OPINION.
ARUndell:
The first proposition of the taxpayer is that, as his ownership in the partnership was in the same proportion as his OAvnership of stock had been in the corporation, the transaction Avhereby the partnership took over the corporate assets did not result in taxable gain. This question has been before the Board in several cases and we have consistently held that in such cases the stockholder realized taxable gain to the extent that the value of the property receded in liquidation exceeded the cost of the stock. Appeal of Huffman, 1 B. T. A. 52; Appeal of Estate of Buchmiller, 1 B. T. A. 380; Appeal of Shapiro, 2 B. T. A. 620.
The taxpayer further says that Avhere the property transferred has no market value the transaction does not result in taxable income. No evidence on this point Avas offered and we must sustain the finding of the Commissioner with respect thereto.
The principal question involved in this appeal is whether the oil royalties, amounting to $30,179.04, should be included in the assets of the Hunt-Bigsby Co., a corporation, at the time of its dissolution, thus increasing the amount distributable to stockholders upon liquidation. The Commissioner added this amount to the assets of the corporation as " oil income receivable." The taxpayer contends that, being drawn by the stockholders ratably and with the knoAvledge and consent of all the stockholders and without intent to reimburse the corporation, the royalties constituted dividends and can not be treated as accounts receivable of the corporation.
The legal ownership and the right of disposition of the royalties was in the Hunt-Eigsby corporation. It could receive the royalties and distribute the amount thereof as dividends; or it could authorize the lessee of the property to pay the royalties directly to the stockholders; in either event there is the same result, income is received and a distribution of dividends is made. It adopted, in effect, the latter course. This method of distribution was arranged by the two men who owned all the stock except for one qualifying share held by a person who took no part in the conduct of the business. It was the custom of Hunt and Eigsby to conduct most of the corporate business in this informal manner. Official action determined upon by directors of a corporation will not be defeated merely by the absence of a formality such as the failure to record in the corporate minute book the action decided upon.
The situation in this case with respect to the action of the corporation in waiving its right to actual receipt of the royalties and directing their payment directly to its stockholders, is in all material respects on all fours with the situation in Rensselaer & S. R. Co. v. Irwin, 249 Fed. 726; 1 Am. Fed. Tax Rep. 945. It was there held thaf dividends paid by the lessee to the lessor's stockholders as rent for the lessor's property must be treated as income to the lessor. A number of cases on this question are collated in Appeal of American Telegraph, & Cable Co., 2 B. T. A. 991.
It necessarily follows then, that if the royalties to which the corporation was entitled were income to it and such income was distributed pro rata to the stockholders, the amount of the royalties no longer constituted assets of the corporation and did not exist as assets for distribution upon liquidation of the corporation in 1919. This seems to us to be the case here, and in our opinion the Commissioner erred in adding to the income of the taxpayer as a liquidating dividend any part of the oil royalties which prior to the dissolution of the corporation had been distributed to the stockholders.
We have heretofore held in Appeal of R. W. Ramming, 6 B. T. A. 188, that under the laws of Texas the wife has a vested interest in community property and that, under section 1212 of the Eevenue Act of 1926, such income for any period prior to January 1, 1925, was properly returned if divided between husband and wife. In support of his affirmative defense, the Commissioner has made no showing that such was not the case here. The decision in the Ramming appeal is controlling in the present appeal. *
Judgment will be entered on 15 days' notice, under Rule 50.