Pihlstrom Investment Co., 87 Colo. 441; 288 Pac. 414. Cf. Newaygo Portland Cement Co., 27 B. T. A. 1097; affd., 77 Fed. (2d) 536. But it is equally well settled that a contract of sale, obligating one to sell and the other to purchase for an agreed price, under which a substantial part of the purchase price has been paid, vests in the vendee an equitable title to the property, the legal title retained by the seller being held as security for the unpaid purchase price and his interest being not unlike that of a trustee or mortgagee. Roy v. Commissioner, 69 Fed. (2d) 786; certiorari denied, 293 U. S. 580. Apparently the courts of Colorado recognize and apply this rule. Cf. Morath v. Perkins, 278 Pac. 611; Cullen v. Park Club Land Co., 67 Colo. 210; 184 Pac. 303. Under it we think it is clear that the sale was made on October 11, 1940, when the contract was signed and one-half of the consideration was paid. But if we are wrong in this conclusion, then we think Bartels and his sisters remained the equitable owners of the stock until the transaction was completed. The stipulation that petitioner should pay interest upon the amount paid under the contract from the date of payment to January 1, 1941, supports this view. Whichever view is taken the result is the same.

We are not impressed by petitioner's argument that the sale of the Anderson farm can be broken up into several parts. The payment of the earnest money, the payment of one-half of the agreed consideration, and the subsequent payment of the other half and the delivery of the deed were all part of one transaction-the sale of the farm. It is an unrealistic approach to the whole question to say that the title to the stock had passed for the purpose of reducing Bartels' ownership below the percentage required by the statute but that the payment of such a substantial amount under the contract had not resulted in a sale of the real estate. The fact is that there was a sale or exchange between Bartels and the corporation at a time when he owned, directly or indirectly, more than 50 percent of petitioner's stock. The loss, therefore, may not be allowed. Nor is it important that as a result of the transaction Bartels' stock ownership became less than 50 percent. The statute makes no such exception, nor can we.

Petitioner argues that, since the sale and the loss were both bona fide and since Bartels had ceased to be the owner of more than 50 percent of its stock after the sale was made, "the design and purpose of the act [would seem to be] not to prevent the deduction of such a loss as resulted from the sale and exchange here involved." In this connection it suggests that the legislative history of the enactment be considered. Such history has been examined, notwithstanding the fact that there seems to be no ambiguity in the statute; but it does not support petitioner's view.

The section was originally enacted in 1934. In H. R. 704, 73d Cong., 2d sess., it was said: "Experience shows that the practice of creating losses through transactions between members of a family and close corporations has been frequently utilized for avoiding income tax. It is believed that the proposed change will operate to close this loophole of tax avoidance." The same language was repeated in S. R. No. 558, 73d Cong., 2d sess. (C. B. 1939-1, Part 2, p. 607); cf. Higgins v. Smith, 308 U. S. 473. The Congress did not see fit to make any exception even though the sale and the loss may both have been bona fide. Indeed, in the reenactment and amendment of the act in 1937 it appears to have eliminated that as a test, "because the evidence necessary to establish the fact that a sale or exchange was not made in good faith is almost wholly within the knowledge of the person claiming the deduction * * S. R. 1242, 75th Cong., 1st sess., and H. R. 1546, 75th Cong., 1st sess. (C. B. 1939-1, Part 2, p. 723.) The "major purpose of" the 1937 bill was said to be "to close loopholes in the revenue laws of which numerous taxpayers have availed themselves." All of the legislation had been recommended by the Joint Committee on Tax Evasion and Avoidance created under joint resolution which became law on June 11, 1937.

We believe that "the design and purpose" of the legislation was to deny the loss under such facts as those presently before us and that the test of bona fides of the sale or of the loss can not be applied. As stated in Lakeside Irrigation Co., 41 B. T. A. 892; affd., 128 Fed. (2d) 418; certiorari denied, 317 U. S. 666:

Even though

[the application of the statute] in the instant case may seem harsh in view of the fact that the transaction seems to have been one made for purely business reasons and not to establish a tax loss, we do not feel that we have the power to relieve petitioner from its terms. We must give effect to laws as Congress has written them, and if any changes are to be made Congress must make them.

Petitioner has abandoned the charge made in its petition that respondent erred in failing "to compute as one transaction the capital gain and loss from the sale of the two farms to one purchaser at the same time." See B. O. Mahaffey, 1 T. C. 176 (on appeal 8 C. C. A.) ; Lakeside Irrigation Co., supra.

Inasmuch as Bartels owned, directly or indirectly, more than 50 percent in value of petitioner's outstanding stock within the purview of section 24, supra, when the sale of the Anderson farm was made, the Commissioner, in our judgment, did not err in denying the claimed deduction.

Decision will be entered for the respondent.

ESTATE OF J. B. WHITEHEAD, BY THE CITIZENS AND SOUTHERN NATIONAL BANK, EXECUTOR, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 107365. Promulgated January 17, 1944.

1. The will of petitioner's decedent, who died in 1935, left his entire estate to a corporation to be formed for the purpose of using the income for charitable and educational purposes, subject, however, to directions for carrying out settlement contracts which the decedent had entered into with a former wife and with his wife; also for the payment of specified annuities to two individuals. His widow claimed the entire estate as sole heir, but the matter was compromised for $500,000, and a decree of court accordingly entered, not specifying whether payment was to be from income or corpus. The corporation was organized in 1937. During the taxable years petitioner received the gross income, carried out the contracts with the wife and former wife, and paid the annuities, in addition to paying the $500,000. Some payments were made from corpus. In 1938 and 1939 petitioner paid income to the corporation. Held, that the entire gross income of the estate during the taxable years, except the amount necessary to pay the specific annuities, is deductible by the petitioner because it was, pursuant to the terms of the will, to be used exclusively for charitable and educational purposes; Held, further, that such gross income was deductible for the reason that it was by the terms of the will permanently set aside for the purposes and in the manner specified in section 23 (o) (2) of the Revenue Acts of 1936 and 1938 and the Internal Revenue Code, i. e., to a corporation organized and operated exclusively for charitable and educational purposes, no part of the net earnings of which inured to the benefit of any private shareholder or individual. Sec. 162 (a), Revenue Acts of 1936 and 1938 and Internal Revenue Code.

2. The will provided that the foundation should pay out of income from the decedent's estate $12,500 per annum for 20 years, or for as long as two beneficiaries should live. Held, that the payments were properly deductible as distributed currently, under section 162 (b) of the Revenue Acts of 1936 and 1938 and the Internal Revenue Code.

Pope F. Brock, Esq., for the petitioner.

Bernard D. Hathcock, Esq., for the respondent.

This proceeding involves the redetermination of deficiencies in income taxes for the calendar years 1936, 1937, 1938, and 1939 in the respective amounts of $290,028.13, $286,319.77, $246,698.07, and $253,083.49. The issues raised by the petition are whether any part of the income of petitioner is deductible under the provisions of section 162 (a) of the Revenue Acts of 1936 and 1938 and the Internal Revenue Code, and whether assessment of the deficiency for 1936 is barred by the statute of limitations. By an amendment to his answer, respondent alleges error in allowing as a deduction each year the amount of $12,500 distributed to certain beneficiaries and has asked for in

creased deficiencies. The partial stipulation of facts filed by the parties in the proceeding is incorporated herein by reference. Portions thereof necessary for proper consideration of the questions involved will be set forth in our findings of fact.

FINDINGS OF FACT.

Petitioner is the duly appointed executor of the estate of Joseph B. Whitehead, who died testate on November 14, 1935.

In 1928 the decedent made a settlement agreement with his then wife, Marjorie C. Whitehead, in which he agreed to pay her annually the sum of $18,000 for the remainder of her life, or until her remarriage, and she released him of all claims and rights growing out of the marriage relationship. A divorce was subsequently granted to her. In 1932 the decedent and his second wife, Laura G. Whitehead, entered into a settlement agreement in which he agreed to pay her $6,000 per annum for life, or so long as she did not remarry, and $20,000 per annum for four years, and a like sum during the fifth year if she did not remarry in the meantime, and she released her rights arising from the marriage relationship.

The will of the decedent provided that the agreements entered into with his former wife and his widow be carried out by his executor and the Joseph B. Whitehead Foundation, a corporation to be formed as soon as possible after the testator's death, and upon its organization to receive from the executor all of his property for the purposes set forth in the will. The will stated that the object of organizing the corporation was to create a memorial to the decedent's father "for the purpose of the income from said estate to be used by the poor and needy of the community in which he lived and died and in which I was reared as a child." The will vested the management of the corporation in a board of directors, or trustees. Item V of the will provided that the directors or trustees of the corporation use the income from the property turned over to them as follows:

One-fourth (4th) of said income from such estate as is turned over and delivered to said Foundation, I direct to be used by the Trustees or Directors of said Corporation or Foundation by disbursing the same to the most deserving orphan's home or homes, where fatherless or motherless children are maintained and I leave it to said Trustees or Directors of said Foundation to select the most deserving home or homes to which to make said distribution. I desire that a substantial part of the same be made around Christmas time of each year and that the funds so distributed be used to purchase for the children of said homes such toys, gifts, fruits, candies and clothes as children in ordinary circumstances usually have at such Christmas time which are generally denied children supported and maintained in orphanages. Said Trustees and Directors of said Foundation are authorized to make the purchases necessary to carry out this provision of my will and I am making this provision because of the early impressions made upon my mind by visiting the Georgia Baptist Orphans Home at Hapeville, Georgia, with my father, the late Joseph B. Whitehead.

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The balance of the income from my property held by said Foundation, after the payment of the special bequests hereinafter made, I direct to be used for charity purposes and in the relief of pain and suffering and poverty by the Trustees or Directors of the Foundation to be formed as herein provided. It being my purpose in making this provision in my will that the income derived from the property held by the said JOSEPH B. WHITEHEAD FOUNDATION shall be used by the said Foundation for the relief of such institutions as the SCOTTISH RITE HOSPITAL, the GEORGIA BAPTIST HOSPITAL, and like institutions that dispense charity and are worthy and in need of funds, and that said Foundation, in addition to disbursing funds to organizations such as are herein mentioned may, in its discretion, disburse funds to individuals who are deserving and to other deserving institutions such as schools, whether the same be public or private, and in fact, any worthy and deserving individual, association or institution that said Trustees may deem worthy and in need of the funds herein provided for without regard to race, color or creed.

That out of the income from my estate and before the same is disbursed, as herein set forth by said JOSEPH B. WHITEHEAD FOUNDATION, I do hereby make the following special bequests and direct that the same be paid before the payment of the item of One-fourth (4th) of the income to the orphans, as herein set forth, and before the remainder, or Three-fourths (4ths) is disbursed to charity, as herein set forth, and that such special bequests are to be paid by said FOUNDATION from the income from my estate turned over to it by my executors as follows:

Item VI and VII of the will contain directions for payment of the special bequests consisting of payments of $5,000 and $7,500 per annum to Barbara J. Champion and Dena Marlowe, respectively, for a period of 20 years, the payments to each beneficiary to cease in the event of her death prior to the expiration of the 20-year period.

The petitioner reported the gross estate of the decedent for estate tax purposes at a value of about $5,282,000. The respondent determined that the gross estate had a value of about $6,088,000. The debts of the decedent, exclusive of the amounts payable under the contracts with his former wife, and widow, were about $192,000. The assets of the estate consisted of cash in the amount of $335,000, stock of the Whitehead Holding Co., of a value of about $4,378,000, and of the Whitehead Realty Co., personal holding companies owned equally by the decedent and his mother and brother and other corporations. The assets of the Whitehead Holding Co., consisted of stock of the Coca-Cola Co. and other corporations. Petitioner still holds the stock of the Whitehead Holding Co.

Decedent's widow filed a suit in December 1935 to contest the will of the decedent. Her demands were settled for $500,000, plus the sums payable to her under the separation agreement; and the court. entered its final decree accordingly, on January 20, 1937. Neither the settlement nor the decree of court designated whether payment should be from income, or from corpus. The balance of $550,405.48 in the income cash account of petitioner on January 20, 1937, was transferred on that date to the principal cash account kept by it for the estate. Immediately prior to the transfer the principal cash ac