petitioner is entitled to exclude from income under section 117(a)(1) his stipend to the extent of $300 per month.

Although the issue is primarily a question of fact, the United States Court of Appeals for the Tenth Circuit, to which an appeal in the instant case will lie, reversed the Tax Court in favor of the conclusions accorded the evidentiary facts by the trier of those facts in Edwards v. Commissioner, 415 F.2d 578 (10th Cir. 1969), revg. 50 T.C. 220 (1968), by stating at page 581: Although this determination is labeled as an "ultimate finding of fact," it obviously is a result reached by legal reasoning springing from evidentiary facts and the inferences to be drawn therefrom. As in Commissioner v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed. 2d 1218 where the determinative issue involved gift or income, "primary weight in this area must be given to the conclusions of the trier of fact. * *

WILES and CHABOT, JJ., agree with this dissenting opinion.

W. & B. LIQUIDATING CORP., PETITIONER V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

W. & B. LIQUIDATING CORP., TRUST, RAYMOND A. HUST AND LEONARD P. MARKERT, TRUSTEES; JEAN W. HOFFMAN; CHARLOTTE C. BUCKLEY; TRUST UNDER THE WILL OF HOWARD C. WILL, DECEASED, CHARLOTTE C. BUCKLEY AND VIRGINIA W. YEAGER, TRUSTEES; ESTATE OF THEODORE C. THOMASMEYER, Deceased, CHRISTINE W. THOMASMEYER, EXECUTRIX; RICHARD L. WILL; LEONARD P. MARKERT; AND TRUST UNDER THE WILL OF LOUIS E. WILL, MARINE MIDLAND BANK-CENTRAL, TRUSTEE, PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 10652-75, 10688-75.1 Filed January 2, 1979.

Petitioner's machine shop was damaged by fire on March 2, 1972. Petitioner, an accrual basis corporation, contracted with Conlon to reconstruct the shop. On May 9, petitioner adopted a plan of complete liquidation under sec. 337. On May 31, petitioner

'These cases have been consolidated for purposes of trial, briefing, and opinion.

sold all of its assets to Syracuse China Corp., which assumed petitioner's liabilities. The sale included petitioner's right to an agreed $157,462 of fire insurance proceeds and its right to have Conlon complete the reconstruction, and Syracuse assumed the obligation to pay Conlon. At the time, $43,007 of the work had been completed and petitioner paid for it. Thereafter Conlon completed the work, and Syracuse received the insurance proceeds and paid Conlon the balance due him. Held, petitioner realized and must recognize gain to the extent its gain on the involuntary conversion exceeded the $43,007 reinvested amount. Central Tablet Manufacturing Co. v. United States, 417 U.S. 673 (1974). John T. Hunter, for the petitioners. Kenneth Bersani, for the respondent.

HALL, Judge: Respondent determined a $35,563.16 deficiency in petitioner W. & B. Liquidating Corp.'s income tax for its taxable year ended June 30, 1972. Because W. & B. Liquidating Corp. was dissolved in 1973, respondent determined that petitioners in docket No. 10688-75 were liable as transferees for W. & B. Liquidating Corp.'s asserted income tax deficiency. Petitioners in docket No. 10688-75 have conceded that they are transferees of W. & B. Liquidating Corp. The sole issue remaining is whether W. & B. Liquidating Corp. must recognize the income which it realized through the involuntary conversion of its machine shop.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

W. & B. Liquidating Corp. (W. & B.), formerly known as Will & Baumer Candle Co., Inc., was a New York corporation. Until May 31, 1972, W. & B. maintained its principal place of business in Syracuse, N. Y. On April 20, 1973, W. & B. was dissolved pursuant to section 1003 of the Business Corporation Law of the State of New York.2

Petitioners in docket No. 10688-75 are transferees, as defined by section 6901(a)(1)(A),3 of W. & B. They are all residents of the State of New York or have their principal places of business in the State of New York.

2N.Y. Bus. Corp. Law sec. 1003 (McKinney 1963).

"Unless otherwise noted, all statutory references are to the Internal Revenue Code of 1954, as in effect during the taxable year in issue.

W. & B. was engaged in the manufacture and marketing of candles. From a small beginning in 1855, W. & B. grew to be the largest candle manufacturer in the United States. W. & B. employed the accrual method of accounting and used a fiscal year ending June 30.

On March 2, 1972, a machine shop belonging to W. & B. was severely damaged by an explosion and fire. Prior to the fire, the building functioned as a storage area for vehicles and as a service area for machine and carpentry work. Because of its location, the shop also served as the main artery through which the plant's steam and electrical systems ran from its steam plant and electrical lines to its manufacturing facilities. The explosion and ensuing fire blew out the walls, scorched the inside of the building, destroyed the windows and exits, and caused structural damage. The building was insured against loss by fire under a policy which allowed the owner to reconstruct. The adjusted cost basis of the shop was $480.96.

Two days after the fire, W. & B.'s president, Leonard P. Markert (Markert), met with representatives and adjusters of its insurance company and with Frank Conlon, a general contractor and loss estimator. At that meeting, Conlon was authorized, as W. & B.'s contractor, to proceed to do all that was necessary first to shore up the walls and roof and cover windows and doors of what remained of the machine shop and then restore it to its original condition. Conlon was also instructed to make an estimate of the cost of repair and restoration.

On March 29, 1972, Conlon sent W. & B. a $153,773 estimate for restoration of the shop. Subsequently, W. & B. submitted a proof of claim to its insurance company for $157,461.81. On May 9, 1972, the insurance company notified W. & B. that the claim. would be paid in full. Meanwhile, on March 3, 1972, Conlon began shoring up and restoring the machine shop. An agreement on the exact scope of the work to be performed was reduced to writing by Conlon on June 1, 1972, and signed by Markert on June 8, 1972. W. & B. paid Conlon $43,007.36 for work completed as of May 31, 1972. All other restoration work was completed by Conlon on or about October 25, 1972.

Prior to the explosion in the machine shop, Markert, as president of W. & B., had been negotiating with Syracuse China Corp. (Syracuse) for the sale of substantially all of W. & B.'s assets. Syracuse offered to purchase W. & B.'s assets for $60 per

share of W. & B.'s outstanding stock. This offered price remained unchanged even after Syracuse was notified of the damage to the machine shop and plans for its repair.

On April 18, 1972, a resolution was adopted by W. & B.'s board of directors authorizing Markert to enter into a contract with Syracuse for the sale, pursuant to section 337, of W. & B.'s business, including substantially all of its assets. The parties reached an agreement on April 24, 1972. On May 9, 1972, the shareholders of W. & B. met and adopted a plan of complete liquidation pursuant to section 337 and approved the sale of substantially all of W. & B.'s assets to Syracuse for a net cash consideration of $5,831,280, with the assumption by Syracuse of certain liabilities existing on the date of closing. At this meeting, the shareholders also authorized and approved the liquidation of W. & B.

On May 31, 1972, W. & B. and Syracuse closed the sale pursuant to their April 24 agreement. As of that date, W. & B. turned over legal title and control of its assets and operations to Syracuse. The assets purchased by Syracuse included the assignment by W. & B. of the right to the full $157,462 face value of the insurance proceeds due W. & B. as a result of the fire loss. Syracuse allocated $157,462 of the total purchase price of $5,831,280 to an "account receivable-insurance company." On its 1972 income tax return, W. & B. treated the assignment of its right to the insurance proceeds as the sale for $157,462 of an account receivable with a basis of $157,462.

Concurrent with the receipt of W. & B.'s assets, Syracuse assumed substantially all of W. & B.'s obligations. However, W. & B. remained primarily liable on the contract between W. & B. and Conlon to restore the machine shop.

Syracuse collected the following proceeds of insurance on the dates indicated, payable as a result of the fire loss to the machine shop:

"Prior to closing of the sale, Syracuse formed a subsidiary, W & B C Co., to receive the assets of W. & B. Liquidating Corp. and to perform the duties and obligations of Syracuse under its agreement with W. & B. For ease of discussion, Syracuse and its subsidiary corporation will be referred to as Syracuse.

On October 25, 1972, when Conlon completed reconstruction of the fire-damaged building, Syracuse paid him the balance due of approximately $113,973. As noted above, W. & B. had previously paid Conlon $43,007.36 for work completed prior to May 31, 1972. On or before March 15, 1973, W. & B. distributed all of its assets, consisting solely of cash, to its shareholders in complete liquidation and redemption of all the corporation's outstanding shares of capital stock.

W. & B. elected not to recognize any of its $156,980.85 gain on the involuntary conversion of its machine shop by failing, in accordance with section 1.1033(a)-2(c)(2), Income Tax Regs., to include the gain in its gross income for the taxable year ending June 30, 1972. In his statutory notice, respondent included $113,973 of this gain ($156,980.85 less $43,007.36 reinvested by W. & B. for work completed by Conlon prior to May 31, 1972) in W. & B.'s gross income for the taxable year ending June 30, 1972. Respondent determined that W. & B. was not entitled to nonrecognition under section 1033 with regard to this portion of the gain.

OPINION

Section 1033(a) provides generally that if property is involuntarily converted into money, the gain on the conversion, if any, shall be recognized. However, if the taxpayer during the period specified in section 1033(a)(3)(B) purchases other property similar or related in use to the converted property, section 1033(a)(3)(A)6 provides that, upon election by the taxpayer, the gain shall be recognized only to the extent that the amount realized upon conversion exceeds the cost of the replacement property.

"This amount is the net of $157,461.81 received from Syracuse upon W. & B.'s assignment to Syracuse at face value of W. & B.'s right to insurance proceeds, less W. & B.'s adjusted cost basis in the machine shop of $480.96.

"Effective Dec. 31, 1976, secs. 1033(a)(3)(A) and 1033(a)(3)(B) were redesignated and amended as secs. 1033(a)(2)(A) and 1033(a)(2)(B), respectively. Secs. 1901(a)(128)(A) and 1901(a)(128)(B) of Pub. L. 94-455, 90 Stat. 1785.