text:
    W. C. Collins and C. C. Collins, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 5986.
    Decided October 19, 1926.
    Value oí certain farm lands at March 1, 1913, determined.

      D. Webster Egan, Esq., for the petitioners.

      A. Oalder Macleay, Esq., and George E. Adams, Esq., for the respondent.
    The Commissioner determined deficiencies in income tax of W. C. Collins and C. C. Collins for the year 1919 in the respective amounts of $598.38 and $049, of which the amounts of $512.63 and $480.92 are in controversy. The deficiencies arise for the most part from the Commissioner’s determination that the value of certain farm lands sold by the petitioners in 1919 was no greater at March 1, 1913, than at the date of acquisition in 1909. There appear to have been some minor errors in the petitioners’ returns in respect of other matters, but the petitioners accept the adjustments made by the Commissioner except as to the basic value of the lands.
    BINDINGS OB BAOT.
    The petitioners are members with equal interests in a partnership engaged in business in California, under the name of C. C. Collins & Co., and are entitled to equal shares in the distributive profits earned by such partnership. Some time in the year 1909 the partnership bought the southwest quarter of section 19, township 23, range 23, located in Tulare County, California, and the southeast quarter of section 24, township 23, range 22, located in Kings County, in the same State. These two quartersections adjoin and constitute one continuous tract of 320 acres, bisected north and south by the boundary line between the two counties. For these lands the partnership paid $40 an acre, and in addition it bought the water rights appertaining thereto for an additional consideration of $660. During the taxable year the partners sold the lands, including the water rights, for a net consideration in the amount of $27,353.46.
    In its income-tax return for the year 1919 the partnership included in its gross income the amount of $1,005.05 as the net taxable gain resulting from the sale of the lands in question. This result was obtained by assigning a value of $75 per acre to the lands as of March 1, 1913, and by adding thereto the amount of $2,344.41, the alleged additional capital investment in the same prior to the date of sale but subsequent to March 1,1913, and subtracting the total so obtained from the net sales price. Upon audit of such return the Commissioner held that the value of the land at March 1, 1913, was no greater than the cost thereof, disallowed the additional capital investment asserted by the petitioners, held that the transaction resulted in a taxable gain in an amount not disclosed by the record, and determined the deficiencies here in question.
    The land involved in this controversy is what is known in California as Tulare silt soil and is suitable for the production of wheat, barley, beans and sugar beets. When acquired by the petitioners it was under cultivation and a considerable portion was under an irrigation ditch which theretofore had been constructed along the north side of the tract. The partnership farmed the land during its ownership thereof, either directly or by leasing it to tenants.
    In 1912, 340 acres of land similar to the tract in question, located in section 9 of the same township and range, on the same irrigation ditch, situated only two miles north and one and one-half miles east, were sold for $80 per acre. In 1913, 40 acres of similar land, located near by, were sold for $80 per acre.
    The fair market value or price of the land involved in this controversy was $75 an acre at March 1, 1913.
   OPINION.

Lansdon :

The single issue in this proceeding is the determination of the fair market value or price of the land in question at March 1, 1913. To support their valuation of $75 per acre the petitioners introduced four witnesses, all of whom testified that they were familiar with lands and land values in the locality at the basic date.

W. O. Collins, one of the petitioners, testified that he had farmed the land, was familiar with land values in that neighborhood, and that in his opinion the tract was worth not less than $75 per acre at March 1, 1913. The second witness, the cashier of a bank in a nearby town, presented no testimony of any probative value.

R. Y. Williams, farmer and farm owner and for many years a judge of the Superior Court of Orange County, California, testified that he had owned section 9, township 23, range 23, for many years, that such section was located two miles east of the Collins’ property, to which it is similar in soil and other attributes, and'that it is similarly located on the main irrigation ditch that supplies water for agricultural purposes in that district. In October, 1912, he sold 340 acres of his section for $80 per acre, which, in his opinion, was the fair market value of the Collins’ tract at that date and at March 1, 1913. George H. Smith testified that some time in 1913 he bought 40 acres of land near the Collins’ property which was similar to that tract in soil, and that he paid $80 per acre therefor, which, in his opinion, was the value of the tract in question at March 1,1913.

The Commissioner introduced no evidence, either in support of his valuation of the tract in question at $40 per acre on March 1, 1913, or in rebuttal of the testimony of the petitioners’ witnesses, which was not weakened or discredited by cross examination. We are of the opinion that the land involved in this proceeding had a fair market value of $75 per acre at March 1, 1913. There is no evidence of record to inform us whether the additional capital investment of $2,344.41 asserted by the petitioners was made before or after March 1, 1913, and therefore we exclude such amount from the cost of the property.

Judgment will lye entered on W days’ notice, v/nder Bule 60.


source: Caselaw Access Project

author: Lansdon :

license: Public Domain

text:
    Crown Motor Carriage Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 3203.
    Decided October 19, 1926.
    Petitioner sustained a loss during tbe year 1921, but failed to prove a net loss. Held, that it is not entitled to relief under tbe provisions of section 204(b) of tbe Revenue Act of 1921.

      Harry Kalian, O. P. A., for the petitioner.

      D. D. Shepard, Esg., for the respondent.
    The Commissioner asserts a deficiency in income tax for the year 1922 in the amount of $314.23. The sole question in controversy is whether the petitioner is entitled to deduct the amount of $2,947.66 from its income for the taxable year, as a net loss sustained in the operation of its business during the fractional part of the year 1921, under the provisions of section 204 of the Revenue Act of 1921. The appeal was submitted on the pleadings.
    FINDINGS OF FACT.
    The petitioner is a California corporation with its principal place of business at Los Angeles. In its income-tax return for 1922 it deducted the amount of $2,947.66 from its taxable income, as a net loss sustained in its business operations during a portion of the preceding taxable year, which was the calendar year ended December 31, 1921. Upon audit of such return the Commissioner disallowed the deduction of the alleged net loss, on the ground that the preceding taxable year was not a twelve-month period, and, in his answer to the petition, admits that a loss was sustained during that part of the preceding calendar year between November 25, 1921, and December 31, 1921.
   OPINION.

Lansdon :

To prevail in its contention in this proceeding the petitioner must prove that it sustained a net loss in its operations during the year preceding the taxable year. If it was in operation during only a part of such year, it must show that the factional year included all the time from its beginning in business as a corporation until the end of the taxable period. The Commissioner admits that the petitioner sustained a loss but denies all the other material allegations of the petition. The petitioner offered no proof of either of the conditions that must be satisfied to entitle it to relief under the provisions of section 204 of the Revenue Act of 1921, as we have heretofore interpreted that section in the Appeal of Carroll Chain Co., 1 B. T. A. 38.

Judgment will be entered for the Gom/missioner.


author: Lansdon:

text:
    Appeal of Chatterton & Son.
    Docket No. 6057.
    Decided October 19, 1926.
    The income and profits-tax return of the petitioner for the taxable year held to have reflected its true net income.

      H. A. Mihills, O. P. A., for the petitioner.

      Briggs G. Simpieh, Esq., for the Commissioner.
    This appeal is from the determination of a deficiency of less than $10,000 in income and excess-profits taxes for the fiscal year ended June 30, 1918. The deficiency arises from the fact that the petitioner rendered its last preceding return for a period including July 1 to July 28, 1917, and the Commissioner corrected it by making the closing date June 30, 1917, and finding an excess for the 28 days. The excess was included by the Commissioner in the income of the petitioner for the fiscal year 1918.
    FINDINGS OF FACT.
    I. The petitioner is, and was for some years prior to and at the time involved in this appeal, a corporation engaged in the grain, hay, potato and bean brokerage and jobbing business — about 80 per cent of all relating to beans — at Mt. Pleasant, Mich. It had three branches located, respectively, at Grand Rapids, Charleroi, and Ellsworth, Mich.

      2. The petitioner’s brokerage business related wholly to buying and selling at wholesale and was all conducted at its plants at Mt. Pleasant and Grand Eapids.
    3. The petitioner’s books were kept on the accrual basis, and, except as to those relating to the brokerage business, were closed annually on June 30. The brokerage books were closed on August 31, 1916, and July 28, 1917, at Mt. Pleasant, and on July 26, 1916 and July 28, 1917, at Grand Eapids, and all the books were closed on June 30, 1918.
    4. The petitioner included as income for the fiscal year, in its return for 1917, all of its net income from the brokerage business from July 1 to July 28, inclusive, and did not include this income in its return for 1918.
    5. The Commissioner decided that the petitioner’s fiscal year must have but one date of closing, and that the appropriate date was June 30. He therefore prorated the income for 1917 by ascertaining the number of days in the whole period shown by the return and the number of days shown subsequent to June 30, 1917, and deducted a part of the income shown proportional to these two numbers. The amount deducted was $12,376.16. He has increased the income reported in the return for 1918 by this amount. It is from this increase that the appeal is taken.
    6. The petitioner has submitted a proposed “agreed findings of facts ” which indicates that, owing to the fact that its business was seasonal and that very few sales were made from July 1 to Septembe ; 1 of each year, it actually lost money during the first 28 days of July, 1917. The Commissioner has refused to sign the findings, but, at the hearing, he explicitly admitted “ the facts and figures ” contained in the stipulation.
   OPINION.

Lansdon:

There is agreement between the parties as to the foregoing facts. The Commissioner, by agreeing to “ the facts and figures ” in the proposed stipulation of facts, has admitted that the petitioner, instead of having net income of $12,376.16 during the first 28 days of July, 1917, actually lost $2,462.66 during that period. There is no dispute as to the accuracy of the return for the period for which it was rendered. This being true, the conclusion is inevitable that the return reflects a net income in excess of that actually received during the full taxable year beginning July 1 and ending June 30,1918. There is, therefore, no deficiency.

Judgment will ~be entered for the 'petitioner.


text:
    Anson V. Prouty et al.; Executors, Estate of C. C. Prouty, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 2951.
    Decided October 19, 1926.
    On tlie evidence, tbe value of the estate involved in this appeal is determined for Federal estate-tax purposes.

      T. G. Negrich, Esq., for the petitioners.

      George E. Adams, Esq., for the respondent.
    The Commissioner asserts a deficiency in estate tax in the amount of $978.76. The controversy results from certain additions to the value of the gross estate made by the Commissioner.
    FINDINGS OF FACT.
    C. C. Prouty died on February 20,1923, leaving an estate made up of real and personal property located in the Counties of San J oaquin and Amador in the State of California. The decedent disposed of his estate by will, in which he named Anson Y. Prouty, Gladys Jones, Douglas L. Prouty and William E. Prouty, as executors, all of whom duly qualified under the laws of California.
    W. M. Yarrington, inheritance tax appraiser for Amador County, and John Scully and J. G. Clifton, appointed to such duty by the Superior Court of Amador County, appraised the property of the estate located in that county on June 27, 1923, and found a gross value thereof in the amount of $119,932.82. W. W. Hubbard, an inheritance tax appraiser of San Joaquin County, appointed to such duty by the Superior Court of San Joaquin County, appraised the property of the estate located in that county on June 11, 1923, and found a gross value thereof in the amount of $38,140. The gross value of the entire estate as determined by such appraisers was $158,-072.82. Claims against the estate in the amount of $91,289.47 were established and, on the resulting net valuation of $67,143, the executors, within the time provided by law, made State and Federal estate-tax returns and paid the taxes on such valuation.
    On September 30, 1924, one year and seven months after the death of the decedent, certain of the heirs of the estate, who were contingent beneficiaries under the will, sold to one Kiefer an option to purchase the greater part of the real estate within one year for a price substantially greater than the appraised valuation of such property. This option was not exercised during the year and was renewed and is still in effect.
    Upon audit of the Federal estate-tax returns made by the executors, the Commissioner increased the value of the gross estate to the amount of $229,947.82, reduced the deduction taken therefrom to the amount of $88,866.18, determined that the value of the net estate was $141,081.64, and asserted the deficiency now in controversy. The increase in valuation determined by the Commissioner was the difference between the appraised value of the lands and the option price of such property at September 30, 1924. The petitioners accept the adjusted deductions made by the Commissioner and only the increase in the value of the lands is in controversy.
   OPINION.

Lansdon:

The petitioners contend that the appraisal made by persons duly appointed by the courts having jurisdiction of such matters under the laws of California truly reflects the value of the estate of the decedent, and that the Commissioner erroneously increased such value when he adopted the option entered into one year and seven months after the death of the decedent as the basis of his revaluation. At the hearing counsel for the Commissioner insisted that the Commissioner had the right to use the option as evidence of value.

The Commissioner is entitled to use any proper evidence in determining the value of estates for inheritance tax purposes. We are of the opinion, however, that the consideration fixed in an option entered into on September 30, 1924, is not conclusively determinative of the value of the lands involved, either at the date of the option or at February 20, 1923, which was the date of the death of the decedent. The option has never been exercised, and, in our opinion, can not be accepted as a measure of the value of the property involved.

The petitioners introduced two witnesses, both of whom were beneficiaries under the will of the decedent. Each testified that he was familiar with the value of the property and that at the date of the death of the decedent it could not have been sold for the appraised valuation.

Judgment -will be entered on %0 days' notice, under Rule 50.


author: Phillips :

text:
    Appeal of Cincinnati, Findlay & Ft. Wayne Railway Co., J. B. Carothers, Receiver.
    Docket No. 4886.
    Decided October 20, 1926.

      Leo B. Kagan, Esq., for the petitioner.

      Percy S. Grewe, Esq., for the Commissioner.
   Phillips :

This is an appeal from the determination of a deficiency in income tax, in the amount of $1,597.39, for the calendar year 1922. The only question involved is whether the amount of $18,000, paid by the United States Railroad Administration to the taxpayer ⅛ 1922, constitutes taxable income to it in that year, as contended by the Commissioner. The facts are admitted, and the admissions are copied verbatim.

BINDINGS OR FACT.

J. B. Carothers was appointed receiver of the Cincinnati, Findlay & Ft. Wayne Bailway Co. on March 15, 1917. From March 15, 1918, to August 31, 1918, the railroad was under Federal control and was operated by the United States Bailroad Administration, and during that period all of its accounts were handled by the Nickel Plate Bailroad. On the latter date, operation of the railroad was discontinued and it has not been operated since that date. On November 18, 1918, the property of the company was sold under foreclosure proceedings and the sale was confirmed on November 19,1918, by order of the United States District Court for the Western Division of the Southern District of Ohio.

In June, 1922, the United States Bailroad Administration paid to the receiver the sum of $18,000 for the possession, use, and occupation of the property of the railway company for the period in 1918 that it was under Federal control. The return of the taxpayer for the taxable year 1918 showed a deficit of $23,730.99.

For the year 1922 the receiver filed an income-tax return on behalf of the railway company, showing a deficit of $1,322.82. On auditing the return the Commissioner, by adding the amount of $18,000, above mentioned, to the income reported, found a net income for the year of $16,677.18, and computed thereon the tax involved in this appeal.

The books of the railway company were kept on an accrual basis, as required by the Interstate Commerce Commission.

There is no deficiency for 192%, and an order will he entered accordingly. Appeal of Illinois Terminal Qo., 5 B. T. A. IB.

Marquette, Smith, and Sternhagen dissent.


text:
    Appeal of Western Star Milling Co.
    Docket No. 2852.
    Decided October 20, 1926.
    Depreciation reserves relating to tangible assets, set up prior to tbe taxable year involved, will not be disturbed for invested capital purposes without positive evidence that the depreciation actually sustained had not been written off by the taxpayer.

      Perry J. Barnes, G. P. A., for the petitioner.

      Robert A. Littleton, Esq., for the Commissioner.

      This is an appeal from a deficiency in income and profits tax for the fiscal year ended June 30, 1920, in the amount of $635.78, practically all of which is in controversy. The taxpayer asserts that the Commmissioner erroneously reduced invested capital in an amount alleged to represent “insufficient depreciation in prior years,” and refused to allow reasonable allowance for exhaustion, wear and tear of property used in the trade or business during the taxable year.
    FINDINGS OP PACT.
    The taxpayer is a Kansas corporation with its principal office at Salina, where it is engaged in the business of dealing in milling and marketing wheat and other grains and the by-products resulting from the milling of the same. It was organized in 1901 as the successor of a firm engaged in the same business and took into its books the amount of $20,000 as the cost value of the plant assets acquired from its predecessor. From the date of its organization until June 30, 1920, it increased its plant assets by purchase, as shown by its books, to the amount of $179,680.40, and accumulated a depreciation reserve against the same in the amount of $27,812.61, resulting in a net plant assets account at the close of the taxable year in the amount of $151,867.79, which it included in the computation of its invested capital for excess-profits-tax purposes for such year.
    During the period from 1901 to June 30, 1920, it was the consistent practice of the taxpayer to carry into its depreciation reserve at the end of each fiscal year such amounts as, in the best judgment of its officers and directors, represented the actual physical deterioration of its depreciable assets during such year, full weight being given to the cost and effect of repairs and to replacements of equipment worn out and abandoned. Additions to plant assets were sometimes charged against current income as operating expenses and sometimes carried to the plant investment account, and, in some instances, additional replacements and repairs of equipment were charged against the depreciation reserve, which the directors and officers regarded as a sum set apart for maintaining the entire plant at or somewhat in excess of its book value.
    Upon audit of the taxpayer’s income and profits-tax return for the fiscal year ended June 30, 1920, the Commissioner increased the plant assets account from $179,680.40 to $199,884.46, on account of additions to equipment which the taxpayer had not capitalized, increased the reserve for depreciation to $82,243.95, thereby reducing the plant investment account to $117,640.51 and the invested capital of the taxpayer in the net amount of $34,227.28, and asserted the deficienejr here in question. In making such readjustment of the book value of the taxpayer’s depreciable assets, the Commissioner applied the rates of depreciation which are customarily regarded as a fair measure of annual losses sustained by the wear and tear and exhaustion of such property. At June 30, 1920, the depre-ciable assets of the taxpayer consisted of a water power plant and dam, an office building, two mill buildings, fully equipped, two elevators and a warehouse at Salina, and six country elevators all fully equipped with necessary machinery.
   opinion.

Lansdon:

The only issue involved in this appeal is whether the Commissioner erroneously increased the taxpayer’s depreciation reserve by applying recognized formulae to the book value of plant assets from the date of organization to the close of the taxable year The only distinction between this appeal and others that we have hitherto decided in favor of taxpayers on substantially similar evidence, is in the comparatively small amount of the. accumulated depreciation reserve. This resulted from the taxpayer’s practice of charging much of the cost of repairs and replacements against such reserve. We are of the opinion, however, that the taxpayer’s books of account fairly reflected the depreciated cost of its plant equipment at June 30, 1920. Appeals of Cleveland Home Brewing Co., 1 B. T. A. 87; Russell Milling Co., 1 B. T. A. 194; Rub-No-More Co., 1 B. T. A. 228; and Hamilton Manufacturing Co., 3 B. T. A. 1045.

Judgment will be entered for the petitioner.


text:
    Appeal of H. G. Cook.
    Docket No. 1741.
    Decided October 20, 1926.
    Taxable gain realized from tbe receipt of liquidating dividend determined.

      W. E. Baird, C. P. A., for the petitioner.

      Briggs G. Simpioh, Esq., for the Commissioner.
    This appeal is from the determination of a deficiency in income and excess-profits taxes for the year 1919 in the amount of $1,503.78. The controversy for the.most part arises from different computations by the taxpayer and the Commissioner of the amount of gain realized on the liquidation of the American Clothing House, of Butler, Mo., within the taxable year.

      FINDINGS OF FACT.
    The petitioner was a stockholder of the American Clothing House, a Missouri corporation with its principal office at Butler, from the date of incorporation prior to March 1, 1913, to the date of liquidation, May 28, 1919. The authorized capital stock of the corporation was $18,000, divided into 180 shares of the par value of $100 each, of which 175 shares were owned by the petitioner and his wife and 5 shares by Helen E. Cook, a daughter, at the date of dissolution.
    Of the 175 shares owned by the taxpayer and his wife at the date of dissolution, 130 were acquired prior to March 1, 1913, and 45 were purchased from G. E. Logan some time in 1918 for a consideration which the parties agree was $7,125.45 or $158.34 per share. Some time between March 1, 1913, and the date of dissolution of the corporation, 5 shares of stock were acquired by Helen E. Cook, a daughter of the taxpayer, who was more than 21 years of age at May 28, 1919.
    The book value of the assets of the corporation at March 1, 1913, was $35,014.43, or an average value of $194.52 per share, which we find was the fair market value or price of the stock of the corporation at that date, and the value of the assets at the date of liquidation was $38,485.28, or $213.81 for each share of stock outstanding.
   OPINION.

Lansdon:

Some controversy over the number of shares of stock of the corporation owned by the wife of the taxpayer developed at the hearing. Since the record discloses that the wife filed no separate return, this is not material. The dividends received from the 175 shares of stock owned by the taxpayer and his wife constituted a single item of income for each of the years in which they were paid and were taxable at rates as provided by law for such years, and this is also true of the liquidating dividends realized from the ownership of such stock at the date of dissolution.

The minutes of the corporation dated May 28, 1919, recite that “ the proposition to dissolve the corporation was carried by a unanimous vote of the stockholders and the corporation was purchased by H. G. Cook.” There is no evidence as to whether Cook purchased the assets or the stock, but we conclude that the corporation was dissolved and that Cook, or Cook and his wife, received a liquidating dividend based upon their ownership of 175 shares of stock.

The parties have stipulated that the book value of the stock at March 1,1913, was $194.62 per share. This stock was all closely held and there were no sales indicating a market or a market value at or about the basic date. The taxpayer argues for a value in excess of the figure fixed by the stipulation and bases his contention on a state, ment of earnings for the five years preceding March 1, 1913, but offered no proof to support this claim. ’ The Commissioner used the book value at March 1, 1913, as the basic value in determining the gain from the’ sale of stock. In the absence of any evidence in support of a higher or different value, we have found that the stipulated book value at March 1, 1913, was the fair market value or price of the stock of the American Clothing House at that date.

The Commissioner found that the book value of the stock at the date of dissolution was $213.81 per share. This value was ascertained from the balance sheets of the corporation and is not disputed by the taxpayer. The only evidence that the stock may have had a different value at the date of liquidation is the taxpayer’s purchase of 45 shares from Logan in 1918 at $158.34 a share. We know nothing of the nature or terms of this transaction and do not regard it as determinative of the value of the assets of the corporation more than a year later, as indicated by the balance sheets of the corporation.

At the date of liquidation the taxpayer, or the taxpayer and his wife, owned 130 shares of stock acquired prior to March, 1913. The gain per share resulting from liquidation was $19.19, or a total of $2,494.70. The gain per share on the 45 shares acquired from Logan in 1918 was $55.47, or a total of $2,496.15. It follows, therefore, that the taxpayer or the taxpayer and his wife realized taxable gain from the liquidation of the American Clothing House in the amount of $4,990.85.

Judgment will be entered on 10 days' notice, under Rule 50.


text:
    B. G. Adams, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 4361.
    Decided October 20, 1926.

      Harry Kahan, O. P. A., for the petitioner.

      I). D. Shepard, Esq., for the respondent,
    The Commissioner has asserted a deficiency in income tax for the year 1921 in the amount of $248.47. The petitioner alleges that the Commissioner erred (1) in disallowing depreciation on machinery and equipment which by mistake was antered on his income-tax return as amortization of war-time facilities, and (2) in disallowing deduction for losses sustained during the taxable year.

      FINDINGS OF FACT.
    The petitioner resided in Los Angeles, during the taxable year, where he was engaged in the business of buying and selling pipe under the fictitious firm name of the Adams Pipe & Supply Co. He- was never engaged in the production of facilities for the prosecution of the war.- The entry on his income-tax return for the taxable year, taking a deduction in the amount of $1,500, appeared as amortization of war facilities, instead of as depreciation of equipment and machinery used in the trade or business, on the line just above where it appears on the return.
    The petitioner bought and sold pipe all through the oil-producing territory of southern California. In 1919 he purchased a Cadillac touring car, which he used in calling on his customers for the purpose of buying or selling the commodities in which he dealt, for which he paid the amount of $4,500. This automobile was in use for business purposes during a part of the year 1921. It was also used to some extent as a pleasure car.
    .During the year 1920 the petitioner purchased shares of stock of the B. H. Dyas Co. for which he paid $1,000. Some time in the taxable year he sold this stock for $900.
    During the year 1920 the petitioner purchased bonds of the County of Los Angeles át par, in the amount of $18,000. Some time in the taxable year he sold such bonds for $16,920 and thereby sustained a loss in the amount of $1,080.
    During the year 1920 the petitioner acquired a royalty interest in an oil lease owned and operated by the Amalgamated Oil Co., at a cost of $3,250. On July 12, 1921, he received a statement from the company showing no income from the production of oil available for distribution at that date. Some time later he ascertained that production on the property had ceased and that the Amalgamated Oil Co. had abandoned the lease as worthless. He sustained a loss on this transaction during the taxable year in the amount of $3,250.
   OPINION.

Lansdon:

In support of his several contentions the petitioner testified at the hearing without introducing any documentary evidence or books other than the notice from the Amalgamated Oil Co. that no funds were available for distribution to owners of royalty interests at July 12, 1921. He testified that he made diligent efforts to ascertain the value of his royalty interest and made inquiries of the Oil Company and elsewhere, and that he ascertained that the lease had been abandoned and that his royalty interest was worthless. We are of the opinion that the petitioner properly deducted the cost of such interest from his gross income for the taxable year as a loss sustained in that year.

The losses sustained in the sale of the bonds of Los Angeles County and the stock of the B. H. Dyas Co. were sustained during the’'taxable year and were proper deductions from gross income. The amount of $1,500 erroneously deducted from gross income as amortization of war facilities can not be allowed as depreciation, since it is not supported by sufficient evidence. The evidence does not convince us that the petitioner is entitled to depreciation or loss oh his Cadillac car, and we therefore sustain.the Commissioner on that point. ’ "

Judgment will be entered on W days’ notice, under Buie 60.


author: Phillips:

text:
    Wofford Oil Co. Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 8853.
    Decided October 20, 1926.
    The petitioner and the Wofford Oil Oo. of Tennessee were not affiliated corporations for the years 1920 and 1921.

      Edward McCarthy, Jr., Esq., for the petitioner.

      M. N. Fisher, Esq., for the respondent.
    The petitioner brings this proceeding for the redetermination of deficiencies in income and profits tax for the years 1920 and 1921 in the respective amounts of $6,528.02 and $7,729.22. The only question involved is whether the petitioner and the Wofford Oil Co. of Tennessee were affiliated corporations during those years.
    FINDINGS OF FACT.
    For several years prior to 1919, G. T. Wofford had been engaged in the oil business in Birmingham, Ala., and had developed a blend of gasoline and benzol which he desired to market under his own trade-name. In April, 1919, he organized the petitioner corporation under the laws of Alabama, to engage in the sale of this gasoline in Birmingham and vicinity under the trade-name of “ Woco-Pep.”
    A contract was entered into between Wofford and petitioner by which petitioner contracted to purchase all of its gasoline from Wofford, who contracted to supply it at a price not less than 5 cents under the retail or consumers’ price in Birmingham. Petitioner dealt in gasoline as-a jobber, making its sales to the retail dealers.

      During 1920 and 1921, 75 per cent of the capital stock of the petitioner was owned by Wofford and 25 per cent was owned by one J. G. Johnston, who was manager of the company. Johnston’s stock was sold to him by Wofford after he became manager, and during the taxable years payment had not been made in full. Wof-ford held Johnston’s notes for the unpaid balance and, as collateral thereto, stock of the petitioner of a par value at least equal to the unpaid indebtedness. Johnston’s salary in 1920 was $6,000, which was increased during 1921 or 1922.
    In 1920, Wofford came to the office of one Bunn, then a resident of Birmingham who had formerly been secretary of the Chattanooga Manufacturers’ Association, and stated that he had bought more benzol than he could use and that he desired to establish a plant in another city to distribute his product. Bunn suggested Chattanooga and went there with Wofford to help organize the plant. In order to secure capital, and also to identify the plant as a local industry, Wofford desired to sell a part of the stock of the proposed company to Chattanooga residents. Bunn interested ten business men of that city in the project, who agreed to purchase stock after a committee had investigated the business then being conducted in Birmingham by the taxpayer. In June, 1920, the Wofford Oil Co. of Tennessee was incorporated. From the date of organization of the Tennessee corporation in 1920 and throughout the taxable year 1921 the capital stock of the Tennessee corporation was owned as follows:

    A contract was entered into between Wofford and the Tennessee corporation for the purchase of its gasoline from Wofford. This contract was similar to the contract between Wofford and petitioner.
    The business of the Tennessee corporation proved unsuccessful. No meetings of stockholders or directors, except the organization meetings, were held during the years in question. Some of the stockholders were dissatisfied with the management of the corporation. and discussed the matter among themselves. Wofford was advised of this dissatisfaction by either Chapin or Bunn. The management of the Chattanooga plant was changed at least once during the years involved.
    Sometime during 1921 a discharged manager circulated reports concerning the aifairs of the company which caused uneasiness among the stockholders. Wofford came to Chattanooga and at lunch with the stockholders discussed the situation of the company with them. Bryan, the only one of the local stockholders who was at all familiar with the retail oil business, complained that the company was paying more for its gasoline than it could be bought for in the open market. At this meeting Wofford stated in general terms that he. would see that none of the stockholders lost anything on their investments.
    Each of the Chattanooga stockholders had substantial business interests of his own and purchased the stock as an investment, having no intention of taking an active part in the affairs of the company. Although dissatisfied with the operations of the company, they felt that by force of circumstances they were compelled, in the management of the company, to rely upon the judgment and integrity of Wofford, who had made a success of the Birmingham business.
    At some time subsequent to 1921, Wofford delivered to each of the Chattanooga stockholders 8 per cent preferred stock of the petitioner in exchange, par for par, for the stock of the Tennessee corporation.
    The petitioner claimed to be affiliated with the Wofford Oil Co. of Tennessee for the years 1920 and 1921, and filed returns accordingly. The Commissioner has denied that the corporations were affiliated and determined deficiencies in income and profits tax of $6,528.02 for 1920 and $7,729.22 for 1921.
   OPINION.

Phillips:

Section 240(b) of the Revenue Acts of 1918 and 1921 provides:

For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock.of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.

In this proceeding we find that Wofford, who directed the business policies of both companies, owned 75 per cent of the stock of one company, which in turn owned 62 per cent of the stock of the second company. It becomes necessary for us to determine whether, under the circumstances shown by the proof, 62 per cent constitutes substantially all of the stock and, if not, whether a sufficient amount of the stock not owned by petitioner was controlled by it, or owned or controlled by closely affiliated interests.

In determining whether interests are closely affiliated, it is proper that we should look to the relationship which exists between the various interests. As between the petitioner and the stockholders of the Tennessee corporation there appears to be nothing which would lead one to believe their interests were closely allied. It is true that each was dealing in the same product and that each purchased this product from the same source. Each, however, dealt independently of the other; each had its own independent income and was an entirely separate and distinct business enterprise. There was no such community of business enterprise, no such interweaving of the corporate interests of the petitioner and the Tennessee corporation as would indicate any affiliation of interests between the petitioner and the minority stockholders of the Tennessee corporation.

We come now to consider whether Wofford controlled substantially all the stock of the two corporations. Assuming that he did control the stock of the petitioner (and of this we have some doubt), and thereby controlled 62 per cent of the stock of the Tennessee corporation, we see no evidence of any control of the remaining 38 per cent. Each of these stockholders appears to have been of substantial means, under no financial or other obligation to Wofford, with a business of his own and the ability and desire to look after his own interests. Although they acquiesced in the management by Wofford, they were uot satisfied and expressed their dissatisfaction. There were no formal stockholders’ meetings, but at the only informal meeting of which we have any evidence most of the stockholders appear to have manifested sufficient interest to attend in person. The attitude of the stockholders may be summarized in the testimony given by one of them in answer to the question whether the Chattanooga stockholders were perfectly satisfied with the way things were run:

No, sir, they were not satisfied; We did not know much about it but we were not satisfied with the way things were run, but we could not do anything about it.

Such an attitude of mind may indicate a feeling of helplessness to remedy a situation, but surely it does not indicate any control of the stock by Wofford..

The deficiencies are redetermined to he $6,5%8M for 19%0 and $7,729M for mi. Order will he entered accordingly.


author: Smith :

text:
    Foster & Glassell, Ltd., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 9232.
    Decided October 20, 1926.
    The March 1, 1913, fair market value of property determined.

      Pike Hall, Esq., for the petitioner.

      M. N. Fisher, Esq., for the respondent.

      Proceeding for the redetermination of a deficiency in income and profits tax for the fiscal year ended February 29, 1920, in the amount of $2,985.01, of which only $2,934.17 is in controversy. The only point in issue is the March 1, 1913, fair market value of property sold on May 9, 1919.
    FINDINGS OF FACT.
    The petitioner is a Louisiana corporation with its place of business at Shreveport. On May 9, 1919, it sold lots 9 to 15, inclusive, in the Batture section of Shreveport, with improvements thereon, for $42,000. These lots were acquired by the petitioner in 1901 at a cost of $10,500 and improvements consisting of a warehouse building were placed thereon in 1906. The book balance as shown by the petitioner’s books of its property on March 1, 1913, was $39,900.59. The petitioner claimed that it realized a taxable profit of $229.17 on the sale of its property in 1919, as follows:
    Fair market value, March 1, 1913-$42, 000.00
    Cost of additions December, 1015_ 3,106.47
    45,106. 47
    Less depreciation sustained March 1, 1913, to May 6, 1919 (2½ per cent on improvements)___ 4,335.64
    Depreciated value date of sale- 41, 770. 83
    Sale price-1— 42, 000.00
    Taxable net income reported- 229.17
    The Commissioner, in the audit of the petitioner’s return for the fiscal year ended February 29, 1920, has computed the taxable profit upon this transaction as follows:
    Cost, March 1, 1913, book balance-$39, 900. 59
    Additions, December, 1915, cost- 3,106.47
    Total cost to May 6, 1919_ 43, 007.06
    Less depreciation from 1906 (when acquired, corporation organized 1906) to May 6, 1919, as computed by Revenue Agent Landwehr, in his invested capital computation, report dated April 23, 1920_ 8,074. 87
    34, 932.19
    Sale price- 42,000.00
    Taxable profit_ 7, 067. 81
    Previously reported on return filed_ 229.17
    Increase in taxable net income, Commissioner’s deficiency letter_ 6, 838. 64
    The deficiency appealed from in this proceeding arises from the addition to gross income of the above amount of $6,838.64.
    The petitioner based its 1913 value of $42,000 upon a comparison made by it of a sale on January 1, 1913, of a warehouse building located in the next block, at a price of $20,000. The property referred to was located on Commerce Street, in Shreveport, which is the principal street in the wholesale district. It is also nearer Texas Street, which is the principal retail business street of the city, than the property owned by the petitioner. It had a frontage of 80 feet on Commerce Street. The petitioner’s property had a frontage of 115 feet on Bossier Street, which street runs at an angle from Commerce Street. The Commerce Street property was served by the Kansas City Southern Railway only. The petitioner’s property was served by switching facilities of the Kansas City Railway Co., the St. Louis & Southwestern Railway Co., and the Texas & Pacific Railway Co., competing lines. The fair market price or value of the petitioner’s property on March 1, 1913, was $24,500 for the land and $11,500 for the building — total $42,000.
   OPINION.

Smith :

The petitioner claims that the fair market value on March 1, 1913, of the property sold in 1919 was $42,000. It originally based such claim upon a comparison of a warehouse property in an adjoining block which was sold on January 1, 1912, for $20,000. At the hearing it presented the testimony of two real estate men from Shreveport qualified to give expert opinions as to the value of the property in question. They have testified that in their opinion the fair market price or value on March 1, 1913, was at least $42,000. One witness testified that the value of the land was about $150 per front foot and that the value of the building was approximately $18,000, making a total fair market value on March 1, 1913, of between $42,000 and $44,000. The other witness testified that in his opinion the petitioner’s property had a value at the basic date of $140 per front foot for the land and $17,500 for the building. The Commissioner has made his computation of value solely upon the basis of the petitioner’s books of account.

We are of the opinion that the petitioner’s books of account, in the circumstances in this case, are not evidence of the fair market price or value of the property on March 1, 1913. The only evidence before us as to the fair market price or value of the property at the basic date is the testimony of the expert witnesses, and their unchallenged testimony is to the effect that the value was at least $42,000. Depreciation was sustained on the building, which had a value on March 1, 1913, of $17,500, at 2½ per cent per annum from March 1, 1913, to the date of sale.

Judgment will be entered on 15 days’ notice, under Bule 50.


text:
    Appeal of Midwest Hotel Co.
    Docket No. 2933.
    Decided October 20, 1926.
    A stockholder who owned substantially all the stock of a corporation acquired a leasehold on real estate at a cost of $23,000, and had the lease made to the corporation as lessee. Held, that such lease was paid in to and became invested capital of the corporation in the amount of its cost to the stockholder from the date so acquired, and that the corporation is entitled to deduct aliquot parts of such cost from its income in making its income and proflts-tax returns during the term of the lease.

      Edward J. Dillon, O. P. A., for the petitioner.

      Robert A. Littleton, Esq., for the Commissioner.
    The Commissioner has determined deficiencies in income and profits taxes for the years 1920 and 1921, in the amounts of $342.32 and $72.32, respectively. The controversy arises from the Commissioner’s exclusion of the value of a certain leasehold from the invested capital of the petitioner for the taxable years, and from his dis-allowance of deductions from gross income on account of the depreciation of such leasehold.
    FINDINGS OP PACT.
    The petitioner is a Missouri corporation, which was incorporated on September 17, 1917, with authorized capital stock in the amount of $30,000, divided into 300 shares of the par value of $100 each, all of which was issued for certain hotel equipment which, the parties agree, had a value of $12,000, at the date of incorporation. From September 17, 1917, until August 12, 1918, all the stock of the petitioner was owned by John C. Lane and other stockholders, and the hotel operated by the corporation was conducted and managed by Lane, who was the owner of the leasehold, on the ground and buildings occupied and used for hotel purposes, and known as the Midwest Hotel Co., and was personally responsible to the owners of such real estate for all rentals reserved by the terms of the lease.
    On August 3, 1918, Lane entered into a contract to acquire and sell all the stock of the Midwest Hotel Co., and the leasehold of the real estate on and in which the Midwest Hotel Co. was operated, to S. J. Staats for $33,000. On August 12, 1918, this contract was accomplished by the delivery of 290 shares of the stock of the Midwest Hotel Co. to Staats, together with a supplementary agreement that the remaining 10 shares would be so delivered, and by the delivery of a sublease of the real estate running from John C. Lane to the Midwest Hotel Co. for a term extending from August 12,1918, to August 26, 1926. As a result of this transaction, the Midwest Hotel Co., on August 12, 1918, came into possession of and owned tangible property of the value of $33,000, to wit, hotel furniture and equipment that was worth $10,000, and a leasehold on the real estate occupied by the hotel which had been acquired from Lane by Staats at a cost of $23,000 and which, at the direction of said Staats, had been made by Lane directly to the Midwest Hotel Co.
   OPINION.

Lansdon :

The Midwest Hotel Co., previously operated either as a partnership or individual business, was incorporated on September 17, 1917, and, so far as the record of this proceeding shows, an interest in excess of 50 per cent remained in the hands of prior owners. Its statutory invested capital at the date of incorporation, as limited by section 331 of the Revenue Act of 1918, therefore, was $12,000, which the parties agree was the cost to the prior owners of all the assets acquired for stock of the par value of $30,000.

Prior to August 12, 1918, a sublease on the property used by the petitioner was acquired by Staats at a cost of $23,000. Such leasehold was paid in to the corporation by Staats on August 12, 1918, and, from that date, was an element of its invested capital.

It is contended by the Commissioner that, inasmuch as the sublease was never actually made to Staats, although it was proved that he paid $23,000 therefor, it was acquired by the corporation without cost and therefore can not be taken into invested capital at its cost to Staats or at,any other figure. We are not impressed by this argument. Staats bought and paid for the lease prior to August 12, 1918. That the instrument evidencing such purchase and ownership had not been executed, we regard as immaterial and as affecting the form rather than the substance of the transaction.

From the evidence and the law, we conclude that the statutory invested capital of the petitioner at August 12, 1918, included hotel equipment originally paid in for stock at a value of $12,000, and the leasehold on the real property acquired by Staats at a cost of $23,000, and by him paid in to the petitioner. We also find that the petitioner is entitled to recover the cost of such leasehold during the period from August 12,1918, to August 26,1926, by annually deducting aliquot parts of such cost from its annual gross income. Appeal of Steinbach Co., 3 B. T. A. 348.

Judgment will be entered on 15 days’ notice, v/nder Bule 50.


author: Steenhagen:

text:
    Appeal of Charles Colip.
    Docket No. 6276.
    Decided October 20, 1926.
    1. The provisions of Title XII Revenue Act of 1924 allowing a credit or refund of 25 per cent of the tax shown by 1923 returns did not reduce the rates of 1923 within the meaning of section 207 (b).
    2. The 25 per cent reduction provided by Title XII Revenue Act of 1924 is applicable literally to the tax payable in 1924 shown on returns for 1923, and does not reduce the 1924 tax payable in 1925 of an individual partner whose 1924 taxable income is made up in part of a share of partnership income for a fiscal year beginning in 1923.
    3. In taxing a partner’s income for a calendar year, such income may properly include his distributive share of the partnership income for a fiscal year part of which is in the prior calendar year, even although some part of such partnership income be attributable to earnings of the prior calendar year.

      Arnold B. Baar, Esq., for the petitioner.

      F. 0. Graves, Esq., for the Commissioner.
    Deficiency of $277.89 individual income tax for 1924, of which $125.69 is in controversy. The issue is whether the Commissioner properly disallowed the application of 25 per cent reduction to that portion of petitioner’s income returned for 1924 as came from the proportionate 1923 earnings of his partnership, which had a fiscal year.
    FINDINGS OF FACT.
    Petitioner was a member of a partnership. The partnership kept its books and made its partnership return for the fiscal year ending January 31, 1924. In his return for the calendar year 1924, petitioner reported $8,206.70 as income from the partnership. Eleven-twelfths is $7,522.61, and this amount is attributed to 1923. The Commissioner computed the tax by applying the 1923 schedule to $7,522.61 without making any allowance by credit pr refund of 25 per cent under section 1200 of the Revenue Act of 1924, and, thus computed, the 1923 tax is $506.75.
   OPINION.

Steenhagen:

This case is one of several, all presented together upon agreed facts. [See pp. 127-133, infra.~\ The dispute is founded in the Commissioner’s application of the 25 per cent reduction prescribed by Title XII of the Revenue Act of 1924. In each case the individual petitioner in 1925 made his return for the calendar year 1924. In this return, pursuant to section 218 and section 207 (b), Revenue Act of 1924, lie included as 1924 income his distributive share of partnership net income for its fiscal year ending in 1924, part of which in each case was in 1923. Upon the basis of such return he paid his tax in 1925. In computing his tax he ascertained (the mathematics not being in dispute) the proportionate tax at 1923 rates upon 1923 income and reduced this by 25 per cent before including it as part of the composite 1924 tax prescribed by section 207 (b). The Commissioner determined that the 25 per cent reduction of the 1924 Act had no application to taxes paid in 1925 under returns filed in 1925 of statutory income of 1924, and by recomputing the tax without such reduction he found the deficiency in question.

The Commissioner relies upon the letter of the statute which he says clearly expresses the deliberate intention of Congress and leaves no room for construction. The petitioner says he is thus deprived of a reduction in the tax on 1923 income which was plainly intended to be bestowed on all, and this he says can be found in the language of the statute itself.

By section 218 of the Revenue Act of 1924 (which is substantially similar to section 218 of the Revenue Act of 1921) a partner is taxable individually upon his distributive share of partnership income for the fiscal year ending within his own taxable period; and by section 207 (b) the tax upon such income is a composite tax of the rates of the earlier statute applicable proportionately to the income of the earlier year and the rates of the later statute applicable proportionately to the income of the later year. This statutory plan arises from the difficulties inherent in the nature of a partnership as an aggregation of individuals rather than a legal entity, and the legislative intent to tax the individual upon his share and not the partnership upon the whole. "While it may be, as counsel for the petitioner suggests, that a strict regard for all the legal attributes of partnerships would lead to the conclusion that the income of a partner for his taxable period includes his exact share of partnership income within that period, we have no doubt that, recognizing the utter confusion and impracticability involved in that notion, Congress may adopt a more workable plan. Its broad power of reasonable classification in order to levy a fair and equitable tax capable of ready computation by the taxpayer and efficient administration by the Government breaks through the underbrush of meticulous legal refinements. If each partner’s share for his own taxable period were to be included in his income, it is conceivable that in a large firm the books would need to be ruled down from month to month in order that any partner could ascertain his personal income for his own fiscal or calendar year. To recognize the confusion of this and substitute the simpler plan of regarding the individual’s share of the firm’s fiscal income as his own for the year when the firm’s annual income is ascertained and taxing this at the composite rate of both years, is so clearly reasonable that the technical legal argument must fall before it.

Section 207 (b) prescribes the composite tax in the following language:

If a fiscal year of a partnership begins in one calendar year and ends in another calendar year, and the law applicable to the second calendar year is different from the law applicable to the first calendar year, then (1) the rates for the calendar year during which such fiscal year begins shall apply to an amount of each partner’s share of such partnership net income (determined under the law applicable to such calendar year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year, and (2) the rates for the calendar year during which such fiscal year ends shall apply to an amount of each partner’s share of such partnership net income (determined under the law applicable to such calendar year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year. In such eases the part of such income subject to the rates in effect for the most recent calendar year shall be added to the other income of the taxpayer subject to such rates and the resulting amount shall be placed in the lower brackets of the rate schedule applicable to such year, and the part of such income subject to the rates in effect for the next preceding calendar year shall be placed in the next higher brackets of the rate schedule applicable to such year.

In the ordinary case this is clear — the statutory schedule of the earlier Act is applied to the proportion of the income attributable to the earlier year and the later schedule to the later proportionate income and the two added together constitute the tax on the whole. It is not said that the income shall be regarded as of two years or that the tax is a tax to any extent for the earlier year. See Appeal of Schilling, 3 B. T. A. 936. The income is all income of the later year, the tax upon which is, in recognition of the source of the income, measured pro tanto by the schedule of both years.

With this general plan embodied in the proposed revenue bill of 1924, Congress was brought to a consideration of the surplus in the Treasury and the proposal to reduce the tax on 1923 income. Our attention is called to some of the statements made on the floor of the House indicating that Representative Garner wanted the rates of 1923 changed before the 1923 returns were filed and that, in explaining the plan of the Ways and Means Committee bill as finally adopted, Representative Green said:

Of course, this flat reduction of 25% is not scientific, but it is something that everyone can understand. Even the man who runs may read this provision and know exactly what it means. He knows he is going to get one fourth off his taxes for this year. * * *
It would be absolutely impossible at this time when the bill cannot be passed until after a number of parties have already paid their taxes and already made up their returns; and to put in force the system which is provided in the bill would produce utter chaos. There is only one way of getting at it, and that is the way suggested in the bill, by making a simple, flat reduction all the way through. * * *

The reports both of the Senate Finance Committee and of the House Ways and Means Committee contained the following identical language:

The bill provides for two forms of tax reduction:
(1) Temporary and immediate relief to taxpayers by a 25 per cent reduction of the income tax payable in the year 1924 on 1923 taxable income. The estimated reduction resulting from this provision is as follows:
Fiscal year 1924_$128, 010, 000
Fiscal year 1925_ 104, 740, 000
Total reduction- 232, 750, 000
(2) Permanent relief by the revision of the revenue act of 1921 through the reduction of certain taxes and the repeal of others. * * *

Upon this background, Congress enacted Title XII with the heading “Reduction of Income Tax Payable in 1924.” Section 1200 (a) is as follows:

Any taxpayer making return, for the calendar year 1923, of the taxes imposed by Parts I and II of Title II of the Revenue Act of 1921 shall be entitled to an allowance by credit or refund of 25 per centum of the amount shown as the tax upon his return.

The letter of the statute is quite precise. It provides to a taxpayer making a return for 1923 an allowance by credit or refund of part of the tax shown thereon — not a retroactive reduction by way of recom-putation of the 1923 tax, but a credit or refund of part of the tax assessed or collected upon 1923 returns under the 1921 Act. The tax imposed by the earlier Act remains unaffected in all the details of its computation. An amended return, for example, filed in 1925 for 1923, would contain all the data and arrive at the same tax which was originally required before the 1924 Act was passed. It would be governed by the 1921 Act except as amended by the 1924 Act. But Title XII of the 1924 Act does not amend the 1921 Act. It provides for the first time for the credit or refund of 25 per cent of the “ amount shown as the tax.”

The petitioner urges that the effect of this is to reduce the rates of 1923 and thus that, in making his 1924 return, he complied literally with the requirements of section 207 (b). We think that the language of Title XII is too clear to permit of this construction, and also that the plan of the reduction is contrary to it. The retroactive modification of the 1923 tax by substituting the reduced rates of the 1924 schedule was considered and rejected by Congress. Instead an “ unscientific — simple flat reduction ” to the taxpayer of “ one-fourth off his taxes for this year,” which “the man who runs may read * * * and know exactly what it means,” was adopted so as to prevent “utter chaos.” In the face of this purpose it can not be said that the reduction was in the rates, even although the word rates may in some circumstances be construed to mean something other than the percentages of the schedule, as in the several cases cited by petitioner.

But it is said that the Commissioner’s view singles out these taxpayers from the general taxpaying public and deprives them of a reduction in tax on 1923 income when in all reason the reduction was intended for all. If such discrimination were the effect of the statute we could not disturb it, for as the imposition of taxes themselves need not be wholly free from inequality no more need a distribution of national surplus through a credit or refund be scientifically uniform. But there is no inequality here except accidentally. The basis of distribution is the tax shown by the return for 1923. All similarly situated were similarly entitled. If the 1923 return showed net income attributable to the accumulation of years, such as a gain by sale of capital assets, or if it contained the share of partnership profits for a fiscal year beginning in 1922, or if it showed a net loss and hence no tax and no reduction, the clear provisions of Title XII were nevertheless applicable. We can not stretch a “ reduction of income tax payable in 1924” to cover taxes payable in 1925 in order to produce an alleged uniformity which Congress deliberately rejected.

Judgment will he entered for the Commissioner.


author: Sternhagen:

text:
    Appeal of Isaac Brooks.
    Docket No. 6278.
    Decided October 20, 1926.

      Arnold B. Boar, Esq., for the petitioner.

      F. O. Graves, Esq., for the Commissioner.
    Deficiency of $217.68 income tax for the calendar year 1924.
    FINDINGS OF FACT.
    The petitioner is an individual residing at South Bend, Ind. He was a member of a partnership which.kept its books and made its partnership return on the basis of a fiscal year beginning February 1, 1923, and ending January 31, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $11,888.18, which was his distributive share of the partnership income for its fiscal year. Ten thousand eight hundred and ninety-seven dollars and fifty cents of this amount was his portion of the partnership income attributable to the year 1923.

      In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $10,897.50 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

Sternhagen:

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will he entered for the Commissioner.


author: SteRnpiagen:

text:
    Appeal of M. J. Brooks.
    Docket No. 6279.
    Decided October 20, 1926.

      Arnold R. Boar, Esq., for the petitioner.

      F. O. Graves, Esq., for the Commissioner.
    Deficiency of $311.41 income tax for the calendar year 1924.
    FINDINGS OF FACT.
    The petitioner is an individual residing at South Bend, Ind. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning February 1, 1923, and ending January 31, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $11,888.18, which was his distributive share of the partnership income for its fiscal year. Ten thousand eight hundred and ninety-seven dollars and fifty cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax • the Commissioner applied the rates imposed by the Revenue Act of 1921 to $10,897.50 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

SteRnpiagen:

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will he entered for the Commissioner.


author: SteRnhagen:

text:
    Appeal of Morris Shapero.
    Docket No. 6277.
    Decided October 20, 1926.

      Arnold R. Boar, Esq., for the petitioner.

      F. O. Graves, Esq., for the Commissioner.
    Deficiency of $211.55 income tax for the calendar year 1924,

      FINDINGS OF FACT.
    The petitioner is an individual residing at South Bend, Ind. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning February 1, 1923, and ending January 31, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $11,888.18, which was his distributive share of the partnership income for its fiscal year. Ten thousand eight hundred and ninety-seven dollars and fifty cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $10,891.50 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

SteRnhagen:

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will he entered for the Commissioner.


text:
    Appeal of H. D. Hoffman.
    Docket No. 6351.
    Decided October 20, 1926.

      Arnold R. Baar, Esq., for the petitioner.

      B. G. Simpich, Esq., for the Commissioner.
    Deficiency of $165.36 income tax for the calendar year 1924.
    findings of fact.
    The petitioner is an individual residing at Monroe, Mich. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning May 1, 1923, and ending April 30, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $5,318.32, which was his distributive share of the partnership income for its fiscal year. Three thousand five hundred and seven dollars and sixty cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $3,507.60 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

Sternhagen:

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will be entered for the Gom/missioner.


text:
    Appeal of Boyez Dansard.
    Docket No. 6318.
    Decided October 20, 1926.

      Arnold R. Baar, Esq., for the petitioner.

      B. G. Simpich, Esq., for the Commissioner.
    Deficiency of $19.73 income tax for the calendar year 1924.
    FINDINGS OF FACT.
    The petitioner is an individual residing at Monroe, Mich. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning May 1, 1923, and ending April 30, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $1,344.58, which was his distributive share of the partnership income for its fiscal year. Eight hundred and seventy-six dollars and ninety cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $876.90 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

SteRnhagen:

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

■Judgment will be entered for the Commissioner.


author: Sternhagen :

text:
    Appeal of Charles B. Rose.
    Docket No. 10270.
    Decided October 20, 1926.

      Arnold R. Baar, Esq., for the petitioner.

      B. G. Simpich, Esq., for the Commissioner.
    Deficiency of $60.17 income tax for the calendar year 1924.

      BINDINGS OF FACT.
    The petitioner is an individual residing at Monroe, Mich. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning May 1, 1923, and ending April 30, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $2,689.16, which was his distributive share of the partnership income for its fiscal year. One thousand seven hundred and fifty-three dollars and eighty cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $1,753.80 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

Sternhagen :

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will be entered for the Gommissioner.


text:
    Appeal of Willis Baldwin.
    Docket No. 6317.
    Decided October 20, 1926.

      Arnold R. Baar, Esq., for the petitioner.

      B. G. Simpich, Esq., for the Commissioner.
    Deficiency of $148.03 income tax for the calendar year 1924.
    FINDINGS OF FACT.
    The petitioner is an individual residing at Monroe, Mich. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning May 1,1923, and ending April 30, 1924.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of. $5,378.32, which was his distributive share of the partnership income for the fiscal year. Three thousand five hundred and seven dollars and sixty cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $3,507.60 without making an allowance of 25 per cent under section 1200 of the Revehue Act of 1924.
   OPINION.

Sternhagen :

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will be entered for the Commissioner.


text:
    Appeal of Thornton Dixon.
    Docket No. 6319.
    Decided October 20, 1926.

      Arnold R. Baar, Esq., for the petitioner.

      B. G. Simpioh, Esq., for the Commissioner.
    Deficiency of $183.77 income tax for the calendar year 1924.
    FINDINGS OF FACT.
    The petitioner is an individual residing at Monroe, Mich. He was a member of a partnership which kept its books and made its partnership return on the basis of a fiscal year beginning May 1, 1923, and ending April 30, 1924.
    .The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $5,378.32, which was his distributive share of the partnership income for its fiscal year. Three thousand five hundred and seven dollars and sixty cents of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $3,507.60 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

Sternhagen :

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will be entered for the Commissioner.


author: Steenhagen :

text:
    Appeal of Zalmon G. Simmons.
    Docket No. 10412.
    Decided October 20, 1926.

      Daniel Burhe, Esq., for the petitioner.

      F. O. Graves, Esq., for the Commissioner.
    Deficiency of $56,129.95 income tax for the calendar year 1924.

      FINDINGS OF FACT.
    The petitioner resides in Greenwich, Conn. He was a member of the partnership known as Z. G. Simmons from April 1,1923, the date of its formation.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $387,930.29, which was the portion of his distributive share of the partnership income attributable to the year 1923. The fiscal period of the partnership was from April 1, 1923, to March 31, 1924.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $387,930.29 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

Steenhagen :

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will be entered for the Commissioner.


author: SteRNíiagen:

text:
    Appeal of Charles L. Woody.
    Docket No. 9585.
    Decided October 20, 1926.

      Raymond M. White, Esq., for the petitioner.

      D. D. Shepard, Esq., for the Commissioner.
    Deficiency of $630.38 income tax for the calendar year 1924.
    FINDINGS OF FACT.
    The petitioner is an individual residing in Brooklyn, N. Y. He was a member of the partnership of Merrill, Rogers, Gilford & Woody from May 1,1923, the date of its formation.
    The petitioner filed an individual income-tax return for the calendar year 1924, including therein the amount of $24,000, which was his distributive share of the partnership income for its fiscal year of May 1, 1923, to April 30, 1924. Sixteen thousand dollar? of this amount was his portion of the partnership income attributable to the year 1923.
    In computing the tax the Commissioner applied the rates imposed by the Revenue Act of 1921 to $16,000 without making an allowance of 25 per cent under section 1200 of the Revenue Act of 1924.
   OPINION.

SteRNíiagen:

The decision of the question involved in this proceeding is governed by Appeal of Charles Colip, 5 B. T. A. 123.

Judgment will he entered for the Commissioner.