Before HASTINGS, Chief Judge, and SCHNACKENBERG and SWYGERT, Circuit Judges.
SCHNACKENBERG, Circuit Judge.
N.F. Testor, petitioner, asks us to review a decisionof the Tax Court of the United States, 40 T.C. 273, which determined deficiencies in his income tax for the calendar years 1955 and 1956.
The facts were stipulated in the Tax Court.
Petitioner, a resident of the territory of Puerto Rico, during the taxable years resided in Rockford, Illinois. He filed returns for himself and wife, on a cash receipts basis, with the District Director of Internal Revenue in Chicago, Illinois.
The Commissioner's statutory notice determined deficiencies in income tax of petitioner and his wife for 1955, $120,088.61, and for 1956, $1,635.59.
On December 31, 1954, petitioner was the sole proprietor of a business, the liabilities of which exceeded the aggregate book value of its assets by $193,447.28, and also exceeded petitioner's adjusted basis in said assets by the same amount.
On January 1, 1955, petitioner transferred all of the assets and liabilities of the proprietorship to his wholly-owned corporation, Testor Chemical Co., in exchange for all of the stock of said corporation, being 30,000 shares, having an aggregate stated value of $300,000. As part of the transaction the corporation assumed all liabilities of the proprietorship and, immediately after the transaction on January 1, 1955, petitioner owned all the capital stock of the corporation.
None of the assets transferred was specifically encumbered by the liability assumed, or, as stated in petitioner's brief, no encumbered property, or secured liabilities, existed on the date of the transfer.
The Tax Court found that 26 U.S.C.A. § 357(c) imposed a tax on the amount by which the liabilities assumed by the corporation exceeded petitioner's base in the transferred property.
Section 357(c), which imposes a tax on otherwise tax-free transfers under § 351,*fn1 provides:
"(c) Liabilities in excess of basis -
"(1) In general - In the case of an ...