Squire

Taxpayer appeals from a District Court judgment in favor of the Collector of Internal Revenue.

Austin E. Griffiths, Jr., and his wife owned a dairy business which had assets valued at $60,685 and consisting of milk routes and dairy equipment. The business was incorporated on July 5, 1940, with an authorized capital of $50,000, represented by 14,000 shares of no par value preferred stock and 36.000 shares of no par value common stock. In payment of the entire 50,000 shares Griffiths conveyed to the corporation the assets of the dairy business. Griffiths had subscribed for 39,000 shares, his wife for 9,000, and one Parry for 2,000 shares. Parry was given his stock in payment of a debt or bonus. At the time of incorporation the indebtedness of the owners in regard to the dairy business was $34,780.

Certificates were issued for only 28,000 of the shares subscribed. The remaining 14.000 shares of preferred and 8,000 shares of common were donated by Griffiths to the corporation as treasury stock. Of these shares 1,000 were subsequently transferred to M. Clothier in part payment of a prior debt and 600 to Donald Sell for the duration of his employment, after which the corporation was…