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*1033OPINION.

Trammell:

We are to determine the basis upon which to compute the gain, if any, realized from the transaction as set forth in the findings of fact. There is a question of fact as to the cost of the bonds to the taxpayer, and a further question as to whether the transaction wherein the taxpayer acquired the preferred stock was a purchase or in part an exchange.

We will consider the last question first. The taxpayer contends that, in fact, he received as part payment for the bonds preferred stock of the par value of $200,000, to which he was forced to subscribe as a part of the refinancing scheme, and that the market value of this stock was substantially less than par. In our opinion the acquisition of the preferred stock was an independent and separate transaction. The taxpayer, in substance as well as in form, actually received in cash $453,000 for his bonds. His disbursement of a portion of this money for the preferred stock is another transaction, however close together in point of time the two transactions might have been. While it was a part of the refinancing scheme that the stockholders would subscribe for and take the preferred stock, this was not a requirement imposed upon or accepted by the bondholders of the old bond issue. There appears no evidence that they agreed *1034to accept preferred stock in exchange for bonds. The stockholders agreed to take the preferred stock. As a bondholder the taxpayer was under no obligation to take any preferred stock in exchange for his bonds. If it was necessary for the taxpayer to get funds from the sale of bonds with which to carry out his obligation to take preferred stock, that fact does not constitute the transaction an exchange of bonds for stock. With this view of the transaction, it is not necessary to consider the market value of the preferred stock at that time.

This leaves solely for consideration the question of the cost to the taxpayer of the bonds. In his original petition he alleges the cost to be $319,073.83, which is the cost used by the Commissioner in computing gain. This cost is based on an average rate of 70 per cent plus. In his amended petition the cost is alleged to be $405,-432.69. In his brief the taxpayer states that, if the bonds purchased from the Construction Company were computed at $80, the cost Avould be $396,026.50, and if figured at $85, the cost would be $398,401.50.

It was stipulated that the books of record of the taxpayer showed that the bonds purchased by the taxpayer from December 19, 1913, to and including January 1, 1917, cost the amounts set out in the findings of fact, and that the total actual cost was $334,077.84. It was claimed by the taxpayer that the Construction Company, in lieu of declaring dividends and distributing its earnings in that way, decided to sell its bonds to its stockholders at a price below market, and that the difference between the market price and the price at which they were sold represented the distribution of profits. From the evidence we are of the opinion that, with respect to certain of the bonds, this contention of the taxpayer is sustained. The $18,000 par value of bonds acquired by the taxpayer on December 31, 1913, at 50 per cent were actually worth at least 60 per cent of par. This being true, the cost of the bonds appearing in the statement taken from the books, set out in the findings of fact, should be increased. The cost of the $18,000 par value purchase of bonds on December 31, 1913, should be stated at $10,500 instead of $9,000, and the $1,500 par value bonds purchased on January 16, 1914, which appear on the books to have cost the taxpayer $750, actually cost him $900. The cost of the bonds, therefore, should be increased by the amount of $1,950, on account of the fact that they were acquired partly by way of a distribution of profits and partly by an actual purchase.

It also appears that the bonds acquired on January 13, 1916, at a book cost of $69,477, were received on that date in liquidation. The Interurban Construction Co. was liquidated in 1916. It had assets consisting of bonds of the Railway Company which were distributed in proportion to the stock holdings. The $69,477 appearing *1035as the book cost of these bonds was in fact the cost' of the stock which the taxpayer held in the company which was liquidated. In the liquidation the taxpayer received taxable gain to the extent of the difference between the purchase price of his stock and the fair market value of the bonds received in liquidation. The value of the bonds received in liquidation we find from the evidence to have been 85 per cent. This value is found from the fact that the bonds were selling at 85 per cent at and near the date of the liquidation. The receipt of the bonds in liquidation was a separate and closed transaction, and creates a new basis for the determination of gain or loss on the sale of the bonds. This would make the cost of the $144,000 par value of bonds $122,000 instead of $69,477, an increase of $52,923. This amount and $1,950 should be added to the amount of $334,077.64, appearing on the books of the taxpayer, to determine the tax liability resulting from the sale of the bonds.

Order of redetermination will be entered on 15 days' notice, under Bule 50.

On reference to the Board, Lansdon did not participate.

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