 1941, as the successor to a Luxemburg corporation, hereinafter called Hopa, which was organized on May 3, 1938. Petitioner's principal office is at Mendrisio, Switzerland. Neither petitioner nor Hopa has ever had an office or place of business in the United States. The outstanding stock of both corporations was at all times during the years in question owned by nonresident aliens. The "Association Privee pour l'Industrie et le Commerce," hereinafter called Apic, was a French corporation organized in 1930 for the purpose of exploiting industrial inventions. In 1932 Bernard Salomon, a French engineer, interested Apic in promoting his patented invention of a motor vibration damper. Apic induced 17 individuals, 16 of whom were residents of France and one of Brazil, to invest an aggregate of 500,000 francs in forming "Association en Participation des Volants-Filtres d'Oscillation Brevets Bernard Salomon," hereinafter called the association. Salomon himself invested 19,000 francs, and was one of the 17 members of the association. The object of the association was to promote Salomon's inventions. The articles named Apic and Salomon as comanagers, fixed the situs of the association "at the situs of A. P. I. C. at Paris," and further provided, in part: 9 - Sale of sub-licenses. The present Association is especially authorized by Salomon to sell or to grant in the name of Salomon, in whatever form or manner, in France as well as abroad, sub-licenses of exploitation of the Salomon patents. The monies derived from these sales shall be put in reserve in contemplation of the organization of the corporation hereinafter mentioned in Article 10. 10 Transformation into a corporation. When the present Association shall have realized by the sale of sub-licenses a net amount equal to the amount of capital which shall be subscribed by the members, the transformation into a corporation shall be realized as soon as the managers shall jointly adjudge opportune. Salomon will then contribute to this corporation the exclusive license for the entire world to * all ** patents and additions which he shall have taken out relative to vibration-dampers. 12 * * [arti Substitution. Notwithstanding anything in the present cles] relative to the rights and duties of Salomon he shall always have the right to substitute for himself at any time any other individual or French or foreign company to which he shall have transferred his industrial and commercial rights in respect of all of his present and future patents and inventions in the field of vibration-dampers. On May 3, 1937, Salomon assigned to Apic his United States patent rights in order to facilitate deals then in prospect with American manufacturers. The assignment stipulated that Apic would restore 893857-51-4 |