Opinion of the Court.

300 U.S.

On partial distributions by Parriott before final settlement, Kirkland, Lantz and Wrather gave receipts similar in form. That of Kirkland recited that the payment was on account of the purchase price of his interest "in and to ... the leases ... and to the stock of the Tex-Penn. ... The balance ... is to be retained until

the final adjustment of the taxes and the affairs of ... Tex-Penn ... at the conclusion of which the said balance is to be paid to me, less my proportionate share of said expenses.” Kirkland and Lantz died before the hearing. Wrather testified that he attached no great importance to the form of the receipt; that he knew there had been in form separate transfers of the lease interests and the Tex-Penn stock but that he and his associates considered only the ultimate objective.

Benedum and Parriott in their 1919 income tax returns reported their own profits from the sale of their lease interests upon the basis of the total price of $8,650,000. Tex-Penn's return stated that it had sold its assets for $350,000 cash and shares of stock. It also stated that the cost of the assets sold was $2,359,205.69, from which it deducted $350,000, leaving $2,009,205.69, and that amount was designated "value of stock.” Neither the $350,000 nor the stated "value of stock” received was included in gross income. A schedule attached to the return stated that the cash consideration was accounted for in the return, and that the “no par value stock" received was not taxable income under $ 202 (b) and T. D. 2924.

The foregoing includes the substance of all the findings of circumstantial facts material to the question under consideration. They must be taken as established if supported by substantial evidence. Helvering v. Rankin, 295 U. S. 123, 131. Old Mission Cement Co. Helvering, 293 U. S. 289, 294. Burnet v. Leininger, 285 U. S. 136, 138-139. Phillips v. Commissioner, 283 U. S.

589, 600. Old Colony Trust Co. v. Commissioner, 279 U. S. 716. There is no suggestion that they are not amply sustained. In addition to and presumably upon the basis of these findings, the board made its "ultimate finding." And upon that determination it ruled that the transaction was not within the non-recognition provisions of § 202 (b). The ultimate finding is a conclusion of law or at least a determination of a mixed question of law and fact. It is to be distinguished from the findings of primary, evidentiary or circumstantial facts. It is subject to judicial review and, on such review, the court may substitute its judgment for that of the board. Helvering v. Rankin, ubi supra.

Treating the transaction as a part of reorganization, merger or consolidation, the board concluded that cash constituted a part of the consideration. The opinion refers to writings above mentioned and emphasizes their provisions that state or indicate that the consideration was or did include cash and stock. The documents cited are the agreement for the transfer of Tex-Penn's assets to Transcontinental, the offer to Tex-Penn, the resolution of its directors accepting the offer and directing payment of the $350,000 to its treasury. Holliday's letter directing Transcontinental so to pay, Transcontinental's check for that amount to Tex-Penn and the latter's tax return.

But the board's findings of what was actually done show that, pursuant to direction of the individuals selling lease interests, Transcontinental advanced to Tex-Penn $350,000 and deducted that amount from the price of the lease interests. The findings also show that, for the part of that amount remaining after payment of its debts, TexPenn accounted to the individuals.

As indirectly showing that the $350,000 constituted part of the consideration for transfer of Tex-Penn assets, the opinion cites the entry in the "Parriott Attorney" accounts showing that the effect of the payment of that

Opinion of the Court.

300 U.S.

sum to Tex-Penn was to reduce the sale price of the interest in the leases from $9,000,000 to $8,650,000, the entries distributing that amount to the five individuals, and the tax returns of Benedum, Parriott and Tex-Penń.

Petitioner does not bring forward these entries or the tax returns of Benedum and Parriott to support the board's ultimate finding now under consideration. Manifestly, the entries referred to in the board's opinion are opposed to its conclusion. As will more fully appear, upon an examination of them later to be made, the findings of details make it plain that the $350,000 was a part of the consideration paid for the individually owned lease interests and leave no ground for any other inference.

The board's opinion shows that both parties relied on art. 1567 as a correct interpretation of the statute. The board held (p. 959) that it "requires, as a condition of nonrecognition of gain, that the sole consideration be stock or securities ... The written agreements herein indicate clearly that there was a cash consideration to Tex-Penn of $350,000. We are not convinced by the oral evidence that that was not a fact. Accordingly, we hold that the petitioners have not brought themselves within section 202 (b)... and article 1567 ... so as to escape recognition of gain.”

The opinion of the Circuit Court of Appeals, after discussion of primary or evidentiary facts found by the board, states, 83 F. (2d) at p. 522: “A consideration of all the documentary evidence drives us to the conclusion that the $350,000 was not consideration passing from Transcontinental to Tex-Penn, but was money furnished by the lessees as individuals to pay the debts of TexPenn so that the transaction might be made according to agreement In form the documents upon' which the Board of Tax Appeals relied stated that the $350,000 was corporate consideration passing from Transcontinental, but in fact, it was not, and the rule is well settled that in determining tax liability, taxing authorities must

look through form to fact and substance. It has been a long time since these transactions took place and most of the parties who were interested in them are dead, but every living person who was in any way connected with them testified without contradiction that the $350,000 was paid by the five lessees and not by Transcontinental.”

The validity of the ultimate finding above quoted is to be tested by what in fact was done rather than by the mere form of words used in the writings employed. United States v. Phellis, 257 U. S. 156, 168. Curran v. Commissioner, 49 F. (2d) 129, 131. The board's findings of circumstantial facts definitely show the substance of the transaction as actually consummated. Summarily stated, the details of controlling significance are these:

The bankers bought from Transcontinental 725,000 shares of its stock for $20,225,000. Transcontinental paid and issued its stock:

Cash
Riverside Eastern... $1,250,000

41, 666
Riverside Western.

1, 250,000

41, 667 Pittsburg-Texas..

158, 833 Benedum and Parriott..., 3, 400,000 1,007, 834 Parriott, Attorney..

5, 250,000 Tex-Penn

350,000

Shares

$11,500,000 1, 250,000 Included in the total was $9,000,000 to pay for the individually owned five-eighths interest in the leases and $2,500,000 to retire preferred stock of Riverside Eastern and Riverside Western, and $5,250,000 to pay for sevensixteenths of the five-eighths interest: $2,250,000 to Kirkland and $1,500,000 each to Lantz and Wrather. The remaining $3,750,000 was to pay Benedum and Parriott for their nine-sixteenths: $1,500,000 to Benedum for his six-sixteenths and $2,250,000 to Parriott for his threesixteenths.

The $350,000 received by Tex-Penn from Transcontinental was.to be used to the extent needed to pay Tex

Opinion of the Court.

300 U.S.

Penn's debts in order that its assets should be free and clear of liabilities. But no part of that amount was borne by Transcontinental. Upon authorization of Benedum and Parriott, it deducted that amount from the $3,750,000 payable by it to them. And, by arrangement among themselves, the five individuals were chargeable with the $350,000 according to their interests in the leases: Benedum...

$131,250 Parriott.

65, 625 Kirkland.

65, 625 Lantz...

43, 750 Wrather

43, 750

$350,000 The amount so advanced exceeded what was required to pay Tex-Penn's debts by $55,255.24. And to the five individuals that amount was accounted for: Benedum..

$20, 720.73 Parriott.

10, 360. 35 Kirkland.

10, 360.35 Lantz..

6, 906. 90 Wrather

6, 906. 90

$55, 255, 23 The statement below shows in column (1) the amounts that, but for the advance of $350,000 to Tex-Penn, each of the individuals would have received directly from Transcontinental in cash for his interest in the leases; it shows in column (2) the amount that was received by each after deducting his share of the amount actually used to discharge liabilities of Tex-Penn.