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P paid its income taxes for 1943 upon a gain realized upon the mortgage foreclosure sale in that year of improved real estate which it owned and which was bid in by the mortgagee for a nominal sum. P filed a request for refund on the ground that the adjusted basis for the property had been understated and its taxable gain was less than reported. The refund was denied. Wood and his wife organized Inc. (P) and each transferred to it certain property in return for one-half of the capital stock. The property transferred by the wife was subject to a $400,000 mortgage on which she was liable personally and on which P never became liable for. The property had been bought for $296,400, partly financed by mortgage debt, and eventually, through various refinancings, the mortgage got to the $400,000 level by 1931. P contends that the borrowings of the wife subsequent to her acquisition of the property became charges solely upon the property itself and the cash she received for the repayment of which she was not personally liable was a gain then taxable to her as income to the extent the mortgage indebtedness exceeded her adjusted basis in the property. It is argued that her tax basis was increased by the amount of such taxable gain.

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