Opinion
Docket No. 6397.
1946-01-25
TOWER BUILDING CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Edward G. Ince, Esq., and Walter A. Wade, Esq., for the petitioner. Charles Munz, Esq., for the respondent.
In 1934 petitioner filed a petition in bankruptcy under section 77B. It later filed a plan of reorganization, which was confirmed by the court ‘in all respects‘ in 1935. Under the plan petitioner exchanged all new capital stock for all of its then outstanding first and second mortgage bonds, unsecured indebtedness, and old capital stock. In June 1936 the court approved the final report and final account of the trustee, discharged the trustee, and canceled his bond. On July 12, 1938, the court appointed a special master to make an examination and report on the conduct of certain persons who had presented claims in this matter. No report has as yet been filed. Held, the order of the court entered in June 1936 was the ‘final judgment or decree‘ within the meaning of section 113(b)(4), I.R.C., and section 270 of the Bankruptcy Act, as amended, is not applicable to this proceeding; held, further, that even though there was no final decree entered prior to September 22, 1938, there was no cancellation or reduction of petitioner's indebtedness within the purview of section 270 of the National Bankruptcy Act, as amended, and, therefore, no adjustment to petitioner's cost basis should be made under section 113(b)(4). Motor Mart Trust, 4 T.C. 931, followed. Edward G. Ince, Esq., and Walter A. Wade, Esq., for the petitioner. Charles Munz, Esq., for the respondent.
This proceeding involves the determination by the respondent against petitioner of deficiencies in income tax for the calendar years 1940 and 1941 of $3,263.91 and $5,034.72, respectively, and also deficiencies in declared value excess profits tax for the same years in the amounts of $3,068.01 and $2,397.29, respectively.
The deficiencies are due primarily to the respondent's disallowance as deductions from gross income of depreciation for the taxable years 1940 and 1941 in the amounts of $32,377.94 and $32,052.28, respectively. The respondent, in a statement attached to the deficiency notice, explained the disallowance for the year 1940 as follows:
(a) The deduction claimed in your return in the amount of $51,026.35 as depreciation has been adjusted to $18,648.41, and the sum of $32,377.94 has been disallowed as excessive depreciation. It has been determined that the basis for depreciation of your building was the fair market value thereof, $600,000.00, on November 25, 1935, the date on which the court order confirming the 77-B plan was entered. On such date the remaining life of the building was 33 years 10 months. On the same date your basis was (a) $4,800.00 for furniture and furnishings with remaining life 4 years 1 month, (b) $13,503.60 for refrigerators with remaining life 4 years 1 month, and (c) $1,622.34 for heating and plumbing equipment with remaining life 15 years 10 months. Accordingly, depreciation has been adjusted as shown in the attached Schedule 1.
A similar explanation was made for the 1941 disallowance.
By an appropriate assignment of error petitioner has contested these disallowances of depreciation for both years.
The respondent also made some other adjustments to net income, exclusive of the depreciation feature, which were not contested except for one minor adjustment for the year 1940 which was contested by apparently has been abandoned.
The parties have stipulated that if petitioner ‘is permitted to take the depreciation to which it would have been entitled had there been no reorganization as set forth herein‘ then there are no deficiencies for either year; but that ‘If the Petitioner, as a result of the reorganization herein set forth, is required to adjust its tax base in accordance with Section 270 of the Bankruptcy Act, as amended, then the deficiencies in this case will be those ‘ determined by the respondent.
FINDINGS OF FACT.
Petitioner is a corporation organized October 21, 1924, under the laws of the State of Illinois, with an authorized capital of 2,000 shares with a par value of $100 per share, all of which shares were forthwith issued. The Federal income tax returns of petitioner for the years 1940 and 1941 were filed with the collector of internal revenue for the first district of Illinois.
On November 6, 1924, petitioner issued $1,500,000 principal amount of its first mortgage bonds, secured by a first mortgage on its properties under a trust indenture between petitioner and Greenebaum Sons Bank & Trust Co., as trustee.
On December 31, 1924, petitioner issued $450,000 principal amount of its second mortgage bonds, secured by a trust indenture on its properties between petitioner and the Chicago Title & Trust Co., as trustee.
During the year 1925 petitioner erected a building at a cost to it of $1,756,924.94 on land acquired by it at a cost of $359,962.53. Subsequent to 1925 and up to and including 1936, petitioner installed in said building additional furniture, fixtures, refrigerators, oil-burning equipment, and theatre equipment at a cost to it of $75,900.50.
On January 1, 1930, petitioner defaulted on its first mortgage bonds and on the same date it was in default on its second mortgage bonds.
On February 3, 1930, foreclosure proceedings were instituted by the second mortgage bondholders in the Circuit Court of Cook County, State of Illinois (No. B-195469), and on May 16, 1932, the first mortgage bondholders instituted foreclosure proceedings in the same court (Docket No. B-241466), both of which cases were thereafter consolidated. On August 1, 1933, a decree of foreclosure and sale was entered, but no sale was ever had under said proceedings.
On July 2, 1934, proceedings for the reorganization of petitioner were instituted in the United States District Court for the Northern District of Illinois, under section 77B of the Bankruptcy Act, as amended, said proceedings being entitled ‘In the Matter of TOWER BUILDING CORPORATION, a corporation, Debtor, in Proceedings for the Reorganization of a Corporation under Section 77B of the Bankruptcy Act as amended‘ and bearing Docket No. 56434, and hereinafter sometimes referred to as the 77B proceeding.‘
By an order of confirmation entered in the 77B proceeding on November 25, 1935, from which no appeal was taken, the court confirmed and approved a certain plan of reorganization which had theretofore been filed on June 25, 1935, except for an amendment by paragraph 10 of the order not here material.
Pursuant to the plan of reorganization, by proper corporate action, the articles of incorporation of petitioner were amended to change the capital structure of petitioner from 2,000 shares of $100 par value stock to 14,800 shares of no par value stock, which shares were placed in a voting trust, dated as of February 18, 1936, among Herbert E. Hillebrecht, Walter A. Wade, and James H. Ferry, as trustees, parties of the first part; the holders from time to time of trust certificates issued and to be issued under said trust agreement, parties of the second part; and petitioner, party of the third part. The trust agreement provided for the issuance of trust certificates for the 14,800 shares of the capital stock of petitioner placed in the trust, on the basis of one unit for each share.
At the time the 77B proceeding was instituted and immediately prior to the approval of the plan of reorganization, there were issued and outstanding 2,000 shares of the capital stock of the petitioner of the par value of $100 each, $1,332,000 principal amount of first mortgage bonds, $411,100 principal amount of second mortgage bonds, and $162,232.55 principal amount of unsecured claims, said principal amount of first and second mortgage bonds and unsecured claims totaling in the aggregate $1,905,332.55.
Pursuant to the plan of reorganization approved by the court, 14,800 shares of no par value stock of petitioner were issued in the names of the trustees under the voting trust dated February 18, 1936, and thereafter the trustees issued voting trust certificates for said shares to the then creditors and shareholders of petitioner, according to the amount to which they were entitled, as follows:
13,320 units representing 90 percent of the new shares were issued in exchange for $1,332,000 principal amount of first mortgage bonds;
1,035.84 units representing approximately 7 percent of the new shares were issued in exchange for $162,232.55 principal amount of unsecured claims; and
206.16 units representing approximately 2 percent of the new shares were issued in exchange for $162,232.55 principal amount of unsecured claims; and
148 units representing 1 percent of the new shares were issued in exchange for the 2,000 shares of petitioner outstanding prior to the aforementioned amendment to the articles of incorporation.
The above mentioned order of confirmation entered on November 25, 1935, provided in part as follows:
15. The plan of Reorganization is hereby in all respects confirmed.
16. The provisions of said Plan of Reorganization and of this order shall be binding upon:
(a) The Debtor;
(b) All stockholders thereof;
(c) All creditors thereof, secured or unsecured, whether or not affected by the Plan and whether or not their claims have been filed and, it (sic) filed, whether (sic) not approved, including creditors who have not, as well as those who have, accepted it;
(d) All claimants against the property of the debtor.
19. (a) Paul Caspers, as Successor Trustee under the Trust Deed dated November 6, 1924 * * * is hereby ordered and directed to release said Trust Deed by appropriate instruments and to satisfy the decree entered in proceedings for the foreclosure of said Trust Deed, which proceedings are now pending in the Circuit Court of Cook County, Illinois as Cause No. B-241466. * * *
(b) Chicago Title and Trust Company, as Trustee under the Trust Deed dated December 31, 1924 * * * is hereby ordered and directed to release said Trust Deed by appropriate instruments and to dismiss the proceedings now pending in the Circuit Court of Cook County, Illinois as Cause No. B-195469. * * *
(c) The bonds and interest coupons secured by the Trust Deed dated November 6, 1924 * * * and the bonds and interest coupons secured by the Trust Deed dated December 31, 1924 * * * are hereby declared to be satisfied and of no further force and effect, and the holders of any of said bonds or interest coupons shall be entitled to receive only the new securities provided (sic) for in the Plan, and each and every of the holders and owners of any of such bonds or interest coupons are hereby enjoined from commencing or prosecuting any action or proceeding of any nature whatsoever against the debtor, its successors or assigns, or against the property of the debtor or of the reorganized company on or arising out of any of said bonds or interest coupons or trust deeds.
20. Nothing in this order contained shall be deemed to impair, release or effect in any way whatever claim the debtor may or might have against Holman D. Pettibone because or on account of any act deed or course of conduct, or failure to act, or omission or negligence on his part during or in connection with his management or administration of the property of the debtor, as the Receiver appointed by the Circuit Court of Cook County, illinois, in * * * No. B-195469 * * * .
21. Lessing Rosenthal Esquire, of Chicago, Illinois, is hereby appointed Special Counsel to advise this Court, as soon as may be as to whether or not a legally enforcible claim exists in favor of the debtor against said Holman D. Pettibone * * * .
24. The court hereby reserves jurisdiction to enter such further ordered (sic) as may hereafter be deemed (sic) necessary or proper in respect of the consummation and execution of the Plan of Reorganization as herein confirmed, and the right is hereby granted to the debtor and to any other persons in interest to apply to this court for further (sic) directions and instructions in respect of any of the matters covered (sic) by this order and by the Plan of reorganization.
By an order dated April 24, 1936, the court in the 77B proceeding, among other things, found:
1. That substantially all things necessary to consummate the plan of reorganization confirmed herein have been carried out.
2. That it is to the best interests of all parties concerned in these proceedings that all property now held by Perkins B. Bass as permanent Trustee herein be turned over to Tower Building Corporation.
By an order dated May 14, 1936, the court in the 77B proceeding ordered the trustee to transfer to petitioner all property, real and personal, held by him as trustee and to file his final report and account on or before May 20, 1936.
By an order dated June 4, 1936, from which no appeal was taken, the court in the 77B proceeding concluded as follows:
It is, therefore, ORDERED, ADJUDGED AND DECREED that the Final Report and the Final Account of Perkins B. Bass, Trustee herein, filed on May 20, 1936, be and the same are in all respects approved; and
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Perkins B. Bass as Trustee herein be and he is hereby discharged as such Trustee and his bond as such Trustee cancelled.
All of the above mentioned exchanges were completed prior to July 1, 1936. All of the old $100 par value shares, first mortgage bonds, second mortgage bonds, and unsecured claims mentioned above have been released and canceled and the first and second mortgages securing the bonds have been released. Since that time petitioner has had no debts, other than current liabilities, and has had no change of any kind or character in its capital structure, and, through its officers and directors, it has been operating its property and business under the provisions of the above mentioned plan of reorganization which was confirmed and approved by the court in its order entered November 25, 1935.
Upon the completion of the above mentioned exchanges and for two or three months thereafter the said voting trust units were bought and sold in over-the-counter transactions at $7 per unit. There were only a few of such transactions.
The fair market value of the petitioner's building on November 25, 1935, was $600,000.
On July 12, 1938, the court in the 77B proceeding entered an order in connection with the Pettibone matter mentioned in paragraphs 20 and 21, supra, of its order confirming the plan entered November 25, 2935, in which, among other things, the court ordered and adjudged on July 12, 1938, as follows:
(3) That on the basis of the evidence adduced and in the light of the authorities submitted and in view of the findings of the special counsel, it is determined that no cause of action exists in favor of the Tower Building Corporation, as reorganized or otherwise, or in favor of the first mortgage bondholders, whether or not represented by the Bondholders' Committee, against Holman D. Pettibone on account of the reductions in the rent of the Tower Theatre, or on account of any other act of commission or omission charged, and that regardless of the foregoing no damages were suffered by anyone by reason of Holman D. Pettibone's administration of the Tower Theatre, and that consequently proceedings against Holman D. Pettibone would not be justified.
On the same day, July 12, 1938, the court entered a separate order relative to a new matter which had been brought to the court's attention for the first time on the day before. This order stated in part, as follows:
Lessing Rosenthal, the special counsel heretofore appointed by the court to advise this court on whether or not a legally enforcible claim exists in favor of the Debtor or Bondholders against Holman D. Pettibone, having in his supplemental report presented to the court herein on July 11, 1938, brought to the attention of this court conduct on the part of Kate Cohen and those connected or associated with her or representing her, which strikes the court as subject to question and which appears contrary to proper and ethical practice and would tend to interfere with the proper administration of justice and the seemly conduct of litigation and with the process of this court, all as more fully appears in said supplemental report;
Thereupon this court does ORDER:
(1) That an examination be made of the conduct of Kate Cohen, Arthur Weinreb and any other person connected or associated with them or either of them, or abetting them or either of them, and of Kate Cohen's counsel and attorneys in connection with the litigation herein and the presentation and prosecution of Kate Cohen's claims in this matter;
(2) That Lessing Rosenthal be and he is appointed the Special Master of this court to conduct an examination for the purpose of ascertaining all the relevant facts and circumstances bearing upon the conduct or action of Kate Cohen and those who may have been connected or associated with her or assisted or abetted her in any way or represented her in or in connection with this proceeding;
Upon the presentation of said report and the hearing thereon this court will take such action as the disclosures made and the circumstances may warrant.
On October 29, 1938, the court in the 77B proceeding considered a petition filed by Joseph Edelman for fees for services rendered in the 77B meeting. It appeared to the court that Edelman also represented Kate Cohen and that his petition was intimately connected with the Kate Cohen matter, and for that reason the court ordered Edelman's petition to be referred to Rosenthal, as special master, ‘to hear evidence thereon and to report to this court in duce course * * * .‘
At the time of the hearing held in the instant proceeding Rosenthal had not yet filed a report with the court in the 77B proceeding relative to the Kate Cohen matter or the Edelman petition.
On the docket in the 77B proceeding under date of March 27, 1940, appears the following entry:
Rule on all parties to show cause in writing within ten days from this date why a final decree should not be rendered herein within 45 days from this date & hearing on rule set for April 9, 1940— 10 A.M. Barnes, J.
This rule to show cause was continued from time to time until June 26, 1942, on which date an entry was made on the docket reading ‘order rule to show cause stricken off call— BARNES, J.‘
Any part of the stipulation of facts, including the two exhibits thereto, which is not specifically set forth herein, is incorporated herein by reference and made a part of these findings of fact.
OPINION.
BLACK, Judge:
In this proceeding we are asked to determine petitioner's basis for depreciation. In this broad respect the issue is the same as was involved in Claridge Apartments Co. v. Commissioner, 323 U.S. 141; Alcazar Hotel, Inc., 1 T.C. 872; appeal dismissed on motion of the parties, C.C.A., 6th Cir., and Motor Mart Trust, 4 T.C. 931; on appeal, C.C.A., 1st Cir. We start with section 14(a) of the Internal Revenue Code, which is as follows:
(a) BASIS FOR DEPRECIATION.— The basis upon which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 113(b) for the purpose of determining the gain upon the sale or other disposition of such property.
Section 113(b) provides:
(b) ADJUSTED BASIS.— The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis determined under subsection (a), adjusted as hereinafter provided.
Subsection (a) of section 113 provides:
(a) BASIS (UNADJUSTED) OF PROPERTY.— The basis of property shall be the cost of such property; except * * *
There are 22 exceptions to section 113(a), as amended, but neither petitioner nor the respondent contends that any of these exceptions are applicable. The unadjusted basis of the property in question is, therefore, its ‘cost‘ to petitioner; and the parties are in agreement as to the cost of the property.
We turn now to the four numbered paragraphs of adjustments provided for under section 113(b). There is no issue between the parties as to the first three paragraphs. The issue arises with respect to paragraph (4), which was added to the code by section 122(a) of the Revenue Act of 1943, and by section 122(b) was made applicable to taxable years beginning after December 31, 1935. Paragraph (4) is as follows:
(4) ADJUSTMENT OF CAPITAL STRUCTURE PRIOR TO SEPTEMBER 22, 1938.— Where a plan of reorganization of a corporation, approved by the court in a proceeding under section 77B of the National Bankruptcy Act, as amended, is consummated by adjustment of the capital or debt structure of such corporation without the transfer of its assets to another corporation, and a final judgment or decree in such proceeding has been entered prior to September 22, 1938, then the provisions of section 270 of the National Bankruptcy Act, as amended, shall not apply in respect of the property of such corporation. For the purposes of this paragraph the term ‘reorganization‘ shall not be limited by the definition of such term in section 112(g).
Section 270 of the National Bankruptcy Act, as amended, sometimes referred to as the Chandler Act, is set forth in the margin.
Petitioner contends that the phrase ‘a final judgment or decree in such proceeding,‘ as used in section 113(b)(4), should be so construed as to regard the court's order of June 4, 1936, approving the final report and final account of the trustee, discharging the trustee, and canceling his bond, as the final judgment or decree, and that, therefore, paragraph (4) is not applicable to petitioner. If our decision should be against petitioner on this contention, then petitioner further contends that there was no cancellation or reduction of its indebtedness within the meaning of those terms as used in section 270, citing Capento Securities Corporation, 47 B.T.A. 691; affd., C.C.A., 1st Cir., 140 Fed.(2d) 382; Alcazar Hotel, Inc., supra, and Motor Mart Trust, supra, and that, therefore, no adjustment in the cost basis of its property should be made under section 113(b)(4) of the code. The respondent contends that no final judgment or decree has ever been entered in the 77B proceeding; that the said 77B proceeding was pending on September 22, 1938; that section 270 of the National Bankruptcy Act, as amended, is applicable; that indebtedness of petitioner in the amount of $1,905,332.55 was canceled or reduced; and that the cost basis of petitioner's property should be decreased by that amount, except that such basis, in the language of section 270, ‘shall not be decreased to an amount less than the fair market value of such property as of the date of entry of the order confirming the plan,‘ which fair market value the parties have stipulated was $600,000.
Public No. 696, 75th Cong., 52 Stat. 840, as amended:‘SEC. 270. In determining the basis of property for any purposes of any law of the United States or of a State imposing a tax upon income, the basis of the debtor's property (other than money) or of such property (other than money) as is transferred to any person required to use the debtor's basis in whole or in part shall be decreased by an amount equal to the amount by which the indebtedness of the debtor, not including accrued interest unpaid and not resulting in a tax benefit on any income tax return, has been canceled or reduced in a proceeding under this chapter, but the basis of any particular property shall not be decreased to an amount less than the fair market value of such property as of the date of entry of the order confirming the plan. Any determination of value in a proceeding under this chapter shall not be deemed a determination of fair market value for the purposes of this section. The Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe such regulations as he may deem necessary in order to reflect such decrease in basis for Federal income-tax purposes and otherwise carry into effect the purposes of this section.‘
In support of petitioner's contention that the court's order dated June 4, 1936, should be construed as the ‘final judgment or decree‘ as those words are used in section 113(b)(4), petitioner offered the testimony of John P. Barnes, the United States District Judge for the Northern District of Illinois, who had entered substantially all of the orders in the 77B proceeding, including the order dated June 4, 1936, and cites Claridge Apartments Co. v. Commissioner, supra; S. Rept. No. 627, 78th Cong., 1st sess., to accompany the Revenue Bill of 1943, C.B. 1944, pp. 973, 1010-1012; and Conference Rept. No. 1079, 78th Cong., 2d sess., C.B. 1944, pp. 1059, 1063-1066. A portion of the latter is set forth in the margin.
Amendment No. 34: This amendment, for which there is no corresponding provision in the House bill, adds to section 113 of the Code a new paragraph to provide for the nonapplication of section 270 of the Bankruptcy Act, as amended, in the case of certain reorganizations occurring under section 77B of such Act. The effect of the amendment is to prevent reduction of the basis of the assets of the reorganized corporation by the amount of the indebtedness canceled in the proceeding in those cases in which the reorganization is consummated by the adjustment of the capital or debt structure of the existing corporation, and the final judgment or decree in the reorganization proceeding was entered prior to September 22, 1938. Cases in which the reorganization is consummated by a transfer to another corporation of the assets of the corporation undergoing reorganization are not affected by the amendment. A provision having the effect of the amendment shall be deemed to be included in the revenue laws respectively applicable to taxable years, beginning after December 31, 1935.The House recedes with an amendment renumbering the section, technical amendments clarifying the language of the provision, and inserting the new provision as paragraph (4) of section 113(b), relating to adjusted basis, instead of paragraph (23) of section 113(a), relating to basis.
Among other things, Judge Barnes testified that he had entered the order of November 25, 1935, confirming the plan and also the order dated June 4, 1936; that he regarded the latter order as ‘the final judgment or decree in bankruptcy case No. 56434 with respect to the reorganization of the property and business of‘ petitioner; that after July 1, 1936, he did not in any way supervise the property and business of petitioner; that he had also entered the orders relating to the Kate Cohen matter referred to in our findings; that special master Rosenthal has never filed his report with respect to Kate Cohen matter; and that the only reason he knew of as to why a final closing order had not been entered in the 77B proceeding was the pending Kate Cohen matter.
We think petitioner's contention that the plan of its reorganization under section 77B of the Bankruptcy Act had been fully consummated prior to the effective date of the Chandler Act, September 22, 1938, and that the ‘final judgment or decree,‘ as those words are used in section 113(b)(4), was the order of June 4, 1936, approving the final account of the trustee and discharging him from all further duties in the proceeding and canceling his bond, must be sustained.
The order of confirmation of the plan of reorganization was entered November 25, 1935. All of the steps in connection with the reorganization were consummated and completed prior to July 1, 1936. Section 270 is not to be given retroactive effect so as to cover the reorganization of petitioner which occurred some two years prior to the enactment of the Chandler amendment to the Bankruptcy Act. As was said by the Supreme Court in the Claridge Apartments case, supra:
If Sections 268 and 270 were to be applied to all reorganizations completed under Section 77B, literally they would cover all such transactions running back to 1934, when the latter section was enacted. As to proceedings closed when the Chandler Act took effect, this would involve disturbance of tax consequences already settled for five years, * * *
To all intents and purposes the bankruptcy proceedings in the instant case have been closed for nearly ten years. The petitioner had been operating its property and business without any supervision by the court since July 1936. A matter over which the petitioner has no control and in which it is not interested made it impossible to enter a final order closing out the the bankruptcy proceeding. This matter was the appointment by the court on its own motion, of a special master to examine into the conduct of one of the bondholders and others and to report back to the court— a report which the special master has not yet made. To contend in the instant case that a final closing order, closing out the bankruptcy proceeding was necessary in order to permit the taxpayer to come within the provisions of section 113(b)(4), we think, means (1) a disregard of the obvious intention of Congress and (2) a disregard of substance for mere form. We sustain petitioner as to this part of the issue.
But, if we are wrong in the above holding and ‘no final judgment or decree‘ in such proceeding had been entered prior to September 22, 1938, within the meaning of section 113(b)(4), our decision would still have to be in favor of petitioner. Assuming that no final judgment or decree in the 77B proceeding was entered prior to September 22, 1938, the instant case is then on all fours with Motor Mart Trust, supra. Upon the facts in the Motor Mart Trust case, which were very similar to those present in the instant case, we held that there was no cancellation or reduction of indebtedness of the trust within the purview of sections 268 and 270 of the Chandler Act. In the instant case, we likewise hold that the exchange of petitioner's new stock for its first and second mortgage bonds, unsecured claims, and old stock in accordance with the plan approved in the 77B proceeding did not amount to a cancellation or reduction of indebtedness under section 270 of the Bankruptcy Act, as amended. Motor Mart Trust, supra; cf. Alcazar Hotel, Inc., supra. It follows that no adjustment is to be made to petitioner's cost basis under section 113(b)(4) of the code. In accordance with paragraph 18 of the stipulation of facts,
Decision of no deficiencies will be entered.