1 Findings of Fact tributions made by the Guardian Depositors Corporation to the holders of the Settlement Fund Certificates. The Plan provided that the holders of the Settlement Fund Certificates were entitled to be repaid in full with interest for their contributions to the Guardian Bank liquidation and after that all distributions were to be made to stockholders of the Guardian Bank pro rata. The sole stockholder of the Guardian Bank was at all times the Guardian Group, as heretofore shown. After the payment of the final liquidating dividend by the Guardian Depositors Corporation, as shown above, the Guardian Depositors Corporation turned over its remaining assets valued at between two and three million dollars to the receiver of the Guardian Group and that receivership has not been terminated. The Guardian Depositors Corporation was dissolved on July 31, 1949. 51. In his 1944 individual income tax return, the plaintiff reported as ordinary income the total amount received by him from the Guardian Depositors Corporation in that year, namely, $15,246.11, as shown in findings 45, 47, 48, and 49. 52. The plaintiff duly filed claims for refund for the years 1943 and 1944 in which alternative contentions were made with respect to the payments received by the plaintiff from the Guardian Depositors Corporation in 1942 and 1944. The contention advanced with respect to 1943 on account of a payment received in 1942, which was the same as that advanced for 1944, was as follows: (1) That this recovery is not subject to federal income tax for the year 1942 inasmuch as the taxpayer did not receive a full tax benefit in the year in which the loss occurred. Section 22 (b) (12) of the Internal Revenue Code. (2) Or, in the alternative, that this recovery represents the proceeds from the retirement and liquidation of an investment in the stock of the Guardian Detroit Union Group, Incorporated, and as such constituted a long term capital gain under Section 117 (a) of the Internal Revenue Code subject to the restrictive capital gains tax provisions of that Code. 53. The plaintiff's claim for refund for the calendar year 1943 was disallowed in full by the Commissioner. As shown Opinion of the Court 122 C. Cls. in finding 20, an allowance was made by the Commissioner on the claim for refund for 1944 on account of certain depletion deductions under the Weber Oil Company contract but the claim was otherwise rejected by the Commissioner. The foregoing action by the Commissioner was within two years of the filing of the petition in this proceeding. The court decided that the plaintiff was entitled to recover. Entry of judgment was suspended to await the filing of a stipulation by the parties showing the amount due, in conformity with the findings and opinion, together with interest as provided by law. MADDEN, Judge, delivered the opinion of the court: This is a suit for refund of income taxes paid by the plaintiff. It involves two transactions which will be discussed separately. The Weber Oil Company Transaction On September 30, 1941, the plaintiff owned, and had owned for several years, 150 shares of stock of the Weber Oil Company, a corporation. On that day he and all the other stockholders of that company sold their stock to The Ohio Oil Company. There were, in all, 3,125 shares of such stock. The consideration for the sale of all the stock was $1,500,000 in cash; $1,000,000 to be paid within twelve months; an "oil payment" of one-eighth of gross proceeds of oil próduced and marketed from certain designated existing leases of the Weber company until such payments totaled $2,000,000; and a one-sixteenth over-riding royalty from gross proceeds from oil produced and marketed from the same designated leases for an unlimited time and in an unlimited amount. The contract of sale provided that The Ohio Oil Company, the purchaser of the stock, would dissolve the Weber Oil Company, and would make the promised payments to an agent of the stockholders, to be by him distributed to them in the proportions to which the stock which they had owned and sold entitled them. 1 Opinion of the Court The plaintiff made a large profit on the sale of the stock and paid income tax for 1941 at capital gains rates on the profit included in the cash which he actually received in that year, and on the estimated future receipts from the one-eighth oil payment, the latter amounts being discounted 25 percent because they were to be received in the future. In each of the years 1942 to 1945 the plaintiff received payments under the one-eighth oil payment provisions of the contract of sale, which payments were in excess of the estimated future payments which he had included in his 1941 return. His contention in this suit is that these receipts were capital gains, and taxable only as such. The Government contends that they were ordinary income flowing to the plaintiff because he owned an interest in producing oil wells, and that the receipts were taxable as ordinary income, subject to the depletion allowance which is permitted to an oil producer by the tax statutes. In Haynes v. United States, 100 C. Cls. 43, 50 F. Supp. 238, we considered a problem substantially identical with the instant one and concluded that the receipts there involved were capital gains and not ordinary income. Our reasons were stated there and will not be repeated here. The Government calls our attention to a provision of the contract in the instant case which, it says, shows that the plaintiff and the other Weber Oil stockholders were intended to have a property interest in the oil wells. In that provision The Ohio Oil Company says that, after the dissolution of the Weber company, it will assign to the Bay Trust Company, as agent for the stockholders of the Weber Oil Company and for said Alvin H. Weber, and subject to the terms and conditions of this contract, said oil payments and overriding royalty, * * We think that, in its context, this provision meant only that The Ohio Oil Company would furnish this agent with evidence as to what the future payments were to be and would make the payments to it as they became due. The further provision of the contract that if the Ohio company proposed to abandon a lease, it should notify the Opinion of the Court 122 C. Cls. stockholders and give them an opportunity to buy the equipment which it had on the lease was no more than an agreement for a possible future sale, and did not affect the nature of the principal transaction, or show that the stockholders had a present property interest in the leases. The Guardian Depositors Corporation Issue In 1933 the plaintiff owned 2,020 shares of Guardian Detroit Union Group, Inc. stock for which he had paid $145,945.72. This corporation was a holding corporation, whose assets were stocks of national and state banks. It owned all the stock of Guardian National Bank of Commerce of Detroit, and five lesser national banks in Michigan. All these banks were closed on February 11, 1933, when the Governor of Michigan proclaimed a “bank holiday.” The United States Comptroller of the Currency appointed receivers and, in 1933, declared the banks insolvent. Within the year 1933 the creditors and depositors of the Guardian National Bank were paid 68 percent of their claims. The receivers of the six national banks contended that, for the purposes of the statute imposing a 100 percent liability on stockholders of national banks, if necessary to pay the banks' debts, the stockholders of Guardian Group, though they were not stockholders of the banks, but only of the holding company which was the sole stockholder of the banks, should be treated as stockholders of the banks. The stockholders of Guardian Group disputed this liability but lost their case in the United States District Court in Michigan. They appealed to the United States Court of Appeals for the Sixth Circuit but, while the appeal was pending, a settlement agreement was worked out for the liquidation of the banks "in view of the litigation uncertainties." This settlement was a Plan of Liquidation developed by a Guardian Bank Depositors Committee, a committee of stockholders of Guardian Group, Inc., and the United States Comptroller of the Currency. The plan was formally adopted, with the approval of the court, on April 29, 1935. Under the plan a corporation named Guardian Depositors Corporation was formed. 1 Opinion of the Court Under the plan the individual stockholders of Guardian Group agreed to raise $5,040,000 to be paid to the receivers of the six banks, that being the amount estimated to be necessary to pay the debts of the banks. Each stockholder in Guardian Group, Inc., was authorized to subscribe to the capital stock of the liquidating corporation, Guardian Depositors Corporation, in proportion to his stockholding in Guardian Group, Inc. In return for their payment of $5,040,000, each stockholder of Guardian Group was to receive a settlement fund certificate for the proportionate amount which he contributed to the $5,040,000 payment. The plaintiff and some other stockholders of Guardian Group, Inc., did not subscribe to the capital stock of the Depositors Corporation. The plaintiff did contribute $14,907.60 to the $5,040,000 fund, and received a settlement fund certificate for that amount. That certificate provided that, so far as concerned the 78.808 percent ($4,000,000) of the $5,040,000 fund which was turned over to the Guardian Bank, the certificate holder would get back that percentage of his contribution, with interest at 5 percent, if the assets of Guardian Bank could be successfully liquidated. Under the liquidating plan, after (1) all depositors and creditors of the banks had been paid; (2) the subscribers to the capital stock of the liquidating corporation had been paid; (3) the holders of the settlement fund certificates had been paid; the remaining assets, if any, were to be turned over to a trustee for the stockholders of Guardian Group, Inc. Some $2,000,000 to $3,000,000 was so turned over to the trustee. Upon his settlement fund certificate for $14,907.60, the plaintiff was paid various amounts on the principal in 1942 and 1944, and $4,988.44 in interest in 1944. Including the interest, he got back more than the amount which he had contributed to the settlement fund. Going back now to 1933, the year that the banks were declared insolvent, the plaintiff in his income tax return for that year claimed, among other deductions, a deduction of $145,945.72 because his Guardian Group stock which had cost him that sum had become worthless in that year. He also claimed a deduction of $1,018.05 which he paid that year toward the settlement of the stockholders liability as |