the completion of the bridge free and clear of all legal liens and encumbrances shall be furnished to the trustee named in the trust deed, together with equity moneys in such sums as may be necessary to insure the full completion of the bridge. It also provides that the first preferred stock shall be offered at par and accrued dividends, each share of such stock so offered for sale to be accompanied by 2 shares of common stock of no par value; that Paine, Webber & Company is to receive a commission of 10 per cent of the face amount of the first preferred stock to be sold by it in cash and 9 per cent of the authorized 10,000 shares of common stock; that in the event that less than two shares of common stock be given with each share of first preferred stock, Paine, Webber & Company shall receive for services an additional number of shares of common stock equal to one-half of the difference between the two shares and number of shares actually given as bonus; and that the first preferred stock shall be sold at par, each share of such preferred stock to be accompanied by two shares of common stock as bonus. It also provides that the first preferred stock shall receive cumulative dividends at 7 per cent from January 1, 1927, and shall be callable at 105 and accrued dividends, and be preferred as to assets in the event of liquidation, in the amount of 105 and accrued dividend, before any payments are made upon prior stock, and shall have exclusive voting rights in the event the dividend of $7 per share accrues and remains unpaid. The agreement further provides that the second preferred stock shall be issued upon terms approved by Paine, Webber & Company. This agreement was accepted by the Arrowhead Company on May 28, 1926. Due to the fact that the petitioner and the Arrowhead Company had no funds and were unable to secure a bond or to deposit equity moneys, Paine, Webber & Company waived the provisions relative thereto in its agreement and accepted in licu thereof as security 350 shares of second preferred and 5,000 shares of common stock of the Arrowhead Company, which shares were transferred by the petitioner out of the stock received by it upon the transfer of its assets. Such stock deposited as security was returned to the petitioner in August, 1927. The bonds and first preferred stock of the par value of $180,000, including the 1,800 shares of common stock given as bonus, of the Arrowhead Company were sold by Paine, Webber & Company prior to August, 1927. In June, 1926, bids were taken by the Arrowhead Company for the construction of the proposed bridge. It was completed and has been in operation as a toll bridge since July 2, 1927. The first sales of Arrowhead second preferred stock were made in 1928. Twenty shares thereof were sold in 1928 for $60 a share, including accumulated dividends. Later it sold for as high as $80 a share, including accumulated dividends. The dividends on the second preferred stock at the rate of 7 per cent were first paid in 1930. A 25 per cent dividend was paid on the Arrowhead common stock in April, 1931. The Arrowhead stock received by petitioner was disposed of as follows: Common stock: 3,600 shares transferred to Paine, Webber & Co., in 1926; 1,800 shares thereof were used as bonus on the sale of 1,800 shares of 1st preferred Arrowhead stock, and 1,800 shares in payment of commission for sale of stock under finance agreement. 185 shares transferred as bonus with 185 shares first preferred sold by petitioner in 1926. 300 shares paid in 1927 in liquidation of indebtedness for promotional services. 5, 915 shares still owned by petitioner. This amount includes the 5,000 shares transferred to Paine, Webber & Co., in lieu of bond under finance agreement, which were returned to petitioner in 1927. 10,000 Total shares received by petitioner. Second preferred stock: 104 shares paid in 1926 to liquidate indebtedness of petitioner; 50 shares of which were paid to Paine, Webber & Co. in payment of services in addition to amount provided for to be paid in finance agreement, 19 shares were paid to Billings Estate Corporation in payment of purchase price of $1,900 of real estate on Superior side of proposed bridge, and the remainder paid to undisclosed creditors for promotional and other services rendered to petitioner. 350 shares transferred to Paine, Webber & Co. in 1926 in lieu of bond with 5,000 shares of common, which, however, were returned in 1927 to petitioner and by it paid to the following named creditors to whom the petitioner was indebted in the following amounts for “valuable services" rendered by them to it over and above actual cash disbursements made by them, and who were willing to accept payment in second preferred Arrowhead stock at par: These services were rendered by petitioner's officers and others employed by it in connection with the drafting and securing of a license and permit from the United States Government, the preparation of surveys, plans and drawings, the securing of title to lands and riparian rights thereto, the approval of plans and drawings, the approval of franchise and permit rights, and other additional and valuable services in connection therewith. The petitioner directed its officers by resolution adopted June 23, 1926 to repay the above named persons the actual cash disbursements made by them as soon as funds were available. 55 shares transferred to creditors in 1927 in payment of debts of petitioner. 189 shares distributed to petitioner's stockholders in 1927. 10 shares still owned by petitioner. 708 Total shares received by petitioner. First preferred stock: 185 shares sold in 1926 or early in 1927 together with 185 shares of common as bonus at $100 per unit of one share first preferred and one share common, less commission of 10%, the petitioner realizing $90 net on each unit sold. 15 shares transferred in 1928 to Finch in payment of services. 200 Total first preferred stock received by petitioner. In the determination of the asserted deficiency the respondent made the following apportionment of cost to the various classes of stock: During 1926, the corporation acquired securities of the Arrowhead Bridge Company in consideration of the $63,569.37 expended for easements, legal services, etc. These securities consisted of 200 shares First Preferred, 708 shares Second Preferred and 6,400 shares of Common. In allocating the cost to the various classes of stock, the First Preferred, with one share of common for each share thereof, was considered as being worth 90. The common, being at the date of the acquisition, highly speculative, was entered on the books at $1.00. This leaves a value of $89.00 for the First Preferred. In such determination the Commissioner included no profit as arising from the sale of the 185 shares of Arrowhead first preferred stock, together with 185 shares of common stock as a bonus, treating the transaction as follows: Sale price ($100 per unit, less 10% commission) ___ Cost (185 shares 1st preferred at $89; 185 shares common at $1). $16, 650 16, 650 Profit OPINION. None MCMAHON: The petitioner, in order to further the enterprise in which it was interested, caused the organization of the Arrowhead Company in February, 1926, to carry out the contemplated project. For this purpose the petitioner conveyed or transferred certain of its assets to the Arrowhead Company, receiving in payment therefor in May, 1926, stock of the Arrowhead Company as follows: 200 shares of first preferred stock, 708 shares of second preferred stock, both of the par value of $100 per share, and 6,400 shares of common stock of no par value, the price of which was fixed at $1 per share. This transaction was conceded by respondent to be nontaxable and it is not involved herein except as it may affect the basis to be used for the purpose of determining gain or loss in the transaction which is involved herein. During 1926 the petitioner transferred to a number of its creditors 104 shares of Arrowhead second preferred stock of a total par value of $10,400, in payment of services or property in the total sum of $10,400. This is the transaction involved in this proceeding. The respondent contends that the difference between $10,400, the total amount of debts paid, and the cost to petitioner of the 104 shares of Arrowhead second preferred stock is taxable gain. The petitioner contends that the respondent erred in treating the transaction as a sale of the 104 shares of Arrowhead second preferred stock at par; that the Arrowhead stock has no market or determinable value; and that the respondent erred in fixing a unit cost price for the various classes of stock. It contends that the transaction was nothing more than an exchange of two things of doubtful value; that no fair apportionment of the cost price or of the value of the various classes of stock could possibly be made; and that consequently petitioner is entitled to charge the entire cost of the assets against stock received until the cost is extinguished, and cites in particular article 1567 of Regulations 62, which is in part as follows: If property is exchanged for two kinds of property and no gain or loss is recognized under articles 1564 and 1566 the cost of the original property should be apportioned, if possible, between the two kinds of property received in exchange for the purpose of determining gain or loss upon subsequent sale. If no fair apportionment is practicable, no profit on any subsequent sale of any part of the property received in exchange is realized until out of the proceeds of sale shall have been recovered the entire cost of the original property. The first question to be determined is whether the payment by the petitioner of its debts in the aggregate amount of $10,400 by the transfer of 104 shares of stock of another corporation of the par value of $10,400, acquired by petitioner at less than par, resulted intaxable gain to the petitioner. Section 213 of the Revenue Act of 1926 defines gross income as including "gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind * and in whatever form paid, or from sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; * * * or gains or profits and income derived from any source whatever." This section also requires that the amount of such items, except as otherwise provided, shall be included in the gross income for the taxable year in which received by the taxpayer. A debt is defined in its general sense as "a specific sum of money which is due or owing from one person to another, and denotes not only the obligation of the debtor to pay, but the right of the creditor to receive and enforce payment," J. S. Cullinan, 19 B. T. A. 930; and is property in the hands of the creditor, Portuguese-American Bank v Welles, 242 U. S. 7. That shares of stock are property is elementary and needs no citation of authority. Under the express terms of the statute, gains, profits, or income derived from "dealings in property" or "from any source whatever are within the term " gross income." * In United States v. Kirby Lumber Co., 284 U. S. 1, it was held that where a corporation issued its own bonds, for which it received par value, and later in the same year purchased in the open market some of the bonds at less than par, the excess of the issuing price or face value over the purchase price is taxable gain or income for the taxable year, and within the definition of gross income under section 213 (a) of the Revenue Act of 1921, i. e., “gains or profits, and income derived from any source whatever." In distinguishing Bowers v. Kerbaugh-Empire Co., 271 U. S. 170, the court, in its opinion, states: "But the transaction [involved in the Kerbaugh-Empire case] as a whole was a loss, and the contention was denied. Here there was no shrinkage of assets and the taxpayer made a clear gain. As a result of its dealings it made available $137,521.30 assets previously offset by the obligation of bonds now extinct." In this proceeding we have unsecured debts or accounts payable of the petitioner paid for with stock of another corporation, whereas in the Kirby Lumber Co. case, supra, bonds of the taxpayer were sold for cash at the par value and repurchased for cash at less than par value. In the instant proceeding debts of the aggregate amount of $10,400 were paid with stock of the par value of $10,400 which was acquired at less than par, whereas in the Kirby Lumber Co. case, debts were paid in cash in an amount less than the amount of debts paid; and in the instant proceeding the debts represented property and services received, whereas in the Kirby Lumber Co. case the debts or bonds represented money received. We do not believe that the differences are material. There is no evidence that such debts were |