*792OPINION.
In making its income and excess profits tax return for the fiscal year ended September 30, 1936, the taxable year, petitioner computed gain or loss on the disposition of the inventories and on the realization of the accounts and notes receivable, and depreciation on the depreciable assets, all of which it had acquired from the old company, by using the basis of those assets in the hands of that company. In the hands of the old company the basis of the inventories was $112,966.27 and of the accounts and notes receivable was $65,588.76; and the basis of the depreciable assets after adjustment for depreciation was $11,481.14.
Respondent determined that petitioner was not entitled to use the basis of the assets in question in the hands of the old company and that the correct basis of the assets in question was the cost thereof to petitioner. He determined that all of the assets acquired by peti*793tioner had a total cost to it of $129,965.911 and that the cost to it of the assets in question was as follows: inventories, $74,006.36; accounts and notes receivable, $42,968.45; and depreciable assets, $7,521.53.
Petitioner bases its claim that the correct basis of the assets in question was the same as in the hands of the old company on section 113 (a) (7) of the Revenue Act of 1934, the pertinent provisions of which are set forth in the margin.2 The first requisite for the application of section 113 (a) (7) is that the assets in question be acquired by petitioner “in connection with a reorganization.” The definition of the term “reorganization” as used in section 113 (a) (7) is provided by section 112 (g) (1), the provisions of which are set forth in the margin.3 Petitioner argues that the transaction in which it acquired the assets of the old company was a reorganization within the meaning of both subdivisions (C) and (E), but especially within the meaning of subdivision (C), of section 112 (g) (1).
The transaction in which petitioner acquired the assets of the old company was not a reorganization within the meaning of subdivision (C) of section 112 (g) (1). Subdivision (C) requires that “immediately after the transfer the transferor or its stockholders or both” be in “control” of the transferee. “Control” is defined in section 112 (h) 4 as “the ownership of at least 80 per centum of the voting *794stock and at least 80 per centum of the total number of shares of all other classes of stock of the corporation.” In this case it is clear that immediately after the transfer “control” of petitioner was neither in the old company nor in its “stockholders.” Helvering v. Southwest Consolidated Corporation, 315 U. S. 194. Contrary to petitioner’s contention, the creditors of the old company could not be regarded as its “stockholders” within the meaning of subdivision (C). Helvering v. Southwest Consolidated Corporation, supra; cf. Commissioner v. Cement Investors, Inc., 122 Fed. (2d) 380. The stockholders of the old, transferor corporation did not own 80 percent of the voting stock or 80 percent of the shares of all other classes of stock of the new corporation, petitioner.
Nor was the transaction a reorganization within the meaning of subdivision (E) of section 112 (g) (1). In Helvering v. Southwest Consolidated Corporation, supra, the Supreme Court made the very pertinent observation that “a transaction which shifts the ownership of the proprietary interest in a corporation is hardly ‘a mere change in identity, form, or place of organization’ within the meaning of clause E.”
It follows that section 113 (a) (7) is not applicable.
The correct basis of the assets in question was thus the cost of such assets to petitioner. Sec. 113 (a).5 Petitioner acquired the assets of the old company by paying cash in the amount of $23,721.80, by assuming liabilities in the amount of $44,544.11, and by issuing 617 shares of preferred stock and 1,617 shares of common stock. Part of the cost was represented by a total of $68,265.91 in cash paid and in liabilities assumed. The balance of the cost was represented by the 617 shares of preferred stock and 1,617 shares of common stock issued. The measure of the part of the cost represented by the shares of stock was the fair market value thereof at the time of issue. Amerex Holding Corporation, 37 B. T. A. 1169; affd., 117 Fed. (2d) 1009; certiorari denied, 314 U. S. 620. Petitioner contends that the fair market value of the shares of stock at the time of issue should be measured in turn by the fair market value of the assets of the old company at that time less the total of $68,265.91 in cash paid and in liabilities assumed. See Amerex Holding Corporation, supra.
In our opinion the fair market value of the shares of stock at the time of issue should be measured by the fair market value of the assets of the old company less $68,265.91. In this case the fair market value *795of the assets (less $68,265.91) is the best evidence of the fair market value of the shares of stock issued therefor. See Amerex Holding Corporation, supra. The use of the 617 shares of preferred stock and 1,617 shares of common stock, issued for the assets of the old company, was fixed and determined by the amended plan of reorganization prior to their authorization, and was limited and restricted by that plan to the very use to which they were put. See Amerex Holding Corporation, supra. It is true that 185 units consisting of one share of preferred stock and one share of common stock were sold for $100 per unit in connection with the organization of petitioner. However, the number of shares of stock so sold was relatively small in comparison with the number of shares of stock issued for the assets of the old company; and about two-thirds of the number of shares so sold were sold to parties who already had an interest in the old company either as creditors or as stockholders. Under the circumstances the sale of the 185 units of stock at $100 per unit does not provide the best evidence of the fair market value of the shares of stock issued for the assets of the old company. Amerex Holding Corporation, supra; cf. West Point Investment Co., 1 B. T. A. 436, with Young & Vann Supply Corporation v. United States, 10 Fed. Supp. 697, and John J. Flynn, 35 B. T. A. 1064. In view of the limitations and restrictions on the use of the shares of stock issued for the assets of the old company, the best evidence of the fair market value of such shares is provided by the fair market value of the assets (less $68,265.91). Amerex Holding Corporation, supra.
The record satisfies us that the assets acquired by petitioner from the old company had a total fair market value at the time of acquisition of $195,910.63 ; and that the fair market value of the inventories was $112,966.27; of the accounts and notes receivable, $65,588.76; and of the depreciable assets, $11,481.14. Thus the fair market value of the shares of stock issued for the assets was $195,-910.63 less $68,265.91, or $127,644.72; and the total cost of the assets to petitioner was $195,910.63. The total cost of $195,910.63 was allo-cable in part as follows: $112,966.27 to inventories, $65,588.76 to accounts and notes receivable, and $11,481.14 to depreciable assets.6 See Hazeltine Corporation, 32 B. T. A. 4; Regulations 94, art. 23 (l)-4.
Petitioner concedes that respondent correctly disallowed two deductions totaling $271.10. Respondent allowed three deductions totaling $16,733.20 which were not taken on petitioner’s original return. Therefore, there is no deficiency and there is an overpayment in income tax for the taxable year. The amount of the overpayment *796will be determined on computation under Eule 50. It has been found as a fact that petitioner paid $2,708.10 in income tax for the taxable year within three years before filing a claim for the refund of $2,129.93 in income tax for such year.
Eeviewed by the Board.
Decision will be entered umder Rule SO.
Murdock. concurs only in the result.